Financial Accounting Principles Project

This project provides a comprehensive overview of financial accounting principles, covering its objectives, regulations, and practical applications. It includes solved examples demonstrating journal entries, ledger accounts, trial balances, and financial statements, along with explanations of key concepts like materiality, consistency, and disclosure. The project also explores important topics like bank reconciliation, control accounts, and the distinction between suspense and clearing accounts.

FINANCIAL
ACCOUNTING
PRINCIPLES

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................4
Report about financial accounting along with its regulations.....................................................4
1. Financial Accounting with its objectives................................................................................4
Representing regulations of financial accounting.......................................................................5
Principles and function of Accounting for preparing financial statements................................6
Justifying different concepts of accounting such as materiality, consistency and disclosure.....7
CLIENT 1........................................................................................................................................8
1. Presenting Journal entries.......................................................................................................8
2. Presenting ledger account with context of double entry recording.........................................9
3. Determining the level of accuracy of trial balance.................................................................9
CLIENT 2......................................................................................................................................10
(a) Presenting statement of profit and loss for Sierra Laurent for year 2018 (July).................10
(b) Presenting statement of financial position for Sierra Laurent for year 2018 (July)............12
CLIENT 3......................................................................................................................................13
(a) Preparing statement of Profit and loss statement of LMS Ltd for 31st July 2018...............13
(b) Presenting statement of financial position for LMS Ltd for year 31st July 2018...............14
(c) Explaining the accounting concept of prudence and consistence........................................14
(d) Objective of depreciation for accounting along with its both method................................15
CLIENT 4......................................................................................................................................15
A) Objective of framing Bank Reconciliation Statement.........................................................15
(B) Listing areas which might create variances from bank statements.....................................16
C. Kendal's cash book along with its bank reconciliation statement........................................16
CLIENT 5......................................................................................................................................19
(a) Preparing Sales and Purchase ledger account .....................................................................19
(b) Define Control Account .....................................................................................................20
CLIENT 6......................................................................................................................................20
(a) Describing Suspense account along with its features..........................................................20
(b and c) Preparing trial balance...............................................................................................21
(d) Compare Clearing account and Suspense account.............................................................21

CONCLUSION..............................................................................................................................22
REFERENCES..............................................................................................................................24

INTRODUCTION
Financial accounting principles plays very important role in every organization as it
creates ease for determining future expenses and for purpose of controlling its cost on specific
operation which are performed in premises. The present report is giving brief discussion about
different accounting regulations, rules along with its principles. It had reflected their major
importance for accomplishing profitably and growth as it is followed by every industry. Further
it had shown various financial statements such as profit and loss, balance sheet and trial balance.
It is also articulating about different control account with its features and in same series it had
shown difference in suspense and clearing account.
Report about financial accounting along with its regulations
1. Financial Accounting with its objectives
Financial accounting is referred as specific branch of accounting, which directly traces
the financial statements of company in systematic manner. The transactions of any business
entity is measured, reported, collected and recorded on basis of shareholders and investors with
context of financial accounting. It is considered as a significant source for observing financial
stability and performance of any business entity, as it reflects report in fair and consistent
aspects. The statement should be framed by considering various financial standards such as
International Financial Reporting Standards (IFRS) and Generally Accepted Accounting
Principles (GAAP).
The main objectives of financial accounting are stated below:
Comparability
Relevance
Consistency
Reliability
Comparability: The financial statement would be easily compared from any other
organization's statements or with statement of previous year. There is presence of system which
had been established for reporting and recording financial statements which are prepared. It
would be creating too much ease for investors with reference to date which could be compared

and to be adjusted with process of decision making about its investments (Concepts of
Accounting Principles, 2018).
Relevance: The financial statement provides financial information that should be
relevant and applicable for its end user. All the financial statements must create ease for the
purpose of understanding and decision making with respect to financial performance of business
entity. The recent information is considered as relevant and it would be providing outcome on
quarterly and annual aspects.
Consistency: There is presence of various alterations in standards so this would be
creating deficiency for preparing statement with appropriate consistency. It became a reason for
standards so the end users of financial statement reflected data which is consistent and for
process of decision-making it created ease for comparing.
Reliability: The financial information that had been provided through financial
statements should be reliable. If in this context, investors would be not capable for attaining
reliable information as it creates difficulty for the process of decision-making. In the same series,
all reliable information should not mislead others as it should be free from biases so it would be
verified with much ease (McLaren, 2018).
Representing regulations of financial accounting
The financial information should be unbiased, fair, comparable, understandable and fair.
According to this, board has set regulations for developing, presenting and preparing financial
statements. The companies, which are listed under FTSE in United Kingdom, had to follow the
standards of GAAP. The organizations had to prepare financial statements with respect to
principles, which are abolished through GAAP. With reference to expansion of business entities
of global market international accounting, board have to follow these regulations such as IASB
and IFRS.
The various accounting regulations are stated below:
International accounting standard board (IASB): The specific objective of IASB is to
give appropriate disclosure of information with context of professionals. It provides significant
guidelines for particular objectives for framing database and reports with respect to financial
statements. It is also applicable for giving appropriate revaluation of accounts. The stakeholders
would accept a specific legal structure for identifying financial information and it would
influence number of investors with context of different countries.

International Financial reporting standards (IFRS): It had directly constituted as
contribution of Financial Reporting from 2005 in United Kingdom. It had been framed for
setting various global standards for preparing and disclosing financial statements. If single
accounting standard had been adopted for various countries as it gives financial information that
is consistent and could be comparable especially for investors. It gives guidance for purpose of
financial reporting instead of setting its regulations.
Principles and function of Accounting for preparing financial statements
There is presence of various concepts, principles and rules, which helps in governing
various uses of accounting.
The specific concepts and rules are stated below:
 Historical Cost: The specific value of asset had to be stated in financial statement with
context of its original value but not on the present market value.
 Business Entity: The financial statements would not consider any personal transactions
of owner and in this, same series business is known as separate entity from specific
owner.
 Monetary unit: All the specific information should be recorded on monetary prospective
and if it is vice versa then it would not be recorded in statements. Monetary unit could be
describes as INR, $ etc.
 Matching: In this principle, all expenses and revenue which are stated should be similar
within specific accounting period for getting actual earnings (Pawlowski, Nalbantis and
Coates, 2018).
 Going concern: It would be considering an assumption that there will be continuity by
specific organization for performing in time period which is indefinite. On this particular
aspect, value of asset would be traced in financial statements.
 Consistency: It is referred as accounting process which is applicable for business
perspective as it must be consistent, similar and alteration is necessity.
 Accounting period: There is presence of accounting process within specific time
duration such as half yearly, fiscal year and quarterly.

 Objectivity: The amount which had been recorded with respect to financial statements
must have presence of supporting evidence which is impartial.
 Conservatism: There is presence of two specific amounts of option with context of
transaction of business, so in this series lower amount had been considered in financial
statements.
 Materiality: it is referred as mistake in process of accounting which would be providing
impact to user's decision and it gained importance and there is requirement of reporting it
appropriately.
Justifying different concepts of accounting such as materiality, consistency and disclosure
Materiality This accounting concept is stating that organization must disclose each and
everything which is considered as very important for its users. There is
presence of various items which had created its importance to any other
organisation, as it could be ignored because it is not giving any major impact
on the context of financial entity of business. It is known as very important
accounting concepts which is creating help for auditors and accountant for
taking decision about classification of amount which is material or immaterial.
Consistency This specific method is implied on process of accounting should be consistent
from any particular financial period to other. If there is presence of any
alteration in accounting techniques to its disclosure and it had performed true
explanation on the context of financial statements. It is known as very
important measure for comparability which helps in enabling investors along
with its users of financial statements for comparison it from previous year's
statements. The accounting policies could be altered along with its techniques
if there is presence of more than one reasonable ground which would directly
reflect in financial performance and stability of organization (Trucco, 2015).
Full Disclosure This concept is directly linked to materiality as it had huge requirement for
disclosing each financial detail such as accounting policies with respect to
financial statements. The creditors and investors had gained huge knowledge
of all information which is relevant in context of operation of organization on
particular basis of accounting. This specific principle is elaborating alterations

for decisions of external user with reference to specific organization as it
should give appropriate financial statements along with disclosure. The users
get ensured that there is not any lack of information and along with this it is
not misleading any financial statements.
CLIENT 1
1. Presenting Journal entries
All the financial statements are presented with respect to transactions which are given. It
would be adjusting various entries which are considered as very useful for business in context of
purchase and sales such as:

2. Presenting ledger account with context of double entry recording
There is representation of journal entries in above scenario which are settled in below
mentioned ledger account such as:
3. Determining the level of accuracy of trial balance
The trial balance consist of each balance of ledger and journal which had been classified
above (Tsalavoutas, André and Evans, 2012). In the same series, there is presence of numerous
data set which is briefing the left transactions and it is considered as very initial contribution to
general accounts. The treail balance of year 2018 is stated below:

CLIENT 2
(a) Presenting statement of profit and loss for Sierra Laurent for year 2018 (July)
It is justifying various balances till year ended 31st July 2018 which is depicting financial
performance through its profit and loss statement along with its financial position and stability of
specific time period.

(b) Presenting statement of financial position for Sierra Laurent for year 2018 (July)

CLIENT 3
(a) Preparing statement of Profit and loss statement of LMS Ltd for 31st July 2018

(b) Presenting statement of financial position for LMS Ltd for year 31st July 2018
(c) Explaining the accounting concept of prudence and consistence
Consistency: It could be referred as concept which traces the transactions and represents
the particular data set on daily aspect. It would be directly indicating about there is absence of
need of continuity in context of techniques which had been adopted. It would be also creating
benefit with daily analysis of each financial for the purpose of developing business in efficient
aspect along with approved performance through operations.
Prudence: It would be providing a brief understanding about revenue and gains which
had been overestimated and on its contrary, the organizations gives less attention to liability and
expenses as well. If there is representation of financial disclosures which had been performed

through conservatisms which provides relevancy. As per this technique, various professionals
had taken numerous assumptions along with particular level of increment of capacity of
organization and liabilities for purpose of accomplishing meetings with context of debt in
specific business.
(d) Objective of depreciation for accounting along with its both method
In every organization, depreciations has its applications. It could be defined as fall in
value of any specific asset. If there is purchase of any particular asset such as computer, plan and
machinery etc. for long term perspective then it would extract its net value of each year which
could fall by considering its life span. It is considered as mandatory scenario for recording value
of depreciation in books of accounts as it would be providing help for assessing its value of
depreciation of its specific asset (Mullinova, 2016). While excluding salvage value from money
which had been earned by selling the asset from its actual cost. Historical cost, useful life and
salvage value is known as basic element as it could be calculated by two methods such as
Written down value method and Straight line method.
It importance could be stated below:
 The application of straight line methods reduces historical value of asset.
 It tracks original asset value after the ending of financial year.
 In the context of written down value, the market value could be compared by estimating
loss and profit with reference to sale.
 The business entity could review information along with replacement of asset in written
down value.
 If method of depreciation could not be used by organization then it would bear loss at the
time of occurrence of transaction to earn better profit in context of financial outcome.
CLIENT 4
A) Objective of framing Bank Reconciliation Statement
The Bank Reconciliation Statement had been framed for reflecting variations among
bank records and framed reconciliation accounts. It is referred as basic document for accounting
prospective.
It is not mandatory from legal perspective but it specifies various objectives such as:

 It provides accuracy with context of entries in passbook and cashbook. Usually investor
traces level of accuracy with perspective of transactions recorded in both cash and
passbooks.
 It helps in extracting error of both books as cash outflow and inflow must tally according
to bank statements and cashbook. It lays special emphasis on irregularities and mistakes
in each book along with business (Khan, 2015).
 The position of cheques which is deposited for purpose of collection had been gained by
BRS.
 It provides justification of balance of organization which had been rectified.
 The bank balance could be known as it creates convenience level for cheque issuance
with respect to future.
 It is considered for purpose of mechanism of internal control of inflow and outflow of
cash. The misappropriation of bank drafts, malpractices happening in organization on
basis of cash and bank drafts etc. had been checked.
(B) Listing areas which might create variances from bank statements
There is presence of various factors which might create variance in bank statements:
 The books of account got overwrite during immediate issue of cheques to any specific
party. But in same series there should be absence of cheques toward bank on encashment
perspective.
 There are various error because of problem in server because at that time, money would
be transferred and depositor got informed, then books of account had been maintained but
activity of money transfer did not occur because of issue in server.
Various services which are provided by bank to depositors for issuing cheque book,
collecting cheques and bills so commission had been charged along with penalty also if there is
absence of regularity such as sufficient balance had not been maintained, dishonoured of cheque.
On the same date, depositors cannot debit there account so it might be one factor for creating
differences in bank accounts.
C. Kendal's cash book along with its bank reconciliation statement

CLIENT 5
(a) Preparing Sales and Purchase ledger account
Sales ledger Control Account
Purchase Ledger Control Account

(b) Define Control Account
The control account helps in determining for each business entity's department. It could
be easily elaborated by its title name about its execution as it must attain great control from its
professionals for the process of decision making (Control Accounts, 2018). It would be directly
benefiting the business entity for the purpose of analysing gain and cost within given duration.
Generally, these accounts are measured and prepared by all big business entity for the purpose of
getting information which is directly linked to unit of operation such as production, sales,
marketing, purchases etc. and it would be considered as very efficient tool for preparing
appropriate estimation of business performance. It is represented in summarized format which is
known as general ledger as it includes aggregate of each small transaction which is segregated on
individual aspect in ledger of subsidiary account.
CLIENT 6
(a) Describing Suspense account along with its features
Suspense account helps in correcting error which had been incurred in past year. The
main feature could be signifies as per its short duration and temporary. The specific aim of this

account it to create promptness of its various operating accounts. The particular statement are
balance if its belongingness is not identified. There should be appropriate extraction of its
mistakes and should be resolved as soon it could be. It should be zero before preparing final
accounts. During the preparation of suspense account it should be fitted in mind about its
duration and temporary nature.
(b and c) Preparing trial balance
(d) Compare Clearing account and Suspense account
Suspense and Clearing account both are favouring each other in context of various
features but on its contrary it had huge differences. These both clearing and suspense account
both are framed on temporary basis (Wang, 2014). There are various transactions which are
entered in both account but on later perspective it had been transferred in specific account. These
both accounts had huge variations which are stated below:

Illustration 1: Clearing vs Suspense Account
(Source: Barth, 2015)
 Clearing account helps in determining information which had been recorded
appropriately and is posted on later perspective and suspense account had been framed
during occurrence of problem and when it is resolved then this account is kept at zero.
 Suspense and clearing account both transfers balance in proper account and if balance is
left at zero which signifies that both have zeroed out.
 The uncertainties had been hold through suspense account if there is involvement of
problem but on its contrary clearing account holds transaction on temporary aspect till the
time which had been arrived for posting them in their particular permanent account.
 The utility expenses had been hold by clearing account which might be closed in month
ending on daily aspect but on its contrary suspense accounts functions differently as
amount is recorded until resolution of uncertainties.
 There is absence of fixed schedule for ending suspense account but in clearing there is
fixed closing time (Beatty and Liao, 2014).
CONCLUSION
From the above study it could be concluded that financial accounting is very mandatory
for each business entity or industry. It could be justified from above report that it helps in

identifying financial position and stability of organization along with its appropriate growth. It
had bee articulated from above report that there are various standards which are used for
preparing financial statements. It had reflected major importance of all financial statements such
as balance sheet, income statement and many more because it helps in knowing financial
position. It could be summed up by considering profitability and organization's growth could be
achieved by following stated rules and regulations. Further it could be concluded by analysis
various variances in clearing and suspense account as both are on temporary basis and very
important for each business entity.

REFERENCES
Books and Journals
Barth, M. E., 2015. Financial accounting research, practice, and financial
accountability. Abacus. 51(4). pp.499-510.
Beatty, A. and Liao, S., 2014. Financial accounting in the banking industry: A review of the
empirical literature. Journal of Accounting and Economics. 58(2-3). pp.339-383.
Khan, M., 2015. Accounting: Financial. In Encyclopedia of Public Administration and Public
Policy, Third Edition-5 Volume Set (pp. 1-6). Routledge.
McLaren, M., 2018. ‘Evidence-based policy-making’: a practitioner view. Accounting and
Business Research. 48(5). pp.609-611.
Mullinova, S., 2016. Use of the principles of IFRS (IAS) 39" Financial instruments: recognition
and assessment" for bank financial accounting. Modern European Researches. (1). pp.60-
64.
Pawlowski, T., Nalbantis, G. and Coates, D., 2018. Perceived game uncertainty, suspense and the
demand for sport. Economic Inquiry. 56(1). pp.173-192.
Trucco, S., 2015. Premises for the Convergence of Financial Accounting and Management
Accounting. In Financial Accounting (pp. 41-64). Springer, Cham.
Tsalavoutas, I., André, P. and Evans, L., 2012. The transition to IFRS and the value relevance of
financial statements in Greece. The British Accounting Review. 44(4). pp.262-277.
Wang, C., 2014. Accounting standards harmonization and financial statement comparability:
Evidence from transnational information transfer. Journal of Accounting Research. 52(4).
pp.955-992.
ONLINE
Concepts of Accounting Principles. 2018. [Online] Available through:
<https://www.accountingcoach.com/blog/what-is-the-full-disclosure-principle>
Control Accounts. 2018. [Online]. Available through
:<http://www.soofiainternational.org/control-accounts/>