Accounting Concepts and Financial Principles

This solved assignment delves into the crucial role of accounting concepts and financial principles in ensuring the accuracy of recorded business transactions. It explains various concepts like revenue recognition, matching principle, and going concern, and demonstrates how they are applied through practical examples. The assignment also differentiates between suspense and clearing accounts, highlighting their temporary nature and specific uses in accounting.

Maria Elisabeta Udila

FINANCIAL ACCOUNTING
PRINCIPLES

Table of Contents
INTRODUCTION...........................................................................................................................1
CLIENT 1........................................................................................................................................1
a) Prime Book entry....................................................................................................................1
TASK 1............................................................................................................................................1
1. Drawing journal entries and calculation of owners capital ...................................................1
A. Preparing the books of Prime Entry .....................................................................................1
b) Complete double entry recording...........................................................................................3
Draw trial balance.....................................................................................................................13
TASK 2..........................................................................................................................................13
a. Preparing statement of profit and loss ..................................................................................13
b. Preparation of balance sheet .................................................................................................14
TASK 3..........................................................................................................................................15
a. Framing profit and loss a/c for Raintree Ltd. .......................................................................15
b. Statement of financial position of Rain tree Ltd ..................................................................16
c. Explaining the accounting concept of consistency and prudence ........................................17
d. Illustrating two widely used methods of depreciation along with their appropriateness......18
CLIENT 4......................................................................................................................................18
a. Explaining the purpose of preparing bank reconciliation statement....................................18
b. Assessing the reasons due to which bank records vary from cash book...............................18
c.................................................................................................................................................19
Bank reconciliation statements as at 1 December 2016............................................................19
Prepare updated cash book........................................................................................................20
Bank reconciliation statements as at 31st December................................................................20
CLIENT 5......................................................................................................................................21
A) prepare and balance books of Henderson for May 2016.....................................................21
Sales ledger control account......................................................................................................21
Purchase ledger control account................................................................................................22
b) Explain the term control account and needs to prepare control account..............................22
TASK 6..........................................................................................................................................23
a. Describing suspense account along with its main features...................................................23

b. Drafting a trial balance by using control account as balancing figure .................................23
c.................................................................................................................................................23
d. Differentiating suspense and clearing account......................................................................24
CONCLUSION..............................................................................................................................24
REFERENCES..............................................................................................................................25

INTRODUCTION
Financial accounting emphasises on considering all kinds of information recorded in an
entity which will affect an entity's overall financial performance within a particular time period.
This report is all about recording all kinds of business transactions with the help of manual
accounting skills of accountant or electronically generation of output using software. This report
also stresses on considering facts and figures related to an entity in beating all the competitors by
showing its financial performance with the help of financial statements.
CLIENT 1
a) Prime Book entry
TASK 1
1. Drawing journal entries and calculation of owners capital
A. Preparing the books of Prime Entry
Journal Entry in the books of Alex
for the month of May 2016
S.
No.
Particulars Jour
nal
Folio
Debit Credit
1. Storage expenses a/c Dr.
To bank a/c
400
400
2. Purchase a/c Dr.
To S. Hood a/c
To D. Main a/c
To W. Tone a/c
To R. Foot a/c
6080
1450
2060
960
1610
3. J Wilson a/c Dr.
T. Cole a/c Dr.
F. Syme a/c Dr.
J. Allen a/c Dr.
P. White a/c Dr.
F. Lane a/c Dr.
To sales a/c
1120
1640
2080
910
2420
770
8940
4. Motor car expenses a/c Dr.
To cash a/c
470
470
7. Drawing a/c Dr.
To cash a/c
1500
1500
9. T. Cole a/c Dr. 680
1

J. Fox a/c Dr.
To sales a/c
1310
11. Sales return a/c Dr.
To J. Wilson
To F. Syme a/c
680
270
410
14 Van a/c Dr.
To Abel Motors Ltd
28500
28500
16 (a). Bank a/c Dr.
Discount allowed a/c Dr.
To P Mullen
(b)
Bank a/c Dr.
Discount allowed a/c Dr.
To F. Lane
(c)
Bank a/c Dr.
Discount allowed a/c Dr.
To J. Wilson
(d)
Bank a/c Dr.
Discount allowed a/c Dr.
To F. Syme
1330
70
2945
155
807.5
42.5
1586.5
83.5
1400
3100
850
1670
19 R. Foot a/c Dr.
To purchase return a/c
50
50
22 Purchase a/c Dr.
To L. Mole a/c
To W. Wright a/c
3740
1830
1910
24 a.
S. wood a/c Dr.
To Bank a/c
To Discount receive a/c
b.
J. Brown a/c Dr.
To Bank a/c
To Discount receive a/c
c.
R. Foot a/c Dr.
To Bank a/c
To Discount receive a/c
3600
4600
1400
3240
360
4140
460
140
1260
27 Salaries a/c Dr.
To bank a/c
4800
4800
30 Business rates a/c Dr
To bank a/c
1320
1320
31 Abel motors Ltd. a/c Dr.
To bank a/c
20500
20500
2

b) Complete double entry recording
Sales Journal account
Date Particulars Amount Date Particulars Amount
31/05/16
To balance
C/d 1310 03/05/16 BY J. Wilson 1120
03/05/16 By T. Cole 1640
03/05/16 By F. Syme 2080
03/05/16 By J. Allen 910
03/05/16 By P. White 2420
03/05/16 By F. Lane 770
09/05/16 T. Cole 680
09/05/16 J. Fox 1310
1310 1310
Return inward Account
Date Particulars Amount Date Particulars Amount
11/05/17 To J. Wilson 270 31/05/16
By Balance
c/d 680
11/05/17 To F. Syme 410
3

680
Purchase Journal account
Date Particulars Amount Date Particulars Amount
02/05/16 To S. Hood 1450 31/05/16
By Balance
c/d 38320
02/05/16 To D. Main 2060
02/05/16 To W. Tone 960
02/05/16 To R. Foot 1610
14/05/16
To Abel
Motors Ltd 28500
22/05/16 To L. Mole 1830
22/05/16 To W. Wright 1910
38320
Return outward account
Date Particulars Amount Date Particulars Amount
31/05/16 By balance c/d 50 19/05/16 By R. Foot 50
Receipt account
4

Date Particulars Amount Date Particulars Amount
16/05/16 To P. Mullen 1330 31/05/16
To balance
C/d 7020
16/05/16
To Discount
allowed 70
16/05/16 To F. Lane 2945
16/05/16
To Discount
allowed 155
16/05/16 To J. Wilson 807
16/05/16
To Discount
allowed 43
16/05/16 To F. Syme 1586
16/05/16
To Discount
allowed 84
7020 7020
Payment account
Date Particulars Amount Date Particulars Amount
31/05/16
To balance
C/d 30100 24/05/16 By s. Hood 3240
24/05/16
By discount
received 360
5

24/05/16 By J. Brown 4140
24/05/16
By discount
received 460
24/05/16 By R. Foot 1260
24/05/16
By discount
received 140
31/05/16
By Abel
motors 20500
30100 30100
Discount received account
Date Particulars Amount Date Particulars Amount
31/05/16 To S. Hood 360 31/05/16
By Balance
c/d 960
31/05/16 To J. Brown 460
31/05/16 To R. Foot 140
960
Discount allowed account
Date Particulars Amount Date Particulars Amount
31/05/16
To balance
C/d 352 31/05/16 By P. Mullen 70
By F. Lane 155
6

BY J. Wilson 43
By F. Syme 84
R. Foot account
Date Particulars Amount Date Particulars Amount
19/05/16
To purchase
return 50 02/05/16 By purchase 1610
31/05/16
To balance
C/d 1560 24/05/16
By discount
received 140
1610
Purchase
Return Journal
account 1610
J. Wilson account
Date Particulars Amount Date Particulars Amount
03/05/16 To sales 1120 11/05/16 By sales return 270
16/05/16 By bank 807
16/05/16
By discount
allowed 43
1120 1120
7

T. Cole account
Date Particulars Amount Date Particulars Amount
03/05/16 To sales 1640 S. Hood
By Balance
c/d 2320
09/05/16 To sales 680
2320 2320
F. Syme account
Date S. Hood Amount Date Particulars Amount
03/05/16
By Balance
c/d 2080 11/05/16 By sales return 410
By bank 1586
By discount
allowed 84
2080 2080
J Allen account
Date Particulars Amount Date Particulars Amount
03/05/16 To sales 910 31/05/16
By Balance
c/d 910
8

P. White account
Date Particulars Amount Date Particulars Amount
03/05/16 To sales 2420 31/05/16
By Balance
c/d 2420
F. Lane account
Date Particulars Amount Date Particulars Amount
01/05/16
By balance
B/d 3100 16/05/16 By bank 2945
03/05/16 To sales 770 16/05/16
By discount
allowed 155
31/05/16
By Balance
c/d 770
3870 3870
S. Hood account
Date Particulars Amount Date Particulars Amount
24/05/16 To Bank 3240 01/05/16
By balance
B/d 2150
24/05/16
To discount
received 360 01/05/16 By purchase 1450
9

3600 3600
J. Brown account
Date Particulars Amount Date Particulars Amount
24/05/16 To J. Brown 4140 01/05/16
By balance
B/d 4600
24/05/16
To discount
received 460
4600 4600
J. Fox account
Date Particulars Amount Date Particulars Amount
09/05/16 To sales 1310 31/05/16
By Balance
c/d 1310
By Balance
c/d
P. Mullen account
Date Particulars Amount Date Particulars Amount
01/05/16
By balance
B/d 1400 16/05/16 By P. Mullen 1330
10

16/05/16
By discount
allowed 70
1400 1400
L. Mole account
Date Particulars Amount Date Particulars Amount
31/05/16
To balance
C/d 1830 22/05/16 By purchase 1830
1830 1830
W. Wright account
Date Particulars Amount Date Particulars Amount
31/05/17
To balance
C/d 1910 22/05/16 By purchase 1910
1910 1910
D Main account
Date Particulars Amount Date Particulars Amount
31/05/16 To balance 2060 02/05/16 By 2060
11

C/d purchase
2060 2060
W. Tone account
Date Particulars Amount Date Particulars Amount
31/05/16
To balance
C/d 960 02/05/16
By
purchase 960
960 960
Abel motors account
Date Particulars Amount Date Particulars Amount
31/05/16 To Bank 20500 14/05/16 By van 28500
31/05/16
To balance
C/d 8000
28500 28500
Bank account
Date Particulars Amount Date Particulars Amount
01/05/16
To balance
B/d 62400 01/05/16
By storage
costs 400
12

27/05/16 By salaries 4800
By Balance
c/d 31/05/16
By Abel
motors 20500
31/05/16
By Balance
c/d 36700
62400 62400
Cash account
Date Particulars Amount Date Particulars Amount
01/05/16
To balance
B/d 5600 04/05/17
By motor
expenses 470
07/05/16 By drawings 1500
31/05/16
By Balance
c/d 3630
5600 5600
Motor expenses account
Date Particulars Amount Date Particulars Amount
04/05/16 To cash 470 31/05/16
By Balance
c/d 470
Drawing account
13

Date Particulars Amount Date Particulars Amount
07/05/16 To cash 1500 31/05/16
By Balance
c/d 1500
Van account
Date Particulars Amount Date Particulars Amount
01/05/16
To balance
B/d 51250 31/05/16
By Balance
c/d 79750
14/05/16 To van 28500
79750 79750
Storage costs account
Date Particulars Amount Date Particulars Amount
01/05/16 To Bank 400 31/05/16
By Balance
c/d 400
Owner's capital
Particulars Amount
Assets
Premises 340000
Van 51250
14

Fixtures 8100
Inventory 63900
Receivables 4500
Cash at bank 62400
Cash in hand 5600
Total 535750
Liabilities
Payable 6750
Owner's capital 529000
15

Draw trial balance
TASK 2
a. Preparing statement of profit and loss
Income statement of P&L of Peter Pipe
for the year ended at 31st December 2016
16

b. Preparation of balance sheet
Statement of financial position of Sole trader Peter Pipe
for the year ended at 31st December, 2016
17

TASK 3
a. Framing profit and loss a/c for Raintree Ltd.
P&L of Rain tree Ltd.
For the financial year ended at 30th September 2016
18

b. Statement of financial position of Rain tree Ltd
Balance sheet of Rain tree Ltd
for the year ended at 30th September 2016
19

c. Explaining the accounting concept of consistency and prudence
There are different set of accounting concepts which helps in preparation of unbiased
accounts and statements (Biondi and et.al., 2011). As one of the important activity of firms is
recording thus recording of all the transactions require some concepts to follow and among those
two concepts are:
 Consistency concept: Consistency concept of accounting deals with the following the
methods and principles consistently year after year because change sometimes can create
blunders. But if company wants to change the policies or the methods used currently then
they should make the change when it actually improves the financial results.
20

 Prudence Concept: As per prudence concept in recording the transactions accountant
should undertake the due care as some times events are uncertain but in order to comply
with specified rules an organization have to relevant in it. Thus following this method
accountant ensures that assets are not overvalued and liabilities are not understated.
d. Illustrating two widely used methods of depreciation along with their appropriateness
Two methods of depreciation which are used over the years are:
 Written down value method: Written down value method is that method in which value
of assets is decreased in first year and will follow in the next year and thus in the next
year on that value only depreciation rate is applied. Thus at last the value of asset remains
but not in S.L.M Method.
 Straight Line Method: Straight Line Method deals with the fixed rate of depreciation
which is been calculated on fixed rate and the amount every year calculated is fixed and
deducted. Every time the calculation is made it is made on the whole value of the assets.
CLIENT 4
a. Explaining the purpose of preparing bank reconciliation statement
Bank reconciliation statement is that statement which contains information regarding
different activities and transactions of the businesses which are specifically the cash transactions
and these transactions will make the managers or accountants to know whether there are any
deviations in the cash account and bank account or not (Badertscher, Burks and Easton, 2011). If
there is any, then the changes have to be recorded as per the deviations recorded while evaluating
the cash and bank accounts. Basically the bank reconciliation statement deals with the matching
of balances in an organization accounting records with the bank account they have account in.
This reconciliation statement is made because here managers find out the difference between
cash and bank and try to figure out the reasons for those deviations further which helps in
making different conclusions over it.
21

b. Assessing the reasons due to which bank records vary from cash book
As both the cash and bank are different in term of recording and doing transactions as
cash is more liquid it can be used anywhere while bank has some assets which can not be used
anywhere they are used when there is big amount involved in it. Thus it is important for a firm to
examine the reasons for the deviations and work on it significantly. There are different reasons
which cause this deviation and those are:
 Cheques issued but not yet Presented for Payment: Cheques is paid to the custo9mer
thus this will reflect in the accounting books that the amount of cheque of given is
deducted from the particular account but in reality up to the time it is presented in bank
the amount will remain in bank up to that level.
 Cheques paid into bank But not yet collected by bank: Here the bank column in cash
book is debited after depositing the cheques with bank. Further in this the main cause of
deviations is in the part of bank.
 Interest and dividends received by the bank: Interest and dividends debited by bank
from bank account will not be recorded in cash book thus the deviations occurs between
both cash and bank records.
c.
Bank reconciliation statements as at 1 December 2016
22

Prepare updated cash book
Bank reconciliation statements as at 31st December
23

CLIENT 5
A) prepare and balance books of Henderson for May 2016
Sales ledger control account
24

Purchase ledger control account
b) Explain the term control account and needs to prepare control account
Control account is the one of the account that is the summary level of account in the
ledger. Control account can be stated as account under which final values of all entities and other
accounts is recorded from the ledger accounts. It can be said that control account give summary
of the all ledger accounts. These accounts are mostly used to summary the receivables and
payables in the books of accounts. Value that is revealed in the ledger account as final balance
can also be used as final value to be taken in the control account (Control account, 2017). There
are different purposes due to which control account is prepared. One of the main purpose is that
it is important to identify the actual receivables and payables that are in the business. If there are
higher payables then receivables then in that case situation may be critical. Formation of ledger
reflects the risk that are existed in the business in respect to cash management strategy. It is also
very important to get an overview of each and every account separately in the business. So that
chances of default in case of specific entity in respect to large amount can be reduced. It can be
said that there is a huge importance of the control account for the business firms.
25