Financial Accounting Concepts and Applications

This assignment delves into the fundamental principles of financial accounting. It covers topics such as deposit in transit, outstanding checks, and the preparation of a bank reconciliation statement (BRS). Students will also learn about control accounts, suspense accounts, trial balances, and journal entries. Furthermore, the assignment examines different types of accounts, accounting methods used by companies, and the relevance of financial accounting in the business world.

Financial Accounting
Principles

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
A. Generating report regarding accounting regulations for firm to the Line manager...........1
CLIENT 1........................................................................................................................................4
1. Journal entries for company...............................................................................................4
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2. Preparation of ledger accounts from above journal entries................................................7
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3. Trial balance of company................................................................................................17
M1. Purchase and sale transactions to segregate trial balance.............................................18
D1. Producing trial balance with reference to accounting concepts....................................18
CLIENT 2......................................................................................................................................18
A Profit and Loss statement for the company......................................................................18
B. Statement of financial position for Peter Piper company................................................19
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CLIENT 3......................................................................................................................................22
A. Income statement for Raintree Ltd..................................................................................22

B. Statement of financial position of company....................................................................23
C. Concepts of accounting....................................................................................................24
D. Presenting and measuring depreciation in the business and various methods of charging
deprecation...........................................................................................................................25
M2. P&L, balance sheet and cash flow statements..............................................................25
D2. Producing final accounts of company...........................................................................25
CLIENT 4......................................................................................................................................25
A. Preparation of bank statement.........................................................................................25
B. Various causes of recording bank statements..................................................................25
C. Presentation of cash books...............................................................................................25
M3. Reconciliation process and related terms......................................................................26
D3. Preparation of BRS........................................................................................................26
CLIENT 5......................................................................................................................................26
A Producing sales and purchase ledger account for Henderson organisation......................26
B. Defining control account.................................................................................................27
CLIENT 6......................................................................................................................................27
A Suspense account and highlighting main features...........................................................27
B. Trial balance...................................................................................................................28
C. Journal entries..................................................................................................................28
D. Distinguishing clearing and suspense account................................................................29
M4. Kinds of accounts..........................................................................................................29
D4 Accounting methods for company..................................................................................29
CONCLUSION..............................................................................................................................29
REFERENCES..............................................................................................................................30

INTRODUCTION
Financial accounting is important for organisation so that every record may be
maintained by it quite effectively. The present report deals with different organisations with
relation to preparation of financial statements. This provides useful information to users of such
information as well as management to take better decisions.
A. Generating report regarding accounting regulations for firm to the Line manager
To: Line Manager
From: Junior accountant
Subject: Accounting terms and regulations required to be followed by organisation.
Respected Sir,
Accounting concepts and terminologies play vital role in organisation so that financial
statements may be prepared more accurately. The financial statements include balance sheet,
income statement and cash flow statement which provides much needed financial information
to users of it. Accounting professionals are benefited by such concepts and principles which is
used to prepare financial statements having relevant information to users of accounting
information. Internal as well as external stakeholders' are benefited by such information as they
are able to take better and effective decisions quite effectually. The financial statements are
prepared with such accounting concepts and as such, accurate information is provided to
stakeholders to take enhanced decisions with much ease. In relevance to this, budgeting and
forecasting are another essential tools for organisation.
1. Financial accounting
Financial accounting is preparing, summarizing and reporting financial transactions
which prevails in the business. This accounting is much important to users of accounting
information to assess liquidity, profitability and efficiency of company in effectual way. It is
also called historical accounting because it takes financial data of past years and draw out
financial statements quite effectively. The taxation authorities and government mandatory
require that financial accounts should be prepared by companies so that fairness of financial
statements may be reflected to users of accounting information to take better decisions with
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much ease. Financial accounting is a branch of accounting which deals with recording of
business transactions that take place every day and by maintaining such records in books of
accounts. This whole process is then summarized to prepare financial statements which exhibits
true financial position of company quite effectively. The company's management is also
benefited by such information as it comes to know financial health of organisation and if any
weakness exist, then better and effective decisions are taken to remove it in the best possible
way. Several financial statements are then utilised by stakeholders' be it external or internal so
that they may take timely and better decisions. In addition to this, investors and creditors are
also benefited by such information and they make out whether to provide funds to company or
not.
Illustration 1: Kinds of financial statements
Source: (Zeff, 2016)
The above diagram shows different kinds of financial statements which is quite relevant
to stakeholders which are prepared by firm to exhibit true information of the company so that
stakeholders may be able to take better and effective decisions. The financial information
exhibited by financial statements are also used for tax payment liability as it provides reliable
and accurate information to taxation authorities.
2. Financial accounting rules and regulations
The financial accounting is quite important to carry out and at the same time requires
following legal frameworks governed by professional bodies. This is important as manipulation
in accounting records may lead to false information to users of such information. Thus, it is
essential that company prepares accurate financial statements so that various stakeholders may
rely upon it. As such, to remove defects accounting regulations are to be followed by
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accountants so that reliable information may be produced quite effectively. UK's corporate
reporting and governance regulator has given FRC guidelines which are to be followed by
organisations. The legal frameworks provided by professional bodies are described below:
FRC (Financial Reporting Council): The body is entrusted to govern and regulate government
departments and organisations. It fosters investment in UK which is main objective of it. FRC is
formed by company limited by guarantee. It provides benefit to whole economy with much
ease.
IASB (International Accounting Standards Board): This board is entitled to provide guidelines
to accountants so that they may prepare accurate and error free financial statements to provide
financial information to users.
IFRS (International Financial Reporting Standards): This body provides legal framework within
which proper accounting records are to be maintained by following financial reporting
standards given by it.
3. Rules for accounting
1. Monetary unit assumption: The monetary unit assumption is related to currency used for
business transactions. The universally accepted currency is US dollar which remains stable and
as such, transactions may be made in the same currency.
2. Full disclosure principle: The principle states that each and every record must be maintained
by the business so that reliable information may be provided to such users. This reliability is
achieved by segregating financial statements into single statements and by auditing as well.
This will provide effective information to users and they can interpret the same. Financial
statements must be disclosed at the end of period.
3. Going concern Principle: This rule or principle conveys that financial statements are prepared
by organisation in the view that business will run for a long time. In simple words, this concept
assumes that organisation will continue for long time and will not get closed. By anticipating
such aspect, financial statements are prepared by the company.
4. Accounting concepts
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 Material disclosure:
The materiality concept states that only material items must be included in accounting
records so that might affect economic decisions and all those non-materials must be ignored
which does not affect decisions of users of accounting information. Tax rate need to be
disclosed which is expected to change in the future.
 Consistency: The consistency concept is another essential principle which states that
accounting polices need to be consistently followed by organisation so that reliable
information may be prepared in the best possible way. This means that same
depreciation method must be followed by organisation so that reliable information may
be obtained with much ease. This is also easier to compare with past year data of
organisation. Thus, for reliable financial information consistent accounting policies must
be followed.
CLIENT 1
1. Journal entries for company
The main objective of journal entries is to prepare summarized data set which provides
accurate financial statements prepared from such journal entries. The basic concept is that
financial records are maintained in chronological order as when they occur.
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2. Preparation of ledger accounts from above journal entries
The ledger accounts are prepared separately from above journal entries. The main
essence of ledger accounts are that management is benefited as it provides information about
revenue and expenses made in the period. This help to initiate control on costs so that profit may
be garnered.
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3. Trial balance of company
Trial balance provides arithmetical accuracy of journal entries and ledger posting in
effective way. It states that debit and credit must be equal for every business transaction so
entered in books of accounts (Hyndman and McKillop, 2018). If any error is made in ledger
posting, trial balance provides transparency to detect such errors. As such, it is reliable method to
judge accuracy of accounting records.
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M1. Purchase and sale transactions to segregate trial balance
Trial balance provides such transactions. Total sales transaction figure is 10930 and
purchase figure is 38320. Expenses are higher.
D1. Producing trial balance with reference to accounting concepts
Trial balance is calculated with reference to guidelines provided by FRS, IASB, GAAP.
CLIENT 2
A Profit and Loss statement for the company
It is a statement which shows revenues and expenses incurred in current period. As such,
costs are controlled in effective manner by management of the company. Income statement is
also called period as it shows various expenditures and revenues at a particular period.
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B. Statement of financial position for Peter Piper company
The statement of financial position shows that assets and liabilities at a particular point of
time. As such, it is also called position statement which shows position of company with
reference to assets and liabilities usually the end of financial period (Glaum, Keller and Street,
2018).
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CLIENT 3
A. Income statement for Raintree Ltd
The income statement is prepared for Raintree organisation which highlights various
revenues and expenses made during the period. The management is benefited by such
information as it is able to reduce expenditures which are eradicating profits.
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B. Statement of financial position of company
The balance sheet shows assets and liabilities at a particular point of time and as such, it
is also known as position statement. It provides true and fair information to users of accounting
information.
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C. Concepts of accounting
1. Consistency concept :
The consistency concept is based on using same accounting policies in the future periods
so that reliable information may be obtained quite effectively. Once a company adopts such
polices, same should be followed and as a result, reliability is attained (Caraiani and et.al, 2018).
2. Prudence concept :
This concept conveys that organisation should anticipate all losses and not gains. As
such, overestimation of assets must be ignored and underestimation of liabilities must be made.
This is done as business runs in a dynamic world which is not static.
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D. Presenting and measuring depreciation in the business and various methods of charging
deprecation
Deprecation is a charge against profit and is occurred due to passage of time, normal
wear and tear of fixed asset or even obsolescence. It is required to be calculated so that profit
may be ascertained else cost of fixed asset will be continued in books of accounts at an
overstated value. There are different types of charging deprecation such as:
1. Straight line method:
This method is based on charging same rate of deprecation year after year. It remains
constant throughout life of asset.
2. Written down method:
This method is based on diminishing value of asset and as such, same rate is not charged
every year. Life of asset never becomes zero (Warren and Jones,, 2018).
M2. P&L, balance sheet and cash flow statements
These financial statements are utmost important for users of such information as well as
for management of organisation.
D2. Producing final accounts of company
Balance sheet was prepared. Assets was 137000, liabilities was 137000, while
stockholder's equity was 102000.
CLIENT 4
A. Preparation of bank statement
The preparation of bank statement is required as bank records are not updated with that of
organisation's financial records. Thus, passbook balance and organisation's records both differ.
Trial balance is prepared and as such, transaction is matched of both books.
B. Various causes of recording bank statements
Various causes are outstanding cheques, deposit transit, dishonour of cheque, interest
charged.
C. Presentation of cash books
BRS:
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Cash book :
M3. Reconciliation process and related terms
1. Deposit in transit: This includes transaction related to currency which are not updated in
bank's records.
2. Outstanding Checks: These are issued but are pending for clearance by bank. This makes
difference in balances of both entities.
3. Not Sufficient Funds Check: Dishonoured cheques are included.
D3. Preparation of BRS
The concepts related to BRS are ratio analysis, trend analysis.
CLIENT 5
A Producing sales and purchase ledger account for Henderson organisation
Sales Ledger Control Account:
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Purchase Ledger Control Account:
B. Defining control account
This is prepared by large firms which have many transactions on daily basis. Separate
accounts are maintained to have better control on costs.
CLIENT 6
A Suspense account and highlighting main features
This is a temporary ledger account which is prepared in the event of any doubts.
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B. Trial balance
C. Journal entries
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D. Distinguishing clearing and suspense account
M4. Kinds of accounts
Income statement shows revenues and expenses while balance sheet shows assets and
liabilities at a particular point of time (Introduction to Financial Accounting).
D4 Accounting methods for company
For ascertaining correct financial statements, accounting methods are used so that true
and correct financial health of company can be ascertained.
CONCLUSION
Hereby it can be concluded that financial accounting is relevant to business world.
Certain standards provided by professional bodies guide accountants to prepare correct financial
statements.
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