Financial Accounting: Types of Business Transactions, Principles, and Cash Flow Statement

This document provides an introduction to financial accounting and covers topics such as different types of business transactions, principles of accounting, trial balance, and the difference between financial statements and financial reports. It also includes calculations and explanations related to ledger accounts, cash flow statement, and balance sheet. The content is relevant for students studying financial accounting in various courses and colleges/universities.

Financial Accounting

Contents
INTRODUCTION...........................................................................................................................................3
QUESTION 1.................................................................................................................................................3
Different types of business transaction...................................................................................................3
QUESTION 2.................................................................................................................................................5
Calculation...............................................................................................................................................5
QUESTION 3...............................................................................................................................................10
Different between financial statement and financial report.................................................................10
QUESTION 4...............................................................................................................................................12
Principles of accounting.........................................................................................................................12
QUESTION 5...............................................................................................................................................14
Calculation.............................................................................................................................................14
QUESTION 6...............................................................................................................................................15
QUESTION 7...............................................................................................................................................17
Cash flow statement..............................................................................................................................17
SCENARIO 2...............................................................................................................................................19
QUESTION 1...............................................................................................................................................19
Bank Reconciliation...............................................................................................................................19
QUESTION 2...............................................................................................................................................20
Control accounts....................................................................................................................................20
QUESTION 3...............................................................................................................................................20
Suspense Account..................................................................................................................................20
QUESTION 4...............................................................................................................................................21
(a) Required to prepare updated cash book and bank reconciliation statement..................................21
(b) Explain the following terms..............................................................................................................22
QUESTION 5...............................................................................................................................................23
Journal entries.......................................................................................................................................23
CONCLUSION.............................................................................................................................................25
REFERENCES..............................................................................................................................................26

INTRODUCTION
Financial accountancy is a collection of diverse accounts and financial details connected to
the establishment of a centralized schedule by the associated enterprise skills and methodologies
connected to economics and finance recordkeeping for understanding and analyzing knowledge
and apply it for future advantage (Ahmed, 2019). Ray finance limited is the name of the
company in this report. The purpose of this study is to look at the meaning and idea of journal
entries, as well as how they are used in the organisation to create trial balances and income
reports. This document summarizes their conversation on the relevance of the trial balance and
numerous categories that the business utilizes to monitor its cash flow and bank reconciliation
statement. There's also talk on how well the accounts payable report is generated by the company
and how this might be used during the company's week and operational processes.
QUESTION 1
Different types of business transaction
Commercial transaction: This word refers to actions or deals that are economic in nature and
have an unintended impact on company operations. There are negative affects on the corporate
organization's resources, obligations, expenses, and revenue. Financial transactions are activities
that are linked to business and are recorded in the organization's journals. Money transfers and
credit commercial activities are the two types of accounts that are common.
Cash transaction: Activities involving the internal and external stream of funds. It covers sales,
purchases, and investment purchases, among other things.
Credit deal: It refers to transactions that do not need cash payment only at beginning of each
month. Goods purchased on credit, shares generated from the sale are just a few instances. Such
transactions increase overall the firm's duty and have an impact on investment property, whereas
goods supplied on debt increases the institution's holdings (Nam and et.al, 2020).
Internal and External deals: Theses deal has separate part.
External deal: This is a term that refers to actions that include external stakeholders. Business
transactions, asset purchases, stock issuance, input materials purchases, and so on.

Internal transactions: Those are all exchanges that aren't enhanced in any way. Usually internal
management stakeholders play an important role in internal transactions. It does not include
transactions involving the exchange of goods. There are several options. Internally transactions
are taken into account, as well as a depreciation penalty on a secured item and the return of an
asset that has been lost massive fire.
Single entry bookkeeping: Underneath a single entry accounting system, an entity must
document any as well as every activity in accordance with accurate financial records. This is how
a trade is logged through one side, and how unfinished entries are generated. When a business is
run by a lone owner, the bookkeeping system is utilized since the company has no legal power to
do so. is not the same as a double entry system, in which the cycle it of the transaction is
documented about each and every one (Al-Dhaimesh, 2019).
Double entry bookkeeping: Transactions or company operations are recorded on both sides in
this accounting system, it is referred to as a double entry bookkeeping system. Each financial
transaction, based on the current regulations, has two-sided consequences, affecting both assets
and liabilities. Each balance is calculated on either the debit or credit side of the ledger. This
really is the authorized and authorized style of documenting entries that is used across the world
since it is the foundation for preparing financial statements and the whole cost accounting is
founded on accountancy. It is the starting point for documenting all company transactions.
Trial balance and its importance
Trial balance: It is a document that presents a summary of all accounts associated with
business activities that are contained in the accounting records. In this case, any institutions with
balances have been displayed on the comment's debit or credit side. In many other respects, a
trial balance is a format that is created at the conclusion of each accounting year to indicate the
debit and credit balances of the accounts using the leader Imports in trial balance.
 Trial balance is used by managers to determine the debit and credit balances of accounts.
 It is beneficial to the organisation in detecting errors throughout journal input.
 It aids in the preparation of financial statements by supplying fundamental information.

 Accountants utilise it as the foundation for their records.
 The trail balance aids in the deification of the final balance (Yohn, 2020).
 It gives a number of statistical neutralities related to the debit and credit sides of balances.
 It is utilised to identify the missing amount as well as to decrease the differences between
asset and liability sides.
QUESTION 2
Calculation

Ledger accounts

Trail balance

QUESTION 3
Different between financial statement and financial report
Ray finance limited employed financial accounting methods to participants stated in
connection to the firm, and they generated financial reports and statements for this reason. Both
of these are aspects of financial accounting, but there are certain distinctions to be noted.
Particular Financial report Financial statement
Definition Financial reports are
documents that are written to
represent a company's
financial condition to its
customers.
These statements are made to
determine the worth of profit,
as well as the institution's
strength and commitments.
Aim Its purpose is to assist
consumers in obtaining data
To make a choice, use
financial facts to analyse past

on a range of items. results and potential future
appearance.
Tools It encompasses cash flow,
money mobility, and
company's financial
components (Walton, 2020).
It takes into account the profit
and loss statement as well as
the balance sheet.
Range Financial report is a broad
term that includes financial
statements.
In comparison to financial
statements, the income report
has a smaller space.
Requirement of financial report: It may be defined as the firm's established processes for
providing right information to the corporation's customers. The requirements for a financial
statement are as follows.
 Financial reports are used to back up the claims made in the article.
 It is helpful in analyzing the financial position of a company.
 It aids in the tracking of time and responsibility administration.
 Managers utilize financial reports to make decisions about future corporate policy.
 Back and other financial institutions provide loans to businesses after reviewing their
financial statements.
 It aids in the identification of real-time cash influx and outflow operations.
 Financial reports are used by two categories of people.
 Ray finance limited will be easy to correlate their success to that of competitors by using
financial reports.
 It assists in the division of a specified reward for a long term business Endeavour.
Internal users: Those were members who are an important for any organisation and assist in the
operation of the company.

 Management department: They assist in the formulation and implementation of policies
and the making of policy choices. They utilize financial information to plan practices to
help decisions about business development.
 Employees: They are parsons who are involved in daily operations. They have a strong
experience in business reports since they can ensure their job protection, profitability, and
reward organisation by analyzing the reports (Belesis, Sorros and Karagiorgos, 2020).
External users: These users among us are not member of the system but are consequently
internal to the company.
 Shareholders: Defined as those people who are clearly connected to the company and
assist it in meeting its financial obligations by investing in the organization's particular
issues so that it may carry out its varied operations.
 Public: Individuals who are closely linked to the business assist the organisation meet its
many functional needs relating to employee goodwill and economic performance.
 Financial organizations: Such organizations provide loans to businesses. Bankers, mutual
funds, health insurers, and other financial institutions are among them. They approved the
loan based on the corporation's operations and financial strength.
 Government: They supervise all organizations and provide authorization for overseas
commerce and commercial expansion in other nations, or they position them on the
premise of a review of the companies' general profitability and financial reports.
 Competition: Rival sectors evaluate themselves by determining their economic results
and profitability metrics.
 Distributors: This category comprises people who support the company in determining
resource requirements and also different work goods needed to conduct tasks linked to
the supply of goods and services (Kumar and Firoz, 2019).
QUESTION 4
Principles of accounting
Fundamental accounting concepts: These are broad functions, regulations, and
benchmarks in the area of accounting that are characterized by different GAAP principles.

Economic entity: Employee in the company, as per this idea, is two separate things.
Conservatism: When two suitable alternatives for presenting a thing exist, item bookkeeping
chooses the least desirable alternative.
Materiality: In the near future, data that will have a significant impact should be included.
Reliability: Only such activities that can be verified and have substantial proof should be
documented.
Revenue recognition: Income should be recognized on a cash method of accounting.
Consistency: Consistent is the use of a technique or set of ideas until another approach shows to
be superior (Grammatikos and Papanikolaou, 2021).
Full disclosure: Employers should make all important trade data available to employees.
Monetary unit: Trades with economic value and financial statements in relation to another
currency should be documented. It is impractical to do that for services like the barter
arrangement in this approach. As a result, allocating meanings to substances and things is
difficult to treat due to its temporary nature. Management, on the other extreme, has established
strategy for dealing with such problems.
Time: Financial statements should be reported on a consistent schedule, which is generally
monthly, quarterly, and yearly.
Going concern: This principle indicates that the business will continue business as usual through
till start of the previous sales ledger, and that the reverses will not be recorded. Enterprises may
continue on loans, account for money payments to suppliers they anticipate to earn or repay in
the lifespan, and suffer degradation if the system is utilised for current and future generations,
independently of the notion of public company.
QUESTION 5
Calculation
Profit and loss a/c
Particulars Amoun Particulars amoun

t t
Opening stock 9,500 Sales – 125,000
Purchase – 75000 Less: Return - 1000 124,00
0
Less: Return – 1500 73,500 Closing stock 1,000
Wages and salaries 13,200
Gross profit 28,800
125,000 125,00
0
Rent and rates – 1500 Gross profit 28,800
Add: Outstanding rates –
340
1,160 Interest received 1,000
Postage 900 Rent received - 4850
Insurance - 7500 Less: Advance rent -
490
4,360
Less: Prepaid insurance –
411
7,089
Bad debt write off 650
Net profit 24361
34,160 34,160
Balance sheet
Liabilities amount Assets Amount
Capital – 120,800 Bank 10,594
Less: Drawings – 5,150 Cash 340
Add: Net profit –
24361
140,011 Prepaid insurance 411

Provision for bad
debts
934 Advance rent 490
Debtor - 12500
Creditor 3,900 Less: Bad debt write off –
934
11,850
Outstanding rates 340 Motor van at WDV – 19600
Less: Dep - 5000 14,600
Loan 100,000
Closing stock 1,000
145,185 145,185
QUESTION 6
It involves analysis of the statement of income and loss together with the financial
statements.
Profit and Loss Account

Balance Sheet

QUESTION 7
Cash flow statement
A cash flow statement is an important part of financial statements because it shows the
audience however much cash the firm generates over a certain period of time. It is a sign of
excellent economic condition where financial projections exceed cash flows. This is referred to
as a steady cash flow situation. It's worth noting that such a report excludes any money in the
form of prospective collections or any costs owed by the firm. The Cash Flow Statement, also
called as the Statement of Cash Flows, is a financial statement that indicates how an
organization's financial situation has changed over time. Together with depicting variations in an
organization's Cash Balance over time, it also displays the causes behind such adjustments
(Sugiyanto and Candra, 2019).
The major reason for preparing the Cash Flow Statement would be that an entrepreneur's
Financial Statements is already created on an Accruement Base, which means that while the
Financial Statements might indicate revenues, the proper calculation from these earnings may be
insufficient to operate the firm, or conversely. The overall amount of wealth received and
disbursed by a business over a certain span of years is known as cash flow. For such an
organisation to stay in operation, cash inflows are required, and financial liabilities are also
required to produce value for investors. A typical current quarter, including a monthly, quarterly,
or the year, is typically the timeframe about which net income is monitored. The below are the
types of cash inflows:
 Operations are carried out. Consumers make payments for service or commodities
offered by the company.
 Finance-related activity. Bankruptcy incurred by the company is an instance.
 Involving investments. The return on available capital is an instance.
For example:
Here’s how a cash flow statement looks like:
Cash flow operating activities

Increase (decrease) in accounts receivable 25,000
Increase (decrease) in accounts payable (5,000)
Net cash flow from operating activities 20,000
Cash flow from investing activities
Purchase of land (20,000)
Sale of equipment 5,000
Net cash flow from investing activities (15,000)
Cash flow from financing activities
Dividends paid (3,000)
Increase in bank loans 0
Net cash flow from financing activities (3,000)
Net increase/decrease in cash 2,000
Cash at beginning of period 5,000
Cash at end of period 7,000

SCENARIO 2
QUESTION 1
Bank Reconciliation
The processing of transfers and making cash withdrawals into banks is made easier with
bank reconciliation statements. The reconciliation statement permits discovering differences in
between banking account and the ledger amount in addition to preparing necessary modifications
or explanations. It's a process of evaluating the amounts of a money market account in either a
company's financial papers to the realities on a bank statement. At specified cycles, a budget
estimate of all savings accounts will be done to guarantee that a company's financial transactions
are correct (Jill, Wang and Mattia, 2019).
Bank reconciliation is important to assess the business's information with both the business's
data or whether there are any discrepancies in online purchases between the two variables. Even
though fund's part is known as evaluate the number, reduces costs of the financial reporting
publication is known as the cashbook. Contrasts between the three balance sheets are very
prevalent, and companies must look for them and correct them around their own data. While
these discrepancies are overlooked, there will be large disparities in between amount of money
customers believe they have but the amount the bank claims they truly want in their accounts.
The outcome might be an overcharged bank balance, financing activities, and excess penalties.
The bank may also choose to close a debit card in some circumstances. To reconcile their
balances, they can do bank reconciliation by analyzing their inner bank details and tries to
maintain to their weekly bank statement. Examine each purchase independently, ensuring that
the numbers are now exactly the same, and identifying any discrepancies that require additional
examination. The method can be as formal or as informal as you choose, and some businesses
file a statement of account balances to prove how they reconciled finances on a regular basis. If a
firm does not complete the procedure on a yearly basis, then can do it on a yearly basis or
whenever they want. It is important to determine the equilibrium and determine that it is the
same or otherwise. When they discover a discrepancy, they must either justify it or determine the
cause.

QUESTION 2
Control accounts
A controlling account is a type account that contains and combines every one of the
subordinate cash accounts for a certain category. In these other respects, it's a description
accounting that's comparable to the subsidiary accounts balance, and it's utilized to make the
balance sheet easier to understand.
The following are some of the functions that control accounts perform in financial planning that
are inherently advantageous to the organisation:
• Assists in the timely identification of errors and fraud by providing a check-up mechanism.
• Remove any non-shapeable data from the general ledger (Zhou, 2019).
• Big businesses may create order processing for specific locations.
• Rather than separate bank accounts, trial balance data provide a comprehensive overview.
• Although if control account papers and subordinate ledgers are handled allocated to different
individuals, the risk of fraud is reduced.
QUESTION 3
Suspense Account
Suspense is documented in the general area, where the firm notes ambiguous entries that
need to be analyzed beyond that to identify everybody's strategies or destinations. In the
perspective of investing, a suspense account is a place where a stock holder’s cash is
momentarily held before it may be used for capital expenditures.
Reason of preparing suspense account
Unless the trial balance of the firm is now out of line, the discrepancy is retained in a
suspense account until some other mismatch is corrected. The expectation account will be
included underneath "Other Funds" on the financial statement. Whereas if source of the
discrepancy has been identified and rectified, the anticipatory balancing will be secured, however
the control account will no immediately be used (Matiukha and Rovnyagin, 2020).

When a valid contribution cannot be reported or computed at the time the activities are first
reported, a suspense account might be created. If a client receives a half bill, especially if they
have been unsure whichever cheque they should pay, this is an instance. Whenever the
customer's transactions discrepancy is addressed, the money owing can be transferred from the
suspense account to the amount equivalent.
QUESTION 4
(a) Required to prepare updated cash book and bank reconciliation statement
Updated cash book as at 28th February 2017:
Revised cash Book
Particulars Dr. Particular Cr.
Balance b/d 1760 D.Park 270
Insurance against fire 170 Mr. Akram 105
Monthly bill 56 Bank Collection 325
Arif Paid 186
Bank Charges 25 Balance c/f 1497
2197 2197
Bank reconciliation statement as on 28th February 2017:
Particular Amount
Balance as per Bank 3093
Add:

Bank Charges 25
Arif Paid 186
Monthly bill 56
Fire insurance 170
Less:
D.Park 270
Mr. Akram 105
Bank collection 325
Balance as per cash book 2830
(b) Explain the following terms
Direct debit: It's the simplest, fastest, and arguably most convenient method of making
monthly or recurring repayments, which is why it's commonly used for things like municipal
service tax fees. Direct Debit allows taking debts from accounts as they become due. They grant
which authorization by completing a direct debit authorization type; this might be a paper form
or a search engine that submits internet (Barrick and et.al, 2019).
Standing orders: A storage server practice created by an employer impacting its workers, a
professional association with the purpose of providing consistency to working requirements of
consumers as allowed for in legislation, legally approved by the central authority, may be
designated as a verbal agreement in either firm.
Bank charges: Taxes and implications by the bank on its clients are referred to as bank
charges. In simple terms, the word normally relates to costs for individual direct debits or
confirmation banks, monthly accounts costs, costs for contributed to growing trades, and etc.
Dishonor cheque: A transaction was said to have been honored whereas if bank offers the
money to the payer. Whereas if banking firm fails to pay the payer the amount, the contract is

considered to be assassin creed. To put it another way, cheque dishonor occurs when the bank
refuse to fulfill the payer the verified amounts (Chow, Greatbatch and Bracci, 2019).
QUESTION 5
Journal entries
Suspense account

CONCLUSION
Based on the foregoing explanation, financial accounting aids in the accurate balance sheet
and income data about a firm by examining the fundamentals of single and double-entry
bookkeeper accountancy, as well as the financial statement. The appropriate growth of revenue
recognition via trial balance aids in the formation of other effective accounting including
profitability and the company's financial performance. The term "bank reconciliation" refers to a
method of describing cash control using classified data. Furthermore, the production of the
control and suspense statements has been used to illustrate the reconciliation procedure.

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