Financial Accounting Assignment - Raintree Ltd

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
1

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,
2

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
3

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.
4

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:
5