Financial Accounting Principles

This document provides an overview of financial accounting principles and their significance in reporting corporate transactions. It discusses the types of internal and external stakeholders and their roles in the financial accounting process.

Financial Accounting
Principles

Contents
INTRODUCTION...........................................................................................................................3
TASK...............................................................................................................................................3
PART A..................................................................................................................................3
PART B..................................................................................................................................6
Client 1...................................................................................................................................6
Client 2.................................................................................................................................15
Client 3.................................................................................................................................19
Client 4.................................................................................................................................20
Client 5.................................................................................................................................22
CONCLUSION..............................................................................................................................23
REFERENCES..............................................................................................................................24

INTRODUCTION
Financial accounting is a sector wherein financial data within financial reports are collected,
analysed and presented (Ebaid, 2016). The financial status of businesses can be seen by
customers and stakeholders in this reporting phase. Along with this financial accounting, the
work of all company operations in respect of profit or loss has a critical part to play. Essentially,
it includes several forms of accounting records and accounts such as P&L book, balance sheet,
revenue tax etc. This business offers small-scale accounting large variety of services. In addition,
in the project report, role of companies is best described in the phrase financial accounting. In
order to determine their value in the financial details, both various stakeholders are listed.
Similar activities are performed by five clients in perhaps a section of the survey.
TASK
PART A
1. Financial accounting with its main purpose for company.
In general terms, the phrase "financial statements" applies to the collection of financial
details in the context of financial reporting to diverse stakeholders (Nilsson and Stockenstrand
2015). This accounting is primarily designed to awaken corporations to produce shift in business
time over the course. Eventually, the annual statements shall be reported towards the close of the
fiscal cycle of the statutory reports. There will be several forms of difficulties in the lack of this
accounting method. Unlike other owners, the shareholder in the business would have little
impact. Moreover, the companies would have trouble understanding their current financial
position. Internal manager file different kinds of financial reports including a P&L report and the
balance sheet respectively within the consulting company. In addition, they provide complete
financial reports and make decisions based of that factors which impact business conditions.
In this respect, it is crucial to be aware of the financial accountability standards and rules.
This is how the annual results are found null in the lack of these reporting requirements. GAAP
is understood as the common accounting concept as the most basic characteristic of financial
performance. The accounts and analyses are defined under certain standards of financial
reporting. Below are listed other uses of financial accounting:
 Advantageous in calculating cash flow: Financial reports aid to reliably predict working
capital on the impact of accounting reports. It is important because businesses will

determine the operation that produces further cash and what is not, according to benefit
and loss report statistics. This allows the cash balance to be expected.
 Assistance to taxes decision-making: Financial management for companies is also
effective when getting tax judgments (Burritt and Schaltegger 2014). That is why firms
can calculate a total tax payable on earnings with both the assistance of income
declarations.
 Provide a basis for plans: In addition to the financial statements, successful and
strategic tactics are created. In the end, businesses will define means of generating
appropriate policies and proposals dependent on sales and investment.
 Provide accurate information: It is observed that financial information for about their
numerous functions and processes can be provided by revenue recognition firms. It is
therefore connected all in all to the quantification of the real financial position.
 Helpful in decision-making: Financial accounting is indeed helpful in making
appropriate decision, in addition to the above advantages for each sort of organisation.
For e.g. if the financial position of some business becomes stronger, they may plan to
grow the business. Therefore, for judgments, the financial statements are important.
 Good for the groups concerned: The banking structure is beneficial for all internally
and externally players. Efficient policies and approaches may be drawn up based on
financial reports by the internal customers. The financial position is understood and
commitment rendered appropriately, as will other stakeholders.
 Comparison benefit: It is among the most significant aspects of financial statements
as companies can monitor and correlate their previous accounts with their overall results
in the present accounting year with the support of financial system.
From the above all discussion, it has been stated that considerable usage in financial
statements is often related to as bookkeeping for reporting corporate transactions. The
accounting statements are used by company managers to list economic operations in the
corporate folders. Because each financial exchange involves a double entry scheme, two
accounts have an effect that reveals all sides of an exchange. For example, if the small
businessman is purchasing houses, a bank card to the real estate account is recorded to display
the value of the property receipt and then a cash-credit to demonstrate cash output. Financial
accounting may help owners to remind internal customers such as their staff of the successes and

limitations of the business. This detail may be utilized by organizations that include their
workers with income sharing or stock-based incentive schemes. For limited public firms, the
company's share price is a common indicator. In order to share the amount, and to promote
employee efficiency, small companies should balance their incentives and salary rates if
appropriate. These are the primary aims of financial accounting, because of this, are the
organizations' compulsory accounting systems.
2. Types of internal and external stakeholders.
Stakeholders: It is a collective of people involved in all company practices (McCarthy,
Shelmon and Mattie, 2012). Many stakeholders are concerned with earning income. The
stakeholders are usually categorized into two kinds:
• Internal interested parties
• External stakeholders
For enterprises, all of the shareholders are relevant since they have an involvement in market
practices. The following are listed and their specific meanings are elaborated underneath:
Internal interested parties: Local partners engage in regular market operations and learn about
the priorities. Such shareholders can be influenced by client strategies and policies. A few typical
examples involve staff, BOD (Director's Board), administrators, etc. The following parties are
listed in a specific sense: In this connection:
• Board of Directors: The BOD is a community of individuals who are obsessed about
laws and regulations are mindful that such laws are inferred within company process.
They are generally known as divisions at the upper level which make most of the crucial
decision within company. They demonstrate a role in the business's financial data, even
though they develop additional policies and tactics on this basis.
• Employees: These are seen as people or groups who carry out different activities and
tasks in order to get their salaries or salaries. Finally, workers play a significant part in
the organization's commitment to income. To the effect, they express a concern in the
financial state of the organization and assess if it has ample funds left to pay the
employees.
External stakeholders: These are individuals that are not involved in commercial practices but
have interest in each transaction. These parties' main aim is to put money the finance in the

company with the assumption that they will receive the return. Consumers, suppliers, creditors
etc. are a prominent example. The following are the following stakeholders:
• The Supplier: Depending on their financial state, they render the payment exchange with
businesses. This is to suggest, manufacturers offer the requisite content on credit for
goodwill to businesses. In theory, for the cash contract the vendors demonstrate concern
in the company's financial position.
• Investor: These are the number of people that buy shares their financial resources in the
exchange share of organizations. They assess the financial condition of businesses before
allowing even expenditure. To them, however, financial knowledge is very helpful in
predicting potential returns on their savings.
• Creditors: The investors are those that demand another party's assets (Blake, 2013). In
other terms, the individual about whom income owes may be identified. Finally, in order
to decide whether or not to offer financial support with some individual business, they
show their concern in the firm’s financial position.
• Government: This is the last player to differentiate from the others. They contribute to
the creation of regulations, statutes and laws that are important for businesses to obey.
Both government and organizations receive the tax that enables them to run the specific
activities for the growth of nation or firm operation.
These are also the external customers of firms that demonstrate their own involvement in
businesses task and function in order to earn a subsequent amount over the investment.
PART B
Client 1.
(I) Double entry with ledgers:
Alexandra Study’s Journal
General Journal
Date Description Debit Credit
£ £
01-Jan-19 Premises 240000
Van 51250
Fixtures 8100
Inventory 23900
Receivables:

P Mullen 4400
F Lane 6100
Cash at
Bank 68400
Cash in
hand 15600
Payable:
S. Hood 12150
J. Brown 16600
Total 417750 28750
In order to calculate Alexandra’s capital, the accounting equation has to be applied.
Assets = Capital + Liability
417 750 = Capital + 28 750
Therefore, her capital equals to £389 000 (417 750 – 28 750).

(II) Trail balance as on 31st January 2019:

(II) Trail balance as on 31st January 2019:
Trial Balance as at 31 January 2019
Alexandra Study
£ £
Purchases 9820
Sales 11460
Returns outwards 50
Returns inwards 680
S. Hood 2150
D. Main 2060
W.Tone 960
R. Foot 160
L. Mole 1830
W. Right 1910
J. Wilson 80
T. Cole 2330
F. Syme 20
J. Allen 1020
P. White 2520
F. Lane 2120
J. Fox 1310
J. Brown 4600
P. Mullen 1400

Storage Expense 450
Bank 9150
Motor Expense 470
Cash 1970
Drawings 1500
Salaries 4800
Business Rates 1320
Total 33070 33070
Client 2.

(c) Various forms of accounting concepts:
Principle of consistency: Company can enforce an equivalent accounting method only
after every principle has been applied (Kim and Wook Yoon 2013). And it renders the
company's financial results credible and correct. In simple term, the same accounting principle as
in the past years must be tried by companies. As a result, correlation is easy between the current

year and the past year by these organizations. Finally, it would be impossible for the companies,
without this definition, to critically evaluate their income reports. In fact, the auditors also
recommend that certain customers follow a specific accounting term for all financial period. The
auditors will disregard suggesting the financial report in the lack of such an accounting principle.
Generally speaking, businesses disregard the quality principle of reporting to demonstrate the
greatest benefit from the income statements.
Prudence principle: This accounting framework definition applies to a corporation that
does not misjudge its income and overlook spending number. They are fundamental elements of
the financial statements that provide more reliable data to reflect the business for reporting.
Prudence principles usually refer to the establishment of the obsolete stock for questionable
commitments or reservations. The financial reports are defined by the international Accounting
Framework (IAS) as well as the GAAP, as described here. The financial report and interpretation
of the details and statistic stated in the accounting book using this approach are more accurate
and secure.
D) The intention of the asset value when the financial statements are formulated.
Depreciation: The quality of any specific assets could be described as a decrease as time
passes (Zeff, 2016). This is usually charged for actual damage over the investments. Further, the
decay becomes positive because asset losses are allocated over asset existence.
Objective of depreciation: The primary aim of depreciation is simply to assess the true
worth of the properties. Within this relation, the following is some purpose:
• The first goal of the deterioration is to determine the exact effects of the job.
• The measurement of the real value of properties is another objective of the depreciation
process.
• Business organizations can find the full financial situation and also depreciation and
amortization.
• To assess the profitability value of fixed assets induced by period as well as the
utilization of fixed assets.
Depreciation estimation technique: there have been various forms of depreciation
measurement processes. Some factors are given here below:
• Straight line method: A fixed installation process is also known (DeBerg and Chapman,
2012). It is a tool which is used over the entire lifespan to calculate the carrying value of

every fixed asset. This approach is generally used in depreciation estimation at long last.
The following steps are indicated in the calculation of depreciation:
Analysis of the capital asset initial expenses.
1. Then remove the replacement cost again from value of assets of fixed assets.
2. Approximately asset life determination.
3. The impairment levels and asset prices would then increase.
Here are the measures to measure the deterioration by this process of some real assets.
Finally, the depreciation estimation is calculated with the following formula:
Depreciation: (Cost of assets- scrap value)/ Life of assets.
• Reduction of the consistency method: This is a form of method of depreciation that is
determined on a fixed rate equal to the straight line depreciation (Giner, 2014). In
addition to the way of reducing stability, the percentage of the rate is not calculated based
on asset costs. This calculates the frequency on the fixed asset market value. This
approach is basically ideal for machines, generators, etc.
(e) Assessment of disparity between business owners and restricted corporations' financial
reports
Basis of
difference
Sole traders Limited company
Auditing There is no requirement to perform
the analysis of financial records in the
financial reports of the single traders.
From the other side, it is important
that the businesses perform the
examination mostly on financial
records of the general company in
order to determine the quality of the
documents prepared.
Equity Just one element in the financial
reports of the small businesses is the
wealth of the lender.
The shareholding of the shareholder
includes share value, surplus of cash,
retained profits, etc.
Preparation of
financial
statements
It involves the preparing of the annual
statements and audits for the company
owner.
Accountants write the annual report
for the firms.

Amount of
transaction
Finally, the volume of financial
transactions is smaller in the lone
traders owing to their limited business
scale.
At the other side, a number of non -
financial and financial activities occur
in the limited firms.
Mandatory The preparing of the financial report
is not mandatory for single traders
(Wang, 2014).
To order to assess the financial
condition, it is important for them to
review the financial accounts.
Client 3.
(A) Purpose of preparation of BRS
The system for bank reconciliation is the system being established to align the cash position
with the facts on the bank card. Finally, to monitor corporate transactions and company keeps a
cash register. This is a simple declaration and is intended to test the bank account on the
specified date according to the transfer bank as well as cash register. It indicates whether there
are any variations between them. The key aim is to find theft and mistakes in the account and
bank balance to explain the results. The following are, in this context, other reasons for planning
the BRS:
• Check for validity: The key aim of planning is to determine the correct and consistency
of the bank statement of the BR account.
• Prevention of theft: Bank recovery system other than that is meant to report frauds so
errors in cash accounts.
• Transparency: The BR statements often help explain the balance deposited in cash
records. This is the primary objective for all sizes of industries to prepare a BRS.
(B) Areas where bank statements as well as cash books are different:
• Failure to become conscious of bank costs: This is the key explanation that checking
statements vary from bank reports. For this reason, banks often pay a certain sum owing
to their operation. The bank will not ask the employee about this charge and this will be
the distinguishing factor.
• Direct debited mortgage interest: Another source of variance is the volume of
mortgage interest charged on the mortgage. It is not included in the cash journals
(Canziani, 2014), in the absence of facts.

(C) Imprest:
The imprest may usually be described as a form of fund used by organizations in the sense of
mini expenses. In fact, businesses are returned that volume of fund at a certain date. In addition,
it is applicable to financial transfers on a daily basis by businesses.
(D) Cash book for Burcu limited for september, 2018
Client 4
(a) Prepare and balance in the books of Hilly for January, 2018
(I) Sales ledger control account:

(ii) Purchase ledger control account:
(b) Control account: The control account is some kind of system generated when the number of
a particular directory in the overall directory is not registered. Numbers of reports from
benefit and records of responsibility to profits and expenditures can be included in the
general heading. However, scores of small deposits can be named supply accounts for any
form of account. Each account would have been very massive, disorganized and
complicated to use because that was included in the general ledger. Bank reconciliations are
therefore used to summarize information from a large sample of associated accounts. This is
said to test the balances recorded in the deposit account that perhaps the subordinate funds
are summed. Therefore, we apply to it as an account monitoring. It makes perfect sense as
the GL will not comment explicitly on the subordinate funds. We are outlined and released
on the GL control list. The management system therefore literally determines whatever is in
the GL and is in the financial accounts.

Client 5
(a) Suspense Account:
The account means the payment acct in discussion (Chhabra and Pattanayak 2014). This is
included in this account, for example, throughout the bank statement of a corporation where
some amount is paid and with no detail. It seems it is not fairly obvious that the quantity is
associated to others as an involvement or transferred. These were some of the characteristics of
this account:
• The suspense account may be seen by the organizations as a document consideration.
• This account will reliably identify errors in trial performance.
(b) Trial balance:
(c) Preparation of journal entries:

CONCLUSION
In the end, of report, it has been concluded that in view of external and internal creditors,
financial management is important to businesses. In addition, both investors are involved for
their own purposes in the financial data of the businesses. In addition, all laws and regulations
for financial accounting should be followed by the companies.

REFERENCES
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