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Financial accounting table of contents

   

Added on  2020-10-04

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FINANCIAL ACCOUNTING

TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1BUSINESS REPORT......................................................................................................................11: Financial accounting and its purpose......................................................................................12. Regulation associated with financial accounting ...................................................................23: Accounting rules and principles..............................................................................................34. The conventions and concepts relating toconsistency and material disclosure...........................................................................................5CLIENT 1........................................................................................................................................6CLIENT 2......................................................................................................................................14........................................................................................................................................................16CLIENT 3......................................................................................................................................16CLIENT 4......................................................................................................................................18CLIENT 5......................................................................................................................................20CLIENT 6......................................................................................................................................22CONCLUSION..............................................................................................................................24REFERENCES..............................................................................................................................25

INTRODUCTIONFinancial accounting is necessarily requirement of an organisation which enables them inacquiring knowledge about its actual financial performance or position at current time period(Zeff, 2016). It can be done through preparing financial accounts such as Profit & Loss a/c,Balance sheet, Cash Flow statement etc. on specific time period. It is mandatory for allorganisation to prepare such financial reports. The accountants of an organisation are held liableto follow all such principles and rules associated with preparation of financial reports so that anaccurate and reliable information can be available for the parties outside of an organisation suchas creditors, suppliers, investors etc. The present assignment report is based on the accountingprinciples and its role in preparation of financial reports. The project includes brief description offinancial accounting along with its purpose. The project also describes conventions and conceptsrelated with consistency and material disclosure. In addition, with this, Book-keeping system,ledger accounting, double entry system etc. are explained under this report. Apart from thisfinancial reports which includes income & expenditure, balance sheet is also practicallyevaluated following all accounting concepts and principles. BUSINESS REPORT1: Financial accounting and its purposeFinancial accounting: It is a method of identifying actual financial performance of anorganisation through making of various financial reports. It is mandatory for all organisation tomaintain financial accounts on timely basis as it is more useful for external parties of anorganisation such as investors, creditors, suppliers etc. to make decision regarding giving anappropriate support in achieving growth and expansion in competitive market.There are various accounting principle and rules are formulated which need to be complyby an accountant while preparing financial statements of an organisation (Stice and Stice, 2013).Therefore, if not allowed then the chances of errors or mistakes are more in financial reports dueto which it may difficult for interested parties to interpret and understand in better manner. Suchfinancial reports include:Cash Flow statement: It is a statement prepare with a motive of identifying cashgeneration and cash expenditure in business activities on specific time period such as monthly,quarterly or yearly. Such statement consists of three headings which includes cash flow from1

operations, investment and finance. It includes all those transactions which are transacted inmonetary terms. Income and expenditure account: It is a statement also called as profit and loss a/cshowing all details related with income earned and expenditure incurred in business operations.It is prepared to ascertain surplus or deficit of income over expenditures for a specific timeperiod. It is prepared on accrual basis which means all incomes and expenses incurred during anaccounting year whether it has been actually paid and received or not are taken intoconsideration (Skogstad and et. al., 2011). Financial position statement: It has another name called as Balance sheet which showsthe exact financial position of company towards the external parties of an organisation. It issimilar to the basic accounting equation such as Assets= Liabilities + Net assets. Such statementreflects the basic accounting principles and guidelines which includes cost, matching, and fulldisclosure principle. It plays an important role in finding out the investors in market throughrepresenting their actual financial position with their assets and liabilities in figures.Change in equity statement: Such statement is a reconciliation of the beginning andending balances associated with company equity capital during a reporting period. It is moreuseful in finding out the fluctuations in equity and share capital of company. As it is notconsidered as essential part of monthly financial statement thus it is most likely of all thefinancial statements not to be issued (Scott, 2015). The calculation structure of the statement isunder as given:Beginning equity + Net income – Dividends +/- Other changes2. Regulation associated with financial accounting Rules and regulation are very important to follow in every business organisation. So eachaccountant is bounded to follow necessary regulation that are made by concern agencies of boardto record every single transaction in correct manner.IASB- The international accounting standard board is an independent, private sectorbody that is develop for the purpose of controlling and management for recordingnecessary records. The IABS framework have been approved by the IASC Board in April1989. Basic purpose of this body is to provide proper guidance and knowledge fordevelopment of new and effective standard that can be further applied in preparingfinancial statement.2

Some of the basic conceptual framework of IASB are such as:helps board in developing future international financial reporting standard and reviewreport.Helps board of directors in establishing the concepts of regulation, accounting standard,procedure and method related to the formation of financial statementshelps the national committee in formation of national standard helps the auditor to give their opinion on the statements whether IFRS standard havecomplied while preparing statement.Help the creditor, investor employee etc. of the statement 3: Accounting rules and principlesAccounting rules: It is such a guidelines formulated by different international bodiessuch as FASB and IASB in order to maintain accounting practices in more consistent way thatwill bring easiness for interested parties to an organisation to understand in more effectivemanner (Simnett and et. al., 2011). It directs an accountant to record all business transactions infinancial reports following all prescribed rules and regulations so that it brings meaningfulinformation towards external as well as internal parties. Such accounting rules are given asunder:Debit the receiver, credit the giver: It is the rule which states that when an individualreceives or collects resources called as debtor will be recorded as debit transaction whereas anindividual pays or give something called as creditor will be recorded as credit transaction. Thisrule is taken personal accounts into consideration (Oulasvirta, 2014). Debit all expenses and losses, credit all income and gains: It is the rule which states thatall expenses and losses of company are debiting the transactions in financial statements whereasincome earned and gains by company are required to credit the transaction. In this rule, nominalaccount is taken into consideration.Debit what comes in, credit what goes out: This is the rule which states that if companyacquire any assets then such transaction will be recorded as debit whereas selling or transferringof assets will be recorded as credit under the financial statements. In this rule, real accounts aretaken into consideration.3

Accounting principles:Principles of conservatism: It is such a concept which determines that expenses andliabilities of company are recorded in books of accounts when it has been recognised not whenoutcomes have been actually received. While the assets and revenues of company will berecorded in financial statements when it has been actually received or collected. Cost principle: According to such principle, all assets, liabilities and equity capitalinvestment will be recorded at their purchasing price and avoid market price. Due to this, it is allcalled as historical cost principle (Openshaw, 2013). For an instance, the cost of price ofmachinery is 200000 in the year 2010 which increased to 250000 in the year 2018 thus whileaccounting of such asset the historical value should be considered i.e. 200000.Going concern: Such principle is based on the assumption that an organisation will beable to continue its business operations for a period of time which may sufficient to fulfil allcommitments, obligations, desired objectives etc. In other words, an organisation if seen infuture that there is no chance of liquidation in the foreseeable future is considered as goingconcern concept (Narayanaswamy, 2017). Monetary unit: This is the principle which states that an accountant must recordtransactions which are made in monetary terms as quick as possible so that cash outflow andcash inflow within an organisation are easily identified. For example, acquiring raw materials forthe production process in exchange of cash payment. Thus, transactions done in other form ofpayment which includes barter system are required to be ignored.Full disclosure: It states that any transaction made by company should be recorded infinancial statements with necessary information which facilitates people to understand and makeeffective decisions for the betterment of an organisation. GAAP directs management to provideall details and information about the company to external users in order to assist them in makingvaluable decision (Mulford and Comiskey, 2011).Matching principle: It states that all expenses and revenues should be recognizedtogether in the same period. In other words, such principle requires that an organisation mustrecord expenses in the period in which related revenues are earned. It is considered as the heartof accrual basis of accounting. It is essential to match expenses with revenues due to net income.If expenses are not recorded properly in the correct period then net income may be eitheroverstated or understated (May, 2013). 4

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