Financial Accounting Principles: A Comprehensive Guide

Financial Accounting Principles
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Contents
a........................................................................................................................................................3
1. Define financial accounting.....................................................................................................3
2. Explain the regulations relating to financial accounting..........................................................4
3. Describe accounting rules and principles.................................................................................4
4. Explain the conventions of materiality and consistency..........................................................4
b.......................................................................................................................................................6
Client 1:........................................................................................................................................6
Client 2:......................................................................................................................................22
Client 3:......................................................................................................................................25
Client 4.......................................................................................................................................29
Client 5:......................................................................................................................................32
Client 6:......................................................................................................................................34
Bibliography..................................................................................................................................40
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a.
1. Define financial accounting.
Financial accounting is a set of accounting in which the transactions relating to financial aspects
are recorded and presented in an appropriate manner for making decision of the company. The
process of financial accounting includes the activities related with identifying, recording and
presenting the reports that can give a detailed set of knowledge to the business managers of
company. There are different kinds of reports and statements prepared under financial
accounting which includes statement of profit and loss of company, statements of cash flows
relating to company and the statement of financial position of company (Scott, 2015). The
preparation of financial accounting reports are subjected to different set of principles and
standards and the external users utilizes the type of information in order to make long term and
short term decisions regarding the company. Thus the financial accounting can be referred to as
the system of accounting in which the information is presented in a manner which will help the
business managers in evaluating and analysing the financial performance and position of
company and making decisions for future.
Statement of profit and loss The type of statement contains the information
regarding the profits obtained by the company
by detailing the items of revenues and
expenditures during the year.
Statement of cash flows The information about various types of cash
inflows and outflows relating to company is
presented in this statement (Warren, 2018).
Statement of financial position The information about the assets and liabilities
together with equity is presented in these
statements.
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2. Explain the regulations relating to financial accounting.
There are various kinds of regulations associated with preparation and presentation of financial
accounting reports. The types of regulations and principles introduced helps in maintaining a
high level of standards and quality of reporting for the business managers. The accounting
regulatory framework has been developed in this context and this has led to development of
GAAP (Generally Accepted Accounting Principles). The accountants are required to follow the
proper set of accounting principles and standards as prescribed in the GAAP. The same will help
the organisations in ensuring comparability feature globally. Also the Accounting Standard
Board has prescribed some of ten standards that must be followed while preparing the accounting
work of the company (Henderson, 2015).
3. Describe accounting rules and principles.
The accounting rules and principles refer to the set of policies and standards that must be adopted
by a company and they shall be applied adequately and consistently while preparing the
accounting reports. The International Financial Reporting Framework is the governing body to
prescribe the different set of rules and principles that must be followed globally by the
companies. The various types of rules and principles will help the company in ensuring
correctness and accuracy ion accounting.
4. Explain the conventions of materiality and consistency.
Consistency – The consistency principle of accounting refers to the principle in which it shall be
ensured that same set of accounting policies and methods have been used to record the similar
transactions in a company. Thus the company should ignore using the different accounting
policies and methods over the accounting periods. The same set of principle is significant for the
company as it will allow and enable the users to understand the accounting information and
compare the financially statement for making decision in the company. The changes in the
accounting policies over different accounting periods will affect the comparability feature and
the balances will not match in that case. Therefore it is required to follow the same set of
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principles in the company. The generally accepted accounting principle does not allow the
company to change the accounting methods consistently.
Materiality – The materiality principle of accounti8ng refers to the situation where it is ensured
that all the significant items which can affect the decision of the users have been reported
adequately and timely in the financial reports of company. Thus the principle is concerned with
adequate disclosure policy of the company. The identification of significant items relating to
company will be a subject of judgement and therefore proper care must be taken while
presenting the economic information of the company before the users. The transactions and
events resulting in change of decisions should be appropriately presented and disclosed in the
financial statement of companies (Macve, 2015).
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b.
Client 1:
a) You are required to draw a journal and calculate the owner’s capital on 1st January
2018.
Journal entry:
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b) Ledgers:
Mullen A/c
Allen A/c
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Lane A/c
White A/c
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