Assignment on Financial Accounting pdf
Added on 2020-10-22
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Financial Accounting
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1A. Produce a report to Line Manager for discussing accounting regulations........................1Material disclosure and consistency concepts........................................................................4CLIENT 1........................................................................................................................................5A. Journal entries for the sole trader......................................................................................5B. Producing ledger accounts for business...........................................................................10C. Preparing trial balance for firm........................................................................................18M1. Compiling trial balance by taking purchase and sale transactions...............................19M2. Trial balance by considering accounting rules and regulations....................................20CLIENT 2......................................................................................................................................20A. Income statement for the sole trader................................................................................20B. Balance sheet for firm......................................................................................................21CLIENT 3......................................................................................................................................22A. Profit and Loss account for organisation.........................................................................22B. Balance sheet for Raintree Ltd.........................................................................................23..............................................................................................................................................25..............................................................................................................................................26..............................................................................................................................................27..............................................................................................................................................28..............................................................................................................................................28C. Outlining principles and concepts of accounting.............................................................28D. Importance of measuring and presenting depreciation in financials...............................29M2. Assessing P&L, balance sheet and cash flow statements.............................................29D2. Accurate calculations in accounting for producing financial statements......................29CLIENT 4......................................................................................................................................30A. Preparation of bank reconciliation statement..................................................................30B. Causes of recording transaction in bank reconciliation statement...................................30C. Producing cash books......................................................................................................30..............................................................................................................................................31..............................................................................................................................................31
M3. Reconciliation process and related accounting terms...................................................31D3. Producing bank reconciliation statement.......................................................................32CLIENT 5......................................................................................................................................32A. Producing sales and purchase ledger account for the company......................................32B. Explaining control account..............................................................................................33CLIENT 6......................................................................................................................................33A. Discussing suspense account and main features of suspense account.............................33B. Preparation of trial balance..............................................................................................33C. Producing journal entries.................................................................................................34D. Distinguishing clearing and suspense account................................................................35M4. Exploring types of accounts..........................................................................................35D4. Providing accounting methods for organisation............................................................35CONCLUSION..............................................................................................................................36REFERENCES..............................................................................................................................37
INTRODUCTIONFinancial accounting is crucial branch of accounting which is required for preparation offinancial statements in effective way. Present report deals with importance of accounting in thebusiness in order to record various transactions that occurs on day-to-day basis. The solutions forvarious clients are provided by seeking information given and as a result, financials are prepared.In accordance to this, journal entries are made, then entries are posted to general ledger accountsin effective manner. From this, trial balance is formulated to check on errors if any that mightcreep in posting entries into ledger. Finally, balance sheet and income statements are drawn.Apart from this, bank reconciliation statement is prepared to rectify balances of bank and thatwith records maintained by firm. Suspense account and control account is explained.Furthermore, accounting regulations, principles and concepts are discussed which are providedby various professional bodies. Thus, it can be said that accounting plays crucial role in thebusiness as it provides clarity regarding the transaction occurred in and classified into theirrespective nature of accounts. A. Produce a report to Line Manager for discussing accounting regulationsTo: Line ManagerFrom: Junior AccountantSubject: Accounting terms, regulations to be taken into account by organisationRespected Sir,Accounting is one of the important functions in the business so that day-to-daytransactions may be effectively recorded (Damodaran, 2016). It is essentially required becausewithout taking into account various transactions into account, financial statements cannot beprepared in effectual manner. In carrying out this task, accounting principles and regulationsplay a crucial role in preparing financials in the best possible manner. The financials such ascash flow statement, balance sheet, income statement are important pillars of accounting whichis used to carry out proper financial health of the concern in effective way. The balance sheet shows assets and liabilities of organisation for a particular periodusually one year. On the other side, cash flow statement effectively shows cash positionwhether surplus or deficit exists. While, Profit and Loss account clarifies expenditures incurred1
and income earned in particular financial year. Hence, all these statements are prepared byrelying on proper accounting practices by accountant so that clear position can be highlightedregarding health in effective manner. Accounting principles and regulations governed by the accounting professional bodiesare important because financials cannot be formulated in effective way without abiding by rulesand principles of accounting (Nash, 2018). This helps to effectively prepare proper financialswhich highlights true and fair view of financials in the best possible manner. On the other hand,if regulations are not properly followed, then organisation is not able to produce financials ineffective way. This affects fairness of accounts and as such, it is required that such regulationsand principles should be followed for producing financials with ease. The accountinginformation derived through financials is quite useful for the organisation as it imparts to theexternal users of financial information for taking enhanced decisions. Creditors' are benefited asthey seek financials and attain clarity about the solvency position of company. On the otherside, investors' are benefited as they analyse profitability aspect of organisation. Moreover,other users also seek such information and then take decisions. Hence, accounting regulationsare important part in carrying out accounting as firm is benefited by following various requisitesand thus, authentic financials are formulated in effective way.Financial AccountingFinancial Accounting is useful as past data is used to draw effective financials. In simplewords, monetary transactions which occur on daily basis are taken into account and thus,financials are prepared with ease. It is required so that proper statements may be formulated andit may impart necessary information to external users quite effectually (Busco and Quattrone,2018). This is essentially required because external users rely on financials which serves themthe required information by which they are able to take enhanced decisions. Apart from external parties, internal management is also benefited by seeking financialstatements because they make strategies and initiates improvement for strengthening internaloperations. It is required to strengthen organisation internally so that output may be producedmore and customers' satisfaction level is enhanced in a better way. Creditors and investors are able to take better decisions and thus, financial accounting is2
the main element in producing authenticated financials of organisation highlighting health interms of financial performance. Moreover, profitability, efficiency, solvency and liquidityaspects of firm are effectively attained which is possible by preparing financial statements byinformation provided by such accounting. In relation to this, monetary transactions suchrecording in books of prime entry and posting them into ledger and then constructing trialbalance are bases for effectively producing balance sheet, income and cash flow statements(Constable and Kuasirikun, 2018). In addressing this, taxation authorities are benefited byseeking financials as it serves them to effectively ascertain tax liability of organisation in thebest possible manner. Thus, it can be said that financial accounting gives clarity regardingoverall position of firm quite effectually.Regulations of Financial AccountingThe financials are produced in order to gain useful insight with regards to overallposition of company in effective manner. In relation to this, for preparing adequate andauthenticated statements, it is required that accounting regulations must be properly followed bythe organisation so that reliability and transparency may not get diminished. This helps toproduce effective and better statements by relying on various accounting regulations impartedby professional bodies entrusted to provide guidelines to accountants so that reliable financialsmay be prepared in effective way. In addressing this, financial statements may be manipulated by company which affectsreliability and as such, imparts wrong information to users. It adversely affects them as whenthey rely on manipulated statements, decision-making is hampered badly. False information isprovided to them impacting on external parties up to a high extent (Heitzman and Huang, 2018).This should be alleviated in order to produce reliable financials and thus, financial regulator ofUK has given FRC guidelines which have to be effectively followed by organisation andgovernment also for preparing authenticated financials. The legal frameworks are listed under-FRC (Financial Reporting Council)- The body is entitled to foster development in the nationand regulates organisations and government units as well. Hence, accounting practices areadopted by accountants quite effectually.IASB (International Accounting Standards Board)- This body is entrusted to provide3
guidelines to the company's accountant by which reliable and fair financials may be prepared.This helps to effectively prepare statements and no false information is indulged in. IFRS (International Financial Reporting Standards)- The accounting body also impartsguidelines to the accountants in order to abide by legal framework so that adequate financialsmay be formulated in the best possible manner. Rules for accountingGAAP (Generally Accepted Accounting Principles) which is another important bodyhas imparted guidelines for preparing financials in effective manner. The several principles andrules are described below-Economic assumption- This accounting rule postulates that organisation analyses economicenvironment and as such, assumptions are made accordingly (Libby, 2017). In additional to this,assumptions are made to estimate how economic environment will impact upon sales andforthcoming project.Principle of full disclosure- It states that firm should prepare financials by taking into accountall the monetary transactions. In simple words, to produce reliability, it is needed to compilefinancials in single statements so that more transparency may be imparted in a better way. Going concern principle- The accounting principle states that financial statements are producedby taking into consideration this principle. It means that firm carries on business for long runand will not shut down immediately. Observing this, financials are prepared. Materiality principle- This principle postulates that only material information should be takeninto account which do not affect decision-making by external users. Hence, immaterial itemsmust be ignored. This is required so that material items are taken into account for producingfinancials (Nitzl, 2018). Monetary unit assumption- The principle is related to monetary value of currencies. The USDollar is universally applicable and accepted currency which can be used by organisation inorder to made business transactions in effective manner. Material disclosure and consistency conceptsConcept of consistency- The accounting concept states that firm should take into account only4
that accounting policies which it has used in previous year. In simple words, consistent methodsshould be followed in order to produce reliability in the best possible manner. It can be said thatif consistent accounting methods are not taken into then transparency and reliability oforganisation is hampered. Hence, it is required to follow same policies. For instance, if straightline method is followed by the organisation, then should be followed in forthcoming years inorder to produce reliable information. Material disclosure- The concept states that material information should be taken into accountwhich affects financial statements up to a high extent. In other words, immaterial items orinformation should be ignored which do not have impact on users of accounting informationand thus, reliability can be ascertained in a better way. The books of accounts should discloseonly material items which is effectively evaluated by external stakeholders and they are able totake decisions in the best possible manner. CLIENT 1A. Journal entries for the sole traderThe transactions are to be recorded in a better way so that receipts and withdrawals maybe effectively ascertained (Schneider, 2018). For recording transactions, books of prime entryalso known as journal is made in the best possible manner. It can be said that for producingfinancials, journal entries is the first step which is done by recording business transaction inchronological order. This is made in chronological order so that every transaction occurred on aparticular date should be recorded on that date only for the purpose of reliability. Hence, entriesare posted in journal so that each and every transaction may be recorded and accounted for quiteeffectually. The journal entries are produced for Alexandra firm below-5
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