Financial Accounting Principles Solved Assignment

FINANCIAL ACCOUNTING
PRINCIPLES

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY ..................................................................................................................................1
1. Describing financial accounting and purpose.........................................................................1
2. Explaining regulations which relates to financial accounting.................................................2
3. Description of accounting rules and principles.......................................................................3
4. Explaining conventions and concepts which related to consistency and material disclosure.4
CLIENT 1........................................................................................................................................5
I.) Books of prime entries............................................................................................................5
CLIENT 2......................................................................................................................................12
Balance sheet for the year ended 31 July 2018.........................................................................12
CLIENT 3......................................................................................................................................14
A.) Profit and Loss statement....................................................................................................14
b.) statement of financial position.............................................................................................16
c.) Explanation on following concepts......................................................................................17
D.) purpose of depreciation with its two methods....................................................................17
CLIENT 4......................................................................................................................................17
A.) Purpose of preparing bank reconciliation statement...........................................................17
B.) Explaining areas which cause records vary with bank records...........................................17
C.) Preparation of accounts through cash flow statement.........................................................17
CLIENT 5......................................................................................................................................19
(A.) Preparation of sales ledge and purchase ledge account.....................................................19
(B.) Explanation on need for preparing control account...........................................................20
CLIENT 6......................................................................................................................................20
A.) Explanation of the term suspense account..........................................................................20
B.) Drafting of trial balance......................................................................................................21
C.) Trial balance suspense account...........................................................................................21
D.) Difference between suspense account and clearing account..............................................22
CONCLUSION..............................................................................................................................22
REFERENCES..............................................................................................................................23

INTRODUCTION
Financial accounting principles are rules and guidelines which every company must have
to follow while preparing its financial statements (Trotman and Carson, 2018). These set of
accounting principles differ from country to country. Chosen organisation in this report is DNS
Associates which provides services in consultation relates to finance. In this assessment,
financial accounting and its purpose will be discussed with its regulations. Further, explanation
will be provided on accounting principles and rules with the conventions and concepts relates to
consistency and material disclosing. Moreover, proper calculation with description will also be
evaluated in this report.
MAIN BODY
1. Describing financial accounting and purpose
Financial accounting is a special branch of accounting which provides rules and
guidelines to companies in order to maintain their financial transactions (Freedman, 2018). With
these guidelines, transactions in income statement and in financial positions are recorded,
summarized and presented in proper way. This is the process by which company show its
financial performance and position to its users which includes investors, suppliers, creditors and
customers. Its objective is to show fair and accurate picture of company's financial capability
with its business affairs.
Its main purpose is not to report value of financial transactions of the company. Rather,
its purpose is to provide information and analysis to its users by which they will able to assess
the value themselves. It is also developed by company for sound economic decision-making
process. There are three main statements which prepared by the company which include income
Statements, financial position and cash flow statement (Weygandt, Kimmel and Kieso, 2015).
Main purpose of preparing income statement is to inform its reader business ability for earn
business profit. It also provides information which relates to volume sales, types of expenditures
and incomes which company incurred during financial year.
Purpose of financial accounting is to provide information which relates to business activities of
owners, stakeholder, investors and creditors which facilitate them to take investment decision
and lending decision. By providing such analysis and proper information, entity will able to gain

trust and support of its users where they will remain in company for long term perspectives.
Several additional purpose of using financial accounting includes-
Credit decision: entire set of financial statements are used by lenders for determining
their decision that whether it should be extended to credit business or not. Financial statement are
provided by organisation to show its financial capability to such lenders.
Investment decision: financial statements of company are also analysed by investor of
the company in order to determine whether to invest on price per share at which they are offered
for buying business (Warren and Jones, 2018). In order to run smooth business operations, it is
necessary that organisation will have support of its investors. By showing regular financial
performance, company will able to gain trust of its investors.
Taxation decision: government use entire set of information to determine whether
imposition of tax on company on the basis of its income and assets. Proper information to
government will help in gaining government support by which brand image of company among
customer get increases.
Union bargaining decision: Unions also need financial statement of company in order to
develop base of bargaining position according to ability of business to pay. This will help entity
to gain trust of its employee by which they will develop the best efforts for gaining
organisational objectives.
2. Explaining regulations which relates to financial accounting
Financial accounting regulations are the proper guidelines which set up by particular
bodies in order to prepare their financial statement. Motive of developing these regulations is to
provide a common and understandable language to users which across the world (Habib,
Ranasinghe and Huang, 2018). Financial accounting is the process which includes identification
and recording of financial information, measurement of financial performance through which
proper communication between users and company get developed. Following are the regulations
of financial accounting:
Regulatory bodies (IASB, FRC) : Financial reporting council is the UK's independent
body which is responsible to promote high quality of corporate governance and reporting. This
body has set up proper code of conduct and standards which needs to follow by organisation's for
preparing their financial statements. This body supported by two businesses which includes

Codes and Standards Committee and Conduct Committee. This helps organisation to maintain
their financial statements with transparency and honesty.
IFRS: these are the set of international accounting standards which provide a proper
guideline to companies for particular type of transaction and events which needs to be recorded
in books of accounts. These set of standards helps organisations to provide high quality,
internationally recognised set of accounting which brings transparency, accountability and
efficiency to financial market across the nation. Main goal of developing such reporting method
is to develop transparency and reliability in financial statements of company (Jayaram and et.al.,
2018).
IASB: this is the independent, non-profit and private sector organisation which working
for the public interest in order to develop advanced quality, enforceable and globally accepted
accounting principles by which entity maintain their financial statements in proper format with
effective disclosures.
3. Description of accounting rules and principles
Accounting rules are the proper statements which establish to provide proper guidance to
companies and accountant in order to record every transaction.
Golden rules of accounting (Traditional approach):
Personal account: golden rule which relates to personal account states that debit the
receiver and credit the giver. It means that if person receive something then it must be recorded
where receiver account shall be debited and person who give something must be credited.
Real account: rules which relates to real account states that debit what comes in and
credit what goes out. It means that if something come in business shall be debited and if
something goes out from business must be credited (Madhavi, 2017.).
Nominal account: golden rule which related to nominal account states that debit all the
expenses and losses and credit all the incomes and gains. This means that if business incur any
expense and loss then this account must be debited and income receive by business must be
credited.
Accounting principles:
Economic Entity Assumption: which means that accountant keep business transaction
separate from personal transaction of owner.

Monetary Unit Assumption: the concept of such principle assumes that business
transactions and events must be prepared and expressed in terms of monetary units only which
are stable and dependable.
Time Period Assumption: principle assume that it is possible for businesses to record
complex and ongoing transactions in a very short time interval.
Cost principle: the concept of cost principle states that financial transaction related to
business needs to be record at actual cost rather than on current value.
Full disclosure principle: according to this principle if certain information is useful for
investor then in financial statement it must be disclosed within statement or in notes because of
basic accounting principle.
Going Concern Principle: principle states that company will carry out its business
operations of long term perspective and will not liquidate in the future.
Matching Principle: this principle requires companies to maintain financial statements
with accrual basis of accounting where expenses will be matched with revenues.
Revenue Recognition Principle: concept of such principle revenue are recognised as
soon as product been sold or service been performed.
Materiality: This principle states that all the material information must be disclosed by
organisation.
Conservatism: This is the general principle of recognising expenses and liabilities when
there is uncertainty about its outcome (Jeppson, Ruddy and Salerno, 2016).
4. Explaining conventions and concepts which related to consistency and material disclosure
 Consistency-
This is the accounting principles which states that company must use same accounting
policies and methods in order to record similar nature of events and transactions which is from
one accounting period to another. It means that once the method has been selected to prepare
financial statements of organisation, then all such method will consistently be followed in
accounting periods. If entity wants to change such methods and procedures in maintaining their
financial reports, reasons of such will must have to disclose by company. According to financial
accounting standard board the consistency method is one of the characteristics and qualities
which makes accounting information more useful (Barker, 2015).