Financial Accounting Principles Aspects Assignment

Financial
Accounting
Principles

Table of Contents
INTRODUCTION...........................................................................................................................5
BUSINESS REPORT......................................................................................................................5
Internal and external stakeholders:.........................................................................................6
TASK...............................................................................................................................................8
CLIENT 1:.......................................................................................................................................8
1.1...........................................................................................................................................8
1.2.........................................................................................................................................16
CLIENT 2:.....................................................................................................................................17
2.1.........................................................................................................................................17
2.2.........................................................................................................................................17
2.3.........................................................................................................................................18
2.4.........................................................................................................................................19
Critically evaluate the difference between the financial statements prepared by the Sole Trader
and the Limited Companies:.................................................................................................19
CLIENT 3......................................................................................................................................19
3.1.........................................................................................................................................19
3.2.........................................................................................................................................20
3.3.........................................................................................................................................20
CLIENT 4......................................................................................................................................21
4.1.........................................................................................................................................21
4.2.........................................................................................................................................22
4.3.........................................................................................................................................22
CLIENT 5......................................................................................................................................23
5.1.........................................................................................................................................23
Trail Balance by using a control account as balancing Figure:............................................24
..............................................................................................................................................25
CONCLUSION..............................................................................................................................25
REFERENCES..............................................................................................................................26

INTRODUCTION
Financial accounting is an area of accounting which includes recording and monitoring of
various financial transactions of business organisation. Under financial transactions are recorded
by accountants and managerial personnels as per specific guidelines issued by relevant
authorities for example in UK, business organisation applying GAAP for recording of financial
transactions (Archer, Ahmed Abdel Karim and Sundararajan, 2010). This report covers various
aspects of financial accounting, its purposes, accounting concepts, main aim of preparation of
bank reconciliation statement and, various internal and external stakeholders in the context of
Access Accounting Ltd. This report also contains a practical sum of recording financial
transactions, preparation of control accounts and bank reconciliation statement.
BUSINESS REPORT
Financial accounting is a managed process of recording transactions, summarizing them
systematically and report them in organised manner to assess the performance of business
organisation for a particular period. Information generated from financial accounting assist
managers in decision making activities. Financial accounting provides a systematic framework
for preparation of financial statements like balance sheet, cash flow statement, profit and loss,
change in equity statement etc (Ahn, Amiti and Weinstein, 2011). It is a process under which
financial transactions are classified in systematic manner to prepare final accounts. Final
accounts prepared under financial accounting process provide a base for comparison of financial
information of more than one year. Financial transaction are recorded by accountants by
considering appropriate principles and concepts. In UK, listed companies and large business
organisations usually follows generally accepted accounting principles, which creates uniformity
in financial accounts across the country. In order to enhance the reliability and accuracy of data
and information of financial accounting various accounting conventions, concepts and policies
are also adopted by companies. Financial statements prepared using such accounting
conventions, concepts and policies are accepted by all stakeholders. Following are some key
objectives and purpose of financial accounting, as follows:
 It assist in formulation of financial statements and other reports that is used by lenders,
creditors and investors for decision making activities.
 It emphasises on compliance of double entry system while preparation of final accounts.

 It exhibits the true and fair picture about business organisation's performance and growth
in market.
 It provide reliable data and information though financial statements which enhance the
confidence of investors and stakeholder.
 One of the purpose of financial accounting is to attract new and potential investors by
providing reliable financial information.
 It assist in identification of any potential issue or problem that may affect the financial
performance of company in near future.
 It ensures the proper compliance of statutory requirement, rules and regulations and other
guidelines.
 It also ensures effectively utilisation of organisation's resources and funds.
 It provide a detailed assessment of company's profitability and efficiency.
 It provide a framework for managerial and strategic decision making while considering
organisation's short term and long term objectives.
Internal and external stakeholders:
Stakeholder are key of success for a business organisation because stakeholder decides
the future path of business organisation. Stakeholder are those individuals and personnels that
have significant interest in a business organisation. Decisions taken by various stakeholder
affects a business organisation directly or indirectly. Stakeholder may be internal and external as
per their nature and extent of interest in business organisation. Analysis of stakeholders decisions
and preferences is necessary for business organisation to ensure its survival in market or industry
(Fraser, Ormiston and Fraser, 2010). Following are the two types of stakeholders, as follows:
Internal Stakeholders: These stakeholders are those individual who reside within a business
organisation and directly affects organisation's activities and functions. Internal stakeholder of a
business organisation are employees, managerial personnels, board of directors, owners etc.
Following is a brief discussion about major internal stakeholders, as follows:
Employees: Employees are most considerable internal stakeholders which affects
organisation's activities and functions. In large organisation's employees play a vital role in
strategy formulation and implementation. Most or the companies in UK invites the feedback and
review of employees to ensure proper implementation of strategy. On other side, employee are
interested in company's growth because employee wants to ensure their growth in employment

and career in business organisation. Employees help organisation to performance effectively in
long run and acting as a key resource of organisation.
Shareholders and owners: Shareholders and owner are key stakeholder of business
organisation. They are directly influenced by organisation's decisions and vice versa. Owner and
shareholders holding their stake in company in form of securities and shares. In listed company
most of the decisions are taken by shareholders and owners in order to achieve predetermined
objectives and goals.
External Stakeholders: External stakeholders are those enterprises or individuals who
reside outside the business organisation but can influence the performance and growth of a
business organisation (Dyreng and Lindsey, 2009). An organisation's external stockholder's are
government, customers, regulators or government, suppliers etc. Following is a brief discussion
about key external stakeholder of business organisation, as follows:
Customers: Customers are only the source of revenue in a business organisation.
Customer can influence the demand and supply of products and services of business
organisation. Decisions of customers have direct impact on organisation's profitability and
revenues. On other side customers also interested in organisation's brand value and performance
in market because they are ultimate consumer of organisation's product and services.
Investors: Investors are key sources of funds for a business organisation. Investors
holding stake in business organisation in form of their investment made. They want return on
their investment. Company is highly influenced by the decision of investors as they provide
funds to organisation for operating their operations and functions.
Government: Company prepare final accounts as per the government policies and
procedures. Government also decides the way of operations of particular industry or market
which makes government a significant stakeholder of business organisations. Government is
interested in organisation's performance because different companies' performance affects
economy of country. Government also wants to ensure compliance of rules and regulations.
Suppliers: Supplier are external stakeholders who can affect the supply of raw material
other goods in a business organisation. Generally in large business organisations, suppliers
provides goods and raw material at credit so they want to make sure about timely recovery of
their payments. Suppliers decisions can affect organisation's survival in industry.

TASK
CLIENT 1:
1.1

1.2

CLIENT 2:
2.1
Income Statement for the year ended 31st Dec. 2018
Particulars Amount
Sales 138000
Cost of goods sold
Purchase 61000
+ Return inward 3000
- Return outward 1500
+ Opening Inventory 15000
- Closing Inventory 20000 57500
Gross Profit 80500
Less: Expenses
Administration Cost 32000
Distribution Cost 32000
Depreciation 8800
Finance Cost 1500
Tax 2000 76300
Net Profit 4200
2.2
Financial Statement as on 31st Dec. 2018
Assets Amount
Shareholder's Fund
Share Capital 40000
Share Premium 20000
Retained Earning 22000

Current year profit 4200 86200
Non Current Liabilities -
Current Liabilities
Tax liabilities 2000
Accrued Salaries 2000
Bank Overdraft 18000
Account Payable 22000 44000
Total Liabilities 130200
Assets
Non Current Assets
Land 20000
Building 40000
Less: Accumulated Depreciation 10000
Less: Depreciation for the year 800
29200
Plant and machinery 60000
Less: Accumulated Depreciation 20000
Less: Depreciation for the year 8000
32000
Total non current assets 81200
Current Assets
Inventories 20000
Prepaid Rent 3000
Account Receivable 26000 49000

Total Assets 130200
2.3
Accounting concepts implies to core assumptions and principles or rules which assist
accountants and managers in recording of different financial or monetary transaction of business
enterprises. Accounting concepts provide a basic guideline which assist accountants to record
transactions smoothly.
Consistency Concept: According to this concept once a business enterprise adopted an
accounting policy and method, it is required to to follow such accounting policy and method
constantly from one period to another period (Marshall, McManus and Viele, 2011). Change in
accounting policies & method is allowed only in case if it is necessary by any statue or if any
change is required for better display or presentation of accounts.
Prudency: This concept of accounting emphasises on conservative approach. According
this concept business organisation should record any income or revenue when it is certain and
record any liability or obligation when there is possibility of occurring such obligation or
expense.
2.4
Depreciation implies to amount of natural wear and tear or obsolescence that can be arise
in fixed assets due to time factor. Main aim of providing depreciation on fixed asset is to match
the fixed asset's cost to income earned from using such fixed asset. Following are the major
methods of depreciation:
Straight Line Method: Under this method, cost of fixed asset is equally assigned over the
use life of business asset. This method is useful for fixed assets which loss more value in starting
years of its life (Hillier and et.al., 2013).
Written down value method: In this method, a fixed percentage is used to charge
depreciation on particular fixed asset. This method is used for those fixed assets which have
more efficiency in starting years and thereafter in later period decreases year after the year.
Critically evaluate the difference between the financial statements prepared by the Sole Trader
and the Limited Companies:
Limited companies Sole Trader

limited companies' financial statements are
used by large number of stakeholders and
shareholders so it require more reliability and
accuracy of data or information.
Here in this case financial statement is purely
used by sole proprietor.
Compliance of regulation, rules, accounting
concepts and other guidelines are required to
prepare financial statements as per different
statues.
Here compliance of regulation, rules,
accounting concepts and other guidelines not
required generally.
CLIENT 3
3.1
Bank Reconciliation Statement: It is a statement which is prepared to check if the bank
related transactions have been recorded in bank column of the cash book properly as well as in
bank book. Preparation of this statement is not mandatory but an organization should prepare
bank reconciliation account because it helps in detecting errors and frauds. It helps in tracking
the transactions like bank interest, fees and payments (Weil, Schipper and Francis, 2013).
3.2
 Bills and expenses paid by the bank are not recorded in cashbook.
 Bank charges charged by banks or interests paid by bank on deposits not recorded in
cashbook.
 Amount directly deposited in the bank accounts by the debtors.
 Error or omission have taken place in the cashbook.
 The employees have done fraud.
3.3
Petty cash book is a subsidiary account book to help the cashbook. Daily petty expenses
are recorded in this book. In imprest system, the petty cashier has been given a fix amount to run
the daily expenses for a particular time. Petty cashier has to manage all the petty transactions
with this amount and report to the head cashier at the end of the period with the balance. The

balance amount is reimbursed so that it become equal to the beginning of the period (Needles
and Powers, 2010).
3.4

CLIENT 4
4.1
4.2

4.3
Control Accounts are the memorandum accounts that are used to combining and
summarizing all the specific type subsidiary accounts. These type of accounts are prepares to
identify errors and internal check of the subsidiary accounts.
(i) Sales Ledger Control Accounts: Sales ledger control accounts, which is also known as,
Trade debtors control accounts shows a picture of the trade receivable of the organization. It
ensures the arithmetical accuracy of the sales ledger. It helps in providing sum of debtor’s
accounts quickly at the time of preparing trial balance. It does not contain a detailed summary
about the debtors but it always provide an accurate value of receivables of the organization
(Edwards, 2013).
(ii) Purchase Ledger Control Accounts: Purchase ledger control account is exactly opposite of
Sales Ledger control Account. It is also known as Trade Creditors Control Account. It present an
information about the pending payments of an organization at a particular point of time. At the
same time, it measures the accuracy of creditors and trade payables account so that it can be
presented in trial balance quickly.
CLIENT 5
5.1
Suspense account is an accounts, which is used to record the items, and amounts, which
are not allocated to any general account until the preparation of trial balance. This a temporary
accounts and items, which are recorded in it, should be allocated to their related accounts.
Suspense account is created at the time of closing trial balance (Kwok, 2017). The difference
between debit and credit account is shown in the suspense account. This account hold all the
transaction amount until the error or related general account is identified. This account must be
closed within the particular accounting cycle.

5.2

CONCLUSION
From above mentioned report, it has been articulated that financial accounting is
necessary for providing systematic information to various external and internal stakeholders.
This stakeholders use such information for decision-making activities. Preparation of BRS is
vital to identify the main reason of variation between balance of bank passbook and bank column
of cashbook. Adoption of system of imprest to record petty expenses leads to increase in
accountability. Overall motto of financial reporting is to assess real or actual performance of
business organisation and to report performance for stakeholders.

REFERENCES
Books and Journals: