Financial Accounting and Bank Reconciliation

The provided document is a study on financial accounting, focusing on the importance of preparing bank reconciliation statements, suspense accounts, and control ledger accounts. It discusses the imprest system in petty cash account systems and highlights the need for control accounts due to their ability to maintain detailed information at a single place. The document also touches on journal entries and trail balance preparation with the help of control ledger accounts.

TOPIC:
FINANCIAL
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Report of Jr. Accountant..................................................................................................................1
1. Financial and its purposes.......................................................................................................1
2. Internal and external stakeholders of the business.................................................................3
Client 1.............................................................................................................................................5
Showing financial statements of the Alexender..........................................................................5
Client 2...........................................................................................................................................13
A) Preparing statement showing profit and loss of the Munteanu Limited..............................13
B) Preparing Balance sheet of the Munteanu Limited..............................................................13
C) Explaining various concepts of accounting..........................................................................15
D) Showing purpose of depreciation to formulate various accounting statements...................15
E) Differentiating financial statements of sole traders and limited companies........................16
Client 3...........................................................................................................................................17
A) Purpose of preparation of the bank reconciliation statements.............................................17
B) Areas causing variation in the bank records and companies record of bank account..........17
C) Imprest system in the petty cash account system.................................................................18
D) Preparation of bank reconciliation statements.....................................................................18
Client 4...........................................................................................................................................20
A) Preparing sales and purchase ledger control account..........................................................20
B) explaining need of preparing control account......................................................................20
Client 5...........................................................................................................................................21
A) Suspense accounts and its features......................................................................................21
B) Preparation of trail balance with the help of control ledger accounts..................................21
C) Journal entries of the company............................................................................................22
CONCLUSION..............................................................................................................................22
REFERENCES..............................................................................................................................23

INTRODUCTION
Financial accounting can be defined as a branch of accounting that concerns with
monitoring all the financial activities of the business (Henderson and et.al., 2015). With the help
of standard guidelines, the accountant prepared the financial reports in such a way so that they
show a complete picture of the company to managers. The TouchstoneFMS is a company that
provides financial advise to the companies as to enhance their financial condition in the market.
The study shows a report of Jr. Accountant of TouchstoneFMS which provides information
about various rules and guidelines that are needed to be followed at the time of creating financial
reports. The study also provides description about various principles and purpose of the financial
reports along with showing its numerous users. Further the study provides various calculations as
to show various methods and guidelines for preparation of financial reports of the company.
Report of Jr. Accountant
TouchstoneFMS
To,
The kine manager,
From,
Junior accountant
1. Financial and its purposes
“Financial accounting can be defined as a bunch of systematic procedures, guidelines
and principles with the help of which the accountant can prepare the financial reports in an
effective way to help the managers in their managerial procedure.”
Further, “financial accounting can also be defined as a process of preparing reports
which includes all the financial transactions of the company by using the specialisation and
professional skills.”
Purpose of financial accounting:
The major purpose of the financial accounting is to help the managers in their decision
making process as to enhance the financial capacity of the business. The key purpose of
financial accounting are as under:
 Helping in decision making process: It is the key purpose of involving financial
accounting system in the business is to provide all the relevant informations to the
managers through financial reports. By analysing these statements, managers can
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monitor the actual financial position of the company and take their decisions
accordingly.
 Measuring ability of company: The TouchstoneFMS also needs to prepare the
financial statements for the purpose of enabling the manager to analyse the actual ability
of the company.
 Analysing the liquidity: Involvement of this system also helps in analysing the
liquidity of the firm (Buchanan and Davis, 2018). With the help of it, they can analyse
the liquidity of the firm and make effective plans for maintaining sufficient liquidity in
the firm.
 Requirement of law: TouchstoneFMS also need to apply the financial accounting
system in the firm, as the law bounds the company to do so. In this regard, meeting the
requirements of law is also a major purpose of the financial accounting system.
 Helping the users: Further, preparation of financial reports as per the principles of
financial accounting also fulfils a major purpose of providing all the relevant
informations to the users of financial reports.
 Maintaining standard in reports: If TouchstoneFMS prepares the reports as per the
set guidelines and principles of the financial accounting system can also help the
business in maintaining a standard in the presenting all the financial transactions in the
reports.
In this order, it can be analysed that the financial accounting system needs to be
involved in the business as can help the firm in fulfilling numerous objectives of the business
organisation.
2. Internal and external stakeholders of the business
Stakeholders
Stakeholders can be defined as those individuals that are either directly or indirectly
relate with the business and whose opinion gets affected through the financial performance of
the firm.
Generally, the stakeholders can be categorised into two groups i.e. internal stakeholders
and external stakeholders.
Internal stakeholder
These are those individuals that are directly relate to the financial and other operations
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of the business. Generally, employees, managers, owners, etc. of the business are covered under
this category (Cascino and et.al., 2017). Interest of these stakeholders in the financial
informations of the company can be analysed as under:
 Managers: Managers are those who get involved in the decision making process of the
business. With the help of financial reports like balance sheets, profit and loss statement,
etc., they can develop more effective strategies for the TouchstoneFMS.
 Owners: Owners can be defined as those who invest their capital in the company
through which various business operations are being run. They need the financial reports
so that they can get information about how and where their capital has been used in the
business.
External stakeholders:
In this category, those individuals are included which do not get involved in the daily
operations of the business, but their opinion and interest in the business gets effected through
the financial performance of the company. Customers, government authorities, competitors,
customers, etc. are some examples of external stakeholders. Interest of these stakeholders in the
financial informations of the firm can be evaluated as under:
 Government authorities: Some government authorities like taxation authorities, social
and community development authorities needs the financial informations of the
company for determining the tax revenues from the company, monitoring the
involvement of ethical practices in the firm, etc.
 Creditors: Creditors are those that provides the goods and services to the company on
credit basis. With the help of financial information of the TouchstoneFMS, is creditors
can determine the risk involved in providing credit to the firm. It can help them in
deciding the maximum amount of credit that can be provided to the company.
 Investors: Investors helps the company smooth running of its business operations and
help the company in making fund available for its expansion purpose as well. They need
the financial reports of the company so that they can decide the suitable amount to be
invested in the business.
 Auditors: Auditors are the professionals that ensures the accuracy of the financial
statements of the firm. Further, they also ensure the adoption all the principles and rules
by the company. For the purpose of monitoring these activities, they need financial
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reports of the company.
In this order, all the stakeholders needs the financial accounting reports as to take their
own decisions for the company.
Client 1
Showing financial statements of the Alexender
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5

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7

8

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Client 2
A) Preparing statement showing profit and loss of the Munteanu Limited
B) Preparing Balance sheet of the Munteanu Limited
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C) Explaining various concepts of accounting
Accounting concepts can be defined as a set of assumptions and rules that are needed to
be taken into account by the accountant while preparing their financial statements. Each business
activity performed by a business organisation are needed to be recorded in the books as per the
rules mentioned in accounting concepts. Some of the key accounting concepts are as under:
 Consistency concept: This concept provides a rule that a firm needs to maintain
consistency in applying the methods while preparing the financial reports of the company
(Liapis and Kantianis, 2015). Once any method is adopted by the firm should be
continuously used by it until the need of change occurs in the business.
Adoption of this concept helps the company in standard in the accounting reports of the
company. Further, it also enables the managers to analyse the positioning of the firm.
 Prudence concept: Adoption of this concept helps the company in removing
uncertainties from financial statements of the company. As per this concept, all the
incomes and profits should be included in the financial statement only when the
reasonable probability of their realisation has been get. Further, all the losses and
expenses should be entered in the books at the time of their occurrence.
D) Showing purpose of depreciation to formulate various accounting statements
Depreciation
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Depreciation can be defined as a method of valuing the assets of the company as per their
wear and tear use or due to the passage of time. Further, depreciation refers to the decrease in the
value of assets due to various reasons like passage of time, unfavourable market condition, using
the assets in the business, etc.
Methods of depreciation
There are various methods through which a company can determine the decrease in the
value of assets like:
 Straight line method: It is the simplest method of charging depreciation over the assets
of the firm. This method is used for those assets which are nit being used for
manufacturing process by the firm. In this method, the depreciation is charged at the
same value over the year. Generally, the value of depreciation is determined on the basis
of useful life of the asset.
 Unit of production method: In this method, the depreciation is charged on the basis of
unit produced by the company in a specific period. All those assets which are used by the
firm in producing goods or services are being charged the depreciation on the basis of
this method.
E) Differentiating financial statements of sole traders and limited companies
Basis Sole traders Limited company
Tax Sole traders pays the tax on the
overall profit earned by the
business.
Limited company needs to
involve various taxes in its
financial statements like
corporation tax, tax on
dividend, etc.
Auditing Sole traders need not to audit
their books of accounts.
Limited companies need to
conduct audit after a specific
period.
Balance sheet The capital account column of
its balance sheet includes the
owner's equity only (Sunarya,
Nurhaeni and Haris, 2017).
It needs to include
shareholders account along
with the owner's equity in its
capital account of the balance
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sheet.
Client 3
A) Purpose of preparation of the bank reconciliation statements
Bank reconciliation statements refers to a statement that which helps the company in
balancing the bank records and companies records relating to the bank transactions.
Purpose of bank reconciliation statements:
Burcu Ltd. Needs to prepare bank reconciliation statements for the fulfilment of the
following purposes:
 This statement helps the company in identifying all those transactions of bank that are not
known to the company.
 It leads in detection of all the arrears in the bank accounts of the book.
 This statement provides an assurance of maintaining accuracy in the bank transactions of
the company.
 Further, this account also can allow Burcu Ltd. To compare its bank account with
company's account.
 This statement also helps in detecting all the committed errors of the company and
rectifying them as well.
In this order, it can be analysed that the Burcu Ltd. Needs to prepare the bank
reconciliation statement on monthly basis, so that all the errors could be detected and books
could be prepared free from any errors.
B) Areas causing variation in the bank records and companies record of bank account
Major reasons behind occurrence of variation between the bank's record and companies'
bank account are as under:
 Cheques deposited or paid but yet not presented in the bank.
 Cheque issued by the company but yet not presented into the bank for getting payments.
 Any cash transaction wrongly debited or credited in the bank accounts of the company.
 Any income received in the bank but yet not recorded in the bank account of the
company.
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In this order, there are many reasons through which the difference in the bank records and
bank accounts of the company occurs (Agyei-Mensah, 2016). The Burcu Ltd. Needs to prepare
the bank reconciliation statement for eliminating this difference.
C) Imprest system in the petty cash account system
In the imprest system of the petty cash account system, the company maintains same
amount in its petty cash account. The account is credited again by the company when it spends a
some of the petty cash account.
D) Preparation of bank reconciliation statements
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19

Client 4
A) Preparing sales and purchase ledger control account
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B) explaining need of preparing control account
The Hilly should prepare control accounts control ledger accounts due to the following
reasons:
 It leads in making the general ledger accounts free from the detailed informations.
 It results in maintaining details of all the transactions at single place.
 It helps the large business organisations in maintaining books of accounts in more
effective way.
Client 5
A) Suspense accounts and its features
Suspense accounts refers to an account which is prepared by the company for the purpose
of balancing its trail balance of the company (Principles and Fundamental Concepts of Basic
accounting, 2018).
Features of suspense accounts:
 It is a temporary account.
 It contains all those arrears reasons of which can not be determined by the company.
 It eliminated material errors from the financial statements of the company.
B) Preparation of trail balance with the help of control ledger accounts
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C) Journal entries of the company
CONCLUSION
From the analysis of above study, it can be analysed that the financial accounting is a
major part of the business. Various methods, guidelines and principles of this system helps in
maintaining a standard in the books of the company and eliminating all the arrears from the
books as well. Various statements like bank reconciliation statements, suspense account, etc. are
needed to be prepared by the company for the purpose of preparing the financial reports in an
effective manner.
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REFERENCES
Books and Journals
Agyei-Mensah, B. K., 2016. Accountability and internal control in religious organisations: a
study of Methodist church Ghana. African Journal of Accounting, Auditing and
Finance. 5(2). pp.95-112.
Buchanan, D. L. and Davis, M. H., 2018. Cash Flow Modelling and Financial
Accounting. World Scientific Book Chapters, pp.7-37.
Cascino, S. and et.al., 2017. The Usefulness of Financial Accounting Information: Evidence
from the Field.
Henderson, S. and et.al., 2015. Issues in financial accounting. Pearson Higher Education AU.
Liapis, K. J. and Kantianis, D. D., 2015. Depreciation methods and life-cycle costing (LCC)
methodology. Procedia Economics and Finance.19. pp.314-324.
Sunarya, P. A., Nurhaeni, T. and Haris, H., 2017. Bank Reconciliation Process Efficiency Using
Online Web Based Accounting System 2.0 in Companies. Aptisi Transactions On
Management. 1(2). pp.124-129.
Online
Principles and Fundamental Concepts of Basic accounting. 2018. [Online] Available Through:
<https://www.edupristine.com/blog/basic-accounting>
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