Generally Accepted Accounting Principles - Assignment

Financial
Accounting
Principles

Table of Contents
INTRODUCTION...........................................................................................................................3
BUSINESS REPORT......................................................................................................................3
Financial accounting and its objective and purpose:...................................................................3
Analysis of various stakeholders : External and Internal.............................................................4
CLIENTS.........................................................................................................................................7
1....................................................................................................................................................7
Entry recording within the relevant ledgers:................................................................................7
......................................................................................................................................................9
2..................................................................................................................................................18
Statement of revenue of Munteanu Ltd., (31st December 2018):..............................................18
Balance Sheet of Munteanu Ltd., (as on 31st December 2018):...............................................18
Defining accounting Concepts - Consistency and Prudence:....................................................19
Concept of Depreciation:...........................................................................................................19
Differentiation in FS of proprietors and companies (LTD).......................................................20
3..................................................................................................................................................20
Concept of formulation and reconciliation of Bank Reconciliation Statement:........................20
Causes of difference between balance of bank column of cash book and bank statements:.....20
System of Imprest:.....................................................................................................................21
BRS as on 30th Sep 2018:.........................................................................................................21
4..................................................................................................................................................22
Preparation of sales and purchase control account:...................................................................22
5..................................................................................................................................................23
Suspense Account and its key characteristics or features:.........................................................23
Journal Entries and trial balance:...............................................................................................23
CONCLUSION..............................................................................................................................25
REFERENCES .............................................................................................................................26

INTRODUCTION
In organisational context, principles of financial accounting are legalistic guidance which
provide a systematic composition of different functions to manage fiscal transactions and record
them effectively. Primary motive of financial accounting is communicating and reporting wide
variety of information to investors, interest-holders and other concerned parties (Anandarajan,
Anandarajan and Srinivasan, 2012). Principles are essential for company as they help to maintain
consistency that provide more efficient and accurate views and results with regards to financial
statement. Report study covers financial accounting, motive of financial accounting, stake or
interest holders of corporates and their interest in concerns of company. Study also provides
numerical practical of books entries in journal, ledger posting, bank reconciliation, suspense
account and control account.
BUSINESS REPORT
Financial accounting and its objective and purpose:
Financial accounting relates to tasks connected with formulation of key fiscal accounts
and statements of company which presents efficiency of business entity for the providing
benefits to interest holding parties. It is adopted by all kind of organisation irrespective of their
size, doing activities and nature, as financial accounting need of business and trade operations.
Term financial accounting includes: accounting and financial which increases its relevance and
uses for a business organisation. It simply emphasises on recording structure of business
enterprise. Main application of financial accounting is to effectively entering transactions. In
order to transmit data to external parties, business entities apply and adopts financial accounting.
It help to evaluate and analyse the new investment opportunities for increasing overall
profitability of company (Ball, 2013). An effective communication of fiscal data is only possible
through effective use of financial accounting. Accountant is key personnel in business
organisation who operates and controls the all financial activities of financial accounting.
Different organisations have its own targets and goals so purpose of adopting financial
accounting may differ from entity to entity. But overall objective of it is providing smoothness in
reporting process and enhance reported content's quality. Following points describes various
objectives or purpose of financial accounting, as explained below:

 With financial accounting facilitates recording activity and each transaction is
documented in the account books, which helps to maintain track of all the data.
 Ledger accounts prepared in financial accounting rank the data according to the nature of
the data to provide accountability.
 For creating a framework for quick analysis of complete results and entire performance
financial accounting is required to be adopted.
 To attract or bring new funding sources through investors reporting of final accounts
prepared.
 It provide core informations and basis for formulation of annual and consolidated
financial budget (Beaumont, 2015).
 It assist in creation of internal report for management information system to take short
term decisions.
 For a reliable and accurate projections of potential results information information
obtained through financial accounting is necessary.
Analysis of various stakeholders : External and Internal
Every business entity interacts with different organisations, corporates, individual, group
of individuals etc. These all have direct/ indirect impact on organisation's outcomes, results and
operational efficiency. In financial terms such organisations, corporates, individual, group of
individuals called as stakeholders (Bryer, 2013). These are companies, sole traders, individuals
or other parties who are influenced by failure and success of business enterprise. For listed
companies there is compulsory requirement of reporting annual accounts to various stakeholders.
Decisions or planned actions of numerous stakeholders also have influential power which can
affect working performance and profitability of company.
Following is explanation on meaning of internal and external stakeholder along with
discussion on how they are influences and influenced by or from entity, as follows:
Internal Stakeholders:
They have considerable direct interest on organisation's results and part of company's
internal structure. They are most affected parties from the acts of company. Actions of these
stakeholder also affects performance and out comes or result of company. Employees,
managerial and employee personnels, holder of equity, owners etc. are internal stakeholder of a

business entity (Bushman and Williams, 2012). Following are important internal stakeholders of
a trade entity, as follows:
Equity-holders and owners:
Equity holders and owners are actual stakeholders of company as they have large
holdings in capital structure of company. Owners and equity holders receives part in company's
profits, so they are extremely influenced by company's actions and performance. They are also
contributing in organisation's fiscal decisions. Owners are responsible for organisation's results
and operating performance (Chiang, Nouri and Samanta, 2014). Due to making heavy
investment in company they are holding considerable stake in company. Financial accounting's
results are used by equity holders to make investment in company's securities and shares.
Owners also make strategies and for improvement in existing performance and achieve descried
profitability.
Employees:
Employees are internal parties who are holding stake in company's growth to ensure their
own growth and success of company. Employees are major resources of company which provide
efficiency in organisation's operations to increase profitability. Employees efficiency in business
entity determines efficiency of company to gain profits. They want to secure future in company
and get promotions. Retaining employees for a longer period is difficult task for corporates and
retaining employees are necessary to minimise cost of training of new employees.
External stakeholders
These stakeholders are external to an organisation as compared to internal stakeholders.
They have more power of influencing or getting influenced in respect to organisation because
they are the one's most affected by the business activities. External stakeholders generally
comprise of creditors, shareholders, society, and government. They act as a pressure group on the
organisation to deter its management to manage the business properly and keep their stakes at
priority. They have the power to dismantle any business. It is a macro responsibility of the
business to identify potential external stakeholders associated with business through stakeholder
mapping. And ensure that their priorities are met to ensure smooth functioning of the business.
Few prominent stakeholders to a business are introduced here as under :
Shareholders : They are the investors who invest their financial resources in the
business to fund its capital requirements. They receive a dividend or interest in return of their

invested money. There stake is the money, dividend, profits they seek from the company. They
expect that the business of the organisation is conducted in a just and fair manner (Hope,
Thomas and Vyas, 2013). If the business fails due to any irregularity, it would bear losses and
would result in non payment of the shareholders dividend. This is the reason for which
shareholders keeps a pressure check on the organisational activities, market health, business
conduct of the company to keep their stakes secured.
Creditors: The major creditors to any business includes lenders, banks, financial
institutions, venture capital funds etc. They provide funds to the company in the form of loans
and other monetary sources. Business needs money to conduct it operations. Company's
generally devise a mixture of debt and equity financing. They take huge loans from all these
sources to fund its projects. So it automatically becomes the responsibility of the firm to uphold
their stakes at utmost priority and use the funds gathered in a judicious manner. Creditors expect
better performance of the business so that they receive timely repayment of the loan amount with
interest payment. If the business underperforms , the business would become a loss making
entity , hence would result in non payment of the loan amount. They keep a check on the
business proceedings to question it whenever it makes irregular activities.
Government: In an economy, Government acts as a stakeholder to the businesses
functioning. Government expect tax payment, better production, environmental safety, Non
hazardous activities, Proper implementation of labour laws in public discourse. Government
takes developmental initiatives from the money received in the form of taxes from the business.
In any country the biggest tax contributory is the corporate world (Lawrence, 2013). And it is
often seen that corporates engage in tax evasion activities to reduce tax obligations. Government
is at loss fro such activities and has to face fiscal deficit in short run. Government stake is to
ensure that corporates pay timely taxes and adhere to compliance requirements.
Society: General public at large is the biggest stakeholder in the business activities of a
firm. Businesses harm natural environment, economic environment, cultural environment by
their non compliant activities to make extra profits. Society expect that in return to the loss to the
society, organisations do good to the society. To safeguard the interests of different segments of
people society come out as a stakeholder. Businesses need to comply with the social angle of the
economic activities and ensure their stakes are duly taken care of.

CLIENTS
1.
Entry recording within the relevant ledgers:

Trial balance as on 31st January 2019:

2.
Statement of revenue of Munteanu Ltd., (31st December 2018):
Balance Sheet of Munteanu Ltd., (as on 31st December 2018):
Statement of financial position of Munteanu Ltd. As at 31st December 2018

Defining accounting Concepts - Consistency and Prudence:
Accounting concepts are core theories and assumptions adopted by accountants to
smoothness and easiness in company's accounting functions. Accounting concepts provides

relevance and reliability in information generated through accounting processes. It defines most
accurate assumptions to be used by accountants to avoid any difficulty or complexity finalisation
of accounts. Different organisation's adopts various assumptions while preparing accounts that
affects reliability of presented information. To overcome this situation accounting concept are
adopted by accounts officials. Different concepts of accounting covers various accounting
aspects.
Consistency: It is most widely applied concept of accounting which provide assurance of
continuously carry on of previously applied and used accounting policies and accounting
procedures. It is useful to maintain creditability of financial accounts. Accounting officials
should ensure compliance of this concept and apply same accounting policies and process from
year to year (Martin and Roychowdhury, 2015). Main motto of this accounting concept is to
maintain objectivity and consistency in use of policies and processes.
Prudence: Recognition and recording of incomes of organisation on receipt basis and
liabilities only on occurrence is main context of this accounting concept. It is basically a extant
ion of accrual concept. This concepts does not allow use of cash basis for recording transactions.
Concept of Depreciation:
Depreciation is always charged on fixed assets at annual basis. It is one of the concept
which is used just for the purpose of tax and accounting where value of assets is needed to be
reduces in each year. It is helping in finding that how any of the organisation is performing in
any of the financial year.
Straight line method- It is the method which is mainly used by most of the organisation
for the purpose of carrying amount of a fixed assets in normal life. It is one of the most easiest
process of depreciation where chances of errors are very less.
Written down method- It is one of the method of accounting and depreciation. In this
accounting method, depreciation is needed to be charged on the book value of a assets. It is also
said as reducing balance method, diminishing balance method.
Differentiation in FS of proprietors and companies (LTD)
Some of the difference between sole traders and limited Companies are explained below:
Sole Traders Limited Companies
There is no requirement of preparing annual They are needed to prepare vertical balance

reports in horizontal and vertical. sheet.
Tax is needed to be paid by including in
personal income.
It is used for taking most of the financial
decision.
3.
Concept of formulation and reconciliation of Bank Reconciliation Statement:
BRS is horizontal shaped statement which records all the transaction and events which
are causing variation in amount of balances of bank-statement and cash book's bank balance. It
help to provide actual cash level of company (Thornton, 2013). This statement reconciles all the
figures which are affecting assessment of actual cash position in company.
Causes of difference between balance of bank column of cash book and bank statements:
There are lot of reasons for differences arises in cash book and bank-statement. Analysis,
identification and reconciliation of these reasons is significant to provide error free financial
accounts to different stakeholders. Following points provides a list of such possible reasons, as
follows:
 Cheques remains outstanding
 Cheque which are dishonoured due to some reasons.
 Charges of cheque printing directly deducting by bank.
 Amount Deposit but in transit
 Cheque issued by company but still not presented for payment
System of Imprest:
It is a accounting term relates to reserving funds for further payment of petty or penny
expenses. Main motive of system of imprest is to adopt better accountability in recording of
numerous kind of expenses (Tinoco and Wilson, 2013).
BRS as on 30th Sep 2018:

4.
Preparation of sales and purchase control account:
Control accounts are key accounts in financial accounting which are prepared by
accountant to cross checking of different transactions posted to various ledgers. Here no
accounting formalities are required to be followed by accountants because it is just a summary

account which contains balances of normal ledgers. These accounts formed as internal check on
accounting process. Following are the key control accounts, as discusses below:
Sales Ledger Control Account: This control account is specifically records sales ledger's
transactions. All trade debtors balances and credit or cash sales are entered in this account. At
finalisation of accounts balance of sales control account is reconciled.
Purchase Ledger Control Account: This control account is particularly records all balances
and transaction associated with purchase ledger. At last before finalisation of accounts balance of
this account is reconciled with purchase ledger (Williams and Dobelman, 2017).

5.
Suspense Account and its key characteristics or features:
A suspense account is most useful memoranda T shaped account which records all
money amounts and amount of transactions that are unidentified and source is undefined. This
boost the process of finalisation of accounts (Zadek, Evans and Pruzan, 2013). A suspense
account enables companies to find out on quick basis any irregularity in accounting process.
Temporarily entered amounts in suspense account are finally recorded in correct account and
accounts are finalised at year end. These are the crucial features of a suspense account.
 It enables accountants to quickly trace the accounting mistakes and concealed values.
 Any duplicity in values, entries and amounts can be prohibited using this account.
 It supports internal assessment of performance in mid term also by recording suspicious
figures.
Journal Entries and trial balance:

Particulars Dr. (in £) Cr. (in £)
Purchase Account 7000
Sales Account 11000
Rent Paid Account 2500
Cash in bank Account 8400
Travel expense Account 1600
Receivables Account 3200
Payables Account 3500
Opening Inventory 2200
Capital Account 7100
Control Account 3300
Total 24900 24900
Particulars (in £) (in £)
Simon A/c …........ ......................... ................................ ..........
Dr.
To Smith A/c
(Being sale was debited to smith instead of Simon).
2200
2200
Jones
A/c............. ............................. ...................... ..................Dr.
To Suspense A/c
(Being sale of £420 not entered in Jones account, now entered)
4200
4200
Suspense
A/c................... ........... .............. ................. ................Dr.
To White A/c
7500
7500

(Being purchase of £750 not entered in White account, now
entered).
Suspense A/c
Particulars Amount Particulars Amount
To White...A/c 7500 By Balance...b/d 3300
By Jones. A/c 4200
Total 7500 Total 7500
CONCLUSION
From above study report it is founded that to establish an effectual control over
accounting process, principles of financial accounting is necessary. Financial events are base for
preparing financial statements so effective recording of such fiscal events leads to improvement
in reporting and presentation made in financial statements. In accounting processes a significant
task is preparation of BRS which encompasses complete analysis of root causes of difference in
balances of banks and cash book. Control accounts are unique tools which provides inner double
check on process of ledger posting.

REFERENCES
Books and Journal: