Financial Accounting: Types of Transactions, Trial Balance, Financial Statements, and Principles

This report provides an overview of financial accounting, including types of business transactions, single and double entry bookkeeping, trial balance, financial statements, and fundamental principles of accounting.

Accounting

Table of Contents
Introduction......................................................................................................................................3
Task 1...............................................................................................................................................3
1.Types of business transaction including single entry double entry bookkeeping and trial
balance.........................................................................................................................................3
2 Transactions..............................................................................................................................4
3. Difference between financial statement and financial report...................................................6
4. Fundamental principles of accounting.....................................................................................6
5. Income statement.....................................................................................................................7
6. Trading account........................................................................................................................9
7. Cash flow statement...............................................................................................................11
Scenario 2.......................................................................................................................................12
Bank reconciliation....................................................................................................................12
Requirement of reconciliation....................................................................................................12
Control accounts........................................................................................................................12
Role of control account in financial management......................................................................13
Suspense account.......................................................................................................................13
Reason for drafting suspense account........................................................................................13
4. Cash account..........................................................................................................................13
5. a. Journal entries....................................................................................................................14
Conclusion.....................................................................................................................................15
References......................................................................................................................................16

Introduction
This entire report is based on financial accounting. Financial accounting refers to the process of
summarising analysing and reporting all the transactions of Business and its operations for a
given time duration (Abdusalomova 2019). All these transactions are analysed in financial
statements like balance sheet profit and loss account trading account cash flow statement and
income statement which helps the company to know operating performance of the business. This
report includes various types of business transactions with States about single entry and double
entry bookkeeping. Apart from this various differences between financial statement and financial
report is also elaborated in this report. This report focuses on providing principles of financial
accounting and bank reconciliation for companies. This report also talks about various suspense
account and general entries as well.
Task 1
1.Types of business transaction including single entry double entry bookkeeping and trial balance
The entire organisation with that it is a small medium or large they have to maintain business
transactions. Following are the important transactions of the business such as
Purchase of goods
Goods are very important part of any organisation because with the help of goods which are high
in quality organisation can increase their profitability and sales. So purchasing of goods can be
done and two categories first are cash and another is credit. Cash purchase is read in the business
because most of the business does not prefer to buy goods with the help of cash. The main
purchase goods in instruments and from other ways on the other hand credit purchase is very
difficult for the business therefore did not frequently credit purchase.
Purchasing of services
Services also play a critical role in the business services include different type of advertisement
printing cost equipment repairing raising Finance salary and wages etc (Akiyama, 2020). These
are the common services which business needs to invest and have to purchase the same.
Single entry bookkeeping
This is one of the simplest and normal methods of bookkeeping with many organisation follows.
This method of bookkeeping is based on cash method in which incoming and outgoing of the

cash so that company can know how much they are they are earning and how much they are
spending.
Double entry bookkeeping
This is one of the methods to record all the transactions of business it doesn't matter that the
transaction is small or big but it is important to record. Is the name suggest double entry
bookkeeping in this two accounts entries are recorded when is debit side and other is. As per this
method amount which is being placed on the debit side should match to the credit side then the
entry will known as correct.
2 Transactions
S. no Particular Amount
01/06/2016 Cash a/c Dr
To business a/c
65000
65000
02/06/2016 Purchase a/c Dr
To accounts payable
80000
8000
07/06/2016 Cash a/c Dr
To inventory a/c
4000
4000
08/06/2016 Purchase a/c Dr
To bank a/c
4000
4000
14/06/2016 Insurance premium a/c Dr
To bank a/c
75
75
15/06/2016 Purchase a/c Dr
To accounts payable
10,000
10,000
16/06/2016 Purchase a/c Dr 3000

To Cash a/c
3000
18/06/2016 Rent a/c Dr
To bank a/c
150
150
20/06/2016 Cash a/c Dr
To payable a/c
10,000
10,000
21/06/2016 Cash in hand a/c Dr
To Bank a/c
100
100
25/06/2016 Cash a/c Dr
To pity cash book a/c
100
100
30/06/2016 Purchase a/c Dr
To Cash a/c
30
30
Trial balance
Trial balance is prepared in the form of spreadsheet and generally trial balance is prepared at the
end of the accounting period of the company. The main objective of creating trial balance is to
check the credit and debit entries which have been recorded in the laser and which are not correct
and do not get matched.
Importance of trial balance
Trial balance is known to be the business tool. It is being prepared by the business to find out any
financial errors and also it helps in assessing the profit and helpful in knowing the Internal
auditing process of the company (Azmi and et.al 2020). With the help of trial balance automatic
electricity of the operations can get checked. Trial balance verify the original amount it has been
entered on the debate credit side of the account so that all the necessary figures can be identified
with the help of laser books like sales book purchase book etc. and to reach on the correct

measurement. Trial balance is used to divide the accuracy about special accounting book. Trial
balance helps the company to prepare the financial statement. It also helps the company to
compare balance from the previous year so that we can know are they getting any kind of profit
or they are still facing loss. So that they can improve the financial position.
3. Difference between financial statement and financial report
Financial statements
The main objective of financial statement is to provide financial position in all the information
which is related to the finance such as cash flows operations etc. So that after seeing and
analysing all the financial information’s investors and Company get guidance and also they can
take their desirable action whether they want to invest in the company or not. Financial
statements include various cash flows income statement and balance sheet. Income statement is
helpful in knowing the capacity and ability of the business it shows that how a business is
generating profit and it also advise the company to increase the sales and revenues and also this
should decrease the expenses. Financial statement it includes balance sheet because it provides
accurate status of the business for the given accounting period. Balance sheet is prepared by
liquidity and debt position of the company. Apart from this, it also includes assets of the
company to provide accurate result to the company whether they have sufficient assets or not to
repay the debts and obligations.
Financial report
Financial report includes all the important financial information which is be distributed by the
company to the public (Bebbington and et.al 2017). Especially financially borders helpful for the
shareholders to know the position of the company and they can know how much they don’t live
in android on their investment. Financial records should be accurate so it provides correct result
to the company and the investors so that after analysing the financial report Company can make
decisions about the allocation of resources and funds. If the financial report is quick and accurate
then it provides good results to the company. As it helps the company for correct reporting
solution and helps in improvising the productivity. Financial report is necessary for the taxation.
4. Fundamental principles of accounting
There are various rules and regulations available in the accounts which the company has to
follow while recording any financial transaction. As the entire company and business works on
various fundamental principles of accounting then only they may get success. Accounting

principle states about general rules and regulations which the company and business has to
follow.
Conservatism principle
This principal speaks about such situation and which two acceptable solutions are present in front
of the company and they should go for save solution which provides favourable outcome. This
principle will safeguard the company of business for further losses and they should prepare for
future games as well.
Consistency principle
The consistency principle speaks about one decision if the company decided to adopt one
accounting method or any of the principle then it should stick on that principle on tea and follow
all the rules and regulations which has been mentioned and that principal so that company will
gain profit throughout the year.
Cost principle
Company and business should record all the Assets and liabilities on their original cost especially
on those cost in which they have bought and sold the assets (Delatorre and et.al 2017). As the
real value of Assets and liabilities can change with the passage of time but it will not reflect for
reporting.
Going Concern principle
This principle assumes that business will domain throughout its life and will continuously exist
and operates in the future as well.
Matching principle
In this principal each and every recorded transaction should made with each other whether they
are related to expenses or any income.
5. Income statement
Particulars Amount Amount
Sales 900,000
Cost of sales 7,00,000
Gross profit 200,000
Expenses :
Advertising 10,000

Salaries 50,000
Electricity 10,000
Telephone 9,000
General expenses 1200
Total expenses 80200
Net profit 119800
Balance sheet
Particulars Amount
Capital 354200
Current liabilities
Payables 80000
Bank overdraft 20000
Total liabilities 454200
Current asset
Receivables 1100000
Fixed assets
Land and building 400,000
Plant and machinery 30,000
Total 5,40,000
Income statement is one of the three important financial statements of any company. Income
statement one of the important financial statement which provides all the details about the
financial performance of the company for an accounting period. It provides all the information
which are related to the revenue and expenses of the company but the key focus of the income
statement is to produce more revenue for the company so that the company did not have to face
any kind of loss in the given time period (Delatorre and et.al 2018). Total revenue of the
company include operating and non operating revenue after deducting all the total expenses so
that company can know the exact and accurate profit after deducting the expenses so that they

may know the exact profit for the accounting period. Income statement is known as the core
financial statements of the business and company because with the help of income statement
company can create various Strategies and policies for the future. Company can also make
forecast and budgeting on the basis of income statement. Income statement also States about
various cost expenses net profit gross profit and different selling and administrative expenses
apart from this it also talks about Texas which has been levied on the company.
Financial position
Financial position States about where is assets liabilities and capital of the company and the
business for the accounting period. All the Assets of the company used to manufacture various
goods and services so that company can fulfil the market demand easily. Assets are also
categorised into two parts one is fixed assets and other its current assets. Fixed assets are those
assets which remain fixed for the entire life and I do not get converted into cash for more than a
year. Examples of fixed assets are vehicle computers various plants and machineries etc. Current
assets also include those assets which can get converted within cash in a year. Apart from this
liability also included in the financial position. Liabilities also get divided into two categories one
as current liabilities and other is long term liabilities. Current liabilities include creditors bills
payable etc. On the other hand noncurrent liabilities include all the long-term loans and
obligations of the company.
6. Trading account
Balance sheet
Particulars Amount
Capital 120800
Current liabilities 5150
Drawing 80000
Creditors 3900
Loan 1,00,000
Total liabilities 309850
Current asset
Debtors 12500

Stocks 10500
Total 23000
Trading account
Particular Amount Particular Amount
To opening stock 9500 Sales 1250000
To purchase 75000 Less : drawings 5150
By closing stock 1000
To gross profit 34350
Profit and loss account
Particular Amount Particular Amount
Gross profit 34350 Rent received 5340
Office and
administrative
expenses
Interest received 1000
Wages and salaries 132000 Provision from bad
debts
934
Rent and rates 1500
Postage 900
Insurance 7089
Bad debts 1200
Net profit 169765
Trading account is popularly known as an investment account. Trading account provides all the
detail information about various securities and Holdings of the company. The main motive of
creating trading account is to know the gross profit and gross loss of the company so that
company can create suitable Strategies and fulfil such losses (Derco and et.al 2017). If the
company is in loss then it is in the hands of management that they must create some policies and
strategies so that company can overcome such losses and convert that process into the profit.
Trading account also called direct expenses and indirect expenses for calculating the gross profit.

Profit and loss account
This account provides all the necessary information about the net profit and net loss which are
faced by the business for a given duration. The main motive of any company behind creating
profit and loss account is to know how much profit they are generating for a given period in how
much loss they have suffered from so that in the long run company can overcome such losses.
Profit and loss account also measures videos expenses which are known as direct expenses and
these expenses get deducted from the profit which have earned by the company. Expenses
include various maintenance, depreciation administrative, selling and distributive expenses apart
from that also include wages and salaries which gets deducted from the profit and loss account.
On the flip side all the incomes of the company such as Commission received discounts and
interest is being mentioned in the credit side of the profit and loss account and with the help of
debit side and credit side profit and loss is being calculated by profit and loss account. This
account has been created by after making trading account.
Balance sheet
Balance sheet is also an important financial statement which gives all the little information about
the Assets and liabilities of the business (Derco, 2017). Balance sheet is necessary for the
investors as well because before investing their money they check the balance sheet. Asset side
of the balance sheet describes the Asset of the company and liability shows all the loan and
obligations which has been taken by the company.
7. Cash flow statement
Cash flow statement provides necessary detail about the cash and cash equivalents of the
company. It describes that how much cash is been generated by the company in the form of cash
inflow and how much expenses has been incurred by the company in the form of cash outflow.
Cash flow of Unilever plc
Particulars Amount
Cash flow from operations
Net earnings 2,00,000
Cash flow from investing activity
Increases in inventory 4,00,000
Cash flow from finance activity
Notes payable 3,00,000

Cash flow for the year ended 2020 9,00,000
Scenario 2
Bank reconciliation
Bank reconciliation provides free cancellation of various accounts by matching internal records
and transactions to the available balance of the month which is being produced by the bank
statement. Each and every transaction of the company is being verified and managed individually
by the bank passbook so that all the apps can easily identified by the management of the
company. The entire process of bank reconciliation and categorised into two forms when it can
be formal and another in informal (Li and et.al 2020). Few companies go for the reconciliation
on daily basis as they can know how much expenses and income their generating on daily basis
so that they can overcome the loses. Along with this many companies go for quarterly and annual
bank reconciliation because it becomes easy and simpler for the company to reconcile their
revenue and expenses with the bank passbook so that they can make certain policies and
overcome such losses. Differences between the passbook and the statement of company can be
normal to find because some differences come due to changes in the timing and especially from
the time gap.
Requirement of reconciliation
Bank reconciliation is one of the necessary part of any company because with the help of bank
reconciliation company can know all the fruits and misrepresentation of the facts and figures.
Along with this bank reconciliation also provides detailed information to any duplication and
descriptions his having found in the company with the help of cross checking with bank
Statement Company can overcome the facts and figures. Bank reconciliation also States about
the cheque which has been issued by the company so by matching bank statement any
discrepancies which has been present in the clearance of cheque is being seen by the bank
reconciliation. Reconciliation is the procedure of matching internal and external records so that
gets can be identified by the company.
Control accounts
Control account provides summary of all the accounts which is mentioned in Ledger. This
control account provides in-depth information about different transactions which have been
installed in subsidiary ledger account of the company (Putra, 2019). The main motive of creating

control account is to summarise and analyse all the transactions and accountability in the large
volume of all the transactions so that it can be managed separately by the company e in the form
of ledger. It is essential that the last balance off control account should get managed with the last
balance of subsidiary ledger and in case if both the balance do not get match to each other then it
can be seen that the general entries have not made correctly and therefore the difference is
present in the control account.
Role of control account in financial management
Control account is one of the important parts of general ledger account because it summarises all
the amount of the company whether it is revenue or sales. Control account help the general
account to stay free of details because every necessary detail as covered under the control
account and which is necessary for providing correct balances and income to the company so that
the management of the company can create for the policies and strategies by checking all the
control account and financial statements (Thain, 2017). Control account provides all the
detailed information about the total balance which is needed by the company to draw the
financial statements because each and every balance and transaction which is given by control
account can easily get attracted by the subsidiary ledger.
Suspense account
Suspense account is being prepared to identify those transactions which are temporary Store in
the various lager and general accounts of the company but there is uncertainty about these
transactions whether they have recorded properly or not by the management of the company.
These transactions are recognised and identified by the various accounting staff and when it get
found then the purpose of recording the transactions have been identity find so that company
can create suspense account and put all the correct details in the account.
Reason for drafting suspense account
The main reason behind drafting and creating suspense account is that company wants to identify
those transactions which are uncertain and the management also do not have any idea whether
these transactions have been recognised or not. Suspense account also provides discrepancies and
default of these transactions. So that by creating suspense accounts all the errors and if else can
be found and company recheck them.
4. Cash account
Date dr amount Date Cr Amount

To bank 170 By balance
b/d
1760
To bank 56 By bank 1070
To
drawings
105 By bank 325
To bal c/d 2849 By bank 25
total 3180 total 3180
Difference between direct debit and standing order
Direct debit refers to the banking transaction which allows the organisation to withdraw
the funds from the account of another’s person (ODO, 2018). Standing order is the banks
instructions to the customers in order to make the regular payments on behalf of customers. In
the direct debit, on the payments the payee have full control. Whereas in standing order the
control remains in the hands of payer only.
In the standing order it can be seen that the intervals in withdrawal is predetermined and
this case is not with direct debit. In the standing order, administration charges is higher as
compare with direct debit. Direct debit is complex as compare to standing order which is simple.
The major benefit is the flexibility which strong the relationship of the company with the
customers. In the direct debit system the payee will get automatic notification for cancellation.
In case of standing order no notification will be given.
Difference between Bank charges and Dis-Houner Cheque
Dishonoured cheque means when the cheque is brought for collection which is not credited in the
due course. The fact of the dishonour cheque can be known from the bank scroll by seeing that
the receipts of all cheques is duly credited or not. Bank charges means when bank take charges
for providing services. As bank provide services to the customers and in return they charge
money. Some of the charges are folio charges, outstation cheques charges, dishonour bank
charges, cheque book charges etc.
5. a. Journal entries
It refers to recording the business transactions and is the initial step in the cycle of accounting
(Sangster and Rossi, 2018). Journal entries are done for each and every business transactions and
further written in the ledger account.
1. Purchase a/c dr 2000

To Suspense a/c
2. Cash A/c Dr 670
To Suspense a/c
3. G Tahir a/c Dr 650
To Suspense a/c
4. Cash a/c Dr 790
To electricity a/c
5. Cash a/c dr 500
To suspense a/c
6. Suspense a/c DR 270
To sales a/c
7. Suspense a/c Dr 190
To discounts allowed a/c
8. Suspense a/c Dr 384
To sales a/c
B. suspense account
This account is the part of general ledger where the entries are recorded by the organisation
which further require evaluation to find out the classification. When talking about investing,
suspense account is called as the brokerage account where on the temporary basis investors keeps
the cash.
Particular Amt Particular Amt
To sales 270 By purchase 2000
To discount
allowed
190 By cash 670
To sales 384 By G Tahir 650
To bal c/d 2966 By cash 500
Total 3820 Total 3820
Conclusion
After analysing the entire report it can be concluded that this report focuses on accounting. This
report provides all the details about different types of business transactions which have been used
by the business in the form of single entry double entry and bookkeeping. Importance of trial
balance is also mentioned in this report. Various differences between financial statement and
financial report have been elaborated in this report and this report also provides various reasons
for creating financial statement by the company. Various fundamentals of accounting and its
principle have also been mentioned in this report.

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