Financial Accounting - Taj Accountants

FINANCIAL
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Part A...............................................................................................................................................1
1. Financial accounting and its purpose.......................................................................................1
2. External and internal stakeholders of large organization.........................................................3
PART B............................................................................................................................................5
CLIENT 1........................................................................................................................................5
CLIENT 2........................................................................................................................................5
c). Consistency and Prudence......................................................................................................5
d) Purpose of depreciation in financial statement........................................................................6
e)Difference between financial statements of sole trader and limited company........................7
CLIENT 3........................................................................................................................................8
A) Purpose of preparing Bank Reconciliation Statement ...........................................................8
B) Listing the areas that vary the record of bank and cash book................................................9
C) Imprest in petty cash system.................................................................................................10
CLIENT 4......................................................................................................................................10
b.) Purpose of preparing control accounts.................................................................................10
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................12

INTRODUCTION
Financial accounting is one the most specialized branch of accounting which helps in
keeping complete track of various financial transactions. Such transactions are recorded by
effectively using standard guidelines in order to record, summarize and present transactions in
financial statements in a systematic and reliable manner.
This study will highlight on the key purpose of financial accounting. It will also
demonstrate internal and external stakeholders of the company and examine why they are
interested in the various financial statements of the organization. This study will record various
business transactions with the help of double entry book keeping and will also extract a trial
balance. Final accounts will be prepared for partnership, limited company and sole traders in
compliance with appropriate standards, conventions and principles. Furthermore, this study will
perform bank reconciliation system in order to ensure that the bank and company records are
correct. It will also reconcile control account and identify correct accounts for specific
transactions recorded in suspense account.
Taj Accountants is a small accountancy firm based in London, United Kingdom. It offers
one stop solution to customers regarding tax, business planning, accounts, payroll, bookkeeping,
advisory services to partnership, sole traders and limited company.
Part A
1. Financial accounting and its purpose.
Schroeder, Clark and Cathey (2019) sought to establish the fact that, financial accounting
is one the most specialized branch of accounting which helps in keeping complete track of
various financial transactions. Financial accounting is useful in capturing the company's financial
position for the particular accounting period. Financial accounting is carried out by effectively
complying with various accounting standards, conventions and principles. Financial accounting
mainly generates four main financial statements which mainly includes income statement,
balance sheet, owner's equity statement and cash flow statement. Financial transactions are
recorded by effectively using standard guidelines in order to record, summarize and present
transactions in financial statements in a systematic and reliable manner. Furthermore, such
financial statements are useful for stakeholders in order to extract useful information and make
strategic decision (Financial Accounting – Introduction, Accounting Concepts, Preparation and
Presentation of Financial Statements, 2018). The primary recipients of financial statements are
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managers, investors, creditors, board of directors, etc. and the secondary recipients of financial
information are customers, employees, competitors, stock market analyst, etc. Financial
accounting is very useful in keeping systematic records of the financial transaction on a timely
and reliable manner. On the contrary, Henderson and et.al., (2015) argued that, financial
accounting does not take into consideration non- monetary transactions, which in turn does not
disclose exact value of the business. Financial accounting is largely influenced by personal
biasses of an individual.
Financial accounting is useful in analysing the profit and loss position of the company.
The key principles of financial accounting are objectivity, materiality, usability and
comparability. Financial accounting is very useful in forecasting and take strategic decision for
the future. It is very useful in communicating with different stakeholders in relation with
financial position of the company (Macve, 2015). International accounting standard board
(IASB) helps in developing high quality standard in order to generate accurate ad reliable data
for the future. Compliance with regulatory framework is useful in increasing the confidence of
various financial accounting and reporting process. Financial accounting must be in compliance
with GAAP, IFRS, SEC and FASB.
Purpose of financial accounting
The key purpose of financial accounting is to effectively ascertain the financial health
and position of the company for the particular period (Barragato, 2019). It helps managers to
make strategic decision which leads to long term sustainable growth and development of the
business. The main purpose is to provide information related with performance and financial
position of the company. The balance sheet of the company helps in determining the current
asset and liabilities for a particular period. The income statement helps managers to know the
ability of the company to generate profit. Cash flow statement helps in determining the cash
receipt and cash outflow of the company in order to gain insight on the current market position
of the company (3 Main Purposes of Financial Statements, 2019). The main purpose of the
financial statement is that it is useful in making credit decision, investment decision, union
bargaining decision and taxation decision. Financial accounting helps in assisting potential and
existing investors in order to take strategic decision regarding investment. It is very useful for
managers to oversee the prospective future net cash flow of the company. Financial accounting is
useful in keeping systematic record of the various financial transactions for a particular
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accounting period. It is very useful in determining the best performing sector of the company. It
is very useful in controlling the cost of the company by attaining economies of scale (Tassadaq
and Malik, 2015). The key purpose of financial accounting is to provide timely information to
the stakeholders of the company in order to make strategic decision. It is very useful in allocating
the resources and results in determining the cash flow, operational efficiency and financial
position of the company.
2. External and internal stakeholders of large organization.
Internal stakeholders
Internal stakeholders i.e., employees, managers and owners of the company are directly
related with the organization (Nilsson and Stockenstrand, 2015). They are the people who are
serving the organization and gets directly influenced by the performance of the company.
Internal stakeholders focus on making strategic decision which in turn results in long term
sustainable growth and development of the business.
Managers
They are interested in the financial statements of the company because it focuses on
managing the various affairs of the company by ascertaining the financial position and
performance of the organisation. They focus on ascertaining the most profitable unit of the
company and also helps in determining the factors which leads to higher cost and expenses.
Financial statements helps managers in taking strategic decision which leads to higher
profitability and attainment of economies of scale. It helps managers in assessing and evaluating
the liquidity, operational efficiency and profitability of the business (HASLAM and et.al., 2015).
The managers set the benchmarking standards and strategy which helps in identifying areas of
competence and attain greater heights and growth in future. It also helps in managing various
risk factors which in turn results in smooth functioning of the business.
Employees
Employees assess the financial statements of the company because it will help them in
evaluating the future growth prospect of an individual upon the growth, performance and
financial position of the company. It helps in ascertaining he job security and future
remuneration of an individual. Financial statements helps employees in assessing the financial
stability of the company. Of the company is performing better, then there are higher chances of
career growth and opportunities for the employees of the organization. In case the profit of the
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company are low and are no future prospect for growth, then employees will quit that job and
will not further invest any money and time in that organization (Chalmers, Hay and Khlif, 2019).
External stakeholders
It refers to the people that are working outside the organisation and are affected by the
actions and decisions of the company. There are various types of external stakeholders such as
customers that buy products or services of the firm, creditors from whom organisation owes
money, suppliers of raw materials etc. (Vracheva, Judge and Madden, 2016). External
stakeholders of Taj Accountants that may be interested in receiving financial information
regarding operations of the company are as follows -
Government :
Government bodies such as tax authorities etc. are interested in getting financial
information of the firm for the purpose of determining that whether the organisation is
complying all the regulatory requirements and for the purpose of determining tax liability of the
business. Tax is calculated on the basis of profits generated by the firm (Diouf and Boiral, 2017).
Therefore, financial information related with the operations of Taj Accountants will help the
Government to calculate the amount of tax to be paid by the firm. Further, financial information
will also help the authorities to determine whether company is charging fair rate for offering the
services to the customers.
Lenders and creditors :
Creditor is an institution or individual that provides permission to another entity to
borrow money which is to repaid by the firm in the future. Creditors charges interest on the
amount provided to another entity in the form of loan. Lenders will require financial information
of Taj Accountants to determine credit worthiness of the firm. On the basis of financial position
of the company, lenders and creditors offer credit facilities. If, the financial position of the firm
is good it will indicate that company is able to pay outstanding amount on time. In case liquidity
position of firm is poor it will indicate that company does not have sufficient assets to pay
liabilities back on time (Martin and Moser, 2016).
Customers :
It refers to the individual or firm that purchase product or service of the business. If, there
is long term involvement between Taj Accountants and its customers then, clients will be
interested to determine company's ability to maintain stability in the operations. Further,
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financial information will help clients of Taj Accountants to ensure whether company will be
able to continue its existence in the future or not. Moreover, financial statements will help
customers to determine that whether firm is providing services at fair rate or not.
Investors :
It refers to the individual or firm that commits funds in the business in the expectation of
getting better financial returns from the company. Financial information regarding operations of
Taj Accountants will help potential investors to determine the viability of investing funds in the
company. Financial statements like profit and loss statement help to forecast dividend that will
be paid by the firm in the future. Further, financial information will also assist the investors of
Taj Accountants to analyse the risk associated with investing funds in the organisation. For
example -If there is more fluctuations in the profit of firm it will indicate that there is high risk
in investing capital in organisation (Diouf and Boiral, 2017).
PART B
CLIENT 1
1. Recording and classification of the journal entries
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