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Report on Preparation of Financial Statements by Organisation

   

Added on  2020-06-04

33 Pages2887 Words95 Views
Financial AccountingPrinciples

TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1A. Generating report regarding accounting regulations for firm to the Line manager...........1CLIENT 1........................................................................................................................................41. Journal entries for company...............................................................................................4..........................................................................................................................................................6..........................................................................................................................................................72. Preparation of ledger accounts from above journal entries................................................7..........................................................................................................................................................9..........................................................................................................................................................9........................................................................................................................................................10........................................................................................................................................................10........................................................................................................................................................12........................................................................................................................................................13........................................................................................................................................................14........................................................................................................................................................15........................................................................................................................................................15........................................................................................................................................................16........................................................................................................................................................16........................................................................................................................................................173. Trial balance of company................................................................................................17M1. Purchase and sale transactions to segregate trial balance.............................................18D1. Producing trial balance with reference to accounting concepts....................................18CLIENT 2......................................................................................................................................18A Profit and Loss statement for the company......................................................................18B. Statement of financial position for Peter Piper company................................................19........................................................................................................................................................21........................................................................................................................................................22CLIENT 3......................................................................................................................................22A. Income statement for Raintree Ltd..................................................................................22B. Statement of financial position of company....................................................................23

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

INTRODUCTIONFinancial accounting is important for organisation so that every record may bemaintained by it quite effectively. The present report deals with different organisations withrelation to preparation of financial statements. This provides useful information to users of suchinformation as well as management to take better decisions. A. Generating report regarding accounting regulations for firm to the Line managerTo: Line ManagerFrom: Junior accountantSubject: Accounting terms and regulations required to be followed by organisation.Respected Sir,Accounting concepts and terminologies play vital role in organisation so that financialstatements may be prepared more accurately. The financial statements include balance sheet,income statement and cash flow statement which provides much needed financial informationto users of it. Accounting professionals are benefited by such concepts and principles which isused to prepare financial statements having relevant information to users of accountinginformation. Internal as well as external stakeholders' are benefited by such information as theyare able to take better and effective decisions quite effectually. The financial statements areprepared with such accounting concepts and as such, accurate information is provided tostakeholders to take enhanced decisions with much ease. In relevance to this, budgeting andforecasting are another essential tools for organisation. 1. Financial accountingFinancial accounting is preparing, summarizing and reporting financial transactionswhich prevails in the business. This accounting is much important to users of accountinginformation to assess liquidity, profitability and efficiency of company in effectual way. It isalso called historical accounting because it takes financial data of past years and draw outfinancial statements quite effectively. The taxation authorities and government mandatoryrequire that financial accounts should be prepared by companies so that fairness of financialstatements may be reflected to users of accounting information to take better decisions withmuch ease. Financial accounting is a branch of accounting which deals with recording of1

business transactions that take place every day and by maintaining such records in books ofaccounts. This whole process is then summarized to prepare financial statements which exhibitstrue financial position of company quite effectively. The company's management is alsobenefited by such information as it comes to know financial health of organisation and if anyweakness exist, then better and effective decisions are taken to remove it in the best possibleway. Several financial statements are then utilised by stakeholders' be it external or internal sothat they may take timely and better decisions. In addition to this, investors and creditors arealso benefited by such information and they make out whether to provide funds to company ornot. Illustration 1: Kinds of financial statementsSource: (Zeff, 2016)The above diagram shows different kinds of financial statements which is quite relevantto stakeholders which are prepared by firm to exhibit true information of the company so thatstakeholders may be able to take better and effective decisions. The financial informationexhibited by financial statements are also used for tax payment liability as it provides reliableand accurate information to taxation authorities. 2. Financial accounting rules and regulationsThe financial accounting is quite important to carry out and at the same time requiresfollowing legal frameworks governed by professional bodies. This is important as manipulationin accounting records may lead to false information to users of such information. Thus, it isessential that company prepares accurate financial statements so that various stakeholders mayrely upon it. As such, to remove defects accounting regulations are to be followed byaccountants so that reliable information may be produced quite effectively. UK's corporate2

reporting and governance regulator has given FRC guidelines which are to be followed byorganisations. The legal frameworks provided by professional bodies are described below:FRC (Financial Reporting Council): The body is entrusted to govern and regulate governmentdepartments and organisations. It fosters investment in UK which is main objective of it. FRC isformed by company limited by guarantee. It provides benefit to whole economy with muchease.IASB (International Accounting Standards Board): This board is entitled to provide guidelinesto accountants so that they may prepare accurate and error free financial statements to providefinancial information to users.IFRS (International Financial Reporting Standards): This body provides legal framework withinwhich proper accounting records are to be maintained by following financial reportingstandards given by it. 3. Rules for accounting1. Monetary unit assumption: The monetary unit assumption is related to currency used forbusiness transactions. The universally accepted currency is US dollar which remains stable andas such, transactions may be made in the same currency.2. Full disclosure principle: The principle states that each and every record must be maintainedby the business so that reliable information may be provided to such users. This reliability isachieved 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. Financialstatements must be disclosed at the end of period. 3. Going concern Principle: This rule or principle conveys that financial statements are preparedby organisation in the view that business will run for a long time. In simple words, this conceptassumes that organisation will continue for long time and will not get closed. By anticipatingsuch aspect, financial statements are prepared by the company. 4. Accounting conceptsMaterial disclosure:The materiality concept states that only material items must be included in accounting3

records so that might affect economic decisions and all those non-materials must be ignoredwhich does not affect decisions of users of accounting information. Tax rate need to bedisclosed which is expected to change in the future. Consistency: The consistency concept is another essential principle which states thataccounting polices need to be consistently followed by organisation so that reliableinformation may be prepared in the best possible way. This means that samedepreciation method must be followed by organisation so that reliable information maybe obtained with much ease. This is also easier to compare with past year data oforganisation. Thus, for reliable financial information consistent accounting policies mustbe followed. CLIENT 11. Journal entries for companyThe main objective of journal entries is to prepare summarized data set which providesaccurate financial statements prepared from such journal entries. The basic concept is thatfinancial records are maintained in chronological order as when they occur. 4

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