Financial Accounting Principles and Concepts - PDF

FINANCIAL
ACCOUNTING
PRINCIPLES

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
A. The accounting regulations has been reported for organization to the Line manager...........1
1. Explaining Financial Accounting............................................................................................1
2. Regulations of financial accounting .......................................................................................2
3. Accounting rules and principles..............................................................................................3
4. Conventions and concepts with respect to consistency and material disclosures...................3
CLIENT 1........................................................................................................................................5
1. Drafting the journal for Client 1 for the date 1st May 2017...................................................5
2. Presenting the ledger accounts of all Journal entries..............................................................7
..........................................................................................................................................................8
3. The trial balance of client 1...................................................................................................16
CLIENT 2......................................................................................................................................17
A. Peter piper's profit and loss statement for the year ended 31st December 2017..................17
B. Peter piper's Balance sheet for the year ended 31st December 2017...................................17
Client 3...........................................................................................................................................19
A. Rain tree ltd's profit and loss statement for the year ended 30th September 2017..............19
B Raintree Limited Financial position......................................................................................20
C. Identifying different concepts and principles of accounting principles...............................25
C. Significance of measuring and representing depreciation with context of business giving
brief about both methods of business........................................................................................26
CLIENT 4......................................................................................................................................26
A. Aim for framing bank statement .........................................................................................26
B. Identifying the reasons for recording in bank statements.....................................................27
C. Client's cash book ................................................................................................................27
CLIENT 5......................................................................................................................................28
Forming Sales ledger control account and purchase ledger control account for the year 2017
(May) of Henderson..................................................................................................................28
B. Defining the term Control account.......................................................................................28
CLIENT 6......................................................................................................................................29

A. Suspense account with its characteristics.............................................................................29
B. Preparing trial balance..........................................................................................................29
C. Journal entries.......................................................................................................................30
D. Difference between Clearing account and Suspense accountant.........................................30
CONCLUSION..............................................................................................................................30
REFERENCES..............................................................................................................................31

INTRODUCTION
Financial accounting is considered as very important and essential element of each and
every company. In the present era, different accounting principles, rules and regulations are
followed by every industry and it will be giving great advantage to that specific industry. It gives
brief analysis of funds which are required for performing the various activities related to
business. The present report will be giving brief discussion about different financial regulations,
principles and basic rules for accounting. Further there are six clients which helps in describing
different financial statements such as balance sheet, profit and loss statement, cash flow
statements and so on. There is proper analysis of transactions of purchase and sale for compiling
in trial balance. The clients are giving details about bank reconciliation statement, sales and
purchase ledger account and even there is discussion about suspense account.
A. The accounting regulations has been reported for organization to the Line manager
To: Line Manager
From: Junior Accountant
Subject: Implying the terminology of accounting along with the awareness which is relevant for
regulations of accounting.
Respected Sir,
For improving the activities of transactions which are related to business, there is huge
requirement of analysing the rules, regulations, usage and method of applying different
accounting principles. The operations of the business can be improved by different accounting
techniques and it will directly lead to improve transactional activities. There are different
applications of accounting techniques and its outcome will be very beneficial for allocating
cost, budgeting and forecasting different operational tasks related to the organization or
business.
1. Explaining Financial Accounting
Financial accounting is referred as the most specialized accounting branch which traces
the financial transactions of organization. By using the guidelines which are standards, all the
transactions are summarized, recorded and represented in financial statement or report like
balance or income statement (Hepworth, 2017). The financial statements are issued by company
on daily schedule.
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There are various types of financial statements which are established for general
objective which are as follows:
 Balance sheet
 Income statements
 Statement of stockholder's equity-trusts-formalities
 Statement of cash flows
All the statements are considered as external due to reason that it is used by the persons
who are considered as outsiders. Along with this, all stock holders and even lenders. If the stock
of corporation is traded publicly, then its all financial statements will be circulated and its
information will be with various secondary recipients like investment analysts, customers,
labour organization, employees and competitors. It is very essential to obtain the objective of
financial accounting is not to form the valuation of any of organization. As its main objective is
to give information to others for analysing the valuation of organizations for themselves only.
2. Regulations of financial accounting
Financial accounting consists of different rules and regulations which will be beneficial
for giving a legal framework of accounting. There has been corporate reporting of UK and its
own government regulator as Financial Reporting Council (FRC). It will be giving different
disclosure of financial reporting of all units, government departments and different corporates
(Dung, 2016). In the same series, there are different regulations which are accepted as universal
legal framework like:
IFRS: The information which has been stated by IFRS standards give relevant
framework and forms disclosure of all financial statements which help the organization for
attracting a large number of investors and it will be giving benefit for estimating costs and for
relevant expenses which are caused by operational activities.
FRC: This regulation of financial accounting has been set up by different corporations
of UK by considering accounting standard which are framed for monitoring and executing all
the disclosures related to finance for promoting governance of very high quality.
IASB : The main objective of IASB is to provide adequate information to all the
accounting professionals and guidelines with the perspective of drafting database of financial
and even for providing specific disclosure of all accounts. There has been set up of legal
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framework for financial disclosure which is accepted by every one in the world and it also leads
to attract all the investors who are operating internationally.
3. Accounting rules and principles
There are various accounting principles and guidelines which are founded by Generally
accepted accounting principles (GAAP) which are as follows :
Going concern principle : This accounting principle has assumption about the
organization that it will exist to carry its aims and commitments and it will be not able to
liquidate in coming future. The company will be able to perform in industry for having adequate
growth and for beneficial disclosure about the financial statements.
Full disclosure principle : In this principle, it has been stated that whole information
should be disclosed in financial statement or its notes as it is very important aspect for every
investor. It is the main reason behind many footnotes or endnotes in the financial statements.
Generally organisation mentions its important policies of accounting on the initial note of the
given statement.
Materiality : There are different aspects of financial data which are considered and it
should be generated from authenticate sources and even efforts would be in perspective of
providing the material which is relevant (Ritchi, Fettry and Susanto, 2016).
Matching Principle : In this principle, there is requirement that each and every
organization must perform accounting with respect to accrual basis of accounting. It has need
of matching all expenses with revenue.
Economic entity assumption : All the transactions related to business must be considered
separate from the personal transactions.
Monetary Unit assumption : it has been considered that transactions related to business
must be in context of US dollar because this currency is accepted by whole world or universe
and it has most stable rate of return with fewer fluctuations.
4. Conventions and concepts with respect to consistency and material disclosures
With the perspective of concepts and conventions of the financial accounting there is
presence of different terms like materiality, conservatism convention, full disclosure and
consistency. For understanding the conventions of principles there is requirement of framing
perfect disclosure about different accounts and even for having great understanding of these
concepts are ;
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