Financial Accounting | Explanation

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
4