Financial Accounting: Purpose, Scope, and Stakeholders

This article discusses the purpose and scope of financial accounting in business, including its impact on financial statements and the stakeholders involved. It also provides case studies and examples to illustrate the importance of financial accounting.

Financial Accounting
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Contents
Business Report.............................................................................................................................................2
Answer to Question 1:...................................................................................................................................2
Answer to question 2:...................................................................................................................................4
Client 1..........................................................................................................................................................5
Client 2........................................................................................................................................................21
Client 3........................................................................................................................................................26
Client 4........................................................................................................................................................28
Client 5........................................................................................................................................................29
References...................................................................................................................................................32
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Introduction:
Financial accounting can be understood to be one of the highly essential aspect which
enables business efficacy on longer run formed on functional domains and enable business
paradigms to be framed informatively. The report will be discussing purpose and scope of
financial accounting on business grounds for enlarged vision oriented targets, higher scale goals
and development among various stakeholders by analysing its impact on financial accounting
aspects. The study will be analysing various case studies within use of financial accounting
variably for enlarged functional metrics to develop competent focus on work goals and
determining new competent synergy on new strengths widely. The research will be further
bringing forward larger scale efficacy within report based on financial accounting horizons for
analysing financial accounting impacts and also developing competent diverge determinants on
wider diverse goals (Chandra, 2020).
Financial Accounting
Financial accounting can be understood as the procedure of recording, summarizing and
reporting company business transactions informatively through financial statements where there
are income statements, balance sheets and cash flow statement of retained earnings. The primary
responsibility is to generate varied financial statements and various related disclosures that fairly
reflect financial results and conditions within company performance horizons. Primary
beneficiary are the outsiders, investors, creditors and lenders which are widely enabled to gain
information form various aspects of financial accounting parameters. The financial accounting is
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widely analysed to be competent and widely essential aspects within business horizons for
building functional domains and new strength parameters on new domains. It can be also
analysed that financial accounting brings on keen growth within companies business scale
development, higher innovation and also form stronger range of profound efficacy among
corporate companies commercial targets. Financial accounting up skills new profound progression
within new horizons and also enhance business scale productivity on keen targets profoundly for
larger scale revenue profits and goodwill among shareholders. The financial accounting keenly
improves keen innovation, creative domain strengths and also enhance new determining pace
among wider arenas profoundly.
Purpose of financial accounting
The purpose of financial accounting has high role to enhance functional approach within
shareholders and stakeholders for larger scale efficacy operations for keen domains goals, also to
develop new quest arenas and also to build stronger revenue targets widely and goodwill arenas.
The functional approach and purpose of financial accounting are control of financial policy,
preparation of budgets and cost control and evaluation of employees performance for
strengthening the best prevention of errors and frauds. Financial accounting enables business
revenue targets to be set strategically for future growth paradigms and also develop stronger work
domains on new horizons (Madura, 2020). The financial accounting also restores functional
primitive paradigms to be monitored on informative functional pace scenarios where there are
higher scale profound new work goals and also creatively build new strength structure. It can be
also analysed that financial accounting yield active diversity metrics within keen aspects, also
enables to build benchmarks of work growth avenues profoundly, develop strategic goal diversity
and also promote financial avenues and longer scale goodwill. The eternal and internal
shareholders are profoundly interrelated for analysing financial accounting aspects for stronger
range of revenue targets to be formed on and also for enhanced new domains of cultivated
strengths and new efficacy standards which develops competent diversity on resources structural
usage. It also enables businesses to draw financial work growth goals and competitive business
avenues for technical strengths on longer run.
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Stakeholders for Financial Accounting
 Employees: The employees need to be addressed financial accounting where they are able
to be motivated further for bringing on larger scale growth avenues for building
informative growth on larger avenues. Employees are the most integral part within
financial accounting for bringing on larger profitable work goals, develop competent
performance avenues and also harness creative force further.
 Management (managers): Managers within company need financial accounting to
enhance working targets within revenue aspects, enlarge work goals productively and also
enhance vision among larger domains. Financial accounting determines future scope for
creative strength diversity and also enable competencies to draw larger scale innovation
widely .
 Government: Government use financial accounting for developing analysis within
functional avenues for enlarged domains creative strengthening, also to deliver higher
creative goal to analyse business strengths.
 Suppliers: Suppliers also form stronger role to develop enlarged work growth base and
confident functional base profoundly on informative aspects for larger domains strength
and best services. Suppliers often look at financial statements to develop ideas actively on
companies services where they are important external stakeholders for company growth
paradigms to bring on larger scale functional scope ((Shapiro and Hanouna, 2019).
 Customers: The customers are important external stakeholders highly integral for
companies to enhance its business scope among work growth domains and also to enhance
functional approach for larger vision oriented sale efficacy. Financial statements are often
a gateway for customers to look upon functional details of company essential work
growth targets and also productively bringing on important information profoundly.
 Lenders (creditors): The creditors also functionally focus on bringing wider view for
lending loans in companies before lending loans and variably forming focus on work
domains with high profound efficacy aspects. Lenders also use financial accounting
reports as benchmark for company revenue details and analysing varied new scope
measures for gaining functional domains targets actively.
Public: External shareholders such as public have stronger focus and need of financial accounting
reports where it enables business scope to be developed on significant aspects and also wider scale
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domains. Public often look on financial statements of companies for gaining functional records
and also for further scale investments and also enable larger scale efficacy to evolve on new scope
arenas. Companies use financial accounting to productively use reports among public, for
generating new innovation goals and also enhance new domains informatively within varied
targets on enlarge metrics for keen strengths and working determinants of larger scope horizons
(Paramasivan and Subramanian, 2020).
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Client 1
Double Entry System(explain what is double entry)
Double enter is a term in accountancy or fundamental concept used in bookkeeping that specify
that every transaction has equal and opposite impact on the accounts that is majorly two. As
amount is transferred from one account to another therefore it is a process of debit and credit of
equal amount in two different accounts. Thus, debits stated amount being transferred into the
account while credit specific withdrawal or transferred from account to another.
Journal Entry dated June 01. 2020
In the Books of POPOVSKI
Opening Journal as at 1st June 2020
Assets £ £
Premises 200000
Van 45250
Fixtures 10100
Inventory 13900
Receivables:
P Weets 5400
F Leary 5100
Cash at Bank 70400
Cash in Hand 14600
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Liabilities
Payables:
S Hut 13150
J Brown 18600
Opening Capital 33300
0
364750
36475
0
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Book of Prime entry
Sales Day Book
Date Details £
03-Jun-20 J Wilson 1800
T Cole 1850
F Syme 2600
J Allen 1300
P White 2500
F Leary 1300
09-Jun-20 T Cole 920
J Fox 1850
14120
Sales Returns Day Book
Date Details £
11-Jun-20 J Wilson 380
F Syme 500
880
Purchases Day Book
Date Details £
02-Jun-20 S Hut 1450
D Main 2800
W Tone 1320
R Foot 1950
7520
Purchases Returns Day Book
Date Details £
19-Jun-20 R Foot 260
Cr Purchase returns account 260
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The two columnar cash book
Cash Book
Date Receipts Bank Cash Date Payments Bank Cash
Jun-20 £ £ Jun-20 £ £
01-Jun-20 Balance B/d 70400 14600 01-Jun-20 Storage costs 760
16-Jun-20 P Weets 2800 04-Jun-20 Motor expenses 650
F Leary 4900 07-Jun-20 Drawings 1800
J Wilson 1250 24-Jun-20 S Hut 5900
F Syme 1150 J Brown 6900
R Foot 1500
27-Jun-20 Salaries 5560
30-Jun-20 Business Rates 3420
30-Jun-20 Balance C/f 56460 12150
80500 14600 80500 14600
01-Jul-20 Balance B/d 56460 12150
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Real Ledger
Premises Account
Date Details £ Date Details £
Jun-20 Jun-20
1 Balance B/d 200000 30-Jun-20 Balance c/f 200000
200000 200000
30-Jun-20 Balance B/d 200000
Van Account
Date Details £ Date Details £
Jun-20 Jun-20
1 Balance B/d 45250 30-Jun-20 Balance c/f 45250
45250 45250
30-Jun-20 Balance B/d 45250
Fixtures Account
Date Details £ Date Details £
Jun-20 Jun-20
1 Balance B/d 10100 30-Jun-20 Balance c/f 10100
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10100 10100
30-Jun-20 Balance B/d 10100
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Nominal Ledger
Inventory Account
Date Details £ Date Details £
01-Jun-20 Balance B/d 13900 30-Jun-20 Balance c/f 13900
13900 13900
30-Jun-20 Balance B/d 13900
Capital Account
Date Details £ Date Details £
30-Jun-20 Balance c/f 333000 01-Jun-20 Balance B/d 333000
333000 333000
30-Jun-20 Balance B/d 333000
Sales Account
Date Details £ Date Details £
30-Jun-20 Balance c/f 14120 30-Jun-20 Sales daybook 14120
14120 14120
30-Jun-20 Balance B/d 14120
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Sales Returns Account
Date Details £ Date Details £
30-Jun-20 sales returns daybook 880 30-Jun-20 Balance c/f 880
880 880
30-Jun-20 Balance B/d 880
Purchases Account
Date Details £ Date Details £
30-Jun-20 Purchases daybook 7520 30-Jun-20 Balance c/f 7520
7520 7520
30-Jun-20 Balance B/d 7520
Purchases Returns Account
Date Details £ Date Details £
30-Jun-20 Balance c/f 260 30-Jun-20 Purchases returns daybook 260
260 260
30-Jun-20 Balance B/d 260
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Storage Costs Account
Date Details £ Date Details £
01-Jun-20 cash book 760 30-Jun-20 Balance c/f 760
760 760
30-Jun-20 Balance B/d 760
Motor Expenses Account
Date Details £ Date Details £
04-Jun-20 cash book 650 30-Jun-20 Balance c/f 650
650 650
30-Jun-20 Balance B/d 650
Drawings Account
Date Details £ Date Details £
07-Jun-20 cash book 1800 30-Jun-20 Balance c/f 1800
1800 1800
30-Jun-20 Balance B/d 1800
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Salaries Account
Date Details £ Date Details £
27-Jun-20 cash book 5560 30-Jun-20 Balance c/f 5560
5560 5560
30-Jun-20 Balance B/d 5560
Business rates Account
Date Details £ Date Details £
30-Jun-20 cash book 3420 30-Jun-20 Balance c/f 3420
3420 3420
30-Jun-20 Balance B/d 3420
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Receivables ledger
P Weets Account
Date Details £ Date Details £
01-Jun-20 Balance B/d 5400 16-Jun-20 Cash Book 2800
30-Jun-20 Balance C/f 2600
5400 5400
30-Jun-20 Balance B/d 2600
F Leary Account
Date Details £ Date Details £
01-Jun-20 Balance B/d 5100 16-Jun-20 Cash Book 4900
03-Jun-20 sales daybook 1300 30-Jun-20 Balance C/f 1500
6400 6400
30-Jun-20 Balance B/d 1500
J Wilson Account
Date Details £ Date Details £
03-Jun-20 sales daybook 1800 11-Jun-20 sales returns daybook 380
16-Jun-20 Cash Book 1250
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30-Jun-20 Balance C/f 170
1800 1800
30-Jun-20 Balance B/d 170
T Cole Account
Date Details £ Date Details £
03-Jun-20 sales daybook 1850 30-Jun-20 Balance C/f 2770
09-Jun-20 sales daybook 920
2770 2770
30-Jun-20 Balance B/d 2770
F Syme Account
Date Details £ Date Details £
03-Jun-20 sales daybook 2600 11-Jun-20 sales returns daybook 500
16-Jun-20 Cash Book 1150
30-Jun-20 Balance C/f 950
2600 2600
30-Jun-20 Balance B/d 950
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J Allen Account
Date Details £ Date Details £
03-Jun-20 sales daybook 1300 30-Jun-20 Balance C/f 1300
1300 1300
30-Jun-20 Balance B/d 1300
P White Account
Date Details £ Date Details £
03-Jun-20 sales daybook 2500 30-Jun-20 Balance C/f 2500
2500 2500
30-Jun-20 Balance B/d 2500
J Fox Account
Date Details £ Date Details £
09-Jun-20 sales daybook 1850 30-Jun-20 Balance C/f 1850
1850 1850
30-Jun-20 Balance B/d 1850
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Payables Ledger
S Hut Account
Date Details £ Date Details £
24-Jun-20 cash book 5900 01-Jun-20 Balance B/d
1315
0
30-Jun-20 Balance C/f 8700 02-Jun-20 Purchases daybook 1450
1460
0
1460
0
30-Jun-20 Balance B/d 8700
J Brown Account
Date Details £ Date Details £
24-Jun-20 cash book 6900 01-Jun-20 Balance B/d
1860
0
30-Jun-20 Balance C/f
1170
0
1860
0
1860
0
30-Jun-20 Balance B/d
1170
0
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D Main Account
Date Details £ Date Details £
30-Jun-20 Balance C/f 2800 02-Jun-20 Purchases daybook 2800
2800 2800
30-Jun-20 Balance B/d 2800
W Tone Account
Date Details £ Date Details £
30-Jun-20 Balance C/f 1320 02-Jun-20 Purchases daybook 1320
1320 1320
30-Jun-20 Balance B/d 1320
R Foot Account
Date Details £ Date Details £
19-Jun-20 Purchases Returns daybook 260 02-Jun-20 Purchases daybook 1950
24-Jun-20 cash book 1500
30-Jun-20 Balance C/f 190
1950 1950
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30-Jun-20 Balance B/d 190
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Trial balance
In the Books of POPOVSKI
Trial Balance as at 30 June 2020
Dr Cr
£ £
Cash at Bank 56460
Cash in hand 12150
Premises 200000
Van 45250
Fixtures 10100
Inventory 13900
Capital 333000
Sales 14120
Sales returns 880
Purchases 7520
Purchases returns 260
Storage costs 760
Motor expenses 650
Drawings 1800
Salaries 5560
Business rates 3420
Receivables:
P Weets 2600
F Leary 1500
J Wilson 170
T Cole 2770
F Syme 950
J Allen 1300
P white 2500
J Fox 1850
Payables:
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S Hut 8700
J Brown 11700
D Main 2800
W Tone 1320
R Foot 190
372090 372090
Client 2
(A) Statement of Profit and Loss for the year ended May 31, 2020
(B) Statement of Profit or loss for Amber Limited for the year ending 31st
May 2020
£
Sales 1,600,000
less returns inwards -32,000
Turnover 1,568,000
Less cost of sales w1 -901500
Gross Profit 666,500
less administration cost -313,000
less selling and distribution costs -272,000
Operating Profit 81,500
less finance costs -25,000
Profit Before Tax 56,500
Corporation tax note (iv) -20,000
Profit for the Year 36,500
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Statement of changes in Equity for Amber Limited for the year ended 31st May 2020
Ordinary
share
capital @
£1
Share
Premium
Retained
earnings Total
£ £ £ £
Balance as per Trial Balance 450,000 250,000 240,500 940,500
Profit for the year 36,500 36,500
450,000 250,000 277,000 977,000
w1 cost of sales administratio
n distribution
£ £ £
Opening inventory 1 st june 2019 180,000
add Purchases 750,000
less returns outwards -20500
less closing inventory note (i) -20000
Depreciation on Building note (ii) 12000
Balance as per Trial balance 250,000 214,000
Depreciation on P and M note (ii) 61000 61000
admin salaries accrued note (iii) 2000
rent prepaid -3000
901,500 313,000 272,000
(A) Statement of Financial Position as at May 31, 2020
Statement of Financial Position for Amber Limited as at 31st May 2020
Assets £
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Non-current assets
Land and Buildings w2 638,000
Plant and Machinery w2 488,000
Total Non-current Assets 1,126,000
Current Assets
Inventory note (i) 20,000
Trade receivables 320,000
Other receivables: rent prepaid note (iii) 3,000
Total Current Assets 343,000
Total ASSETS 1,469,000
Equity and Liabilities
Equity
Ordinary share capital @£1 each 450,000
Share premium 250,000
Retained Earnings 277,000
Total Equity 977,000
Current Liabilities
Trade Payables 250,000
Other payables: admin salary accrued 2,000
Tax Payable 20,000
Bank Overdraft 220,000
Total Current Liabilities 492,000
Total Equity and Liabilities 1,469,000
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w2 L&Buildings P&Machinery
Cost 800,000 850000
Accumulated depreciation @ 1 june
2019 150000 240000
Depreciation provision for 31 May
2020 12000 122000
Accumulated depreciation @ 31st
May 2020 162000 362000
Carrying Value 638,000 488,000
Consistency and Prudency
Consistency and prudency
Consistency state that accounting records need to be made on regular or continuous basis so
that all detailed related to financial transaction are record in book for future use. On the other hand,
prudency stated that do not overestimated revenue generated by organisation and underestimated all
expenses that company make in order to achieve the end goals. Therefore prudency is accepting possible
future losses but not gains.
Depreciation and its different methods
Depreciation stated about decrease in overall value of company fixed assets over time due to
obsolete or more used in daily process and procedure. Different method can be used to calculate
depreciated value of assets such as straight line, diminishing value method, annuity etc that are explained
below:
1. Straight Line method: It is method that determined scrap value of assets at end life of the assets thus the
value find is subtracted from original cost. Therefore the amount that has come as differences is treated as
total depreciation of asset over time.
2. Diminishing value method: In this method of depreciation book value of assets is calculated instead of
charging fixed percentage so value is more deducted in initial year of assets.
3. Annuity method: It is process in which depreciation is estimated on the basis of rate of return thus it
required estimation of internal rate of return that is inflow and outflow of assets (Okungbowa, 2016).
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4. Machine Hour rate method: It is method in which total expense incurred to operate particular machine is
divided by number of hours machine has worked.
5. Revaluation method: Company less its accumulated expenses and depreciation in order to or revalue or
show assets as its true value therefore it is easily method to calculate depreciation.
6. Sum of the digits method: It is another method of depreciation in which it is assumed that value of assets
decrease over time with usage in production method.
Financial statement of a sole trader v/s listed entities
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Client 3
Purpose of Bank Reconciliation Statement
Purpose of Bank reconciliation statement
The main purpose of bank reconciliation statement is to maintained
records or ensures the way cash are collected and deposit into bank. It
contained detailed information about total withdrawal, deposits and other
detailed that can affect a bank account during specific period of time. Thus it
is tool that helps in controlling fraudulent practices and helped in improving
financial errors or mistakes so that accurate data can be maintained
(Kurniawan and et.al., 2017).
Reason for difference between bank statement and cash book
Reasons behind accounting records differ from Bank Statements
Provide some reasons for the differences between bank statements and the cash book (bank)
Imprest Petty Cash System
Explain what is imprest petty cash system
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Cash Book and Bank Reconciliation Statement
Updated John Ltd cash book for September 2019
DR Updated Cash Book (bank only) CR
Date Receipts £ Date Payments £
01-Sep-19 balance b/d 51500 09-Sep-19 M Potter 25100
07-Sep-19 Cash sales 6400 10-Sep-19 C Lyons 8700
12-Sep-19 M Pointer 2600 14-Sep-19 C Hallern 8900
17-Sep-19 Cash sales 17100 20-Sep-19 C David 12200
24-Sep-19 Cash sales 10300 28-Sep-19 S Leeming 11600
30-Sep-19 Balance c/f 21400
87900 87900
30-Sep-19 Balance B/d 21400 17-Sep-19 Rates DD 10500
30-Sep-19 Bank charges 3600
30-Sep-19 Balance c/f 7300
21400 21400
30-Sep-19 Balance B/d 7300
Bank Reconciliation Statement as at 30 September 2019
Details £
Balance as per the bank statement
3980
0
add Outstanding Lodgements 0
3980
0
Les Unpresented cheques (8700+12200+11600) -
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s
3250
0
Balance as per the corrected/ updated cash book 7300
Client 4
(a)
(i) Sales ledger control account
DR (Receivables) Sales ledger Control Account CR
Date Details £ Date Details £
01-Jun-20 Balance b/d 24,800 Bad debts W/o 2800
Credit sales 304350 Discount allowed 2560
Sales returns 8620
Receipts from
customers 245610
Contra entry 1040
30-Jun-20 Balance c/f 68,520
329,150 329,150
30-Jun-20 Balance b/d 68520
DR (Payables) Purchases ledger Control Account CR
Date Details £ Date Details £
Discount received 2050 01-Jun-20 Balance B/d 22060
Purchases returns 6310 credit purchases 266500
Payments to suppliers 169010 Refund received 800
Contra Entry 1040
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30-Jun-20 Balance c/f 110950
289360 289360
30-Jun-20 Balance B/d 110950
what is control account
why it is important to prepare control/ its purpose?
how does it help the
business
advantages and
disadvantages
Control Accounts:
Explain the purpose for control accounts
Client 5
Explain what is the purpose of a suspense account
Characteristics of suspense account:
List some characteristics
Trail Balance:
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(a) Trial Balance
1 Debit
Credi
t
£ £
Purchases
1400
0
Sales
2200
0
Rent paid 5000
Cash at Bank
1680
0
Travel expenses 3200
Receivables 6400
Payables 7000
Opening Inventory 4400
Capital
1420
0
Suspense account 6600
4980
0
4980
0
Journal entries for error correction
2 Debit
Credi
t
£ £
(i) Simon account 4400
Smith account 4400
Error of commission now corrected
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(ii) Jones account 8400
Suspense account 8400
An error of single entry, one credit, now corrected
(iii
) Suspense account
1500
0
White Account
1500
0
An error of single entry, one Debit, now corrected
3
DR Suspense account CR
White account 15000 Balance b/d 6600
Jones account 8400
15000 15000
close
d
Corrected Trial Balance
4 Debit Credit
£ £
Purchases 14000
Sales 22000
Rent paid 5000
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Cash at Bank 16800
Travel expenses 3200
Receivables (6400+ 4400-4400+8400) 14800
Payables (7000+15000) 22000
Opening Inventory 4400
Capital 14200
58200 58200
REFERENCES
Books and journals
Chandra, P., 2020. Fundamentals of Financial Management|. McGraw-Hill Education.
Kurniawan, Y and et.al., 2017, November. Accounting information systems implementation:(A
case study approach). In 2017 International Conference on Information Management and
Technology (ICIMTech) (pp. 294-299). IEEE.
Madura, J., 2020. International financial management. Cengage Learning.
Okungbowa, A., 2016. Depreciation. In Asset Accounting Configuration in SAP ERP (pp. 77-
100). Apress, Berkeley, CA.
Paramasivan, C. and Subramanian, T., 2020. Financial management. New Age International.
Shapiro, A.C. and Hanouna, P., 2019. Multinational financial management. John Wiley & Sons.
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