Financial Accounting Project Report

The project report provides an overview of financial accounting principles used by organizations to prepare their financial statements. It highlights the importance of rectifying errors and verifying expenses and expenditures. The report also touches on international financial reporting standards, municipal finance and accounting, and environmental accounting for pollution. Additionally, it discusses the perceptions of auditors and chief financial officers regarding principles versus rules-based accounting standards.

Financial accounting
principles

Table of Contents
INTRODUCTION...........................................................................................................................1
(A) REPORT....................................................................................................................................1
1. Financial accounting and its purpose......................................................................................1
2: The regulations relating to financial accounting.....................................................................2
3: Accounting rules and principles..............................................................................................3
4: Conventions and concepts related to consistency and materiel disclosure.............................5
CLIENT 1........................................................................................................................................5
CLIENT 2........................................................................................................................................8
CLIENT 3........................................................................................................................................9
CLIENT 4......................................................................................................................................13
CLIENT 5......................................................................................................................................14
CLIENT 6......................................................................................................................................15
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17

INTRODUCTION
Financial accounting is a process of preparing financial statements using few principles
and concepts. These principles are generally accepted by every organisation regardless of its
size, scope and nature of the business operations. In this project report, various financial
concepts and conventions are discussed along with the rules and regulations which needs to be
followed by the organisation. The main aim of this report is to incorporate all accounting
techniques and principles along with providing solutions for the issues of various clients
mentioned below. Journal entries, trial balance and financial statements are prepared along with
suspense account and bank reconciliation statement to provide an answer for all the clients
questions. Bank reconciliation statement is a rectification account where deviation between cash
and pass book are resolved by stating reason of there deviation. Book keeping system and
suspense accounts are also defined in this report.
(A) REPORT
1. Financial accounting and its purpose
Financial accounting:
Financial management plays a crucial role in an organization by preparing an effective
financial accounting plans and managing as well as allocating funds to different business
functions with an expectation of getting profitable outcomes in near future. It defines the
important elements related with financial accounting concepts and accounting rules. Financial
accounting represents the actual financial position of company which enable finance manager to
make further corrective actions and plans for the purpose of improving financial growth of
business organisation. There is a need for company to analyse their financial stability on
particular time period. The main purpose of using financial accounting is to manage and control
financial information in an appropriate manner so as to utilise financial resources in profitable
manner. There are different types of financial accounts which need to be prepared by an
organisation so as to identify their true and fair financial position of company (Baker, 2012).
Such types of financial accounts are briefly described under the below:
Cash flow statement: In this statement, all the cash transactions are recorded on regular
basis so as to know cash inflow and outflow of an organisation. There are mainly three types of
cash expenditure and income which includes cash flow operations, cash flow from investing and
1

cash flow from financial activity. The transactions which are made in monetary terms are only
recorded in cash flow statement.
Income and expenditure account: It is an account which is essential to prepare in order
to calculate net profit and loss of organisation. All the expenses incurred and income earned are
recorded in such statement. It enables manager to determine the actual profitability of an
organisation through preparing profit and loss account. It is prepared on annual basis which
clearly shows the net financial position of company (Bayou, 2011).
Financial position statement: This statement is also called as balance sheet which
includes all assets and liabilities of an organisation. It shows the direct relation found in of assets
and liabilities within an organisation due to which the value of an organisation are easily
identified and determined. Fixed asset, liabilities, non-current liabilities, capital expenditure and
current liabilities are the parts of financial position statement.
Change in equity statement: It is another effective statement which helps in managing
the financial accounts and information associated with capital structure of an organisation. There
is a overall capital equity structure of an organisation. There are different types of financial
components and management functions which are remain attached with the fluctuations in
equities and share capital of an organisation (Brown, 2011).
2: The regulations relating to financial accounting
There are specific regulations and standards which are essential to follow while making
an accounting report for an organisation. Finance managers are held liable to overview the rules
and regulations associated with financial accounting. There are several financial accounting
regulations which help in analysing and controlling the procedure of financial reporting. Such
financial accounting regulations are given as below:
IASB
It is an international body which is established in order to control and manage framework
of financial reporting and recording for an companies, individuals and group of associations.
Such authority contains the rules and structure to record and retain the data in more systematic
and informative manner (Donelson, 2012).
IFRS
It is also another regulatory body which provides financial plans and procedures for the
purpose of retaining financial detail and maximum utilisation of financial rules so as to make
2

better formation and control. It is also known as quality management tool which assist finance
manager to organise department in such an effective manner that will help in utilising financial
resources in particular areas of department. Rules of IFRS are given as under:
FRS 1: This rule contains rules and standard regarding preparation of cash flows from
three activities which includes operating, investing and financial activities. It also provides a
systematic structure for tax treatment.
FRS 3: Such rule produces information regarding the treatment made related with loss
and profits for future period of time. The financial performance of company are properly
evaluated on the basis of various components which are determined as under:
Records associated with analysing the revenue from discontinued business operations.
Results which are considered for exchanging the information within operations (Fourie, 2015).
3: Accounting rules and principles
Accounting rules:
Accounting is the activity which is done with the following of certain standards and rules
so as to prepare accurate and reliable financial statements. Such rules are listed under the below:
Debit the receiver, credit the giver: Such rule is mainly applied in case of personal
account which deals with an person or an individual.. As per the rule, when one party provide
resources to another party on credit then such given party is called as debtor and the receiver of
resources is called as creditor.
Debit all expenses and losses, credit all income and gains: Such rule is mainly follow
din case of nominal accounts which are related with fictions accounts associated with various
expenditures, losses, revenues, income etc. As per the rule, all the expenses incurred by an
organisation are recorded as debits transaction whereas all the income earned on particular
transactions are recorded as credit.
Debit what comes in, credit what goes out: This is the rule which is mainly used in case
of real accounts. Such account is related with the assets such as building, goodwill, machinery
account etc. As per the rule, if the assets of an organisation are increased or acquired then it will
recorded as debit transactions. Same wise if the assets are sold or decreased then it will be treated
as credit transactions (Francis, 2015).
Accounting Principles
3

Principle of conservatism: It is the concept which states that the expenses and liabilities
are recognised as soon as possible even there is uncertainty about receiving outcomes but the
revenues and assets are recognised when the company are assured of bring received.
Cost principle: It refers to such accounting principle which states that the all the assets,
liabilities and equity investment of an organisation should required to be recorded at their
original or acquisition cost in financial statements. It is also known as historical cost principle
due to recording at historical cost instead of incremental cost.
Going concern: As per such principle, accountants makes assumptions that an
organisation will continue its business operations for nest accounting period despite of any issues
or policies. On the basis of such assumptions, the company can able to buy inventory o0n credit
with an intention of repay in future time period (Hale, 2011).
Monetary Unit: According to this principle, all the transactions must be recorded in
monetary terms. For example, purchasing of raw materiel must required to be recorded with their
monetary amount and should not on the basis of barter system or any other exchange method.
Full disclosure: Such accounting principle states that all the transactions made by an
organisation are properly recoded under financial statement will full descriptions associated with
such transaction. If information are nit disclosed with the recorded transactions then it be
mentioned under head of foot note of financial statements.
Matching principle: Such principle states that income statement should required to be
prepared under financial statements which includes revenues and expenses and these both should
be equal. All the expenses and income must be match with each other so as to gain or bear profit
or loss.
Revenue recognition principle: Such principle is mainly used in accrue transactions in
which the transaction has been recorded when it is made not when the outcome has been
received. For example, revenue is recorded when the goods are sold or service is rendered
regardless that a payment is not received yet (McEnroe, 2013).
Materiality: As per such principle, all the relevant and useful information should required
to be recorded. The irrelevant and immaterial information should be ignored.
Time period and assumption principle: It states that all the transactions are recorded in
financial statement with the time allotted to complete such transactions. Such financial statement
is prepared on annual basis.
4

Economic entity assumption: Such principle states to assume that an organisation has
different identify from their owner. It is most suitable principle for company due to having lots
of owners which are called as shareholders (Muller, 2011).
4: Conventions and concepts related to consistency and materiel disclosure
Accounting is an important activity which is essential to be done in order to identify true
and fair financial position of company. It can be done through preparing financial statements
such as profit & loss account, cash floe statement, balance sheet etc. In these, transactions are
recorded on the basis of various concepts and conventions which are given as below:
Consistency concept: Such concept is based on an assumptions that the business are
operated in market on consistent basis regardless of different policies and issues which are based
by them. On the basis of such assumptions, the company can transfer goods to other parties on
credit with an expectation of getting repayment in near future (Narayanaswamy, 2017).
Material Disclosure: According to such concept, all the material or important transaction
s should be recorded in brief description and should ignore irrelevant or immaterial information.
Accrual concept: It is another fundamental concept which states that all the revenues are
recorded when they are actually received in cash and all the expenses to be recorded when
actually paid in cash.
CLIENT 1
Double entry system
Date Particulars Debit Credit
1 July, 2018 Storage cost account 800
To bank account 800
2 July,2018 Purchases account 7310
To S. Lyle account 1850
To D rain account 2860
To W sone account 990
To R foot account 1610
5

3 July,2018 J wikson account 1520
T cole account 1940
F syme account 2980
J allen account 1110
P white account 2420
F steel account 770
To sales account 10740
4 July,2018 Motor expenses account 1170
To Cash account 1170
7 July,2018 Drawings account 2500
To Cash account 2500
9 July,2018 T cole account 1480
J fox account 1910
To sales account 3390
11 July, 2018 Sales return account 1780
To J wikson account 870
To F syme account 910
14 July,2018 Vehicle account 18500
To Abel motors ltd. Account 18500
16 July,2018 Bank account 7020
To P games account 1400
To F steel account 3100
To J wikson account 850
To F syme account 1670
6

19 July,2018 R foot account 500
To Purchase return account 500
20 July,2018 Purchases account 3740
To L mole account 1830
To W wright account 1910
24 July,2018 S lyle account 3600
J brown account 4600
R foot account 1400
To Cash account 9600
27 July,2018 Salaries account 4800
To bank account 4800
30 July,2018 Business rates account 1320
To bank account 1320
31 July,2018 Abel motors ltd account 20500
To bank account 20500
Total 93670 93670
Trail Balance in the books of Amstel's D the 01 may 2017 (Figures in £)
7

CLIENT 2
a) Profit and loss account
8

b) Financial position statement
9

Capital 644590
Add :- Profit 218590
Less :- drawings
(35,000) 183590
Total equities and liabilities 8,91,510
CLIENT 3
a) Profit and loss statement
(b) Statement of financial statement of Braintree Ltd.
10

c) Accounting concepts
Consistency: Consistency concept states that a company can only use same accounting
principles and methods for transacting similar activities. According to this concept, an
11

organisation can change their policies only if there is a valid reason. The main reaso9n behind
using this method is that company can have an accurate and reliable picture of their financial
position in the market. According to this method, the principles and policies which are once
adopted has to followed for the entire year. If any policy has been changed due to any reasonable
grounds then those changes must be recorded along with their cause. This concept helps in the
process of comparability that allows an organisation to serve accurate financial statements to
related parties such as debtors, investors, members etc. Few advantages of this concepts are ease
of management, cost efficiency, comparable financial statement etc (Oulasvirta, 2014).
Prudence: According to prudence concept, accountants should adapt conservative
approach and under which they should not underestimate their liabilities, losses and expenses
and do not overestimate incomes and revenues. Prudence concept is considered as the most
fundamental concept of accounting as it helps in gaining trust of external related parties of an
organisation. This system advises that final accounts must develop cautionary measures while
transacting activities which can have a impact on expenditures and revenues.
d) Purpose of Depreciation
Depreciation is a method of decreasing value of fixed assets. This method reduces the
price of assets over a time by wear and tear. The main purpose of depreciation is to match the
cost of a fixed assets to the revenues earned from the usage of that assets. This method is used
for asset valuation, using this technique an organisation can correctly report net book value of an
assets. Building, machinery, land, plant, goodwill are few examples of fixed assets which
depreciate over the time. Another objective of this method is to deduct tax, with the help of
depreciation, cost can be recovered. Depreciation is an accounting technique which can be
calculated using various methods. Some of them along with their purposes are mentioned below:
Straight line method: According to this method of calculating depreciation, a fixed
assets is depreciated using a fix rate every year. The main purpose of this method is to have an
uniform rate for an assets which brings simplicity in the operations of the organisation. For
example, ABC Ltd. is depreciating their concrete machinery with an uniform rate of 12% every
year.
Written down method: Under this method, the value of a fixed assets is depreciated
with rate which is derived using written down value. This method is used with an objective of
12

determining net book value of a fixed assets, For example, a machinery is depreciated with 10%
in first year 9.2% in second year and so on (Verbruggen, 2011).
CLIENT 4
a) BRS (Bank Reconciliation statement)
Bank reconciliation statement is a financial report of any bank account holder. Bank
reconciliation statement shows every transaction related to any withdrawal, deposits or any other
activity in the bank account. All the business activities which are related to transactions are
shown in the bank reconciliation statement. Depositors prepare bank reconciliation statement to
match the bank account details and the details which are shown in the accounting book and to
understand differences between bank passbook and cash book. The main objective to prepare the
bank reconciliation statement is to understand the difference in accounts. Most of the time cash
balance of bank and cash balance in accounting books do not match and when it does not match
then bank reconciliation statement help to understand the reason of the difference in the cash at
bank and cash in the accounting books (Bank reconciliation statement, 2017).
b) Areas which may cause the record to vary form the bank pass book
There are a few causes by which contrasts in these books happen, some of them are:
In bank reconciliation statement there is risk of having missing transactions. Bank
reconciliation statement take time to reconcile a bank account and the procedure to prepare a
bank reconciliation statement is time taking. Bank reconciliation statement is useful but if you
are not having the proper knowledge then you won't be able to understand the concept of bank
reconciliation statement and won't be able to get the knowledge you are looking for. In bank
reconciliation statement can occur the risk of changes in the dates covered by the bank statement.
In bank reconciliation statement this is the main requirement that the reports must be manually
prepared.
c) Bank reconciliation Statement
Bank Reconciliation Statement
Dr. Cr.
Opening Balance as per Cash Book 5150
Cheque paid to C Lyons but not Deducted from bank 870
13

Payment made by bank but not recorded in cash book 1050
Cash received from sales but not recorded in Bank 1710
Cash paid to C David but not deducted from Bank 1220
Cash paid to S Leeming but not recorded in Bank 1160
Bank charges paid but not deducted from cash bank 360
Difference in balances of cash book 2200
TOTAL 6860 6860
d) Cash book
CLIENT 5
a) Entries in the books of Henderson for July 2018
14

CLIENT 6
a) Main features and term of suspense account
A suspense account is an account in general ledger in which amounts are recorded for a small
time period. These amounts are recorded with the aim of identify their actual accounts. Nature of this
account is that it is considered as current asset.
15

b) Trial balance (£)
c) suspense account
d
) Difference between a Suspense Account and a Clearing Account
SUSPENSE ACCOUNT CLEARING ACCOUNT
This account is prepared with an objective of
rectify errors which has occurred during an
accounting period.
This account is prepared with an objective of
verifying that all the expenses and
expenditures are correctly recorded.
CONCLUSION
From the above project report, it has been observed that financial accounting principles are
used in every organisation in order to prepare their financial statements which can ascertain their true
position in the market. Various solutions about financial statements and rectifying statements are
discussed in order to solve issues of various clients along with explaining several accounitng concepts
and conventions.
16

REFERENCES
Books and Journals:
Baker, R. E., and et. al., 2012. Essentials of advanced financial accounting. McGraw-Hill/Irwin.
Bayou, M. E., Reinstein, A. and Williams, P. F., 2011. To tell the truth: A discussion of issues
concerning truth and ethics in accounting. Accounting, Organizations and Society,
36(2). pp.109-124.
Brown, P., 2011. International Financial Reporting Standards: what are the benefits?. Accounting
and business research, 41(3). pp.269-285.
Donelson, D. C., McInnis, J. M. and Mergenthaler, R. D., 2012. Rules-based accounting
standards and litigation. The Accounting Review, 87(4). pp.1247-1279.
Fourie, M. L., and et. al., 2015. Municipal finance and accounting. Van Schaik Publishers.
Francis, B., and et. al., 2015. Gender differences in financial reporting decision making:
Evidence from accounting conservatism. Contemporary Accounting Research, 32(3).
pp.1285-1318.
Hale, T. N., Hale, T. and Held, D. eds., 2011. Handbook of transnational governance. Polity.
McEnroe, J. E. and Sullivan, M., 2013. An examination of the perceptions of auditors and chief
financial officers regarding principles versus rules based accounting standards.
Research in Accounting Regulation, 25(2). pp.196-207.
Muller, N. Z., Mendelsohn, R. and Nordhaus, W., 2011. Environmental accounting for pollution
in the United States economy. American Economic Review, 101(5). pp.1649-75.
Narayanaswamy, R., 2017. Financial Accounting: A Managerial Perspective. PHI Learning Pvt.
Ltd..
Oulasvirta, L., 2014. The reluctance of a developed country to choose International Public Sector
Accounting Standards of the IFAC. A critical case study. Critical Perspectives on
Accounting, 25(3). pp.272-285.
Verbruggen, S., Christiaens, J. and Milis, K., 2011. Can resource dependence and coercive
isomorphism explain nonprofit organizations’ compliance with reporting standards?.
Nonprofit and Voluntary Sector Quarterly, 40(1). pp.5-32.
Online
Bank reconciliation statement. 2017. [Online]. Available
through:<https://www.toppr.com/guides/accountancy/bank-reconciliation-statement/
preparation-of-bank-reconciliation-statement/>..
17