Financial Accounting Practices and Analysis

This assignment delves into fundamental financial accounting practices. It examines journal entries for correcting errors, analyzing the purpose and function of suspense and clearing accounts, and understanding their significance in financial reporting. The assignment highlights how these principles contribute to accurate financial analysis and decision-making within a business entity.

FINANCIAL ACCOUNTING

INTRODUCTION
An accounting concept under all the monetary transactions are recorded in the books of
account and then financial statements are made is known as financial accounting. Every business
organisation adopt this concept within firm in order to analyse business performance in the
industry and make effectual decisions for further years. The present study is based on the process
that from initial to end how the final accounts for company are to be made. It focuses on journal
entries, ledger account, profit and loss and balance sheet preparation step by step. Apart from
this, about the bank reconciliation statement, suspense and control account etc. explained.
CLIENT 1
A
Financial accounting
Important concepts of accounting is financial accounting in which recoding all the
business transactions and events are taken into consideration in order to ascertain the financial
performance of an enterprise. Accounting is an important process in which vouchers are created
of each and every business transactions that can be used by the management in depicting the true
performance of the business concern in the external business environment. Financial accounting
principles will be adopted by an enterprise owner in which greater emphasise of the employer
lies on recording all the information completely in the business as this will directly affects the
existing business performance of an entity.
The focus and scope of the financial accounting is narrow as compared to the
management accounting tools and techniques. In management accounting top management will
identify each and every information related to its business whether it can be of monetary or non-
monetary aspects incurred in a business. In management accounting stream all qualitative
information along with the financial information are taken into consideration in order to depict
the performance of the business enterprise.
Aim of financial accounting is to prepare financial statements that depicts the actual
performance of an entity as financial account is regarded as the summarised form of all the
accounts created by an entity. The journals entries are created that covers each and every voucher
information properly which will be posted into ledger in a systematic order.
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Regulations related to financial accounting
Financial accounting standard board is an international regulatory body that frames
various standards of accounting which will be helpful in preparing financial statements of the
company. Financial statements presented in front of various stakeholders to gain their trust and
loyalty in order to retain all of them within the same business for long period. Role of an entity
gets increases by complying with all the regulations used by an entity in order to improve the
accounting treatment of all the items in the books of accounts. Inventory is treated under IAS 2
in which lower of costs or net realisable value is taken into consideration. On the other hand, IAS
6 depreciation for accounting states that two different method of depreciation will be used by an
enterprise owner in order to charge depreciation on all the items using SLM and WDV in
regulating the overall financial performance of an entity.
Regulations are created by the legal authority in improving the quality of information
included in the financial statements as these statements represent the transparent conditions of an
entity. Proper use of standards helps in comparing the existing performance with the all he
standards in order to identify all errors and frauds lies in the current system which will be helpful
for an enterprise owner in order to present true image of an entity in front of the external market
users.
Accounting rules and principles
Accounting rules and principles are developed to guide a user in a business in recording
all the transactions in the business. Various accounting principles used by an entity will be
helpful for them in order to guide their action in a business as the sole responsibility of a
business is to improve its existing performance within given span of time. Going concern is
regarded as one of the important principles of accounting states that an entity uses this kind of
accounting principle continue its business existence for indefinite life without ceasing their
business. Auditing of this type of organisation gets easy as an auditor will assume as all
information presented in the financial statements as true to the best of its knowledge as these
principles ensures the higher performance. Materiality as important accounting principle shows
that an entity will consider all those transactions that are material in terms of affecting the
existing performance of an entity.
Conventions and concepts related to consistency and material disclosures
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Accounting conventions are launched in order to guide the action of an individual as a
business user will improve the quality of information included in the financial statements as this
will directly affected the performance of an entity. Wrong communication of business
information affects its brand image and also contracts its overall market share. Conventions in
accounting is also taken as traditional practices followed by an entity owner in improving all the
work practice as the basic aim of an entity is to improve its existing business conditions by
emphasises on the desired aims and targets framed by them.
Consistency principles states that once a policy will be selected in a business should be
followed throughout the year without any stoppage unless and until with the pronouncement of
statue. Material changes occurred in the accounting policies will be disclosed in the end of the
financial statements as stakeholders of a business will be communicated with the help of
disclosure to the financial statements.
Material disclosures is mandatory according to the legal law as in accordance with the
financial accounting principles helps in preparing appropriate statements. These statements
reflect the business performance.
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4

5

6

J.Wilson
Date Detail £ Date Detail £
01/05/03 SDB 1120 01/05/11 SRDB 270
01/05/16 Bank 807
01/05/16
Discount
allowed 43
1120 1120
P. Mullen
Date Detail £ Date Detail £
01/05/17 Balance b/d 1400 01/05/16 Bank 1330
Discount
allowed 70
1400 1400
F. lane
Date Detail £ Date Detail £
01/05/17 Balance b/d 3100 01/05/16 Bank 2945
03/05/17 SDB 770 01/05/16
Discount
allowed 155
3870 31/05/17 Balance c/f 770
31/05/17 Balance b/d 770 3870
T. Cole
Date Detail £ Date Detail £
03/05/17 SDB 1640 31/05/17 Balance c/f 2320
09/05/17 SDB 680
2320
31/05/17 Balance b/d 2320
F.syme
Date Detail £ Date Detail £
7

03/05/17 SDB 2080 11/05/17 SRDB 410
01/05/16 Bank 1586
16/05/17
Discount
allowed 84
2080 2080
J Allen
Date Detail £ Date Detail £
01/05/03 SDB 910 31/05/17 Balance c/f 910
910 910
31/05/17 Balance b/d 910
P.white
Date Detail £ Date Detail £
03/05/17 SDB 2420 31/05/17 Balance c/f 2420
2420 2420
31/05/17 Balance b/d 2420
J.Fox
Date Detail £ Date Detail £
01/05/09 SDB 1310 31/05/17 Balance c/f 1310
1310 1310
31/05/17 Balance b/d 1310
Sales account
Date Detail £ Date Detail £
31/05/17 Balance c/f 10930 31/05/17 SDB 10930
10930 10930
31/05/17 Balance b/d 10930
Sales return
account
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Date Detail £ Date Detail £
01/05/31 SRDB 680 31/05/17 Balance c/f 680
680 680
31/05/17 Balance b/d 680
Purchase
account
Date Detail £ Date Detail £
01/05/31 PDB 9820 31/05/17 Balance c/f 9820
9820 9820
31/05/17 Balance b/d 9820
Purchase return
account
Date Detail £ Date Detail £
31/05/17 Balance c/f 50 01/05/31 PRDB 50
50 50
31/05/17 Balance b/d 50
Storage costs
Date Detail £ Date Detail £
01/05/31 Cash book 400 01/05/31 Balance c/f 400
400 400
31/05/17 Balance b/d 400
Motor expenses
account
Date Detail £ Date Detail £
01/05/04 Bank 470 01/05/31 Balance c/f 470
470 470
31/05/17 Balance b/d 470
9

Drawings
account
Date Detail £ Date Detail £
01/05/07 Bank 1500 31/05/17 Balance c/f 1500
1500 1500
31/05/17 Balance b/d 1500
Salaries
account
Date Detail £ Date Detail £
01/05/27 Bank 4800 31/05/17 Balance c/f 4800
4800 4800
31/05/17 Balance b/d 4800
Business rates
account
Date Detail £ Date Detail £
01/05/30 Bank 1320 31/05/17 Balance c/f 1320
1320 1320
31/05/17 Balance b/d 1320
Discount
allowed
account
Date Detail £ Date Detail £
01/05/31 Bank 352 01/05/31 Balance c/f 352
352 352
31/05/17 Balance b/d 352
Discount
received
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account
Date Detail £ Date Detail £
31/05/17 Balance c/f 960 01/05/31 Bank 960
960 960
31/05/17 Balance b/d 960
S.Hood acount
Date Detail £ Date Detail £
01/05/24 Bank 3240 01/05/01 Balance b/d 2150
24/05/17
Discount
received 360 02/05/17 PDB 1450
3600 3600
J. Brown
Account
Date Detail £ Date Detail £
01/05/24 Bank 4140 01/05/17 Balance b/d 4600
460
4600 4600
D. main
account
Date Detail £ Date Detail £
31/05/17 Balance c/f 2060 01/05/02 PDB 2060
2060 2060
31/05/17 Balance b/d 2060
W.Tone
account
Date Detail £ Date Detail £
31/05/17 Balance c/f 960 01/05/02 PDB 960
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960 960
31/05/17 Balance b/d 960
R.Foot account
Date Detail £ Date Detail £
01/05/19 PRDB 50 01/05/02 PDB 1610
01/05/24 Bank 1260
24/05/17
Discount
allowed 140
31/05/17 Balance c/f 160
1610 1610
31/05/17 Balance b/d 160
L. Mole
account
Date Detail £ Date Detail £
31/05/17 Balance c/f 1830 01/05/22 PDB 1830
1830 1830
31/05/17 Balance b/d 1830
W.Wright
account
Date Detail £ Date Detail £
31/05/17 Balance c/f 1910 01/05/22 PDB 1910
1910 1910
31/05/17 Balance b/d 1910
Abel motors
account
Date Detail £ Date Detail £
01/05/31 Bank 20500 01/05/14 Van 28500
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31/05/17 Balance c/f 8000
28500 28500
31/05/17 Balance b/d 8000
Premises
account
Date Detail £ Date Detail £
01/05/01 Balance b/d 340000 31/05/17 Balance c/f 340000
340000 340000
31/05/17 Balance b/d 340000
Van account
Date Detail £ Date Detail £
01/05/01 Balance b/d 51250 31/05/17 Balance c/f 79750
01/05/14 Abel motors 28500
79750 79750
31/05/17 Balance b/d 79750
Fixtures
account
Date Detail £ Date Detail £
01/05/01 Balance b/d 8100 31/05/17 Balance c/f 8100
8100 8100
31/05/17 Balance b/d 8100
Inventory
account
Date Detail £ Date Detail £
01/05/01 Balance b/d 63900 31/05/17 Balance c/f 63900
63900 63900
31/05/17 Balance b/d 63900
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Capital account
Date Detail £ Date Detail £
31/05/17 Balance c/f 529000 01/05/01 Balance b/d 529000
529000 529000
31/05/17 Balance b/d 529000
Particulars Debit Credit
Premises 340000
Van account 79750
Fixtures 8100
Inventory 63900
Capital 529000
Payables
D. Main 2060
W.Tone 960
R.Foot 160
L. Mole 1830
W.Wright 1910
Abel motors 8000
Sales 10930
sales return 680
Purchase 9820
Purchase return 50
Storage costs 400
Motor expenses 470
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Drawings account 1500
Salaries account 4800
Business rates account 1320
Discount allowed account 352
Discount received account 960
Receivables
F.lane 770
T.Cole 2320
J.Allen 910
P.white 2420
J.Fox 1310
Cash at bank 33408
Cash in hand 3630
555860 555860
CLIENT 2
Particulars £ £ £
Sales 1215000
Less cost of sales
Opening stock 82200
Add purchases 778800
861000
Less closing stock 101640 759360
Gross profit 455640
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Less expenses
Wages and salaries 177500
Oustanding salaries 1220 178720
Motor expenses 87400
Admin expenses 17650
Heating and lighting 4950
Advertising expenses 13280
Prepaid amount 8470 4810
Depreciation
Premises 5400
Equipment 17250
Motor vehicle 2800 25450 318980
Operating profit 136660
Particulars £ £ £
Assets Cost
Accumulated
depreciation NBV
Non current asset
Freehold premises 42900 270000 42900 227100
Equipment 114750 172500 114750 57750
Motor vehicle 16800 28000 16800 11200
Total non-current
assets 470500 174450 296050
Current assets
Closing stock 101640
Trade receivables 106960
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Prepaid
advertising
expenses 8470
Cash in hand 2440
Total current asset 219510
Total assets 515560
Equity and
liabilities
Equity
Share capital 332120
Add net profit 136660
Less drawings 42640
Total equity 426140
Current liabilities
Trade payables 76910
Bank overdraft 11290
Outstanding wages
and salaries 1220 89420
Total current
liabilities 89420
Total equity and
liabilities 515560
CLIENT 3
A)
Particulars £ £ £
Sales 107000
-Returns inward 2000
Turnover 105000
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Less COGS
Opening stock 17000
Add purchases 32000
Less closing stock 18000 31000
GP 74000
Less expenditures
Distribution costs 22000
Depreciation
Buildings 1000
Plant 10000
Less prepaid rent 3000 7000 30000
Administrative
expenses 28000
Accrued 2000 30000
Operating profit 14000
Less finance costs 0
Profit before tax 14000
Tax 4000
Profit after tax 10000
B)
Particulars £ £ £
Assets Cost
Accumulated
depreciation NBV
Non current asset
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Land and building 60000 8000 52000
Plant and machinery 65000 25000 40000
Total non-current assets 125000 33000 92000
Current assets
Closing stock 18000
Trade receivables 24000
Prepaid rent 3000
Total current asset 45000
Total assets 137000
Equity and liabilities
Equity
Share capital 50000
Share premium 20000
Retained earning 32000
Total equity 102000
Current liabilities
Trade payables 14000
Bank overdraft 15000
Outstanding admin
expenses 2000
Tax 4000
Total current liabilities 35000
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Total equity and
liabilities 137000
(c)
In the accounting there are different kinds of principles which are used by the companies
in order to make financial transactions and frame accounts over the many fiscal years. Mainly
two principles of accounting are such as follows:
Consistency principle- In this accounting treatments or methods has to follow same in each and
every year while preparing the final accounts of the company. For instance, to valuing the stock
if entity uses FIFO method along with consistency principle then it must uses same kind of
method of stock valuation (Bryer, 2013). In case the rules and principles become change then
can make changes for treating the transactions.
Prudence principle- As per respective principle the manager use different systems and methods
for making record of the financial data over the every years. It helps to analyse about the
overvalued of assets and liabilities within entity.
(d)
Straight Line Method (SLM)- In this method rate or percentage of depreciation apply on the
amount of depreciable which carry forward over the every accounting periods. Over the each
financial year amount of depreciation remain constant up to the estimated life of assets.
Written Down Method (WDM)- Other method of depreciation is WDM under which depreciable
amount change every year and on which fix percentage are charged. Due to this, the company
needs to pay decreasing value of the depreciation (Carvalho and Salotti, 2012). From first year to
second year value and cost of the asset reduce and on this depreciation is computed.
CLIENT 4
(a)
The statement which provides information to the company that how much difference
comes into consideration between two aspects like bank balance and cash balance of firm. Very
basic and key objective behind make the BRS in entity is to analyse that how much amount of
difference generated in the books of cash and bank. If there are huge difference is to be
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determined by the entity then it helps to take corrective actions against it. In addition to this,
reasons and responsible factors for incurring such differences are also assessed by the managers
and accountant on the basis of BRS. When the management want to derive the deviation between
two figures such cash as well as bank of it then use bank reconciliation statement (Freeman and
et.al., 2014).
(b)
Generally the cash book as well bank balance differ from each other for that very basis
reason is adopting different systems of recording the data as well as transacting monetary
information. The bank issue cheque to the company which recorded in books of bank records but
still it not presented and cleared for the payment by which difference arises. Apart from this,
when the cheque paid by the company into banks in which transaction is made in the cash book.
After this, paid cheque is not collected by the bank where amount not recorded which is another
reason for arising the difference. In addition to this, due to taking and imposing amount of
dividends as well as interest there are differences take place in the bank records and cash book of
an entity (Cuckston, 2013). Hence, it can be said that because of such aspects there are cash book
and records of bank balance differs up to some extent.
c.
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CLIENT 5
A)
Sales ledger
control account
Date Details £ Date Details £
01/05/01 Balance b/d 12600 01/05/31
Bad debts
written off 120
Credit sales 152350 Discounts 380
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allowed
sales return 7320
Receipts from
customers 141610
Contra entry 330
31/05/17 Balance c/f 15190
164950 164950
(b)
The account which provides information and data regarding to the sales and purchase
ledger of the company and on the basis of it control on the revenue purchase aspect is to be made
in effective ways is considered as control account. With the help of control account the company
can determine differences arise within workplace between sales and purchase. Very basic
requirement to prepare is to determining level of revenue and purchase that such expenses and
incomes are in beneficial manner or not. In case the purchase enhance within entity then
company able to diversify and improve sources of sales which lead to improve the cash and
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profit position at the end of an accounting year. In addition to this, it helps to assess facts and
figures related to account payables and receivables (Lovell, 2014). For include all the small
accounts and transactions in the major and main account of the company there is control account
used by them.
CLIENT 6
(a)
Account under which monetary transactions are to be made on the temporarily basis is
called as suspense account. When the company do not want show specific kind of monetary
transaction and value in the books of account then use suspense account. Hence, main feature of
his account is that it make secure to some transactions within the firm and which are not to be
manipulated by the managers. In addition to this, only those kinds of values are recorded which
can be received by the firm in future FY. In case, firm founds that particular money will not to be
received in the upcoming years then it will not record in the accounts of the firm (Chen and
et.al., 2010). Moreover, it provides clear classification of all the sales and purchase amount
transactions which associated with the firm.
b)
Trial balance £ £
Particulars Debit Credit
Purchase 700
Sales 1100
Rent 250
Cash in bank 840
Transfer expenses 160
Receivables 320
Payables 350
Capital 710
Suspense 110
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