Financial Accounting Principles: A Comprehensive Guide

Financial Accounting Principles

Part A
1: Define financial Accounting
Financial Accounting can be defined as a sub-division of an accounting system which is used to
record, summarised and classified the financial transactions so that the accounting managers can
report financial position of a business appropriately. Financial accounting is more than
recordkeeping because it is presented to prepare financial statements to report the monetary
solvency of a company to external users and to meet discloser requirements (Gerber, et. al.,
2014).
(Figure 1: Some users of Financial Accounting Statements)
(Source: ANSWER SIMPLY)
Following three types of financial statements are and under financial accounting
Income or profit statement: To determinate the profit of year.
Statement of Affairs or balance-sheet: to report the position of liabilities and assets.
Cash flow and other Accounting notes statement of cash-ins and outs along with a statement of
retained Earning and other discloser statements.

2: Explain the regulations relating to financial accounting:
Financial statements which are made under financial accounting should be made according to the
GAAP and IASB rules. These regulatory authorities are focused to ensure enough comparability
and accuracy in financial statements of corporates. Some regulation related to financial
accounting is as follows
GAAP: GAAP stands for generally accepted accounting principles which are a group of rules
and assumption to support the accounting managers to prepare a financial statement and maintain
quality in financial reporting. Due to the complexity of financial transactions, every investor is
not able to understand financial statements of different companies if they are made on the basis
of different rules and GAAP provides a solution for the same problem. It provides some basic
standards which are mandatory to follow by every organisation so that external users can get
right and quality information for their decision-making.
IASB: IASB is used for International accounting standard board which is responsible to issue
new standards to regulate the accounting system (Mamić-Sačer, 2015). IASB and IFRS rules are
issued and adopted to guarantee uniformity in the financial statements of corporate companies
which is must in the global business market.

3: Describe Accounting rules and principles:
The basic accounting rules are used to ensure appropriate use of Double-entry accounting
because the method of debiting and crediting is base of this system. The basic rules of
Accounting are as follows:
Debit the Receiver, Credit the Giver:
The current approach is presented during the accounting of personal accounts. If an
organisation receives something from a person it is an inflow and the giver should be credited in
company accounts. Account for which amount is received should be debited. For example, if
supplier gives goods, the supplier will be credit and purchase accounting will be debited.
Debit What Comes In, Credit What Goes Out:
This basic rule is applied during the accounting of real accounts like building, land, equipment,
plant etc. if an organisation receives some asset then it will be added by debiting the asset
account and cash or bank account will be credited because it is paid to acquire that asset.
Debit Losses and Expenses, Credit Gains and Incomes
Accounts of expenses, losses and profit are known as nominal accounts. If a company made
payment for an expense, it reduces the balance of profit thus to give the effect on profit is it
debited. For example, capital always has credit balance because it denotes liability of a business
towards shareholders and shareholders have right on all the incomes and losses. By debiting a
loss, ultimately it reduces the capital of shareholders.
Some basic accounting principles:
The principal of Accrual concept: This principle states that accounting deals should be
included in the financial statements of the company when they actually occur, not when the cash
inflow or outflow is generated. Accrual principal makes accounting more practical. For example,
a credit sale is recorded when it proceeds, not when actual payment received (Unegbu, 2014).
Cost principal: This is the possibility that a business must clearly file its favourable instances,
liabilities, and esteem wanders at their extremely good buy costs. This manipulate is polishing