Financial Accounting: Types of Business Transactions, Financial Statements vs Financial Reports, Users of Financial Reporting

Financial Accounting

INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
Scenario 1........................................................................................................................................1
Question 1....................................................................................................................................1
What are the different types of business transaction...................................................................1
Question 2....................................................................................................................................3
Question 3....................................................................................................................................7
Explain the difference between financial statement and financial report, why these reports are
required and who are the different users......................................................................................7
Question 4....................................................................................................................................8
Explain different fundamental principles of accounting.............................................................8
Question 5....................................................................................................................................9
Scenario 2......................................................................................................................................10
Question 1..................................................................................................................................10
What is meant by bank reconciliation and why is it required? How is this achieved? Why is
this necessary.............................................................................................................................10
Question 2..................................................................................................................................11
What are control accounts? Explain the role of control accounts in financial management.....11
Question 3..................................................................................................................................12
Suspense account and the reasons for drafting suspense accounts............................................12
Question 4..................................................................................................................................12
(a) Required to prepare updated cash book and bank reconciliation statement.........................12
(b) Explain the following terms.................................................................................................13
Question 5..................................................................................................................................14
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Financial accounting is a specialist accounting division that maintains records of cash
activities within a business (Chan, 2015). The transactions are recorded, summarized, and
statement of revenue or financial statement, such as a statement of cash flows or a balance sheet,
utilizing standardized guidance. For the better understanding of financial accounts, Brightstar
Financial Company selected which is UK based small accountancy firm. This report is
determined by different task of recording business transactions in terms of journals, ledger, trial
balance and producing final accounts with different business types. Additionally, this report
needed a bank reconciliation to recognise whether or not bank statements are correct.
MAIN BODY
Scenario 1
Question 1
What are the different types of business transaction
There are several types of business transactions which applied in single and double entry
bookkeeping. Basically it has four major types which are as follow:
Sales: This sale is performed by business in which they sell their products & services to
some other entity and give the money back to the customer or may buy items on credit. Both
selling transactions reported in account books and then further it is analyzed for reporting
purposes to render journals and other records. Purchasers will debit in this transaction, and sales
accounts will be credited.
Purchase: Where any items are bought by an agency or person, this activity falls under
transactions (Drexler, Fischer and Schoar, 2014). If the company buys something and the
payment will be documented as the purchase account debit and the individual or creditor to
whom people purchased would be credited. Such practice is often performed in cash or on the
basis of credit. Further this transaction recorded in the books of accounts for reporting purpose.
Receipts: When a company is paying for providing goods or services to another entity,
these fees apply to other companies or persons. Further such sales are registered in newspapers
where dealers are charged to trade receivables as debit and cash or credit payment.
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Payments: This contains business activities where organizations have to spend on other
parties in credit or cash terms. These would be recorded in accounting records and are further
prepared for reporting purposes by journals. Expenditures are debit and earnings paid to another
group.
Single-entry book keeping: If the company is very short and simple with little operational
activities. This truly is like having that own personal chequebook. Company is using single-entry
bookkeeping in order to maintain a list of purchases such as currency, tax-deductible
expenditures and taxable income. Single-entry bookkeeping, as in the check ledger, is defined by
the fact that only one record is made on each activity. Entries are reported in one column as
either a positive or a negative number. They should simply maintain a two-column register in
single-entry book keeping, one column for income and one for expenditures. It is still considered
single-entry, even though for each transaction, there is only one line.
Double-entry book keeping: Many corporations, including the bulk of small firms, use
dual-entry bookkeeping for the financial requirements (Jiang, Wang and Xie, 2015). Two
features of book keeping with double entry where each account has two columns and that each
sale is in two books. With each sale, two transactions are rendered as a deduction in one account
and a add-up in another. If the business needs to spend on creditor, one example of a double-
entry transaction would be. The volume the company owes the creditor would cut the
cash account balance where debit the cash account. Instead, the double-entry eliminates the
money that the company actually charges to the borrower account because it has earned the
amount of credit that the company is expanding and account will be credited.
Trial balance and its importance:
A Ledger will be formed by multiple entries in different accounts. It is Trial Balance to
take all the ledger balances and show them in a single worksheet as on a given date. Group
reviews its transactions at the month-end and classifies them into separate groups. They are now
making a sheet and splitting the groups into effective / non effective.
The importance of a trial balance is to ensure adequate accounting of all transactions
recorded into the ledger accounts of a company. Within every general ledger account a trial
balance reports the starting balance. The actual number of the debit and credit balances in each
accounting entry should match with each other.
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