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[PDF] Financial Accounting Principles Assignment

   

Added on  2021-01-01

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Financial AccountingPrinciples

Table of ContentsINTRODUCTION...........................................................................................................................1BUSINESS REPORT......................................................................................................................11.) Financial accounting and its purpose................................................................................12.) Regulations relating to financial accounting.....................................................................33.) Accounting Principles and Rules......................................................................................44.) Accounting conventions relating to concepts of consistency and Material disclosure are:5CLIENT 1........................................................................................................................................7CLIENT 2......................................................................................................................................10CLIENT 3......................................................................................................................................12........................................................................................................................................................13CLIENT 4......................................................................................................................................15CLIENT 5......................................................................................................................................17CLIENT 6......................................................................................................................................18CONCLUSION..............................................................................................................................19REFERENCES..............................................................................................................................20

INTRODUCTIONFinance is an element which is required to execute operational activities of anorganisation. Financial accounting is a technique which is used to record all the transactions thatare related to the operational activities of an organisation. It is a summary of various proceedingsof a company. Various principles, rules and regulations are followed by an accountant toformulate transparent financial statements(Arnold, 2012). Purpose of financial accounting is toprovide organisation's information to existing and potential stakeholders and used them to makestrategic and investment decisions. The company chosen for this project report is Airdri which ismainly UK based organisation. Main aim of this report is to get detailed information of use offinancial accounting principles while formulation of financial statements.This project report is focused on double entry book keeping system, use and formulationof trial balance, preparation of final accounts that are trading account, profit and loss account andbalance sheet, creating a bank reconciliation statement, use of suspense account and way inwhich it can help to ignore errors in trial balance.BUSINESS REPORT1.) Financial accounting and its purposeFinancial accounting: It is a method which is used by various companies to record,analyse, monitor and control various transactions that are the result of business transactions. Infinancial accounting different statements are generated such as trading and profit and lossaccount, balance sheet and cash flow statement which is provided to external stakeholder toanalyse organisation's performance. It helps Airdri to attract more investors toward organisationby providing them accurate information of organisational operational activities. It is veryimportant for Airdri to generate financial statements as it a summarize form of all the financerelated transactions. An observer can get all the required information in such statements. It isvital for companies to analyse their financial strength which is required to fulfil all therequirements of external stakeholders. It also direct executives of the company to make valuabledecisions that can help to attain predetermine organisational goals. There are different types offinancial statements that are essential for an organisation to formulate. All of them are explainedbelow:1

Income statement: It is a statement which is generated to analyse revenues andexpenditures of a company for a specific period of time. Income statements are formulated onyearly basis (Income statement, 2017). It helps accountants to examine that Airdri is gainingprofits or facing losses. All the transactions related to operating and non-operating activities arerecorded under this statement. It is very important for a company to keep a detailed informationof its revenues to pay different expenses such as interest, taxes etc.Purpose of Income statement:Main purpose of generating income statement figure out that company is earning profitsor loss in a reporting period.It is formulated to get the information of actual financial earning in a financial year.Balance sheet: It is a statement that reflects exact financial position of an organisation toits shareholders, investors, suppliers, customers and other external stakeholders. All the assets,liabilities, shareholder's fund and capital of a business are recorded in this statement. Externalparties of a Airdri can get broad information of organisation's performance and availablefinancial resources with the help of balance sheet. All the gathered data is used to calculate ratesof return and organisation's capital constitution (Bodnar and Hopwood, 2012).Purpose of balance sheet:Balance sheet is mainly generated to examine financial position and status of a companyfor a specific period of time.It is created to get information of actual payable and receivables of a company.Cash flow statement: It is statement which is used to record all the cash relatedtransactions that are done by a company in a financial year. It is used to reflect the changes incash and cash equivalents that are affected by the changes in balance sheet. Accountant of acompany is liable to record all the cash related transactions in cash flow statement to analyse theuse of cash and cash equivalents. Purpose of cash flow statement:Purpose of cash flow statement is to provide information of gross payments and receiptsof a company to its managers and other concerned persons for a specific period of time.It is used by the companies to calculate available monetary resources at the end offinancial year.2

2.) Regulations relating to financial accountingVarious rules, regulations, standards and principles are developed for the companies thatneeds to be followed by them while formulating their financial statements. These regulationshelp organisation to maintain their financial accounts in a proper way. Airdri is following all ofthe regulations. It provides guidance to investor who are observing income statements, balancesheet and cash flow statement of Airdri (Botzem, 2012). These regulations are formed byregulatory authority of a country. Different standards are mainly developed to direct accountantwhile recording information to financial statements of an organisation. It is not possible to getaccurate information if it is not recorded properly in respective statement. Few of the reliableregulations are discussed below:IASB: It stands for International Accounting Standards Board. It is a regulatory authoritywho is liable to introduce and develop various international financial accounting standards forend number of companies that can direct them while recording transactions into financialstatements. It has introduced IFRS that are formulated to guide organisations while generatingtheir final accounts. IFRS: Full form of IFRS is International Financial Reporting Standards. It wasintroduced to set a world wide language for companies so that their accountants and managerscan try to expand their business globally. It is continuously replacing various accountingstandards (Caria and Rodrigues, 2014). Here are mentioned some of IFRS standards that areexplained below:IFRS 9: It is related to the accounting of financial instruments in different statements. Itguides companies to the way in which all the financial assets are identified and measured.IFRS 10: It is related to the consolidation that direct those companies who are combined,to formulate their financial statement in consolidated form so that all the assets of the group canmeasured properly. It is mainly formulated for the parent entity which is responsible to controlits subsidiaries. Both the IFRS are vital for the organisations and have to followed as it can guide them toformulate financial statements in effective manner and also provide direction for propermaintenance of final accounts. These are introduced to reduce the frauds in financial statementsof business entities.3

3.) Accounting Principles and RulesPrinciples of accounting means a set of some guidelines which a company have to followwhile preparing the book of accounts. The principles defines accounting criteria under which acompany have to maintain the all economical transactions in their books of accounts. Some ofthe accounting principles are as follows:Business entity concept: The business entity principle defines that entity which isincorporated by a legal procedure in which the entity will treated as separate legal entitydistinct from its members. Means company can carry the transactions by its own nameand joining and leaving of its members will not effects the existence of company.Moreover, company can sue and can be sued by its own name (Chiang, Nouri andSamanta, 2014).Money measurement concept: The principles of money measurement states that onlythose transactions are to be recorded in the books of accounts which can be expressed inmonetary terms. Dual Aspects Concepts: The principle of dual aspects defines that in single entrysystem, every business transactions has only its one aspect in book entry and it leads toirrelevant information. In order to avoid this problem, financial accounting ensures thatevery transactions has its two aspects and dual aspects also known as duality principle.Going concern concepts: According to this principle in accounting, the business isexpected to continue for longer period as entity is separate. It does not depend on itsmembers which is why accounts are prepared on the basis that business will continue forvery long time in future. Cost principle: The principle of cost defines that the fixed assets of business recorded attheir acquisition cost (which includes the purchasing cost of asset and its installationcosts) at the time of its purchase or acquisition in a financial period. From next financialyear, the asset will recorded after deducting depreciation per year in books of accounts.The concepts applies to fixed assets only.Accounting year principle: According to this principle, each business entity select aspecific time to complete or close the cycle of accounting process i.e. monthly, quarterlyor yearly basis (Donelson, McInnis and Mergenthaler, 2012).4

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