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Financial Accounting Principles - Doc

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FINANCIAL ACCOUNTINGPRINCIPLES
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................3CLIENT 1........................................................................................................................................6A. Journals entries for the company.......................................................................................6B. Ledger Account..................................................................................................................8Cash Book............................................................................................................................14C. Trial balance...................................................................................................................16CLIENT 2......................................................................................................................................17A. Laurent's income statement.............................................................................................17B. Financial statements of Laurent.......................................................................................17CLIENT 3......................................................................................................................................18A. Preparation of profit and loss account.............................................................................18B. Formulation of statement of the financial position of an organisation............................18C). Concepts of consistency and prudence...........................................................................19D). Purpose of depreciation and its widely used methods....................................................20CLIENT 4......................................................................................................................................21A) purpose of preparing the Bank Reconciliation Statement..............................................21B) Different areas in which the record is may differ to vary from the bank records...........21C. I) Cash book for the company..........................................................................................22C. II) Bank reconciliation statement for the company.........................................................23CLIENT 5......................................................................................................................................23A. Preparation of Ledger accounts......................................................................................23B). Needs to prepare control accounts..................................................................................24CLIENT 6......................................................................................................................................24A) Suspense account and its major features.........................................................................24B and C. Formulation of Trial Balance making correction.................................................25D) Difference between clearing and suspense account........................................................25CONCLUSION..............................................................................................................................26REFERENCES..............................................................................................................................27
INTRODUCTIONAccounting principles are general guidelines and rules that should be followed by allorganisations during the time of making financial statements. These are generally accepted rulesthat are developed for showing the actual financial image of the particular company (Braun andet.al., 2015). This report shows different financial issues and their proper solutions with usagesof all core financial principles, techniques and methods. It also covers regulations related to thefinancial accounting and various accounting principles. Further, it includes concept ofdepreciation and its core methods. Lastly, it covers the information about several accounts suchas suspense and clearing account.Report to the Line ManagerTo Line Manager,From - Junior AccountantSubject- Regulations and effectiveness of accountancy.Financial accounting is a perfect way to understand the core position of an organisation in itstarget market. It shows the performance or profitability of a firm that are useful for its stakeholders. It is a specific branch of accounting that shows an organisation’s financial transactions.It is used for recording, summarizing and presenting all transactions in proper financialstatements for example profit and loss account, income and expenses statements and balancesheet. According to generally accepted accounting principles(GAPP), in financial accountingthere are so many rules and techniques that should be followed by every organisation in thesame way so that business's external stakeholders can satisfy organisation’s work performance(Downs, 2017). The corepurposeof making these financial statements is to show originalimage of a company in front of public. In this context, every business entity issues its financialstatements on a routine schedule over a time. Its main purpose is to provide sufficient data orinformation to its related person or entities these are commonly utilized by a variety of personsfor their requirements and know about the financial position of that particular company. Forexample, each person who wants to know about the equity share price of dividend rate of acompany then he or she sees at its past financial records and understand about the dividendpolicy of company or value of firm in stock exchange. In this process of making its financialstatements, there are several accounting standards that are generally accepted all over the world.In this context, each organisation should use double entry system that provides better result for3
making these records or statements.Regulations relating to the Financial Accounting: Regulations of financial accounting is acommon set of standards and principles that demonstrates core basis of financial values andused for preparing such financial statements for the whole year or period of a company. In thisprocess, there are several rules, laws and techniques for identifying the original image of abusiness. In this context, there are certain governmental bodies or authorities that describes thedifferent regulations relating to financial accounting (Hatfield, 2014). These are discussed as:Financial Reporting Council (FRC), it is an independent regulatory body situated at UnitedKingdom and governs all corporate reporting. Its main function is to supervise all organisationsincluding Auditing Practices Board and Accounting Standards Board. ASB is collaborated withseveral accounting criteria that are useful for other countries. The second regulatory body isInternational Accounting Standards Board (IASB). It is established in April 2001 and situated atLondon, UK. It provides guarantee that its earlier made standards are accepted in the entireworld with regarding to international developments. ASB plays an autonomous role for issuingsuch accounting standards. Accounting Standards Board creates different standards that areknown as Financial Reporting Standards(FRS). These are authoritative statements used in theprocess of making financial statements (Henderson and et.al., 2015). These accountingstandards are applied for every organisation that have an intention to provide fair and true viewto its stakeholders. In this context, GAAP provides the corporate reporting model that consistsof financial statements and accompanying notes (Generally Accepted Accounting Principle,2018). It is also known as procedure of better communication of all data related to the financialposition of a company to its external environment. As per overview of all regulatory and legalneeds for an organisation may be considered by way of the accounting standards.Accounting principles and rules that are used in the preparation of all types of financialstatements- For all companies, accounting principles plays a significant role in making itsfinancial statements. Such general rules and concepts must control or govern the accountingsector. In this context, there is a commonly used theory provided by the Generally AcceptedAccounting Principle(GAPP). These rules are described as follows:Going Concern- To follow this accounting concept, it must assume that anorganisation will exist continuously throughout the period and carry out its businessactivities to achieve all desired goals and objectives (Khan, 2015). In this context, every4
company should make its all financial statements assuming that an entity is a goingconcern and operates its entire business for the long time. So for this reason, it iscompulsory to make financial statements with using better accounting policies.Accrual Concept- It refers as all the expenses and incomes should only be recordedwhen it occurs in an organisation (Louwers and et.al., 2015). It is not applied in the caseof cash payments and receivables. This concept shows the actual image of a company.Consistency- It is described that the organisation follows certain particular accountingprinciples that are not changed if the overall policy will not change. These concepts arewidely used method applied appropriately and it is needed in every business for showingeffective financial statements to its potential stake holders. This idea is generated inaccounting for utilizing the particular policy or technique from one period to next.Accounting Period- In this accounting principles, it assumes that the organisationoperates its business activities for a certain period (Macve, 2015). In general, this periodin approx. one year that starts from 1 April of current year to 31 march of next year. Sofor this reason all financial records pertain only for specific period.Prudence Concept- According to this concept, every business should consider onlyexpected expenditures and never make any assumption about income or revenue. Itshould be conducted compulsorily because of accounting transaction are often uncertainso for this reason never make any assumption about its revenue or income so thatmanagement will able to show its financial statements.Conservatism- This is an important concept that refers the critical situation, that ifthere are two or more acceptable options for reporting an item then management of acompany should choose best option (Maskell, Baggaley and Grasso, 2016). It alsodescribes that organisation should choose the alternative that will result in less netearnings or asset amount. It leads to the managers to disclose or anticipate losses and itnever allows for profits.Full Discloser- By following this accounting principle, all companies should show theactual image of its financial position in its target market. Every important informationrelated to the business should be provided in its final statements.Realization- It states that if any change in organisational asset or liability should notmeasure as profit or loss until that asset is sold or liability amount is paid. It is useful in5
estimating the original value of an asset or liability.Matching- This concept is systematically derived to use the accrual basis ofaccounting. It needs that all revenues will be matched with all expenses (Mullinova,2016). No business can measure future economic profit so that it would apply forgaining uncertain revenue in the upcoming.Materiality- It refers that management should record only those transactions that areimportant for the company. An organisation can ignore minor events but it shouldconsider that major events should be fully recorded and disclosed.All these core principles are useful in making the financial statements for a particular period ofa company.Consistency- It derives that organisation should operate its business activities throughout theperiod and never end it until all legal formalities are fulfilled. Every business should assumethat it operates for a long period.Materiality– This principle should apply for all companies and it describes all majortransactions and give up all immaterial or small transactions (Nobes, 2014). In this context,management team of an organisation should record only those transactions that are useful inproviding appropriate image of the entity and it is not essential to record any minor events.CLIENT 1A. Journals entries for the company6
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