Financial Accounting Principles- Doc
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Added on 2021-01-02
Financial Accounting Principles- Doc
Added on 2021-01-02
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FINANCIAL ACCOUNTING PRINCIPLES
Table of ContentsINTRODUCTION...........................................................................................................................3Main Body.......................................................................................................................................3A. Defining financial Accounting and its purpose......................................................................3B. Explaining the regulation relating to the financial accounting...............................................4C. Describing accounting rules and principles............................................................................4D. Explaining the conventions and concepts relating to consistency and material disclosure.. .5CLIENT 1........................................................................................................................................6CLIENT 2........................................................................................................................................8CLIENT 3......................................................................................................................................10C) Explaining concepts of consistency and prudence...............................................................13D) Purpose of depreciation and methods of calculating depreciation.......................................13CLIENT 4......................................................................................................................................14Purpose of preparing bank reconciliation statement.................................................................14Explaining areas which cause record vary with bank records..................................................14Preparing accounts through cash flow statement......................................................................14CLIENT 5......................................................................................................................................15A). Preparing control accounts..................................................................................................15B) Explaining need of preparation of control account..............................................................16CLIENT 6......................................................................................................................................16A) Meaning of suspense account and highlighting features.....................................................16
B. Drafting a trail balance.........................................................................................................17C Trial balance suspense account.............................................................................................17D) Differentiate between suspense and clearing account.........................................................18CONCLUSION..............................................................................................................................18REFERENCES..............................................................................................................................19
INTRODUCTIONFinancial accounting is an important field for ant organisation. It helps in in recording and summarising the financialtransaction of a company that helps in preparing the financial statements and financial reporting of the company for the external users .This statements are very helpful for the external users in order to make their decisions regarding the investment in the company. Thepresent report will help in understanding the financial accounting and the purpose of preparing it. The report will also discuss thevarious regulations and standard related to the financial accounting. Further the report will include the accounting rules and principles.The report will include the consistency and full disclosure principle of accounting. Furthermore, the report will include calculations ofthe financial statement for the different clients.Main BodyA. Defining financial Accounting and its purpose.It is the process of tracking all the financial transaction of a company. With the help of a specialised guidelines, financialaccounting helps the transaction to be properly recorded, summarised and presented is well manner form of a report which are knownas financial statements or reports. Financial accounting focus on providing the information of the financial performance and thebusiness activities of the company to the external users of the company like shareholders, investors and other people outside thebusiness organisation (Edwards, 2013). Financial information of the company are summarised in the form of the financial statements,which are balance sheet, income statements, profit and loss statements etc. Financial statesman are being prepared on the routine schedules that is quarterly, half-yearly or annually. These statements areimportant to external users of the business organisation that helps them to make decisions regarding investing in the company or not.The financial reporting is also very helpful for the management also in order to make decisions and strategies for further growth anddevelopment of the company.The main purpose of the financial accounting are as follows:
The main purpose of the financial accounting is to create information of the financial performance of the company in a form offinancial statements.The financial statement should be in a form that can be understand by the external users which helps them in making thedecisions regarding the investment purpose in company.B. Explaining the regulation relating to the financial accounting.Financial accounting is the preparation of financial statements by analysing, summarising and reporting all the financial data.It helps the external users to understand the financial performance of the company.Financial accounting is governed by by local as well as the international accounting standard for financial reporting. Followingare the regulations related to the financial accountingGAAP: Generally Accepted Accounting Principles are the commonly followed accounting rules and standards for financial reporting(Horngren and et.al., 2012). This regulation helps in ensuring that the financial reporting is transparent and consist of relevantinformation of financial performance.IFRS: International Financial Reporting Standard is a set of the standard that provide a frameworks to the companies the way toprepare and disclose their financial statements. IFRS helps in providing the general guidance for the preparation of the financialstatements . It is important for the companies to adopt a global level standard that will help them to simply the procedures by allowinga company to use one type of accounting all over thee world.IASB: International Accounting Standard Board is the organisation that established the IFRS all over the world. This organisation isconsist of the 14 members from all over the world that helps in setting the accounting standard, preparing the accounting reports andaccounting educations.
C. Describing accounting rules and principles.Accounting is the process of summarizing, organising and recording in a terms of money, transactions which helps inunderstanding the business activities of the organisation (May, 2013). Accounting not just record the financial transactions of thecompany but also helps in analysing and converting them in the manner that can be understandable to both company and to theexternal users. It can be presented in the form of the financial information.There are general rules and concepts which govern the field of accounting. The rules of accounting refereed to as basicaccounting principles and guidelines. The Financial Accounting Standard Board(FASB) are using the basic accounting standard andguidelines as basis of the set of accounting rules and guidelines.The basic rules of accounting as per the FASB , that if a company is distributed its financial statements to the public, itrequired to follow the guidelines by GAAP (Henderson and et.al., 2015). It is an important regulation as it helps in regulateaccounting definitions, assumptions and ,method of accounting. Following are some accounting principles which are widely used inaccounting:Economy Entity assumptionsMonetary unit AssumptionsTime period assumptionsCost principlesFull disclosure principlesGoing concern principlesMatching principles (What are Accounting Principles | List of Top Accounting Principles , 2019).Revenue recognition
MaterialityConservatismD. Explaining the conventions and concepts relating to consistency and material disclosure.Consistency: It is the concept of the accounting principles which states that the company should follow the same accounting method forover and over again. Consistency concept assumes that an accounting procedure or method once adopted should be appliedconsistently in future also (Macve, 2015). If a company is using a method this year and changes subsequently to another method thevery next year it will be difficult for the users to compare the financial statements of different year. The principles also implies that a business can change its method of accounting treatment but only when there are sound andvalid reasonable grounds. The company has to make sure that the reason for changing the method and the detail of treatment of thenew method should be be disclose in its annual financial reports and statements. This concept is important because of the need ofcomparability of the financial statements by the external users.Material Disclosure:According to this conventions of the accounting principles, the company while preparing the income statement should discloseeach relevant information in the footnote of the statements. The information can be related to the function of its financial statements orthe business activity. This principles helps to ensure the stockholders and investors are not misguided with any aspects of the financialreport (Barth, 2015). The management of the company has to report all the information about the company's operations to creditorsand investors in their accounting reports.The relevant information can be anything that could change the decisions of the outside users of the accounting reportsexternal user can analyse such information and interpret these financial statements to make informed and detailed decisions. Thus full
disclosure principle of accounting emphasizes that any piece of data that can change the decisions of the external users should beincluded in the report.CLIENT 1Journal entries in the book of David Study’s for the month of January are as follows:Date ParticularsDebitCredit1st Jan2018Storage expenses a/c Dr. To bank a/c 8008002nd Jan2018Purchase a/c Dr.To S. Hamid a/c To D. Main a/c To W. Tag a/c To R. Foot a/c 768024502560106016103 Jan2018J Wilson a/c Dr. T. Cole a/c Dr.F. Seema a/c Dr. J. Allen a/c Dr.P. White a/c Dr. F. Lane a/c Dr. To sales a/c 20201840238099028201170112204 Jan2018Motor car expenses a/c Dr. To cash a/c 6706707 Jan2018Drawing a/c Dr.To cash a/c 200020009 Jan2018T. Cole a/c Dr.J. Fox a/c Dr.To sales a/c 12802310359011 Jan2018Sales return a/c Dr. To J. Wilson To F. Seema a/c 68037031016 Jan(a). Bank a/c Dr. 1520
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