Importance of Accounts & Transactions Recording

This assignment emphasizes the crucial role of accounting systems in businesses, highlighting the importance of maintaining current and suspense accounts. It underscores the need for accurate ledger posting to ensure the correct preparation of income statements, balance sheets, and cash flow statements. The task involves identifying transactions that should be placed in suspense or clearing accounts daily.

FINANCIAL ACCOUNTING PRINCIPLES

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
(A)Report preparation for line managers.....................................................................................1
B. Portfolio to carter the various clients and resolving their financial needs..............................4
CLIENT 1........................................................................................................................................4
1 Analysing the journal entries for Alex study............................................................................4
2 Presenting the double entry recording with the help of various ledger accounts.....................6
3. Analysing the arithmetical accuracy of double entry system with the help of trail balance. 16
CLIENT 2......................................................................................................................................17
A income statement for the client Peter Piper as on 31st December 2016.................................17
B Analysing the financial position of Peter Piper as on 31st December 2016...........................18
CLIENT 3......................................................................................................................................20
A. Determining the profit and loss statement for Raintree Ltd as per 30th September 2016.....20
B. Determining the financial position of Raintree Ltd as on 30th September 2016...................20
C. Explaining the accounting concepts for Prudence and Consistency.....................................21
(D) Depreciation formulation and two approaches of charging depreciation...........................22
CLIENT 4......................................................................................................................................23
(1)Bank reconcilition statement and its purpose.......................................................................23
(2)Analysis of transactions of Kendal Ltd.................................................................................23
(3) Analysis of BRS on December 2016...................................................................................24
CLIENT 5......................................................................................................................................25
A. Control accounts and their balancing....................................................................................25
B. Control accounts and their concepts.....................................................................................25
CLIENT 6......................................................................................................................................26
A. Suspense account and its main characterisitcs......................................................................26

B. Trial balance.........................................................................................................................27
C. Journal entries.......................................................................................................................27
D. Comparing the Suspense account and Clearing account......................................................27
CONCLUSION..............................................................................................................................28
REFERENCES..............................................................................................................................29

INTRODUCTION
Accounting is the one of the important branch of commerce that have very high
importance for the business firms. There are multiple sort of accounts that are prepared by the
firm like income statement, balance sheet and cash flow statement as well as ledger and trial
balance account. In the business proper recording of all these transactions need to be keep so as
to ensure that financial statements will be prepared more accurately. In the current research
study, for different clients trial balance are prepared. Along with this, income statement is also
prepared. Detail discussion is carried out on bank reconcilition method and its significence is
discussed in detail. At end of the report, conclusion section is prepared. In this way, entire
research study is done.
(A)Report preparation for line managers
To: Line manager
Subject: Accounting rules and principles for the firms
Sir/Mam
Financial accounting description
Financial accounting is the segment of accounting under which varied sort of statements are
prepared like income statement, balance sheet and cash flow statement. Business to business
there is importance of different sort of statements for the firms. For example sole trader always
wish to know about their businesss profitability and due to this reason they does not give much
importance to the balance sheet. On other hand, there are companies who make use of all these
statements (Agoglia, Doupnik and Tsakumis, 2011). Hence, firm to firm significence of these
statements get changed. Apart from financial statements, common size and comprative
statements are also prepared by the business firms. Company can prepare these statements and
can identify percentage change that happened in sales and expenses in the business. By doing
so areas where company is performing well and give poor performance can be identified.
Thus, there is due importance of financial accounting for the business firms because by using
same firm performance can be measured in number of ways and steps can be taken to improve
company performance. It can be said that financial accounting have significent importance for
the firms.
Regulations for financial accounting GAAP: GAPP stands for generally accepted accounting principles and under this
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varied accounting standards are given that need to be followed to perform calculations
in books of acounts. In other words, it can be said that in GAAP already rules that
need to be followed to perform calculations are given and same must be followed to
prepared accounts. Company need to ensure that accountants are following all relevant
rules and regulations tightly in their day to day practice so that accounts can be
prepared accurately.
 IFRS: IFRS stands for international financial reporting standards and same need to be
followed while preparing income statement, balance sheet and cash flow statement.
Means that in IFRS specific format in which these statements need to be prepared is
determined (Altamuro and Beatty, 2010). Compliance with IFRS ensured that
sharehodlers and other stakeholders will receive true and fair information about the
company performance. Thus, there is significent importance of IFRS for the business
firms because it help them in satisfying needs of stakeholders to some extent.
Accounting rules, procedure and principles Cost principle: This principle state that all items must be recorded at cost at which they
are purchased. Means that whatever is there market price at time of recording of
transactions does not matter. Price at which asset was purchased or transaction
happened will be taken in to account. Time period principle: Time period principle state that transactions that are related to
the current year period must be recorded in present year books of accounts. Means that
transaction that happened in present year can not be carry forward for next year
duration. This is because all expenses are made in present year and their benefits are
also received in current year. Due to this reason current year expenses can not be carry
forward to next year time period. Monetary unit principle: It is the principle which state that only those transactions
must be recorded in the books of accounts that can be measured in money. Means that
those transactions in which exchange is made but money is not received till the time
can not be recorded in the books of accounts (Armstrong, Guay and Weber, 2010). Full disclosure principle: It is the principle which state that major transactions must be
explained in detail in the company books of accounts. For example one company
aquire other firm then in that case all information related to transaction must be
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presented in the annual report.
 Going concern concept: Going concern concept is the one of the important concept
which state that business firm will always remain in existence and its ownership may
changed. Hence, all transactions are recorded on name of firm not customers.
Consistency and material disclosure concept
 Consistency: This principle state that business related transactions must be only
recorded in the company accounts. Personal expenditures can not be recorded in
financial statement of the company.
 Material disclosure: All those information that are related to the company must be
considered which preparing financial statements and all additional information must be
presented in the company accounts. It can be said that there is huge importance of these
qualitative characteristics for the business firms.
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B. Portfolio to carter the various clients and resolving their financial needs.
CLIENT 1
1 Analysing the journal entries for Alex study
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2 Presenting the double entry recording with the help of various ledger accounts
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3. Analysing the arithmetical accuracy of double entry system with the help of trail balance
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CLIENT 2
A income statement for the client Peter Piper as on 31st December 2016
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B Analysing the financial position of Peter Piper as on 31st December 2016
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CLIENT 3
A. Determining the profit and loss statement for Raintree Ltd as per 30th September 2016
B. Determining the financial position of Raintree Ltd as on 30th September 2016
Particulars Amount
Assets
Current Assets
Prepaid rent 3000
Closing inventory 18000
Bills Receivables 24000 45000
Total Current Assets 45000
Fixed Assets
Plant and Machinery 65000
Less: Dep. @ 20% 25000 40000
Land and Building 60000
Less: Dep. On Building 8000 52000
Total Fixed Assets 92000
Total Assets 137000
Liabilities
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Trade creditors 14000
O/S wages 2000
Corporation tax 4000
Bank overdraft 15000
Total Current Liabilities 35000
Retained Earnings 22000
shareholder's capital 50000
premium 20000
NP 10000
Total shareholder's capital 102000
Total Liabilities 137000
C. Explaining the accounting concepts for Prudence and Consistency
 Prudence: It is the one of the most important principle of accounting and under this all
transactions must be recorded a their accurate value. Means that none of item must be
recorded at price more then its original value and no transaction must be recorded at price
less then its accurate value. By doing so it can be ensured that all transactions are
recorded accurately in the books of accounts (Barth. and Landsman, 2010). It can be said
that there is huge importance of concept of prudence for the business firms and
stakeholders. This is because such principle does not allow accountant to consider current
situation and accordingly at own discretion record assets in books of accounts. Thus,
shareholders receive fair information and are able to make more accurate decision in
respect to making investment in the company.
 Consistency: Consistency reflect that transactions must be recorded in the income
statement, balance sheet and cash flow statement in proper manner. Means that
transactions that are only relevant to these statements must be recorded in them. Irrelvant
entries must not be done in these statements (Beyer and et.al., 2010). Apart from this,
transactions must not be represented which means that same must not be recorded at
value different from original value. By doing so it can be ensured that accounting is done
in perfect manner and income statement, balance sheet as well as cash flow statement are
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prepared accurately. Thus, both accounting concepts assist managers in bringing
transparency in the company operations.
With passage of time more and more firms are become aware about improving their
accounting systems and many modifications are done by them in these systems. By doing so it is
ascertained that transactions will be recorded at fair value and in proper manner. Hence, it can be
said that principles of prudence improve accounting operations of the business firms.
(D) Depreciation formulation and two approaches of charging depreciation
Depreciation is the one of the important approach that is used to compute value of the
asset in the current time period. With passage of time period asset usage also increase which
reduce life of an asset and if same will be sold to the other entity then that party will not be
prepared to make purchase of asset at its purchase value. Hence, every year depreciation is
charged on asset and by doing so value of same is find out. Depreciation approach is used for
accounting and forecasting purpose also. In forecasting method under financial modeling fixed
asset schedule is prepared and in same depreciation is charged on the asset (Davies and
Crawford, 2011). By doing so asset new value is calculated. Thus, it can be said that there is high
importance of depreciation calculation approach for the business firm. Two approaches for
charging depreciation are given below. Straight line depreciation approach: Straight line depreciation approach is one under
which fixed percentage is charged on aset amount (purchase price) each year and by
doing so depreciation amount is calculated and subtracted from each year at previous
year value of asset. By doing so deprectiation is computed by the business firms in the
straight line method. Major benefit of using this method is that it is simple to apply and
anyone can easily understand calculation process. Written down depreciation method: It is the method under which in first year on asset
value depreciation is charged. Then in next year on carry forward amount again specific
rate of depreciation is charged (Edwards, 2013). This process going on consistently and
on this point written down deprectiation become different from straight line deprectiation
method. This is because in straight line method each year on asset purchase value
depreciation is charged. Whereas, in case of written down depreciation method each year
on carried amount depreciation percentage is charged. Hence, it can be said that both
approaches are slightly different from each other.
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Overall, it can be said that both straight line and written down deprectiation
methods have their own importance and it depend on the firm that which of approach is
selected in its business for accounting purpose.
CLIENT 4
(1)Bank reconcilition statement and its purpose
Bank reconcilition statement is the one of the important statement as it is used to tally
cash book and bank pass book. Many times it happened that transaction happened but entry in
respect to same is not done in the bank pass book or company cash book. Hence, inaccurate
amount of cash flows appeared in the business. In order to avoid such kind of problems bank
reconcilition statement is prepared by the business firms and by using same transactions are
identified that were not recorded in the company cash books or pass book. Thus, it can be said
that major purpose behind preparing bank reconcilition statement is to ascertain that all sort of
accounting information are recorded in the company accounts (Kimmel, Weygandt and Kieso,
2010). It can be assumed that there is huge significence of bank reconcilition statement for the
business firms because it is assisting them in identifying actual cash flows that happened in the
business. Thus, there is huge importance of bank reconcilition statement for the business firms.
Due to this reason business firms prepare separate section in their accounts department in which
employees perform entire operations related to bank reconcilition statement. Many tiems firms
also outsource their bank reconcilition related tasks to other firms so that all relevant operations
can be performed in efficient and effective manner. Thus, there is huge significence of bank
reconcilition statement for the business firms and by using it operations are recorded in accurate
manner. With passage of time bank reconcilition statement importance increase at fast rate in
past couple of years and in future time period also its usage will increase at fast rate. Thus, all
these things lead to improvement in company operations.
(2)Analysis of transactions of Kendal Ltd
In case of relevant company it can be seen that there are multiple transactions that are
made in the business ansd that have impact on recording of transactions in accounting systems.
Accounting transactions are recorded in the cash book and bank pass book and both balances are
matched to each other and by doing so it is identified whether entries are done correctly or some
mistakes are made in calculation. Some of transaction like sales, dishonour of checks, emanating
money from bank account, cheque issued but not encashed and there are many other transactions
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that need to be recorded in both cash book and pass book. However, some times it happened that
transaction is in process but same is recorded in the cash book and remain unreocrded in the
bank pass book. In such kind of situation also balances in both books does not tally. In order to
avoid such kind of situation it is very important to make use of bank reconcilition statement. This
is because by using same problems are completely sort out and balances are matched to each
other (Warren, Reeve and Duchac, 2013). It can be said that first of all business firms need to
improve their control system and under this they must ensure that double checking of transaction
is done in the books of accounts. If same will be done then in that case if wrong entry is made
same will be identified easily and it will be possible to save lots of time in matching of
accounting records. It can be said that modifications are required in the accounting system of the
business firms and changes must be bring in same. Apart from this, firms can do many other
things in their business to improve accounting system and reducing chances of fraud in it.
(3) Analysis of BRS on December 2016
BRS:
Cash Book:
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CLIENT 5
A. Control accounts and their balancing
Sales ledger control account:
Purchase ledger control account:
B. Control accounts and their concepts
Control accounts is the one of the important system of accounting and it is the general
ledger in respect to which subsidiary ledger is developed. Subsidiary ledger is the tool that allow
business firms to track transactions within control account more specifically. It can be noted that
single transaction is entered in to both subsidiary ledger and controlling account and total value
of these two are compared with each other in order to meausre accuracy while preparing trial
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balance. This can be understand from simple example where accouts receivable is the controlling
account for accounts receivable subsidiary ledger. It must be noted that in subsidiary ledger
account each customer that take credit from the firm have their separate accounts and separately
balance are determined. So, account receivable balance can report the amount that is owed to the
company (Barth and Landsman., 2010). Account receivable subsidiary ledger report report
amount that is owed from each credit customer. Thus, it can be said that there is wide application
of control account for the business firms and same must be prepared by most of business firms.
This is because such kind of things ensured that accounts are pepared in proper manner and
accurately. All these things, have due importance for the firms. It can be said that accountants
must prepared control account and ledger account in proper manner. Thus, time to time control
account ledger account must be prepared by accountants so that accurately financial statements
can be prepared in the business. This is the reason due to which most of accountants hand in
hand prepare control account and subsidiary ledger account in the business. On basis of ledger
accounts trial balance is prepared and by using it income statement, balance sheet as well as cash
flow statement is prepared. Thus, if ledger will not be prepared accurately then in that case trial
balance will be wrong and due to this reason income statement, balance sheet as well cash flow
statement will also be wrong.
CLIENT 6
A. Suspense account and its main characterisitcs
Suspesne account is one in which on temorary basis transactions are recorded. Many
times transactions happened in the business but it is difficult task for the accountant that in which
account that transaction need to be placed. Hence, in such situation suspence account is prepared
in which such kind of transactions are placed. There are some of the important characteristics of
the suspense account and same are explained below.
 One of the major characteristics of the suspense account is that unclassified transactions
are recorded in the company suspense account (What is a suspense account, 2017). When
it is clear that transaction is related to which account that item is removed from suspense
account and shifted to major account.
 Other major characteristics of suspense account is that it is prepared in the trial balance to
balance its debit and credit sides. Usually, when debit and credit side does not matched to
each other difference is made equal to suspense account and by doing so balance is bring
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in trial balance. Further, by using trial balance income statement, balance sheet and cash
flow statement is prepared. It can be said that there is huge importance of suspense
account for the business firms and it assist individuals in making income statement,
balance sheet and cash flow statement for the business firms.
B. Trial balance
C. Journal entries
D. Comparing the Suspense account and Clearing account
Suspense and clearing account both are prepared by the business firms time to time in
each accounting year. To some extent these accounts are different from each other. However,
this does not undermine the importance of clearning and suspense account for accountants. It can
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be observed that in suspense account temporarily all details are recorded. However, clearing
account also same thing is done but it is ensured that any transaction that is recorded in
mentioned account will be recorded in releevant account on time. Thus, it can be said that in
clearing account it is clear that temporarily transaction will be recorded but it is certain that same
will be recorded in the relevant account in the company books of accounts. This is the one of the
major difference that exist between suspense account and clearing account (Armstrong, Guay
and Weber, 2010). Thus, it can be said that it is very important to prepare both sort of accounts in
the business because if same will not be done then in that case it will be hard to ensure that
accounting financial statements like income statement, balance sheet and cash flow statement
will be prepared in proper manner. It can be said that both suspense and clearing account are
slightly different from each other but both are also similar to each other. There is significence of
both sort of accounts and both must be prepared regularly in the business so that all facts can be
recorded properly in the books of accounts. All these things lead to preparation of income
statement, balance sheet and cash flow statement in proper manner. Due care need to be taken
while preparing current and suspense account because it become always difficult for an
individual to determine that any specific transaction either must be placed in suspense or clearing
account.
CONCLUSION
On basis of above discussion it is concluded that there is significent importance of
accounts for the companies. Firms must develop system of accounts in which all transactions are
recorded in proper manner. This will ensure that ledger is prepared in legitimate way. It must be
noted that income statement, balance sheet and cash flow statement is prepared in proper manner
if ledger posting are done correctly. Hence, there must be multiple entities that ensure that all
transactions are recorded in books of accounts correctly and relevant transactions are placed in
suspense and clearning account. By doing so up to accurate value income statement, balance
sheet and cash flow statement can be prepared in the business. Decisions made on basis of input
provided by these statements become more accurate and beneficical for the company. It is also
concluded that on daily basis transactions must be sort out and must be placed in suspense or
clearing account. By doing so it can be ascertain that entire sort of caclulations will be done
accurately.
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