A Study on Financial Accounting Concepts in Business Organization

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.
1

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
2

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.
3

4