Financial Accounting Principles - Assignment

Added on - Dec 2020

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Financial AccountingPrinciples
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1A Report To The Line Manager......................................................................................................11. Financial accounting and its purposes.....................................................................................12. Explaining Internal and External stakeholders of a large business organisation....................3Client 1.............................................................................................................................................5Preparation of financial statements of the Alexandra.................................................................5Client 2...........................................................................................................................................13A) Preparation of profit and loss statement..............................................................................13B) Preparation of statement of financial position.....................................................................14C) Explaining the accounting concepts.....................................................................................15D) Describing purpose of depreciation in formulation of accounting statements and methodsof depreciation...........................................................................................................................16E) Critical evaluation of difference between financial statements prepared by the sole tradersand limited companies..............................................................................................................17Client 3...........................................................................................................................................18A) Purpose of preparing the bank reconciliation statements....................................................18B) explaining the areas that may cause the variation in the companies records with the bankrecords.......................................................................................................................................19C) Explaining the term “imprest” in the context of petty cash system.....................................19D) Preparation of bank reconciliation statements for Burcu Ltd..............................................19Client 4...........................................................................................................................................20A) Preparation of sales ledger control account and purchase ledger control account.............20B) Need of preparing control accounts.....................................................................................21Client 5...........................................................................................................................................21A) Explaining the term suspense accounts and its features......................................................21B) Preparing trial balance with the help of control ledger accounts.........................................22C) Showing journal entries of the company..............................................................................23CONCLUSION..............................................................................................................................23REFERENCES..............................................................................................................................24
INTRODUCTIONFinancial accounting principles refers to those rules that are need to be followed by eachof the business organisation while preparing their books of accounts and recording their financialdata in the books. They can also be defined as the guidelines to taken into account whilepreparing financial reports of the company. Cartex Accounting firm is a business organisation ofLondon that provides professional accounting services to its clients. The firm also provides taxadvisory services to its customers. The present study shows a report of Jr Accountant of CartexAccounting to its line manager. The reports provide details about various rules, principles ofaccountancy, purpose of financial accounting and its various users. Including internal andexternal stakeholders. Further, the study also shows various calculations relating to preparationof financial statements of sole traders, company and partnership firm, and calculations as toprepare the bank reconciliation statement along with its purposes. In addition, it also showspreparation of sales ledger and purchase ledger control accounts preparation of financialstatements with the help of suspense account.A Report To The Line ManagerCartex AccountingTo,The line manager.From,Jr. AccountantSubject:A report providing information about financial accounting, its purposes and usage.1. Financial accounting and its purposesFinancial accounting“Financial accounting can be defines as a branch of accounting that helps the business inproviding professional and specialised services to the organisation in order to maintain astandard in the books of accounts of the company”(Financial Accounting.2019).Preparation of financial accounting is based on some basic principles, rules andguidelines, that helps the professionals in recording the financial data in the books andpreparation of various financial reports of the company.In other words, it can be evaluated that “financial accounting is a process that includes,
evaluation, recording and summarisation of the financial data for the purpose of providing allthe material data of the company at a single place.”Purpose of financial accountingThe process of financial accounting is performed by the business organisation due tovarious purposes. Some main purposes of financial accounting are as under:Decision making:The main purpose of recording the financial informations is toprovide all the material informations to the mangers of Cartex Accounting. Theseinformations can help them in able to analyse the actual condition of the business andtaking sound decisions for it as to enhance its efficiency of working and profitability aswell.Informing to external users:Another main purpose of the financial accounting is toprovide all the relevant informations to the external users of the Cartex accounting(Henderson and et.al., 2015). External users includes tax authorities of Government,customers, creditors, etc.Providing informations about the liquidity:The Cartex accounting prepares thebalance sheet as to provide the information about the liquidity state of the firm. Thisinformation is needed by the investors as to take decision about the amount to beinvested by them in the company.Maintenance of standard in books:Further, the books of accounts are prepared as perthe financial accounting and record the transactions as per the set guidelines and rules,for the purpose of maintaining a standard in the books of accounts of the company.Meeting the requirement of law:Another main purpose of the financial accounting isto meet all the legal requirements by the Cartex accounting(Collison and et.al., 2016).As all the guidelines and rules have been made as per the legal system of the country,these enables the company in complying with all the laws made by government forpreparation of books.Maintenance of accuracy:If the Cartex Accounting firm prepares all of its financialstatements as per the financial accounting system, it would also be enable to maintainthe accuracy in the books due to follow up of various guidelines, rules and standards. Inthis regard, the financial accounting also have a purpose of maintenance of accuracy inthe books of accounts of a business.
Measurement of the achievement:Another major purpose of the financial accountingis to measure the all the achievement of the business in numeric terms. Without financialaccounting, Cartex Accounting firm can not measure its success and achievement of itsfinancial goals and objectives.Measurement of efficiency:If the Cartex accounting maintains its records usingfinancial accounting, its managers could be able to analyse the efficiency of the firmeasily(Osadchy and Akhmetshin, 2015). With the help of evaluating various financialreports, managers can effectively evaluate the actual efficiency of the company andtaking effective decisions for it as well.In this regard, it can be evaluated that the financial accounting system is important foreach business for maintaining a standard in the book keeping system of the company. Further, italso helps the business in meeting numerous purposes.2. Explaining Internal and External stakeholders of a large business organisationStakeholdersStakeholders can be defined as the individual or group of individuals that may or maynot invest their funds in the business, but have some interest in the company. The stakeholdersneed to get informations about all those financial informations about the company that mayaffect their interest in the business organisation.In a large business organisation, the stakeholders can be divided into categories, i.e.internal stakeholders and external stakeholders of the company.Internal stakeholderInternal stakeholders are those individuals or group of individuals that provides theirown services to the company. Further, performance of the business organisation have a hugeeffect over their interest in the company(Starik and et.al., 2017).For example,employees,shareholders, managers, owner, board of directors, etc.Managers:Managers are those individuals who performs the activity of managingvarious activities of the business organisation. Managers analyses the actualperformance of the business organisation and develop the appropriate strategies andplans for the company for purpose of enhancing its capabilities. Managers needs all therelevant informations of the company for analysing its performance. For the purpose ofanalysing the financial performance of the company and taking their decisions in this
regard, the managers need the financial reports as to gain informations about thefinancial activities of the company. Therefore, managers have interest in the financialinformations of the company.Shareholders:In a large organisation like companies, the shareholders are the actualowners of the company. Shareholders are those individuals that invests their funds in thecompany, which is used by it as a part of equity for running its normal course ofbusiness activities and expanding its business as well(Boesso, Favotto and Michelon,2015). Shareholders also needs the financial reports of the company as to analyse thefinancial capacity and profitability of the company. Profitability of the company affectsthe amount of dividend of the shareholders. Therefore, for the purpose of takingdecisions for maintaining, enhancing or reducing their shareholding in the company,shareholders needs to analyse the financial reports of the company. In this regard, theyalso have interest in the financial informations of the company.External stakeholdersExternal shareholders can defined as those individuals that does not provide theirservices to the company, and also are not the part of management of the business organisation,but the financial performance of the company indirectly affects the interest of thesestakeholders.For example,Investors, creditors, suppliers, customers, Government authorities,competitors, etc.Investors:Investors are one of the major external stakeholders of a businessorganisation. They invest their funds in the business for the purpose of providingfinancial help to the company and enabling it to run its normal course of businessactivities smoothly. They need to determine the financial performance of the firm forthe purpose of analysing the capacity of the company in paying their interest and the riskinvolved in making investment in the company as well.In this way, the investors are interested in the financial informations of the businessorganisation. Further, financial performance of the business directly effects their decision ofmaking investment in the company.Creditors:In a business organisation, creditors can be defined as those individuals orfirm or any other business, from which a company has purchased goods, raw materials,assets or any other thing on credit for the purpose of using it in the business operations
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