Financial Reporting and UK Regulation

This assignment delves into the world of financial reporting, focusing on the preparation of Cash Flow Statements and Statements of Financial Position. It emphasizes the importance of these statements for stakeholders and highlights the specific regulations governing financial reporting in the United Kingdom, as outlined by the Financial Reporting Council (FRC). The text also touches upon accounting principles and their impact on organizational success.

Financial Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
A. Reporting accounting regulations to the firm........................................................................1
Description of financial accounting.............................................................................................1
Various Regulations related to financial accounting...................................................................2
Various accounting rules and principles......................................................................................3
Concepts related to consistency and material disclosures...........................................................4
CLIENT 1........................................................................................................................................5
1. Draft of Journal for Client 1 as on May 1st 2017\....................................................................5
2. Preparation of ledger accounts for journal entries...................................................................7
3. Preparation of trial balance for Client 1................................................................................17
CLIENT 2......................................................................................................................................17
A. Computation of Profit and Loss Account for the year ending December 31st 2017.............17
B. Computation of balance Sheet for the year ending December 31st 2017..............................18
CLIENT 3......................................................................................................................................20
A. Computation of Profit and Loss Account for Rain Tree Ltd. for the year ending September
30th 2017.....................................................................................................................................20
B. Ascertaining financial position of Raintree Ltd....................................................................21
C. Analysing various concepts and principles of accounting....................................................26
D. Analysing the significance of measuring and representing depreciation.............................27
CLIENT 4......................................................................................................................................27
A. Assessment of aim for preparing bank statement.................................................................27
B. Identification of reasons for preparing bank statements.......................................................28
C. Preparation of Client’s Cash Book........................................................................................28
CLIENT 5......................................................................................................................................29
A. Formation of Sales Ledger Control and Purchase ledger Control of Henderson for the year
2017...........................................................................................................................................29
B. Defining Control Accounts...................................................................................................30
CLIENT 6......................................................................................................................................30
A. Analysis of Suspense Accounts and its characteristics.........................................................30
B. Preparation of trial balance...................................................................................................31

C. Conducting Journal Entries...................................................................................................31
D. Assessment of difference between Clearing Account and Suspense Account.....................32
CONCLUSION..............................................................................................................................32
REFERENCES..............................................................................................................................33

INTRODUCTION
Financial management helps in ensuring that proper concepts and principles are being
followed by the organization while preparing presentation of various books of accounts. The
report is responsible for making comprehensive discussion regarding various accounting
principles that have been issued by GAAP. It will also help in spotting depreciation methods that
can be used by the companies while preparing their financial statements. The report then
discusses regarding trial balance and importance of maintain Bank reconciliation statements for
the organization so as to find out difference between pass book and cash book. In the end,
control account, clearing account and suspense account will be discussed in the report.
A. Reporting accounting regulations to the firm
To
Line manager
From: Junior Accountant
Subject: Analysing terminologies related to accounting and making the management aware of
various accounting principles
Sir
In order to improve the overall functioning of organization, it is important to prepare an
assessment of the rules and regulations that are required to be followed by management for its
effective operations. It helps in bringing the overall improvement in business transactions in
such a manner that it can help in improving overall transactional activities of business. There
are various accounting techniques that can be adopted by the managers that can further play an
important role in budgeting, costing and forecasting various operational tasks in an
organizational set up.
Description of financial accounting
Financial accounting is one of the most important fields of accounting that is concerned
towards preparation of summarized books of accounting that can further be used for analysis
and reporting purposes. It also helps in disclosing various financial transactions of company.
These financial statements can be utilized for public consumption as well. It is generally
presented in the format of Profit and Loss Account, Statement of Stockholder’s equity Cash
Flow Statement and Statement of financial position. It plays a substantial role in analysing the
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performance of operations of the company over a specific period of time. The main objective
behind disclosure of financial information is that it helps in giving information regarding
valuation of company that can help investors to decide that whether they want to invest in a
particular company or not (Brewer, 2013). Hence, it can be stated that financial accounting
helps in taking various investment decisions. Financial statements are then circulated to all the
stakeholders so that they can be made aware regarding performance of company for a
particular period.
Financial accounting is not only beneficial for outsiders to make investment decisions,
but it also plays a substantial role for insiders, that is management, so as to take decisions for
company. It helps in evaluating entity’s financial performance which are important to not to be
underestimated that can lead the management to make wrong decisions and thereby, leading
organization to generate losses.
Various Regulations related to financial accounting
There are various rules and regulations that are required to be followed by the
organization as it helps in providing legal framework to overall accounting operations. UK has
its own government regulations called as Financial Reporting Council (FRC). It helps in
disclosing various methods of financial reporting that are required to be followed by the
organization for its effective operations and thereby, presenting true and fair view of financial
stakeholders to shareholders. Some other regulations that have been accepted as universal
framework are mentioned as under:
 International Financial Reporting Standards (IFRS): Standards that are being included
in IFRS helps in providing global language for the business so that companies can follow
similar method of financial reporting that is understandable and even comparable in
international boundaries. It helps in initiating proper disclosure of facts and figures which
can help in attracting a large number of investors towards it, based on its overall financial
condition. It helps in initiating proper treatment of cost, expenses and other operational
activities of the business (Dutta and Patatoukas, 2016).
 International Accounting Standards (IAS): There is specific International Accounting
Standards Board that is responsible to guide regarding various aspects of financial
reporting. It helps in preparing an assessment that how particular types of transactions
must be reported in financial statements. Main aim of IASB is to bring transparency,
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efficiency and accountability in the worldwide financial reporting. Decisions that are taken
after considering financial statements, that have been prepared by IASC, are comparatively
more effective then through any other standards. It helps in bringing overall long term
financial stability to the organization (Pratt, 2016). Implementing the same as governance
process also proves to be quite effective for decision making aspects of organization.
Various accounting rules and principles
There are various accounting rules and principles which are mandatory to be followed
by the organization for its long-term success. Some of the Generally Accepted Accounting
Principles (GAAP) are mentioned as below:
 Going Concern principle: It is required to be assumed by any type of organization that it
will exist forever. All the aims, objectives and commitment decided by the entity must
ensure that it is not going to be liquidated in near future and will go on forever. Hence, all
actions and steps taken by company will ensure that it will be able to gain adequate
amount of growth and all facts as well as figures that are being disclosed in financial
statements will be able to serve requirements business in near future. Full Disclosure principle: It is the duty of management of any organization to ensure that
all the important information, that can alter the decisions of stakeholders, has been
presented to them (Zeff, 2016). It must be initiated in such a manner that full disclosure
about the company has been initiated. It is due to this reason, the information that has not
been disclosed in the statements is then shared in form of footnotes, endnotes and working
notes. It is important for the management to disclose methods used and assumptions made
with respect to financial statements of the company. Materiality: It is a substantial principle of accounting which helps in ensuring that all the
material information must be disclosed to the stakeholders in such a manner that effective
decisions regarding investments can be made by them. It also helps in disclosing
authenticated sources. It also helps in disclosing the perspectives that is relevant material
facts to the ultimate stakeholders (Wong and Joshi, 2015). Matching Principle: Matching concept of accounting practice is related to recognizing
revenues and other related expenses of the organization within specific accounting period.
It helps in preparation of report revenues which helps in jotting down the expenses which
has been incurred by the firm in specific period. The main aim of this matching concept is
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to avoid any type of misstating mistakes with respect to earning which there by can affect
overall results as well. Economic identity assumption: It is one of the substantial assumption that can be noticed
in the principles issued in GAAP. Almost every organization tend to carry certain
economic identity. These economic entities can be in the form of companies, hospitals,
federal agencies and municipalities. It also helps in informing regarding decisions of the
organization. Moreover, it must also be ensuring that each organization is separate from
one another and hence accounting purposes of the same may also have substantial
difference in it. Monetary Unit Assumption: These are certain business transactions which have direct
relationship to the business. However, it is important that all the transactions that have
been initiated are in valid currency format. For instance, conducting transactions in dollar,
which is accepted worldwide and have a stable exchange rate can help in representing the
transactions in monetary unit (Huang and Vlady, 2012).
Concepts related to consistency and material disclosures
There are various concepts and conventions that are related to financial accounting. Out of all,
the most important accounting concepts are, consistency and material disclosure. The concepts
can be understood in the following manner:
Material disclosure: It is mandatory for the management to disclose all the financial accounts
related information in its financial statement so that it helps in presenting true and fair view of
the organization. All the operations that are directly or indirectly related to business can help
in finding out profits for the organization which is trusted enough for decision making aspects.
It helps in keeping and presenting the records of profits and loss in a well-defined manner.
Consistency: There are various consistent related trade practices that are required to be
followed by the organization. It is important that all the methods that are taken into
consideration while calculating profits must be consistent and no changes in the methods must
be brought without communicating the same to people (Guthrie and Pang, 2013). It also helps
in making calculations of profits specific enough.
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CLIENT 1
The case discusses regarding transactions that have been made by Alexander which has
represented different balances of financials given in the form of trial balance, Journal entries and
other ledger accounts for each of the financials being performed.
1. Draft of Journal for Client 1 as on May 1st 2017\
Journal entries helps in disclosing regarding the transactions which results in further
preparation of financial statements, that are, income statement and balance sheet. There are
various transactions that actually took place in that period. The tracking and recording of data
have prove to be quite effective in case of preparation of transaction summary, while initiating
preparation of Journals. Hence, Journal of Alexander can be prepared in the following manner:
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2. Preparation of ledger accounts for journal entries
When Journal have already been prepared by the individual, it is substantial that
preparation of ledger is initiated. It can further help in preparing trail balance for the
organization. Ledger is one of the essential aspect that helps in analysing the balance of each
account. For instance, balance of Purchases account helps in analysing the amount for which
total purchases have been made by the organization in stipulated time period (Chiwamit, Modell
and Scapens, 2017). These entries contribute majorly while initiating decision making aspects in
the organization. It also helps in giving overall view to the operational aspects of the
organization which ultimately helps in preparing better analysis aspects for the overall business. .
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Nominal Ledger
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Real Ledger Accounts
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3. Preparation of trial balance for Client 1
Trial balance is the statement that contains all debit and credit balance of the company.
Any disagreement in credit and debit side of the balance indicates error that has been performed
while preparing these accounts (Goddard and Simm, 2017). Trial Balance is generally prepared
by the organization periodically, or generally by the end of the year. The next step of preparation
of trial balance is preparing statement of profit and loss and statement of financial position. Trial
balance for Alexander have been prepared in the following manner:
Interpretation: Analysing and interpreting the above trial balance for Alexander, there are
various transactions that are related to purchases and sales have been compiled into a total
balance of both the accounts. Trial balance also indicate that he has a balance of 29600 in bank
with a liquid cash balance of 1970 in hand. He has also indulged in purchase of van amounted to
28500. It can be assessed from the same is Purchase value is quite low in comparison to the sales
that has been made the him in the specific period. In the end, the debit and credit balance have
been matched with the amount of 51840. It is the effective method of comparing various debit
and credit balances that have been initiated by Alexander in May 2017.
CLIENT 2
A. Computation of Profit and Loss Account for the year ending December 31st 2017
The Client 2 is Peter Piper whose balances of various accounts have been provided for the
year ending December 31st 2017. It helps in providing deeper analysis of overall financial
statements. It helps in disclosing financial position and performance stability of the company in a
manner that it can present true and fair view of the business.
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B. Computation of balance Sheet for the year ending December 31st 2017
Financial position is considered to be one of the most important aspect of the business as it
helps in indicating how the business is actually performing. Based on the transactions that are
included in profit and loss account and ledger, entries of balance sheet are made (Jermias, 2017).
There are certain transactions that are quite relevant to be taken carte of the management while
indulging in preparation of statement of Financial Position. Balance Sheet helps in indicating
amount of growth and operations of the business. Total asset must match with total equities and
liabilities. Statement of Financial Position of Peter Piper can be prepared in the following
manner:
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CLIENT 3
Raintree Ltd have provided trial balance based on which profit and loss account for the
client will be prepared. It helps in presenting various important aspects of the organization, in the
form of purchases, sales and other expenses. The account will help in calculating net profit for
the business for the particular period, for which trial balance has been prepared. The results are
directly linked to operations of the business.
A. Computation of Profit and Loss Account for Rain Tree Ltd. for the year ending September
30th 2017
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B. Ascertaining financial position of Raintree Ltd
Balance Sheet is an important account that is required t be prepared by the organization so
as to give a glimpse of operations and financial position of the organization to its stakeholders. It
helps in making investment related decisions for the stakeholders in such a manner that
maximum amount of profits can be gained by them in an appropriate manner. Management also
make use of the same so as to take any type of strategic decision making for the organization.
Hence, Statement of Financial Position for Rain tree Ltd can be prepared in the following
manner:
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C. Analysing various concepts and principles of accounting
It is mandatory for the organizations to opt for various concepts and principles of
accounting while indulging in recording of transactions. It is important that perfect as well as
authenticated format of recording financial statements is used in a manner that it can have
positive as well as true and fair representation of financial position of the company in front of its
stakeholders (Srinivasa, Kaura and Gilman, 2017). The main element in financial presentation
must be that it is understandable in nature. It also plays an important role in attracting large
number of investors towards the company. The two main concepts of accounting are discussed as
under:
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 Prudence: The concept is quite significant for the business, which states that do not over
estimate the overall amount of revenue and do not underestimate the amount of expenses. In
case of assets and liabilities as well, be conservative while recording assets. However, do not
underestimate the amount of liabilities. The results must not be conservatively stated in the
Books of Accounts.
 Consistency: Consistency is another accounting principle where if one method is adopted by
the organization then the same must be used in upcoming financial periods as well.
D. Analysing the significance of measuring and representing depreciation
Depreciation helps in assessing the fallen value of asset which may occur due to its usage. It
is actually the devaluation that is being initiated in comparison to the time when the asset was
actually purchased. There are basically two methods of depreciation that are actually used by
management of the company. These are: Written Down Value method: This method of depreciation is also known as Reducing
balancing method or Diminishing balancing method. It is calculated at the fix percentage on
decreasing Book value, each year (Wei and Xima, 2017). Decreased value is calculated by
subtracting depreciation from Book Value. The overall value of depreciation tends to
decrease with decreasing written down value of the asset. Straight Line method: It is another method for initiating calculation of depreciation value
which is charged in overall useful value of the asset. The amount of depreciation remains
fixed and is deducted from the reduced book value of the asset. Depreciation value is
calculated by deducting salvage value from total value of asset, divided by number of useful
years.
It totally depends on the company that it wants to attept which method of depreciation.
However, the method cannot be changes unless and until it has specific reason top
perform the same and special resolution have been passed by the organization for the same.
Hence, it can be stated that change in amount of depreciation can bring overall changes in
statement of balance sheet and statement of profit and loss account as well (Control Account,
2018).
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CLIENT 4
A. Assessment of aim for preparing bank statement
There is a substantial requirement of preparing bank statement. The main objective of its
preparation is to analyse different transactions which have been made with the help of bank. It
may be in profit or expense format. It also helps in giving clear understanding of flow of money
in such a manner that it helps in representing overall liquidity of the organization. It also plays an
important role in preparing exact disclosure of information based on which decision-making
aspects can also be initiated in the business as well.
B. Identification of reasons for preparing bank statements
It is important for the organization to indulge in preparation of bank statements and
recording data that has helps in ensuring that what all transactions have been conducted which
has involvement of bank. There are various transactions that can be analysed by preparing
banking records. It is inclusive of interest charged by the bank, amount of money deposited,
number of checks submitted, dishonoured checks etc (Sales Ledger Control account, 2018).
Further, adjustments can be made in bank’s pass book or entries being recorded by the
organization so as to match the value.
C. Preparation of Client’s Cash Book
Bank Reconciliation Statement
Cash Book
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CLIENT 5
A. Formation of Sales Ledger Control and Purchase ledger Control of Henderson for the year
2017
Purchase Ledger Control
Sales Ledger Control
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B. Defining Control Accounts
Control account is an account that is used to record the balances on numerous subsidiary
accounts which also helps in providing cross checks to them. It is prepared most commonly used
for accounts payable and accounts receivables. It helps in summarizing these accounts with
detailed information about various aspects of receivables and payables amount. It is important
that the amount of balances match in the end. Other wise tit is possible that there is some issue in
the journal entry that has been made.
It is most commonly used by large organization where there are number of transactions that
are initiated in accounts receivable and accounts payable aspects. It also helps in ensuring that
entries are correctly passed when transaction value is high. However, in case of small companies,
it can analyse the transactions through the general ledger and hence do not require any type of
subsidiary ledger that is linked to control account.
CLIENT 6
A. Analysis of Suspense Accounts and its characteristics
A suspense account is the one in a general ledger which stores any transactions temporarily
for those who are considered as uncertain for the purpose of keeping a record of it. It can act as a
repository for several monitory transactions which includes cash receipts, journal entries and
cash disbursements. In case of not having any specification regarding any account, it might be
deleted or frozen therefore the transactions shall be diverted into suspense account. It is preferred
because the original account might not get determined by an accountant at the time of recording
the particular transaction. When he determines the complete amount then suspense account can
be converted into proper one. An entry can be debit or a credit. It can be used when there occurs
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a difference in debit and credit side of trial balance or closing. It acts as a holding area until the
reason for specific error might not get detected and also corrected.
The characteristics are discussed as below:
 They are for temporary usage.
 It helps in controlling risk related to accounts.
 They are made for short term period
 Provides assistance for error findings and corrections along with that clearing doubts.
B. Preparation of trial balance
It is particularly the closing balance of various accounts based on which transactions have
been initiated by the organization. It is the balance that has been received in ledger at the closing
date. It is generally prepared at the end of the year. It is important to note that the total of
balances of credit and debit side must be similar as it represents that the amount that has been
debited are also been credited in the account.
It can be interpreted from the above Trial balance that the total of credit balance as well
as debit balance is 2490. Further, the amount of sales is more than that of purchases. However,
capital balance happens to be 710.
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C. Conducting Journal Entries
D. Assessment of difference between Clearing Account and Suspense Account
Suspense accounts and clearing accounts are considered to be basic accounting tools which
are designed for preventing certain problems such as failure in keeping accurate records for
transactions. There are some difference between them which are discussed as below:
Temporary accounts
Both are temporary accounts but clearing account is used from holding transactions for
posting it later and ensuring related information to be recorded correctly and also completely
while a suspense account is used for doubtful cases where there is a chance for occurring any
problem. It provides facilitates to record certain amount until the whole problem is fixed.
Handling uncertainties
Suspense accounts are known as general ledger accounts which leads to hold certain
transactions in the case of any ambiguity while clearing accounts are not made for handling any
kind of uncertainties, it contains those transactions which an accounts handler is sure about and
needed to add it up later.
Using Clearing accounts.
Accountants use the clear accounts for recording transactions at temporary basis to shift it
to permanent accounts afterwards. It might be used for those accounts which are receivable until
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the payment of a customer arrives. It serves as a guidance to keep the track of any ongoing
expenses or incomes while suspense accounts do not used for any of these purposes.
CONCLUSION
It can be concluded from the above report that, financial statements are generally presented
with the help of Profit and Loss Account, Statement of Stockholder’s equity Cash Flow
Statement and Statement of financial position. These statements are then circulated to all the
stakeholders so that they can be made aware regarding performance of the company for a
particular period. UK have its own government regulation, called as Financial Reporting Council
(FRC). There are various accounting rules and principles which is mandatory to be followed by
the organization for its long-term success.
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REFERENCES
Books and Journals
Brewer, W. F., 2013. The nature of narrative suspense and the problem of rereading.
In Suspense (pp. 117-138). Routledge.
Chiwamit, P., Modell, S. and Scapens, R. W., 2017. Regulation and adaptation of management
accounting innovations: The case of economic value added in Thai state-owned
enterprises. Management Accounting Research. 37. pp.30-48.
Dutta, S. and Patatoukas, P. N., 2016. Identifying Conditional Conservatism in Financial
Accounting Data: Theory and Evidence. The Accounting Review.
Goddard, A. and Simm, A., 2017. Management accounting, performance measurement and
strategy in English local authorities. Public Money & Management. 37(4). pp.261-268.
Guthrie, J., and Pang, T. T., 2013. Disclosure of Goodwill Impairment under AASB 136 from
2005–2010. Australian Accounting Review. 23(3). 216-231.
Huang, A., and Vlady, S., 2012. The accounting and economic effects of currency translation
standards: AASB 1012 vs. AASB 121. Journal of Modern Accounting and
Auditing. 8(11). 1601.
Jermias, J., 2017. Development of management accounting practices in Indonesia. The
Routledge Handbook of Accounting in Asia, p.104.
Pratt, J., 2016. Financial accounting in an economic context. John Wiley & Sons.
Srinivasa, D., Kaura, A. and Gilman, R., 2017. A Systematic Review and Variance Analysis:
Does Plane of Dissection Affect Nerve Injury Complication Rates in Various
Rhytidectomy Techniques?. Plastic and Reconstructive Surgery Global Open. 5(9 Suppl).
Wei, W. E. I. and Xima, Y. U. E., 2017. Research on Accunting Development Cost Per Graduate
Student in University. Canadian Social Science. 13(1). pp.11-15.
Wong, K., and Joshi, M., 2015. The impact of lease capitalisation on financial statements and
key ratios: Evidence from Australia. Australasian Accounting Business & Finance
Journal. 9(3). 27.
Zeff, S. A., 2016. Forging accounting principles in five countries: A history and an analysis of
trends. Routledge.
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Online
Control Account. 2018. [Online]. Available through
:<https://www.accountingcoach.com/blog/accounts-receivable-control-account-subsidiary-
ledger>.
Sales Ledger Control account. 2018. [Online]. Available through
:<https://www.accountingcapital.com/books-and-accounts/sales-ledger-control-and-
purchase-ledger-control/>.
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