Financial Accounting in the Banking Industry - PDF

FINANCIAL
ACCOUNTING
PRINCIPLES

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
P1 ....................................................................................................................................................1
Applying double entry book keeping system of debit and credit. Frame general ledger with
transactions of sales and purchase...............................................................................................1
P2...................................................................................................................................................11
Producing trial balance by applying use of balance off rule.....................................................11
P3 ..................................................................................................................................................12
Preparing final accounts with reference of figures of trial balance by adjusting depreciation
and prepayments.......................................................................................................................12
P4 ..................................................................................................................................................17
Analysing Financial statements with BRS................................................................................17
P5...................................................................................................................................................18
A. Framing sales and purchase ledger for the year 2017 (May) of Henderson........................18
B. Evaluation of Control accountant.........................................................................................21
P6...................................................................................................................................................21
A. Explaining suspense account with features..........................................................................21
B. Drafting Trial balance...........................................................................................................21
C. Journal entries.......................................................................................................................22
D. Differentiate between Suspense account and Clearing account ..........................................22
M4 Kinds of accounts and construction of reconciliation........................................................23
D4 Generating adequate accounting methods...........................................................................23
CONCLUSION..............................................................................................................................24
REFERENCES..............................................................................................................................25

INTRODUCTION
Financial accounting is very essential component of each and every organization
especially its principles. Each and every industry has its major use for generating the adequate
return with context of finance and operations of the business. The present report is giving brief
understanding on different accounts such as sales ledger control account and purchase ledger
control account of client 5. Further there is brief understanding about suspense account with its
essential features and its trial balance with proper justification. There are different ways for
fetching the important information for taking appropriate decision regarding profitability. For
measuring profitability and performance there are different financial statements like income
statement, balance sheet, cash flow for analysing different operational task as well.
P1
Applying double entry book keeping system of debit and credit. Frame general ledger with
transactions of sales and purchase.
The double entry book keeping system of debit and credit has been disclosed below by
extracting balance sheet and Income statement of may 2017 of Alexander (Kwok, 2017). With
the help of different accounting techniques in the given duration with transactions are briefed as
follows :
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2

General Ledger
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All transactions are included in journal entry of the given dataset. Each account has their
own entries. The cost and gain has been analysed from different sources of all activities by
managers and owners with operation of organization by observing journal entries. The journal
entries plays very significant role in reducing different level of expenses and cost related to
organization.
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5

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7

Nominal Ledger
8

9

Real ledger accounts
Journal entries
Assets Dr Cr
Premises 340000
Fixtures 8100
Investments 63900
Van 51250
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Receivables
Flane 3100
P Mullen 1400
Cash in hand 5600
cash at bank 62400
Liabilities
Payables
J Brown 4600
S Hood 2150
Balancing figure of capital 52900
53750 53750
P2
Producing trial balance by applying use of balance off rule
There are different balance which can be directly elaborated by the organization in
context of sales of ledger and journal. All the accounts include various types of data and they are
summarised briefly. All the transactions which are remaining as a balance they are to be known
as general accounts. It has been required by each and every organization whether it is small or
big corporations.
Particulars Dr Cr
sales 4050
Van 28500
Drawings 1500
Purchase 220
Motor cost 8000
Bank amount 29500
Cash 1970
A/C payable 8220
A/C receivable 4050
Suspense account 17570
Total 51840 51840
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Interpretation : The above table consists of different transactions on the aspect of
purchase and sales which are occurred in this organization in specific duration. There is presence
of many assets which are re-evaluate such as premises, fixtures, van and even inventory is
known as asset which are re-evaluate. 10930 is referred as aggregate of sale and aggregate of
purchase is 38320.It is clearly viewed that there is presence of more purchase as compared to
sales so in easy terms income is less from expenses so organization should keep track on both
and it should e balance accordingly. In the present era, different accounting principles are issued
by different boards and association from the context of trial balance which is drawn above.
According to standards of IASB, IFRS and GAAP all transactions are recorded in trial balance
with reference of accounting concepts as well.
P3
Preparing final accounts with reference of figures of trial balance by adjusting depreciation and
prepayments
In the present scenario, Raintree Limited has given specifications about the accounts of
trial balance of dated 30th September 2017 and it gives specific analysis of income statement,
balance sheet and depreciation. In this case scenario, depreciation has to be discussed in both
methods such as written down value method and Straight line method (Eisenschmidt and
Schmidt, 2018). It consists of many accounting concepts such as consistency and prudence as
well.
Income statement of year ended 30th September 2017 (Raintree limited)
Particulars Amount
Net sales 107000
(SR) 2000
Closing Stock 18000
Opening stock 17000
Purchase 32000
Total Gross margin 74000
(Indirect cost)
Extra dep. 36000
administration cost 28000
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Distribution cost 22000
(advance rent) 3000
O/s wages 2000
Operating gain 85000
Operating loss
(Interest payment) 11000
(Corporate tax) 4000
Profit from continuing operations 7000
Net Income 18000
Notes
Accumulated depreciation on
building 7000
Add dep 1000 8000
Plant and machinery 15000
Add dep 13000
20% on 6500 28000
The above table is giving brief understanding on measurements related to different
income and expenses which are raised from sales and production activities of given duration
which has special link of operations in business.
Financial Position
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16

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Consistency concept: This principle states that emphasis should be placed on following
similar rules and methods in the future accounting periods. In other words, once company has
adopted specific accounting principle or method then the same should be continued in the near
future. This in turn facilitates effectual comparison over the years and improves financial results
as well as reporting prominently. In addition to this, in the annual report, reasons behind making
changes in the existing methods should also be included. Thus, as per such accounting principle
reasons behind changes in the existing principles should be included in the notes section of
annual report.
Prudence concept: In accordance with such principle, accountants do not overestimate
income or revenue and underestimate the figure of expenses. Further, accounting personnel
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should be conservative while recording the amount of assets in final accounts. In addition to this,
for presenting the fair view of financial aspects liabilities should not be underestimated.
Purpose of depreciation while formulating accounting statements
In the context of final accounts, the main purpose of depreciation is to charge to expense
a portion of an asset which in turn highly associated with the revenue generated with such
tangibles.
P4
Analysing Financial statements with BRS
The bank statement has been created for Kendal in specific duration has drawn capability
of understanding all gains and expenses in the data set which has been provided (Warren and
Jones, 2018). By putting special efforts understanding on basis of cash flow is easy to understand
and even it will be giving advantage to each and every segment of business with accurate
disclosure of whole information. Thare is presence of many reasons which are giving advantage
to organization for identifying factors in context of influencing very highly to volume in tracking
all transactions for deep analysis of transit deposit, cheques which are outstanding and cheques
which are dishonour with particular interest which is charged because of specific duration.
There is presence of specific bank reconciliation statement, cash book of that client and
most essential is bank statement which are as follows :
Bank Reconciliation statement as on 31st December 2017
Particulars Cheque number Amount
Balance with respect to bank
statement 17473
O/s lodgement 176
17659
(Un-presented cheques) 737 1163
Balance with respect to cash
book 16496
Cash Book
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Updated cash book for period on 31st December 2017
Dates receipts Figures Dates payments amount
Balance
Brought down 19973 31/12/17 Adjusted error 1
Adjusted error 9 Bank charges 47
Standing order 137
Direct dr 297
Balance
carried down 19500
19982 19982
Bank statements as on 31st December 2017
Particulars Cheque number Amount
Balance with respect to bank
statement 19733
O/s lodgement 119
19857
(Un-presented cheques) 97 357
Balance with respect to cash
book on 31st December 2017 19500
P5
A. Framing sales and purchase ledger for the year 2017 (May) of Henderson
Sales ledger control Account
Sales ledger account is referred as account which summarise all transactions and keeps
the track of arithmetical accuracy with the context of sales ledger. It also helps in creating ability
for glimpse that within sales ledger the balance of general ledger agrees with the sum of
individual trade receivable account (Scott, 2015). The balance with respect to sales ledger
account is also termed as trade debtors control account gives all the balances equals to account of
individual customers. It is the major part of balance sheet. The account reflects about the
ownership of customers and company as well at given specific time. It also contributes in method
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of double entry bookkeeping where is the presence of both types of entry i.e. credit and debit for
every transaction.
The main objective of creating sales ledger control account is to keep track on the amount
which has been owned by every customer to business. Each and every transaction of individual is
represented in customer ledger so credit notes, receipts and invoices are highlighted in this
account. A control account is mostly applied for rechecking the aggregate which is in balance
sheet and some specific financial reports. If there is presence of any variation then it should be
investigated properly. The sales control accounting in accounting it must be reconciled in each
and every month end which ensures that there is similar balance in similar time according to
aged debtors report which reflects the balance of individual which remains outstanding per
customer. The sales ledger control account of Henderson of May 2017 is as follows :
Interpretation : The above table has various items in which it is stated from opening
balance which is sum of trade receivable balances at the ending of previous accounting period
which is also termed as opening debtors. Credit sales is also debited in account of 152350 which
is sourced from Sales da book. In cash book there is presence of discount which has been debited
is also contributing in sales journal account with credited amount of 380. The written off bad
debts are in credit side of 120 which is originated from journal (Beatty and Liao, 2014). In the
books of Sale return journal or Return Inwards day book there is total sales return which is
credited in this control account by 7320.
Purchase ledger control Account
The arithmetical accuracy of purchase ledger has been observed by purchase ledger
control account it is also referred as summarized format. The balance of this account is also
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known as trade creditor control account where every balance must give equality on the supplier
accounts of individual. It creates ability to give glimpse that general ledger balance for ledger of
purchase must agree with sum of each and every trade payable accounts which is constituted in
purchase ledger (Trucco, 2015). It is a major contribution to balance sheet and ownership of
suppliers has been judged within the specific time. There are various transactions which are
recorded in this account i.e. ledger of supplier so with this reference credit notes, payments and
invoice are recorded in this.
The control accounts are contributing as a component of double entry bookkeeping
method and its main implication is to find the aggregate of balance sheet of the organisation. The
main objective of purchase ledger control account is to ensure about no mistakes in ledgers as
this account exists for debtors as well as for creditors. This account must be reconciled by the
ending of every month and is directly reflected in similar balance and time with the aged creditor
report of the balances of every individual which is outstanding for every suppliers. The
variations should be investigated properly (Thornton, 2018). The amount which is ensured in the
control accounts and with the match of general ledger is refereed as reconciliation.
Interpretation : The above table depict the sales ledger control account, which has sum
of trade payables balances at the month end of past accounting period is also termed as opening
trade payables as 101010 is at debit side. Along with this discount which is received is also
debited as 290 which is sourced from credit side of cash book. The purchase return or return
outwards from journal of purchase return is of amount 1110 and there is presence of set off of
330. The amount which has been credited is of 23320 which constituted credit purchase of
116500, bank 400 and balance which has been brought down as 9160.
B. Evaluation of Control accountant
It can be defined as a summarized format of accounts which has to be traced in each and
every individuals separate account of business. These account are used for accounting the
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measure of trade payables and receivables of the organization. So in this context it has been used
by very huge corporations.
P6
A. Explaining suspense account with features
Suspense account is referred as an account which has been generated for rectifying the
one sided mistakes of past year. It is maintained for some specific and temporary duration. After
rectifying the mistakes there will be no balance in this account and it will be not visible. While,
creating suspense account it should be always considered that mistakes should always be
investigated and not remains unrectified. Usually this account is used for framing final accounts
and for observing errors simultaneously.
B. Drafting Trial balance
Trial balance gives a specific list of closing balances of ledger at specified date and it is
referred as initial step for preparing the financial statements. Generally it has been prepared at
the accounting period's end for drafting such financial statements. It is classified in two
categories that is debit and credit side (Pointer Ivan Andrew, 2011). Debit side consists of
different assets and credit side comprises liabilities, income and capital accounts.
Interpretation : The title of account represents name of ledger accounts that from where
the amount has been originated. This is also used for measuring that all the entries are posted in
correct manner or not then there must be match in debit side and credit side (Cochran, 2018).
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C. Journal entries
D. Differentiate between Suspense account and Clearing account
Clearing accounts and suspense accounts both are considered as a temporary accounts
and here all the transactions are aggregated and transferred in proper accounts like suspense
account or income account .
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There are various differences in whole functions and there role, in clearing account all the
transactions are hold fir using it later and ensuring the amount which has to be transfer
accounting information which can be recorded properly. Suspense accounts is used or operated
with the perspective of accounting problem and after that it has been resolved. At the end of both
the accounts are zeroed.
M4 Kinds of accounts and construction of reconciliation
With the perspective of different roles and functions of the firm which are prepared on
the basis of some relevant accounting techniques which will be giving proper management of
each fund and its operations with respect to business (Brewer, 2013). For preparing profit and
loss accounts there will be brief presentation of all revenue and expenses which are generated by
organist ion within the specific period. The assets and liabilities will be reflected in balance sheet
and it will create ability for organization for accomplishing the debts and payments to
shareholders.
D4 Generating adequate accounting methods
There are various application of different methods and techniques for generating accounts
and for performing the sufficient audit of all these accounts. All these transactions should be with
respect to business for giving adequate returns and even for giving balances which are very
favourable to users like financial data sets (Basic accounting principles. 2018).
CONCLUSION
From the above report it has been concluded that financial accounting plays very
important role in each and every industry. There are various financial statements for measuring
the profitability of organizations like balance sheet, profit and loss, cash flow etc. In the present
scenario journal and ledger plays very important role in any organization.
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REFERENCES
Books and Journals
Beatty, A. and Liao, S., 2014. Financial accounting in the banking industry: A review of the
empirical literature. Journal of Accounting and Economics. 58(2-3). pp.339-383.
Brewer, W. F., 2013. The nature of narrative suspense and the problem of rereading.
In Suspense (pp. 117-138). Routledge.
Cochran, R. J., 2018. The Financial Accounting Standards Board’s Fair Value Mandate: Are
Level 3 Assets and Liabilities Being Measured Accurately?. Accounting and Finance
Research. 7(2). p.33.
Eisenschmidt, K. and Schmidt, M., 2018. Integrating prediction markets into the due process of
international accounting standard setting: A possible path to achieving legitimate
accounting standards?. The Journal of Prediction Markets. 11(2). pp.77-102.
Kwok, B. K., 2017. Accounting irregularities in financial statements: A definitive guide for
litigators, auditors and fraud investigators. Routledge.
Pointer, I. A., Pointer Ivan Andrew, 2011. Financial, account and ledger web application and
method for use on personal computers and internet capable mobile devices. U.S. Patent
Application 13/021,732.
Scott, W. R., 2015. Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall.
Thornton, S. C., 2018. A Collection of Case Studies on Financial Accounting Concepts (Doctoral
dissertation, University of Mississippi).
Trucco, S., 2015. Premises for the Convergence of Financial Accounting and Management
Accounting. In Financial Accounting (pp. 41-64). Springer, Cham.
Warren, C. S. and Jones, J., 2018. Corporate financial accounting. Cengage Learning.
ONLINE
Basic accounting principles. 2018. [Online]. Available through
:<https://www.accountingtools.com/articles/2017/5/15/basic-accounting-principles>.
Sales Ledger Control account. 2018. [Online]. Available through
:<https://www.accountingcapital.com/books-and-accounts/sales-ledger-control-and-
purchase-ledger-control/>.
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