Principle of Financial Accounting Assignment - (Doc)
Added on 2020-10-05
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FINANCIAL ACCOUNTING PRINCIPLES
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................3MAIN BODY...................................................................................................................................3Question:1 Define financial accounting?...............................................................................3Question 2 Regulation relating to financial accounting.........................................................3Question 3 Rules and principles of accounting......................................................................4Question 4 accounting conventions........................................................................................5CLIENT 1........................................................................................................................................6a..............................................................................................................................................6b..............................................................................................................................................7c..............................................................................................................................................8CLIENT 2........................................................................................................................................9a..............................................................................................................................................9b..............................................................................................................................................9CLIENT 3......................................................................................................................................11a............................................................................................................................................11b............................................................................................................................................12c............................................................................................................................................17CLIENT 5......................................................................................................................................19a............................................................................................................................................19CLIENT 6......................................................................................................................................21CONCLUSION..............................................................................................................................23REFERENCES..............................................................................................................................25APPENDIX....................................................................................................................................271. Ledger...............................................................................................................................27
INTRODUCTIONFinancial accounting principles are the general guidelines and rules of accounting. Theseprinciples give the basis on which the company has to prepare their financial statements. Thepresent report will help to understand in recording of the business transaction using doubleentry book-keeping. The report will presents the final account for a sole trader, partnership orlimited companies. The report presents the methods of depreciation and hoe to apply themethods with proper example. The report presents the purpose and need of preparing BankReconciliation Statements by preparing a monthly statement. The report also highlights aboutthe control account and its importance. The files also gives the overview about the suspenseaccount and its purpose and the difference between suspense account and clearing account. Thereport presents the different financial statements to understand the double entry book keeping.MAIN BODYQuestion:1 Define financial accounting?Financial accounting is a specialized form of accounting which keep a track on company'sfinancial transactions. It is a field of accounting that treat money for measuring economicperformance. Financial accounting is the process of recording, summarising, analysing andreporting financial transaction related to business over a period. The transaction recorded arethen shown into a financial statement which consists of balance sheet, income statement andcash flow statement which are available for public (Mellemvik and Badshah, 2017). People whoare interested in receiving financial statement are stockholders, banks, employees, suppliers etc.The standard framework is defined in GAAP (Generally Accepted Accounting Principles).GAAP includes standards, conventions, and rules that are followed by an accountant inrecording, summarising and preparation of financial accounts. Three components of financialstatements are – cash flow statement, statement of profit and loss and balance sheet.Question 2 Regulation relating to financial accountingThere is a need for regulatory framework for recording financial transactions. So that thewants of users are met with material information. The information provided is consistent andcomparable. It helps in regulation of directors and company behaviour towards investors. Ithelps the user in taking financial decisions. The accounting framework is made up of 3 theaccounting standard set by IASB, company law and the conceptual framework.
Conceptual framework helps in preparation of concepts for financial statements. It helpsto develop International Financial Reporting Standards and also it deals with theobjective of financial reporting.Company law rules are recorded on Company Law 2013.IFRS (International Financial Reporting Standards) are planned as global languagecommonly used by businesses to handle affairs so that accounts are easily handled andcomparable. IFRS are important framework for those companies who are dealing invarious other countries (Khan, 2015). They have successfully replaced many accountingstandards. The main purpose of accountant is to record, analyse and summarise thebooks of accounts which are useful internally and externally.The another framework is of US GAAP which are the generally accepted accountingprinciples which is a standard framework of recording the transaction on its basis. GAAPincludes various rules, principles, conventions and concepts which are to be followed byaccountant while recording and preparation of financial statements (Jerry and et.al.,2018). The GAAP is used in USA to prepare financial statements.Question 3 Rules and principles of accountingAccounting principles are based on various concepts and convention have evolved duringthe years by various accountants. Principles are the general laws and rules which are generallyaccepted accounting principles. Business entity principleAccording to this principle, business and its owner are considered as separate in the eyeof law. This concept helps to separate the affairs of business from that of its owners. Thisconcept states that business is different from its sole proprietors.Money measurement principleOnly those transactions which can be expressed in financial terms are to be recorded inthe books of accounts. Only monetary transactions are to be included in the books of accounts. Itcannot record any qualitative transactions (Weygandt, Kimmel and Kieso, 2015).Dual aspect principleevery transaction recorded in the books of accounts have a dual effect. For every debit there is acredit of equal amount. Accounting is based on double entry system. The basic equation ofaccounting is Assets=liabilities + capital
Going concernThis principle states that company is going to continue for foreseeable years and willcome to end if all the members of the company are deceased. The company has eternal life andwill continue for many years with no such end date.Cost principleThe transactions are recorded on the basis of price which means the price is paid forthem. This principle applies to fixed assets of the company which states that fixed assets are tobe recorded on the basis of their original price only. The price can be reduced by chargingdepreciation.Accounting year principleFinancial statement relates to specific time period. Income statement have a start dateand end date and balance sheets are recorded as on certain date. Every business uses a timeperiod to record their transactions such as accounting year or calendar year (Miller-Nobles,Mattison and Matsumura, 2016).Matching principleThe company uses accrual basis of accounting for recording which means that expensesshould match the revenue. For every entry of revenue in accounting their should be an entry ofexpenses, that record correct profit and lossRealization principleProfits and revenue are acknowledged as and when the product or service has been sold.Any advance fee is not considered as profit until the actual delivery of goods and services isdone to buyer.Question 4 accounting conventionsConvention of consistencyThis convention states that the company should follow only one method for recording allthe events happened. Once a method is being adopted by the company then they should not keepon changing the method but can change only when it is important or law says it. Frequentchanges in the pattern of recording may cause difficulty in the comparison of two statements ofaccounting because it will show different profits/ losses (Rodrigues, Carqueja and Ferreira,2016). The consistency is related to time only and not any other consistency. When there is any
change in the policies of accounting, then company is required to disclose all the facts andreasons for the change in the method of recoding any event or transaction.Convention of material disclosureMateriality means importance. For a transaction to be recorded in a financial statement it isrequired to see whether it is important to disclose or not. Firms may not record and reveal thematters which is minute but firms must disclose every single material fact and figure which isrequired to take financial decision (Ijiri, 2014). There should be materiality of accounts andinformation. Even a transaction of small amount has to be recorded if it is of small amount as itmat influence a person in decision making. They are the most important convention which helpsin decision making.CLIENT 1a.
b.Mentioned in appendix.
c.
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