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[DOC] Financial Accounting Principles Assignment

   

Added on  2021-01-02

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FINANCIAL ACCOUNTINGPRINCIPLES

TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1A.1 Financial accounting and its purpose...................................................................................1A.2 Regulations relating to financial accounting........................................................................2A.3 Accounting rules and principles...........................................................................................3A.4 Conventions and concepts relating to consistency and material disclosure.........................4CLIENT 1........................................................................................................................................41. Drafting journal entries...........................................................................................................42. Drafting double entry recording with context of ledger..........................................................63. Drafting accuracy level with context of trial balance...........................................................22CLIENT 2......................................................................................................................................23A. Drafting Statement of Profit and Loss account (Sierra Laurent).........................................23B. Drafting Statement of Financial Position (Sierra Laurent)...................................................24CLIENT 3......................................................................................................................................26A. Drafting statement of Profit and loss statement of LMS Limited........................................26B. Drafting Statement of Financial position of LMS Limited..................................................27C. Drafting concept of Consistence and Prudence....................................................................27D. Drafting purpose of depreciation for framing accounting statements along with its twomethods.....................................................................................................................................28CLIENT 4......................................................................................................................................29A. Drafting objective of preparing Bank Reconciliation Statement.........................................29B. Drafting areas which creates variations in transaction from bank records...........................29C.1 Draft Kendal's Cash-book as per July 2018.......................................................................30C.2 Drafting Bank Reconciliation statement as per July 2018.................................................31CLIENT 5......................................................................................................................................31A.1 Draft Sales ledger control account for Henderson for year 2018 (July)............................31A.2 Draft Purchase ledger control account for Henderson for year 2018 (July)......................32B. Draft the definition of control account.................................................................................32CLIENT 6......................................................................................................................................33A. Suspense Account................................................................................................................33B and C Draft trial balance........................................................................................................34D Draft comparison between clearing and suspense account...................................................35CONCLUSION..............................................................................................................................37REFERENCES..............................................................................................................................38

INTRODUCTIONFinancial Accounting is a field which is concerned about summarising, recording andanalysing fiscal transactions which occur daily in an organization. This present report file is abrief study of principles of financial accounting with solved practical examples denotingoperations of its fiscal statements. In this project report guidelines and regulations that governfinancial accounting in UK are explained briefly, like GAAP, IFRS, IASB. Moreover, thisassignment gives a brief study of accounting rules and principle that needs to be consideredwhile recording transactions in accountancy books. Further, a mini- research is conducted todescribe purpose of financial accounting to determine objectives and needs for maintaining itsbooks. Conventions and concepts relating to materiality and consistency are also highlightedcarefully. In addition to this, double entry recording would be drafted in context with ledger.A.1 Financial accounting and its purposeFinancial Accounting is the base of accountancy in any organisation concerned aboutsummary, analysis, and recording of fiscal transactions of that business. This process ofrecording of financial transactions involves preparation of fiscal statements, which are availablefor public consumption (Renz, 2016). It is governed by both local and international accountingstandards, like GAAP, IFRS and IASB. It is used to show financial situation of company to anyoutsider or the one who is interested in daily functioning of business. Most basic accountingprinciple is "The Measuring Unit principle". Knowing the purpose of financial accounting makedifferences between just being a bean-counter and really knowing what business in doing. So,some objectives or purpose of financial that every business should know are as follows:Relevance: The information provided should be relevant to be useful for users.Moreover, it should help the statement readers to make decisions about the financialwellness of an organization. To satisfy this objective, any company reports its financialresults either quarterly or annually.Reliability: Any organization should provide investors with reliable information offinancial statements in order to enable them to gain understanding of fiscal position ofcompany to make any decision. Any reliable information is free from biases, misleadingand should be verified.1

Comparability: There is an established system of recording transactions and reportingaccounting information in order to verify comparability. It benefits and helps investors tomake judgemental decisions about their investment opportunities. Consistency: It is a secondary quality of financial information because users are mostlyprovided with financial information that spans various periods of time. As everything likestandards, business changes, it is not possible every time to have consistent information.A.2 Regulations relating to financial accountingFinancial accounting of UK is governed and regulated by GAAP, IFRS, IASB. Followingis a brief study of these regulations:GAAP (Generally Accepted Accounting Principles): It is a collection or set ofcommonly followed and used accounting rules and standards for reporting any financialtransaction. These regulations are followed to ensure consistency and transparency offinancial reporting from one organization to another. GAAP is not universal it differsfrom one country to another or from one geographic location to another. It should befollowed while distributing financial statements outside a company. Financial AccountingStandards Board regulates GAAP for the state government and local government (Pettyand et. al., 2015). It also includes signified amount of accounting guidance, which isoften issued to explain accounting convections used by specialised industries. These aretermed as Statements of Recommended Practice and in addition to that ASB issuesUrgent Task Force Statements.IFRS (International Financial Reporting Standards): It is a collection or set ofaccounting standards which states how a particular transaction and other financial eventsshould be reported in financial statements. IFRS are issued by IASB to specify exactlyhow accounts of a company are to be maintained and reported. It ensures commonlanguage so that business and accounts could be understood from one company andcountry to another. IASB (International Accounting Standards Board): These are older accountingstandards which were replaced by 2001 by IFRS. Earlier it had fifteen members aroundthe world then the number extended to sixteen (Morden, 2016). IASB has full controlover developing and setting up of its own agenda, IFRS considers this agenda but don’thave power to determine it. It aims to establish a thorough due process; engagement of2

investors, regulators at every stage of the process and collaborative efforts with world-wide standard setting community.A.3 Accounting rules and principlesGeneral rules and concepts that governs the field of accounting are referred to asprinciples and guidelines. Following is a list of 10 main accounting principles and guidelines: Economic Entity Assumption: This principle states that all the business transactionsshould be kept aside or separate from the business owner's personal transactions. As soleproprietor and business are considered as two separate entities for the purpose ofaccounting (Zeff, 2016).Monetary Unit Assumption: According to basic accounting principle, it is assumed thatthe purchasing power of any currency is not changed over time. Hence, effects ofinflation should be avoided on recorded amounts.Time Period Assumption: This principle assumes that it is possible to report complexand ongoing activities of a business in relatively short intervals to determine more likelyneed for the accountant to estimate amounts relevant to that period. Cost Principle: This accounting principle does not allow assets to be adjusted upwardfor inflation.Full disclosure Principle: This principle states that every information should bedisclosed within the statement in order to facilitate investors with honesty and loyalty.Going Concern Principle: This accounting principle assumes that a company will existlong enough to carry out its objectives and commitment and will not get liquidated infuture.Matching Principle: This principle requires that expenses should be matched withrevenues.Revenue Recognition Principle: This principle guides accountant to record all cashbasis accounting as soon as product has been sold or a service is given irrespective ofwhen money is actually received. Materiality: This accounting principle give rights to accountant to violate anotheraccounting principle in case of insignificant amount (Schaltegger and Burritt, 2017).3

Conservatism: This allows accountant to choose the alternative that will result in less netincome or less asset amount. It happens in a situation where there are two acceptablealternatives for reporting any transaction.A.4 Conventions and concepts relating to consistency and material disclosureMateriality Concept: This concept ensures disclosure of all materials from whichdecisions of the user of financial statement may affect. It is defined as the characteristicsattaching to a statement, fact or item where its disclosure can influence judgement of areasonable person. So, if the event is material it should be disclosed but if it is not a material thenit may not be disclosed (Bobryshev and et. al., 2015). Consistency Concept: The consistency concept requires that the basis of incomemeasurement and financial statement preparation should remain consistent for intra firmcomparison. GAAP allows more than one method of describing identical looking operatingsituations. Accounting Standards also assumes that these policies are consistent from one-timeperiod to another. Thus, it is recommended to use same accounting methods each year by firm.Convention of Materiality: This convention says that only those item should berecorded in the books which have significant bearing and other insignificant items should beavoided. This is done to prevent burden of minute things which are unnecessarily recorded on thereader of accounting books. It is a matter of judgement of accountant to take a decision ofmaterial and immaterial events and only those should be noted.Convention of Consistency: This convention signifies that accounting practices shouldbe unchanged from one year to another. It is also necessary for the purpose of comparison and itdoes not mean inflexibility of accounting practices. It can consider a new introduction ofimproved accounting techniques. If any change is necessary than it should be stated clearlydenoting its effects and reasons for change. CLIENT 11. Drafting journal entriesJournal entries are referred as initial step with reference to accounting cycle which is usedfor tracing each business transactions along with specific events with context to this system(Maskell, Baggaley and Grasso, 2016). The events with context to business occurs in particularaccounting period, journal entries would be recorded in that specific journal for reflecting4

alterations in accounting equation. In the below scenario, Amstel D is referred as sole traderalong with its specific tasks so there would be presentation of its journal entries in general books.Sole trader is referred as sole proprietorship with context to structure of small business whereeach individual operates and owns full business. The accounting equation which helps indescribing specific resources which are applied with reference to business along with itssuppliers. The accounting equation always states that assets are equal to combination ofliabilities and capital. In simple words it helps in justifying resources of economic value which isdirectly linked to business and originated from investment through its owners.Assets = Liabilities + Equity5

2. Drafting double entry recording with context of ledgerIn the end of every trading period, all specific transactions are traced in books of primeentry and adjusted in ledger account. Its total had been traced by using in such format of doubleentry which would be directly replicating duality concept. In simple words it could be elaboratedas every transaction must have two effect on organization. Every transaction could be traced inits account is referred as ledger. It is framed in T format where one side reflects debit and other isjustifying credit entry (Engel, 2016).6

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