Financial Accounting Principles and Concepts

This assignment report concludes that financial accounting principles and concepts are crucial for every organization. The report highlights the significance of following rules and regulations to prepare accurate financial statements such as trial balance, balance sheet, and profit and loss statement. It emphasizes the importance of these statements in benefiting organizations and provides a list of relevant books and journals.

FINANCIAL ACCOUNTING
PRINCIPLES

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
A. Regulation of financial accounting has been discussed in the form of report to line manager
.....................................................................................................................................................1
1. Define financial accounting ..................................................................................................1
2. Regulations relating to financial accounting...........................................................................2
3. Accounting rules and principles.............................................................................................3
4. Conventions and concepts relating to consistency and material disclosure............................4
CLIENT 1........................................................................................................................................4
1. Journal of Client 1 as on 1st may 2017...................................................................................4
2. Drawing ledger accounts of above journal entries..................................................................6
..........................................................................................................................................................7
3. Client 1's Trial Balance.........................................................................................................15
CLIENT 2......................................................................................................................................16
A. The income statement of Peter Piper as on 31st December 2017........................................16
B. Balance sheet as on 31st December 2017 of Peter Piper......................................................16
CLIENT 3......................................................................................................................................18
A. Income Statement as on 30th September 2017 of Raintree limited.....................................18
B. Financial position of Raintree limited..................................................................................19
C. Describing various accounting principles and concepts.......................................................24
C. Depreciation with its purpose and types...............................................................................25
CLIENT 4......................................................................................................................................25
A. Objective of drawing bank statement ..................................................................................25
B. Specifying reasons for records maintained in Bank statements...........................................25
C. Cash book in context of client..............................................................................................25
CLIENT 5......................................................................................................................................26
A. Drawing Sales ledger control account and purchase ledger control account as of May 2017
of Henderson.............................................................................................................................26
B. Elaborate Control account ...................................................................................................27
CLIENT 6......................................................................................................................................27
A. Defining suspense account with its essential features..........................................................27
B. Framing trial balance............................................................................................................28
C. Journal entries.......................................................................................................................28
D. Difference of Clearing and Suspense account .....................................................................29
CONCLUSION..............................................................................................................................29
REFERENCES..............................................................................................................................30

INTRODUCTION
Financial accounting is analysed as an essential element which is used for recording of
key financial transactions. It is useful for small business owners as it provides a methodological
approach in order to describe the business activities. It is also considered as a broader term for
the controlling of assets and liabilities (Deegan, 2013). Financial accounting provides in-depth
analysis of monetary resources which are required for performing various important activities
associated with business. Present report is based on analysis of different key financial
regulations, basic rules and principles of financial accounting. As a junior accountant in small
consultancy firm, report is to determine the awareness of organisation towards regulations of
accounting. In addition, six clients that provide support in describing different key financial
statements like profit and loss account, balance sheet and cash flow statement are also discussed.
Appropriate structure and analysis transactions related to sales and purchase for compilation in
trial balance are also evaluated in this report. At last, clients will provide important properties
about reconciliation statements, purchase as well as sales ledger account along with the
discussion related to suspense account.
A. Regulation of financial accounting has been discussed in the form of report to line manager
From: Junior accountant
To: Line Manager
Subject: Determination of different regulation, rules and principles of financial
accounting
Respected Sir,
This report is made for improvement of the important activities of financial
transactions associated with business. However, there is the major need of recognising
various rules, regulations and important methods used for application of various
principles of accounting.
Further, business operations must be improved through application of different
accounting techniques and their results will be considered as beneficial for the allocation
of budget, cost and prediction of various operational activities linked with the
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organisation or business.
1. Defining financial accounting
Financial accounting has been analyzed as specialized and important branch of
accountancy which keeps record and track on organization’s financial business
transactions. Utilizing standardized guidelines, the transaction of sales and purchase have
been recorded, analyzed and presented in the form of reports for determination of
company’s financial position in market (Scott, 2015). It is an important tool for attracting
shareholders whereas small business enterprise can use it as tool for analysis of financial
strength of their business.
There are usually various kinds of financial statements which are formulated by small
business enterprise in order to attain set objectives. Some of them are mentioned as
below:
 Profit and loss statement
 Income statement
 Balance sheet
 Stakeholder' equity statement
 Cash flow statement
 Budgets
These financial statements are analyzed as external because these are formulated
for people outside the organization such as shareholders, investors, financial institutions
and government. Company can issue these financial statements on their website so that
these will be easily accessible to capitalist and it will be able to attract more investors.
When the stock of business enterprise is traded publicly, then its financial statements will
have circulated to the stakeholders (Edwards, 2013). It is significant for accomplishment
of financial business objectives. It is not in the form of financial evaluation of firm. Key
objective of financial accounting is to provide information related company financial
statements to externals.
2. Regulations relating to financial accounting
This usually involves various regulations that will be effective for formulation of
legal structure of accounting. These rules and provision have been formulated by
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government for corporate reporting and monitoring business enterprises in UK. The
major authorities involved in formulation of regulations are corporate reporting of UK
and financial reporting council.
It has provided different methods of financial reporting to department of government and
various corporate (Deegan, 2012). In this context, there are various important regulation
which are accepted by organization are mentioned below:
IASB: Aim of this accounting standard is to maintain and disclose appropriate
information to professionals and important guidelines for the purpose of drafting reports
and database of financial statement. It is also used for providing appropriate revelation of
accounts. A legal structure is there for determination of financial information that will be
accepted by stakeholders and used for influencing investors from different countries
(Financial Accounting, 2018).
FRC: It is a major regulation of financial accounting which is formulated by different
authorities and corporation of UK after consideration of standards of accounting. These
standards are usually framed by monitoring and execution of important financial
disclosures associated with finance with promotion high quality governance (Scott,
2015).
IFRS: Information provided by the standards of IFRS has provided a relevant framework
and organization’s disclosure of key financial statements. It provides support to
organization in influencing a large population of institutions and investors. It is beneficial
for the estimation of expenditures and cost that occur while performing operational
activities of business.
3. Accounting rules and principles
There are various important principles of financial accounting which are
provided by GAAP used for controlling company's transactions. Some of them are
discussed as below:
 Principle of Going Concern: Principles of accounting are based on the
assumption that small business enterprise will remain within company for the
foreseeable future. Adequately, it means that company will not be forced for
halting its business operations and liquidation of assets.
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 Principle of Full Disclosure: This principle needs an organization to disclose the
necessary information so that individuals are accustomed for analysis of
statements and they will be able to create informed decisions concerning the
business enterprise (Warren, and Jones, 2018). In this, company will describe its
accounting policies on important and initial note of given statement.
 Matching principles: This principle provide understanding that expenses needs to
be matched in the specific accounting year with total revenues. It is a principle of
accrual accounting and revenue recognition (Lubbe, Modack and Watson, 2014).
 Assumption of Monetary Unit: It provides understanding that transactions related
to business should be in US dollars as the currency has been accepted by every
country and it is also stable currency which contains fluctuations.
 Materialist: Various aspects of financial statement and data are there which are
analyzed and gathered from relevant sources. In this, efforts will be in the
perspective of providing important material information that is completely
relevant (Scott, 2015).
 Economic Unit Assumption: Overall, important transactions related to business
enterprise will be considered as separate from personal transactions.
4. Conventions and concepts relating to consistency and material disclosure.
Study determined that there is major presence of different terms such as
materiality, convention, full consistency, disclosure and conservatism within perspectives
of financial accounting concepts and conventions (Weil, Schipper and Francis, 2013). In
order to analyze the principles, there are major needs of formulating perfect disclosure
about different account.
It is also useful to gain understanding of concepts like:
Material disclosure: There is the major requirement of disclosing various financial
accounts that involve various materials like important objects which are needed for
maintaining the records of stakeholders through analysis of efficiency and probability of
enterprise for accomplishment of set standards and goals (Horngren and et.al, 2012).
Consistency: In this principle, company's nature of business will be followed and trade
practices are accomplished in market. Overall, operations related to business will achieve
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consistency of perfection and important benefit in terms of profitability.
CLIENT 1
In this task, all financial statements are given with respect to Alexander such as trial
balance, ledger and journal that are been assessed with respect to each transaction (Edwards,
2013).
1. Journal of Client 1 as on 1st may 2017
Date Particulars Debit Credit
1 Storage expenses a/c dr. 400
To bank a/c 400
2 Purchase a/c dr 6080
To R. foot a/c 1610
To S. Hood a/c 1450
To W. tone a/c 960
To D Main a/c 2060
3 F. Lane a/c dr 770
J. Wilson a/c dr 1120
P. White a/c dr 2420
T. Cole a/c dr 1640
F. Syme a/c dr 2080
J. Allen a/c dr 910
to sales a/c 8940
4 Motor car expense a/c dr 470
To cash a/c 470
7 Drawing a/c dr 1500
to cash a/c 1500
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9 T. Cole a/c dr 680
J. Fox a/c dr 1310
To Sales a/c 1990
11 Sales return a/c dr 680
To F. Syme a/c 410
To J. Wilson 270
14 Van a/c dr 28500
To Abel Motors 28500
16 (a) bank a/c dr. 1330
Discount allowed a/c dr 70
To p Mullen 1400
(b) Bank a/c dr 2945
Discount allowed a/c dr 155
To F. Lane 3100
(c) Bank a/c dr 807.5
Discount allowed a/c dr 42.5
To J. Wilson 850
(d) Bank a/c dr 1586.5
Discount allowed a/c dr 83.5
To F. Syme 1670
19 R. foot a/c dr 50
To Purchase return a/c 50
22 Purchase a/c dr 3740
To W. Wright a/c 1910
To L. Mole a/c 1830
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24 (a) S. wood a/c dr 3600
To Bank a/c 3240
To discount received a/c 360
(b) J. Brown a/c dr 4600
To Bank a/c 4140
To discount received a/c 460
(c) R. foot a/c dr 1400
To bank a/c 140
To discount received a/c 1260
27 Salaries a/c dr 4800
To Bank a/c 4800
30 Business artes a/c dr 1320
To bank a/c 1320
31 Abel motors Ltd a/c dr 20500
To Bank a/c 20500
2. Drawing ledger accounts of above journal entries
There are various accounts which have several transactional entries according to each
transaction in above journal entries. Managers and owners of business will be benefited by brief
analysis of cost and gains which are obtained on the basis of various sources of each activity in
context of operations of specified business (May, 2013). There will be major contribution in
structuring plans and for decision making that will lead to reduce the cost and expenses of
company.
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Nominal Ledger
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Real Ledger Accounts
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JOURNAL ENTRIES
ASSETS debit £ credit £
premises 340000
VAN 51250
FIXTURES 8100
INVESTMENTS 63900
RECEIVABLES:
P MULLEN 1400
F LANE 3100
CASH AT BANK 62400
CASH IN HAND 5600
LIABILITIES
PAYABLES
S HOOD 2150
J BROWN 4600
CAPITAL BAL FIG 529000
535750 535750
3. Client 1's Trial Balance
Particulars Debit credit
Miscellaneous gains 5132
Capital 529000
Discount allowed A/c 352
Van 51250
F. lane A/c 770
Fixtures 8100
Cash 3630
Inventory 63900
Bank 36700
Premises 340000
Motor expenses 470
Sales 10930
Inventory storage cost account 400
Sales return 680
Drawings 1500
Purchase 38320
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Purchase return 50
Discount received A/c 960
546072 546072
Interpretation: There are various transactions in above trial balance of Alexander of
May’ 2017 which are directly associated with journal entry in the given duration (Henderson and
et. al., 2015). The trial balance consists of various assets and liabilities which are evaluated.
Sales of the organization is 10930 and company's purchase is of 38320. The formation of trial
balance is according to accounting principles and concepts which are issued by several financial
institutions and board such as IASB, IFRS and GAAP. By comparing purchase and sales, it has
is depicting picture that organization is having more expenses than income or sales are lower
than purchases (Zeff, 2016). The company must watch on expenses and even income as well to
keep balance between both. The trial balance is observed to be right when both the sides i.e.
debit and credit are matching to each other.
CLIENT 2
Client 2 has provided various balances as on 31st December 2017 of Peter Piper which
will be helping in giving insights of different financial statement such as profit and loss
statement and in the same series the financial performance and position has been determined of
specific given duration (Needles Powers and Crosson, 2013).
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A. The income statement of Peter Piper as on 31st December 2017
B. Balance sheet as on 31st December 2017 of Peter Piper
The financial position and stability of any corporation has been analyzed by evaluating
income statement which is also considered as profit and loss statement. In the following
statement, many transactions are relevant which are occurred in specific duration. The
transactions which are considered in income statement are befitting corporation in terms of
achieving sufficient growth and capital strength (Edmonds and et. al., 2013). All the mentioned
efforts related to performance and organization operation can be analyzed properly. The financial
position of organization can be determined in following manner:
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CLIENT 3
The trial balance has been provided of Raintree limited of several accounts of specific
duration that is 30th September 2017. With the context of trial balance, there is presence or
particular analysis and calculation of such financial statements such as balance sheet and even
income statement as well (Weygandt, Kimmel and Kieso, 2015). There is clarification about
both; depreciation method and accounting concepts which are prudence and consistency.
A. Income Statement as on 30th September 2017 of Raintree limited
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B. Financial position of Raintree limited
There is presence of some specifications about the financial stability and performance of
Raintree limited in perspective of different financial statements such as trial balance and Income
statement in context of business.
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C. Describing various accounting principles and concepts
For drafting financial statements, organization must follow various accounting concepts
and principles but origin should be from an authenticate source. The corporation is impacted in a
positive manner by following these principles and concepts which should be easy and
understandable (Sharma and Panigrahi, 2013). There is presence of two major concepts which
are described as follows:
Consistency: This concept refers to similar methods and rules that should be applied in
future accounting period. It should apply the rule of consistency. It will be benefiting
organisation for setting benchmark or how to be benchmark.
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Prudence: This concept states that income and revenue; both should not be
underestimated or overestimated and even expenses. While, implementing the amount of asset in
final accounts, accounting personnel must be conservative in nature.
C. Depreciation with its purpose and types
With the perspective of final accounts, the main aim of depreciation is to apply charges
on expenses of specified portion of an asset which is directly associated which will be generating
revenue as such tangibles. There are two methods of depreciation like:
Straight line method: The depreciation is applied on all assets which is by default
applied in this technique and with the context of depreciation amount which is fixed and reduced
from assets of remaining period.
Written down method: The deprecation is measured for proportion which is raising
along with valuation of depreciation charge and for the balance which is estimated for covering
the specific life of all mentioned assets (Zadek, Evans and Pruzan, 2013).
CLIENT 4
A. Objective of drawing bank statement
The essential purpose of stating bank statement with context of Kendal, all the
transactions are present which are held in this specific duration which will be giving proper
understanding of expenses and gains with given data set and it will also lead to specify concept
of flow of money. Business will be benefited for evaluating the efforts and with context of
disclosure information will be extracted.
B. Specifying reasons for records maintained in Bank statements
The records which are maintained in bank statements provide various advantages to the
organisation in context of giving analysis of deposit transit, cheque dishonour and cheque
outstanding for the specified duration.
C. Cash book in context of client
Bank Reconciliation Statement
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Cash book
CLIENT 5
A. Drawing Sales ledger control account and purchase ledger control account as of May 2017 of
Henderson
Purchase Ledger Control Account
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Sales Ledger control account
B. Elaborate Control account
This account states the summary of general ledger. All the transactions are aggregated
and segregated individually with perspective of ledger accounts in subsidiary level. The brief
summary has been provided of both accounts receivable and accounts payable as well as various
transactions are presented in high volume. The need of this account is to segregate the subsidiary
ledger not for collecting information in detailed format in general ledger. Balance with respect to
control account must be summed up on the basis of subsidiary ledger and if condition is not
meeting with this, then there are chances for drawing journal entry in control account which is
not present in subsidiary ledger(Control Accounts, 2018).
CLIENT 6
A. Defining suspense account with its essential features
Suspense account is temporary and for short term perspective. It depicts the account
which is used for identifying mistakes on the basis of past year. The duration of this account is
very less. The mistakes which are identified should met with solution as soon as possible or
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issues must be resolved along with duration. Before, drafting final accounts, the balance of
suspense account should be zero. It should be estimated that suspense account is a temporary
measure for rectifying mistakes. It is referred as the deadline before practising final accounts and
it should be resolved simultaneously.
B. Framing trial balance
There should be proper specification about closing balance in context of ledger account
of specified duration and it is considered as an initial statement for preparing financial
statements. Generally, the trial balance has been prepared at the end of accounting period along
with financial statements. In the trial balance, there are two sides that is debit and credit. All the
assets are considered in debit side and its contrary credit side implies all the liabilities. In other
words, it can be specified as income and major expenses in credit side (Gitman, Juchau and
Flanagan, 2015).
Interpretation: The above statement is known as trial balance as of year-end. There are
three columns in which particulars are extracted from each account of ledger. For judging that all
transactions are inserted in right manner then both sides sum should match and if it is vice versa
then they identify error and must identify its solution and ways to implement these.
C. Journal entries
Serial number Particulars Debit Credit
1 Smith a/c dr 220
Wrong entry To Sales a/c 220
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Right entry Simon a/c dr 220
To sales a/c 220
Rectified entry Simon a/c dr 220
To Smith a/c 220
2 Jones a/c dr 420
To suspense a/c 420
3 Whites Personal a/c dr 750
To Suspense a/c 750
D. Difference of Clearing and Suspense account
CONCLUSION
From the above report, it has been concluded that financial accounting principles and
concepts are very important for each and every organization. For benefiting the organization, all
the rules and regulations must be followed by them for preparing financial statements such as
trial balance, balance sheet and profit and loss statement, etc.
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