Financial Accounting: Types of Transactions, Bookkeeping, Trial Balance

This study focuses on various types of transactions, the difference between financial statements and financial reports, and the fundamental principles of accounting. It also covers topics like bookkeeping, trial balance, and the importance of financial reports. The content provides insights into the key financial statements and their analysis.

Financial accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
Question 1. Types of business transactions, book keeping and importance of trial balance......3
Question 2...................................................................................................................................4
Question 3: Examining the difference between financial statement and financial report...........8
Question 4: Different fundamental principles of accounting......................................................9
Question 5.................................................................................................................................11
SCENARIO 2.................................................................................................................................13
Question 1: Evaluation on the bank reconciliation system and why is it necessary.................13
Question 2: Control accounts and its role in financial management.........................................13
Question 3: Suspense account and reason for drafting it..........................................................14
Question 4:................................................................................................................................15
Question 5.................................................................................................................................17
CONCLUSION..............................................................................................................................20
REFERENCES..............................................................................................................................22

INTRODUCTION
Financial accounting is a specialized branch related with the accounting which is useful
in keeping complete track associated with the key financial statements of the company. Financial
statements are set up in standard guidelines which can be analysed, summarized and useful in
representing the key financial statements (Kimmel, Weygandt and Kieso, 2018). This study
highlights on various different types of transactions and examine the difference between
financial statements. It is useful in examining the different fundamental principles associated
with accounting. This study also develops profit and loss account. Moreover, the study also
applies management accounting techniques in order to respond to the key financial problems.
SCENARIO 1
Question 1. Types of business transactions, book keeping and importance of trial balance.
Different types of business transactions
Business transactions is considered to be as an activity which is measured in the
monetary value and also tends to affect the operations and financial position of the company.
There are various types of financial transactions which mainly includes: Sales transaction: It is the transactions where the property is significantly transferred
from the buyer to seller in exchange for the money or credit (Kimmel, Weygandt and
Kieso, 2018). Sales transactions has been recorded within the journal on behalf of the
seller as debit to cash. Purchase transaction: Such transactions are carried out by the business to obtain the
goods and services. Purchases which has been made in the cash leads to credit in cash
account and debit in inventory account. Receipts: The business tends to get paid which is carried out at the time of delivering of
the goods and services to the other party or business. Payments: This is where the business tends to receive money for the specific goods and
services.
Single entry and double entry book keeping
Single entry bookkeeping is a significant accounting system which is useful in effectively
keeping track about the finance of the business (Schroeder, Clark and Cathey, 2019). Only single
entry is made for each transactions. Entries in turn has been recorded as a positive or a negative
amount.

Double entry book keeping is a significant system associated with the book keeping
where each entry tends to require opposite and corresponding entry to the different account.
Within the double entry book keeping there seems to have 2 equal and the corresponding sides
which are referred to as credit side and a debit side.
Trial balance and its importance
Trial balance is considered to be as the list of general ledger accounts which has been
contained within the ledge of business (Warren and Jones, 2018). Within the trail balance all the
ledgers for the accounting period has been compiled all together within debit and credit account
columns in order to make it equal. The trail balance is prepared at the end of accounting period.
The key importance of the trail balance is that, all the entries has been made within the general
ledge of the organization in order to keep it properly balanced. The debit side and credit side of
the trail balance must match. It helps in rectifying errors and preparation of the financial
statements by checking arithmetical accuracy.
Question 2
1. Journal entry
Date Particulars Debit Credit
01/06/20 Bank 65000
To Capital 65000
02/06/20 Purchases 8000
To Creditors 8000
07/06/20 Cash 4000
To Sales 4000
08/06/20 Creditors 4000
To Bank 4000
14/06/20 Insurance 75
To Bank 75

15/06/20 Debtors 12000
To Sales 12000
16/06/20 Purchases 10000
To Creditors 10000
18/06/20 Computer Equipment 3000
To Cash 3000
20/06/20 Rent 150
To Bank 150
21/06/20 Cash 10000
To Sales 10000
25/06/20 Petty Cash 100
To Bank 100
30/06/20 Stationary 30
To Petty Cash 30
2. Ledger accounts
LEDGER ACCOUNTS
Dr. Bank A/c Cr.
Date Particulars Amount Date Particulars Amount
01/06/20 To Capital 65000 08/06/20 Creditors 4000
14/06/20 Insurance 75
20/06/20 Rent 150
25/06/20 Petty Cash 100

30/06/20 Bal c/d 60675
65000 65000
Dr. Petty Cash Cr.
Date Particulars Amount Date Particulars Amount
25/06/20 To Bank 100 30/06/20 Stationary 30
30/06/20 Bal c/d 70
100 100
Dr. Cash Cr.
Date Particulars Amount Date Particulars Amount
07/06/20 To Sales 4000 18/06/20 Computer Equipment 3000
21/06/20 To Sales 10000
30/06/20 Bal c/d 11000
14000 14000
Dr. Purchases Cr.
Date Particulars Amount Date Particulars Amount
02/06/20 To Creditors 8000
16/06/20 To Creditors 10000 30/06/20 Bal c/d 18000
18000 18000
Dr. Sales A/c Cr.
Date Particulars Amount Date Particulars Amount
07/06/20 Cash 4000
15/06/20 Debtors 12000
30/06/20 Bal c/d 26000 21/06/20 Cash 10000

26000 26000
Dr.
Creditors
A/c Cr.
Date Particulars Amount Date Particulars Amount
08/06/20 To Bank 4000 02/06/20 Purchases 8000
16/06/20 Purchases 10000
30/06/20 bal c/d 14000
18000 18000
Dr. Debtors A/c Cr.
Date Particulars Amount Date Particulars Amount
15/06/20 To Sales 12000
30/06/20 Bal c/d 12000
12000 12000
Dr.
Computer
Equipment
A/c Cr.
Date Particulars Amount Date Particulars Amount
18/06/20 To Cash 3000
30/06/20 Bal c/d 3000
3000 3000
Dr. Rent A/c Cr.
Date Particulars Amount Date Particulars Amount
20/06/20 To Bank 150
30/06/20 Bal c/d 150

150 150
3. Trial balance
Question 3: Examining the difference between financial statement and financial report.
PARTICULARS FINANCIAL
STATEMENTS
FINANCIAL REPORTS
Definition These statements are
considered to be as the more
formal kind of structure which
helps in providing clear picture
about the overall health of the
business (Weygandt, Kimmel
and Kieso, 2019). It is useful
It is a collective set of
information which is useful in
summarizing the financial
earnings and spending’s. It is
useful in keeping track of the
business funds in order to
manage the money with high

in examining the income and
expenditure of the company.
degree of precision.
Types Profit and loss statements,
balance sheet, cash flow
statements and shareholder's
equity statement.
External statements,
government reports, financial
notes and quarterly and annual
records.
Purpose The key purpose of the
financial report is to provide
key significant information
related with the financial
position of the company and
take necessary decision.
The key purpose of the
financial report is that, it is
useful in giving in- depth
analysis on the performance of
the business.
Users Company management,
investment analyst, customers,
lenders, competitors,
employees, government,
investors, advisors, local
community, owner,
shareholders, etc. are
considered to be the key users
of the financial statements.
Government, agencies,
owners, investors take a look
at the financial reports of the
company are considered to be
the key users of the financial
reports.
Question 4: Different fundamental principles of accounting
There are number of accounting principles based on which modern accounting is done.
Some of the fundamental accounting principles are stated below.
Accrual principle: Under this concept, the financial transaction is recorded in the books
when the in the period when they are actually occurred rather than when the cash flow takes
place (Bradford, 2020). It helps in accurate construction of the financial statements as it depicts
what has actually happened in the accounting period.

Going concern principle: This concept is based on the assumption that the business will
run for the unforeseeable future and there is no intention to cease out its operation or shut down.
In case the financial situation of the entity is not good and believes that the company may not eb
able to continue its business then a disclosure is required to be made of the same in the financial
report. It allows the company to defer some of its expenses such as prepaid expenses for the
future period.
Consistency principle: As per this concept, the accounting practice once adopted should be
continued to be used until there is requirement by the statutory or the usage of other practice will
lead to better presentation of the financial statement (Ostapiuk, Goncharenko and Lukianets,
2018). By not following this principle would mean that the company is switching between
different accounting practices or methods for treating its transactions which would have a long
term negative effect on its financial results.
Matching principle: In this principle, when the revenue is recognised then the expenses in
relation to it is also recognised at the same time. For example, inventory is charged to the cost of
goods sold when the revenue from the sale of that inventory is recorded. It is used in the accrual
basis of accounting.
Materiality: As per this principle, the accountant is required to disclose each and every
information which is material for the business organization. It is completely based on the
personal judgement in respect to whether an amount is material or immaterial (Kiz, 2020). In
terms of materiality, the for a small business, the amount of $5000 would mean a lot as
compared to the large MNC for which it is nothing. Because of the materiality concept the
amounts are shown in the financial statements are rounded up to the nearest dollar or thousands
or millions which completely upon the size of the organization.
Revenue Recognition Principle: Under this principle, the revenue derived from the sales is
recognised as and when the product is sold or service is provided irrespective of the fact whether
cash has been received or not in actual in that period. For instance, the XYZ company has
provided the service of $1000, therefore, the company should record it when the work is done
not when the client makes the payment.
Conservatism: In this, it states the business to not anticipate a profit but provide for all
possible losses. In case a situation arises, where two alternatives are available for the purpose of
reporting an item, this principle directs the business to select that alternative which provides less

net income or lower asset amount. This leads to anticipating the loss and also potential losses are
reported in the financial statement but not the potential gain which is because of the uncertain
future events.
Question 5
Profitability statement of carol andrew
for the year ended 2017
Particulars Amount Amount Amount
Sales 124000
(125000-1000)
COGS 82000
Opening stock 9500
Purchases 73500
(75000-1500)
-Closing stock -1000
GP 42000
interest received 1000
Rent received 4850
Less: Unearned rent -490 4360 5360
Operating Expenses
Wages & Salaries 13200
Rent and Rates 1500
add: O/s business rates 340 1840
Postage 900
Depreciation on motor van 5000
Insurance 7500
Less: prepaid insurance 411 7089
Bad debts 1200
less: 650 550 28579
NP 18781

BALANCE SHEET
Amount Amount Amount
ASSETS
CA :
Bank 10594
cash 340
Debtors 12500
add: bad debts 650
Less: provision for bad and doubtful debts 934 12216
Closing stock 1000
Prepaid insurance 411
Total CA 24561
Motor van at Cost 25000
Less: Accumulated depreciation 5400
Less: depreciation 5000 14600
Loan given @ 10% 100000
Total FA 114600
Total assets 139161
LIABILITIES
CL
Creditors 3900
Business rates o/s 340
Unearned rent 490
Total CL 4730
Owners’ equity
Capital 120800
Less: drawing -5150
Add : NP 18781
Total Shareholders’ equity 134431

Total Equity & Liabilities 139161
SCENARIO 2
Question 1: Evaluation on the bank reconciliation system and why is it necessary.
Bank reconciliation system is an appropriate procedure which is useful in matching the
balance within accounting record of the business. This is the effective procedure which has been
performed by the organization to ensure that all the records are in a correct and reliable manner.
This system is useful in comparing the records of the company with that of the bank statement to
justify any sort of difference (Garbowski and et.al., 2019). The bank reconciliation system is
prepared because it is useful in detecting any sort of discrepancies associated with the accounting
records of the business entity and the bank statements. It is important to prepare the Bank
reconciliation system is because it helps ion detecting any error and rectifying the same. It is also
useful in ensuring that the accuracy of the balances has been maintained. It is significant in
detecting any error which has been committed in both the books. The bank reconciliation system
is achieved by reconciling the bank account balance with that of the business entity. However,
any sort of difference within the two books need to examined and rectified with accuracy. The
reconciliation must be carried out on a continuous basis and it helps in understanding the income
and expenditure of the organization (Kimmel, Weygandt and Kieso, 2018). Bank reconciliation
system is carried at a regular interval as the part of the financial accounting procedure.
Question 2: Control accounts and its role in financial management
A control account is the ledger account which contains the summary of all accounts. It
provides the details of each of the control account in a separate subsidiary ledger. For example,
the general ledger of accounts receivables and when the control account is used, it will have the
information of total credit sales per day, total collection from the clients, total return and total
amount owed by the customers (Ofori-Atta, Bruce-Twum and Appiah-Gyamerah, 2017). But it
will not provide the amount to a specific customer account. The control account can hold
hundreds and thousands of accounts and sub accounts which cannot be done in the general
ledger, therefore, control account is being used. It has a crucial role to play in financial
management of the company. Since, it provides summary of the transactions which are recorded
in the subsidiary leader, it helps the management in formulating the policies. It also makes

possible of division of accounting work of the leader keepers which results into specialization in
the work.
The control account also helps in preparation of the profit and loss account very quickly as it
provides relevant figures easily. It also provides internal checks which results into higher
accuracy level which supports the organization in reconciliation of the cost accounts and the
financial accounts. The control accounts have the advantage that it allows the single trial balance
to be prepared from the general ledger. Even a different person can make it in order to identify
any fraud or mistake. The control account actually speeds up everything in terms of producing
the relevant accounting information as the control account can be utilized instead of waiting for
the individual accounts to be extracted. There are different types of control accounts such as
accounts receivable control a/c, accounts payable control a/c, debtors' control a/c and so forth.
Question 3: Suspense account and reason for drafting it
A suspense account is the part of the general ledger in which the business entity records the
transactions which are further required to be analysed in order to determine the exact
classification of it. Such account is cleared out as and when the nature of it is resolved and
identified and then it is shuffled back to its designated account. The suspense account also
includes the entries which has any mistake, discrepancies or uncertainty. For example, while
recording the certain transaction, one transaction comes out to be the one that did not have an
account designated (Jayaram, Abidi and Sugavanam, Baton Systems Inc, 2018). Thus, for
completing the task in the set time, the accountant will record it in the amount known as
suspense account. When the right account is identified then the accountant gets clarification of
the same and transfers the amount from the suspense account to the designated account. A
suspense account is mainly the temporary account which can be opened because of number of
reasons. It is mainly used for drafting the trial balance which does not match up with the total
debit and total credit and also in the situation when it is unknown where to post the credit side of
the transaction and so forth. In both the cases, the suspense account is drafted which remains
open till the problem is resolved in respect to the account opened. The suspense account is also
opened in order to correct the errors. Therefore, a suspense account is used for equalizing the
trial balance.
Question 4:
(a)

(b) Difference between the following terms:

Direct debit and standing order
The direct debit and the standing orders both are the payment system but there are certain
differences in the two. A standing order refers to the automated payment system that is set up
between the customer and the bank for the purpose of sending the payments to the other person
or to the organization (Hedvicakova, 2017). In direct debit which is similar to standing order, but
it is authorized by the customer and manged by the organization. It is set up by the organization
and manages the frequency and the amount. In case of standing order, the customer is in control
in respect to the frequency and the amount.
Under standing order, there is an instruction which is given by the customer to the bank
to make a payment of fixed amount at a regular interval of time such as weekly, quarterly, yearly
etc. In contrast to it, with direct debit, the customer authorizes to collect the amount from their
bank account whenever the amount becomes due. The payment can vary with respect to the
frequency and the amount.
Bank charges
It refers to the different types of fees that the accountholder of the bank is charged with
other than the charges which is being incurred on the specific transactions such as cheque
clearance, collection charges and so forth. The bank charges are mainly charged directly from the
customer’s account which thereby results into reduction in the bank balance as shown in the
bank statement. These charges are recorded by the business only after receiving the bank
statement from the bank at the end of that period. This is the reason why the bank balance is less
than the cash book balance. The bank charges fees can be ne time or ongoing basis. For instance,
account maintenance fees, amount withdrawal and transfer fees, ATM fees, non-sufficient fund
fees, payment charges etc.
Dis-Honour Cheque
A cheque is termed as honoured when the bank makes the payment of the amount written
on the cheque to the payee. But, when the bank refuses to make payment to the payee then the
cheque is said to be dishonoured. As an when the cheque is dishonoured, the drawee bank issues
the cheque return memo which specifies the reason for dishonour (Blakstad and Allen, 2018).
The payee has the option to represent the cheque within the timeframe of 3 months from the date
specified in the cheque. There are various reasons for dishonour of cheque such as insufficient
funds, in case where the account payer does not have the required funds for making the payment

of the amount stated on the cheque. Material alteration like over writing, missing of relevant
details etc. Irregular signature, when the specimen of the signature available with the bank does
not match with the cheque. Other reasons are post dated cheque, stale cheque, instruction given
to stop the payment from the given account or the account is closed.
Question 5
(a) Journal entries
Journal entries for rectification of errors
Righ
t
entry
Debit Credit Wrong
entry
Debi
t
Credit Rectifie
d entry
Debit Credit
Purch
ase
A/c
Dr.
£2,000.00 Purchas
e A/c
Dr.
£2,000
.00
To
Musa
A/c
£2,000.00 Entry
omitted
To
Musa
A/c
£2,000.
00
Van
A/c
Dr.
£670.00 Van A/c
Dr.
£670.
00
Cash
A/c Dr.
£1,340
.00
To
bank
a/c
£670.00 To Cash
A/c
£1,340.
00
To Bank
a/c
£670.00
G
Tahir
A/c
Dr.
£650.00 Not
entered
in G
Tahir
A/c
G Tahir
A/c Dr.
£650.0
0

To
Sales
A/c
£650.00 To sales
A/c
£650.0
0
To
Suspens
e A/c
£650.0
0
Elect
ricity
bill
A/c
Dr.
£790.00 Suspense
A/c Dr.
£790.
00
Electrici
ty bill
A/c Dr.
£790.0
0
To
cash
A/c
£790.00 To Cash
A/c
£790.0
0
To
Suspens
e A/c
£790.00
Moto
r
vehic
le
Expe
nse
A/c
Dr.
£500.00 Motor
Vehicle
A/c Dr.
£500.
00
Motor
vehicle
Expense
A/c Dr.
£500.0
0
To
cash
A/c
£500.00 To Cash
A/c
£500.0
0
To
Motor
Vehicle
A/c
£500.00
Sales
Balan
ce
£1,030.00 Sales
Balance
£1,300.
00
Sales
A/c Dr.
£270.0
0
To
Suspens
£270.00

e A/c
L
Sama
ntha
A/c
Dr.
£190.00 Discount
Allowed
A/c Dr.
£190.
00
L
Samanth
a A/c
Dr.
£190.0
0
To
Disco
unt
Recei
ved
A/c
£190.00 To L
Samanth
a A/c
£190.0
0
Suspens
e A/c
Dr.
£190.0
0
To
Discoun
t
received
A/c
£190.00
To
Discoun
t
Allowed
A/c
£190.00
Bank
A/c
Dr.
£384.00 Sales
A/c Dr.
£384.
00
Bank
A/c Dr.
£384.0
0
To D
Jones
A/c
£384.00 To
suspense
A/c
£384.0
0
To sales
A/c
£384.00

(b) Suspense account
CONCLUSION
It can be summarized from the above that financial accounting is the key to effective
management of the business organization. It provides the guidelines and the ways through which
the business can be run smoothly. The financial accounting principles set the basis on which the
business transaction is being recorded in the books of accounts. The different types booking
keeping system and trial balance and its importance to the business entity. It also covers the
understanding the difference between the financial statement and report and its relevance in the
organization along with the various users of it. The use of bank reconciliation statement and why
it is required by the business and the necessity it creates for matching the bank and cash book
balances to get the accurate amount. The drafting of control account and suspense account along
with the key role it plays in financial management of the business. Having a knowledge of
important banking terms such as direct debit, bank changes and so forth. Thus, financial
accounting has an important role to plays in an organization.

REFERENCES
Books and Journals
Blakstad, S. and Allen, R., 2018. What’s the Point of Banks?. In FinTech Revolution (pp. 19-39).
Palgrave Macmillan, Cham.
Bradford, B., 2020. Fundamental Principles of Accounting: A Case Analysis.
Hedvicakova, M., 2017. Key study of bank accounts for young people with using multi-criteria
optimization and fuzzy analysis. Applied Economics. 49(36). pp.3599-3610.
Jayaram, A., Abidi, M. T. and Sugavanam, S. K., Baton Systems Inc, 2018. Financial
management systems and methods. U.S. Patent Application 15/701,313.
Kimmel, P.D., Weygandt, J.J. and Kieso, D.E., 2018. Financial accounting: Tools for business
decision making. John Wiley & Sons.
Kiz, V., 2020. THE ART OF ACCOUNTING. Economic and Social Development: Book of
Proceedings. pp.270-276.
Ofori-Atta, K., Bruce-Twum, E. and Appiah-Gyamerah, I., 2017. Fundamentals of financial
Accounting 11.
Ostapiuk, N., Goncharenko, O. and Lukianets, O., 2018. Constructiveness of accounting
principles system.
Schroeder, R.G., Clark, M.W. and Cathey, J.M., 2019. Financial accounting theory and
analysis: text and cases. John Wiley & Sons.
Warren, C. and Jones, J., 2018. Corporate financial accounting. Cengage Learning.
Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2019. Financial accounting. John Wiley & Sons.
Garbowski, M and et.al., 2019. Financial accounting of E-business enterprises. Academy of
Accounting and Financial Studies Journal, 23, pp.1-5.