Financial Accounting Techniques and Practices

The provided document is a detailed report on financial accounting techniques and practices. It discusses the importance of recording transactions accurately and maintaining balance in both parties through the use of suspense and clearing accounts. The report also touches upon the concept of decision-making using financial statements such as income statement and balance sheet. It appears to be an academic or educational document, possibly a project report or assignment, that covers various aspects of financial accounting.

Financial Accounting
Principles
Table of Contents

INTRODUCTION...........................................................................................................................1
PART A...........................................................................................................................................1
1. Concept of financial accounting ........................................................................................1
2. Legislation and rules that are use in accounting ................................................................1
3. Principles and accounts .....................................................................................................1
4. Convention and concepts of accounting ............................................................................2
PART B............................................................................................................................................3
CLIENT 1........................................................................................................................................3
Journal entries.........................................................................................................................3
Posting it into ledger...............................................................................................................8
Trail balance.........................................................................................................................13
CLIENT 2......................................................................................................................................14
a): Statement of profit and loss for peter piper.....................................................................14
b): Statement of balance sheet..............................................................................................15
CLIENT 3......................................................................................................................................16
c): Concept of accounting principles....................................................................................16
d): Purpose of using depreciation in formulation of financial accounting...........................17
CLIENT 4......................................................................................................................................18
a): Purpose of Bank reconciliation statements and difficulties............................................18
b): list of some records that are varies .................................................................................19
c): Calculation......................................................................................................................19
CLIENT 5.....................................................................................................................................20
a): Ledger control accounts..................................................................................................20
1: Sales ledger control a/c.....................................................................................................20
2: Purchase ledger control a/c...............................................................................................21
b): Advantage of using ledger control account ....................................................................21
CLINET 6......................................................................................................................................22
a): Suspense a/c....................................................................................................................22
b): Trail balance....................................................................................................................22
c): Journal entry....................................................................................................................22
d): Comparison among suspense and clearing account .......................................................23

CONCLUSION..............................................................................................................................23
REFERENCES..............................................................................................................................24

INTRODUCTION
Financial accounting is a systematic recording of accounting data those are collected
from daily transactions of an organisation. It is essential aspects for every business organization
whether small or large. There are require a perfect accounting system to manage there financial
data in perfect manner (Weil, Schipper and Francis, 2013). This project report include certain
rule and regulation those are applicable in recording of entries into the books of account.
There are certain principles and convention those are helpful in posting transactions into
various statements those are made by the accountant. The primary objective of using financial
accounting is to prepare accurate and reliable information in order to increase profitability of the
company. Certain statements that are use for the purpose of recording and analysing data are
clearly utilise under this project.
PART A
1. Concept of financial accounting
Financial accounting is systematic recording of financial transaction those are done
during the time. This consists of recording, summarising and analysing performance of an
company with these statements (Edmonds and et. al., 2013). While, it is use to prepare the same
in order to determine materiality, comparability and reliability of the company.
2. Legislation and rules that are use in accounting
Accounting regulation are one of the important record which are issue by institution on
regularly basis. Basically, it is disclosure of financial performance by using these statements.
There some useful advantage of using regulation to improve credibility and reliability those are
relies on specific theory and concepts. Types of accounting regulation:
 Disclosure of statements.
 Content standards.
 Presentation standard.
 Privately set rules and practices.
3. Principles and accounts
It has been seen that to record financial transaction in more perfect manner they need to
use more certain rules and procedure that are helpful in systematic record of data. It is known as
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measurement processing and evaluation of financial information regarding performance of
economic entity. Some of them are:
 Personal accounts: Debit the receiver and credit the giver
 Real a/c: Debit what comes in, credit what goes out.
 Nominal: Debit all expenses and losses or credit all income and profits.
Principles:
Accrual principles: It is refers to be the perfect concepts which is use to record all those
information that must be recorded in a accounting time when they actual occur. Not at that time
when cash-flows are incurred.
Conservatism: According to this particular concepts, all those expenses and debts must
be converted into one accounting period (Macve, 2015). This will be termed as a conservatism, if
financial details are occur at very minimum gain for the company.
4. Convention and concepts of accounting
Every business entity need to follow some specific accounting practices which are helpful
for the manager to record transaction into the books of accounts. Some conventions are:
Convention:
Money measurement: In every organisation, manager need to record every transaction
which are incur only in terms of financial and non-financial terms. It involves workforces skills,
market leadership and many more.
Separate entity: As per this concepts, accountant must ensure that all transactions
perform by company's are require to be individually recorded.
Materiality: It is known as important parts of convention that are profitable for the
company in order to follow basic principles for the purpose of making valuable decision-making.
Concepts:
Going concern: Under this, managers make an assumption about the information until
there is not any perfect evidence. It is a regular process which is being followed by the company
for longer period of time.
Cost basis: All those assets must be enter in the accounts books on its actual cost paid to
the company and not at current market value.
Entity: It reflect the annual recording of activities of a particular business organization.
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PART B
CLIENT 1
Journal entries
3

4

5

6

Posting it into ledger
7

8

9

10

11

Trail balance
Particulars Debit Balance Credit Balance
Owner's Capital - 529000
Premises a/c 340000 0
Van account a/c 79750 0
Fixtures a/c 8100 0
Inventory a/c 63900 0
Payable A/c 5944
receivable a/c 7219 0
Cash at bank 32800 0
Cash in hand 3630 0
Abel motors a/c 0 8000
Sales a/c 0 10250
Purchase a/c 9770 0
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Storage cost 400 0
Business rates 1320 0
Drawing account 1500 0
Discount Allowed 511 0
Discount Received 0 976
Motor expenses 470 nil
Salaries 4800 nil
Total 554170 554170
CLIENT 2
a): Statement of profit and loss for peter piper
In every business organisation, they need to proper a statement that help them to provide
useful information about there income and expenses those are incur during the year. It will
ensure that a business can earn total net operating profit that are arises from the production
process. Mainly, such kind of administration deals with income and expenses are helpful in
decision making for the future growth and sustainability (Agoglia, Doupnik and Tsakumis,
2011). The function of using profit and loss records is to make total evaluation of revenue
collected during the year and deducting expenses that are affecting revenue of the company.
The P&L responsibilities is one of the effective aspects for evaluating current position of
the company to analyse the performance during the time. It consists of monitoring the net profit
after making expenses for a particular department those are having directly impacts on the
company's resources.
Profit and loss statements that are essential for an organisation that are require by the
administration to make certain future decision in order to make sustainable future. Apart for this,
a income and expenditure can be useful in determining total profit generated by the company.
The below mention is presenting all those transactions that are done by perter during there year.
Changes in Income and expenses A/c as on 31st December, 2017
Particulars Amount Particulars Amount
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To Opening stock 82200 By sales a/c 1215000
Add: To Purchase a/c 778800
To wages and salaries (177500+1220) 178720
To Gross Profit 276920 By closing Stock 101640
1316640 1316640
To motor expenses 87400 By Net Profit 276920
To Heating and lighting 4950
To Depreciation freehold primes
4650
To Depreciation on equipments
7500
To Depreciation on Vehicle
2800 14950
To Advertisement expenses 4810
To administration expenses 17650
To Net profit 147160
276920 276920
b): Statement of balance sheet
A statement that can help the investors and other stakeholders to analyse the performance
and financial position of the company. It sum up a company's assets, liabilities and other
shareholder equity at a particular duration of time. It consists of a list of various resources,
obligation and ownership information that a company use on a specific day. It is necessary for
every business organisation, to prepare balance sheet after taking information about previous
accounts. Such as ledger and trail balance (Edwards, 2013). Every assets and liabilities is
categorise into short and long term obligations. These balance sheet can provide useful guidance
to the investors an idea about position as well as potential to pay off there liabilities. These
statements are vital for the stakeholders in order to make investment plan for further expansion
of business.
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A company's preparing financial statements in order to provide critical data regarding its
health position. They also generate information for the purpose of making marketing as well as
operating decisions in order to get better return in coming future. The analysis of financial
statement can helpful for gaining competitive advantages from other company's those are trying
to increase their market share.
Statement of changes in financial position as on 31st December, 2017
Particulars Amount (Figures in £)
Current Assets
Inventory 101640
Prepaid advertisement expense 8470
Trade receivables 106960
Cash in hand 2440
Total current assets 219510
Free Hold Premises 270000
Equipments 172500
Vehicle 28000
Total non current assets 470500
Total assets 690010
Liabilities and equities:
Current liabilities
Trade payable 76910
Bank overdraft 11290
Out standing salary 1220
Accumulate
Depreciation(42150+105000+16800) 163950
Total current liabilities 253370
Capital 332120
Add: Net Profit 147160
Less :- Drawings (42640) 436640
Total equities and liabilities 690010
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CLIENT 3
c): Concept of accounting principles
Accounting is a statement of a business which is used to communicate financial data. In
order to get more accurate data in order to make useful decision making they need to consider
fundamental concepts. This will be helpful to record financial information in the books without
any fraud and misconduct (Brown, 2011). There are certain number of accounting rule and
regulation that have been formulated through common purpose. There are few accounting
principles that have been useful in making proper record of transaction in to the books of
accounts.
In order to maintain proper uniformity and regularity in developing more effective
analyse of statements that are based on certain principles. As a financial reporting, it consists of
significant professional evaluation by finance accountants. These concepts and principles can
make sure that every user of financial records cannot mislead the entries those are done by an
organisation. Few principles are discuss underneath:
Consistency: There are certain accounting principles that can be effective enough to
make record of financial transactions according to the rules prescribe under financial principles.
It is a method, that is continued to be regularly followed in order to manage future accounting
statements. Only certain changes and accounting principles or techniques can be improves as per
the financial outcomes. The recording of financial transaction is a continuous process which are
having positive impacts on the goodwill of the company. A well organise and consistency in
treating items that are require to be accounted for. In most of the time business operators can see
in generating maximum benefits from formulating consistent reporting standards for their
accountants. It can be useful in order to maintain their financial record in well planned or
accurate manner.
Prudence: It is termed as conservatism principles of accounting that is require by
accountant to record debts and expenses at the time they are occur. In case of revenue adjustment
are made accordingly. In relation with the prudence concepts, overestimation of amount of sales
cannot be recognised as cost of expenses (Healy and Palepu, 2012). It is known as primary
accounting principles that can make sure that assets and profit are not over recorded. Whereas,
liabilities and expenditure cannot be understated. This particular principles is more applicable at
the time of valuing current assets such as stocks, receivables and many more. Prudence can be
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needed to make provision as per the events that are likely to be occur. This principles can be
stated that accounting standards and there implication which are related with the adjustment of
fixed costs.
d): Purpose of using depreciation in formulation of financial accounting
In every business organisation, it is crucial to determine total cost of productive assets
that has efficient life of more than one year. Hence, it is difficult to see a direct connection to
total revenue and total assets costs which is likely to be allocated during the time. It is helpful in
saving tax for the company (Brusca and et. al., 2016). In fact, some enterprises used to charge
highest depreciation in certain period of time at the time of large revenue generation.
Deprecation is an appropriate mode of reallocating the expense of tangible asset over its
appropriate life. Basically, this method is used by an enterprise for getting aware about the
current price of specific products or services at marketplace in order to make effective decision.
Thus, it has been analysed that for making a corrective judgement deprecation is consider
as a most suitable technique because it aids in highlighting actual data related with cost of goods.
Basically, it is classified into two different parts which is adopted by most of the companies
while selling their assets such as; straight line method and written down value method and
applied as per suitable situation.
Moreover it may determine the corrective profits by considering necessary elements
which plays a major role while decisional process. Hence, it is understood that main or foremost
purpose of deprecation method is to compare the expense of productive asset which is having a
maximum life of more than a single year to the income acquired from utilizing resources. Along
with this, it is highly useful while designing financial statements of an association because it get
transferred from balance sheet to income statement and become a profit for entire organization
(Maskell, Baggaley and Grasso, 2011). Thus, it is understood that deprecation is one of the
useful method of calculating asset actual value in current time period with the consideration of
suitable method, information, facts or figures. Consequently, some of the major benefits of this
tool is going to highlighted as follows:-
 First or foremost advantageous is that it aids in deducting tax by safeguarding it in a
defined time period.
 Secondly, it supports in recovering expense of distinct products or services which
resulted in income generation for entire association.
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Hence, it has been concluded that deprecation is seems as a one of the suitable method of
forecasting actual price of specific products in order to gain maximum benefits.
CLIENT 4
a): Purpose of Bank reconciliation statements and difficulties
Bank reconciliation is an effective measure to compare records of financial transaction
those are done by the banks during the time. If there are any difference arises among two set of
records that can related with cash transactions. It is an appropriate process which is going to
highlight the difference between particular date and bank balance explains in an enterprise bank
statement (DRURY, 2013). It means additions and subtraction on bank statement are going to
compared with the products which are entered in an enterprise general ledger cash account. In
fact, it is mainly designed by financial accountant of an association or bookkeeper with the
motive of comparing records of various banks with the company accounts in order to match the
information mentioned in both the records.
Thus, it is very useful and appropriate mode of identifying any imbalance between
records of bank or company which is used by managers while making decision process such as;
during allocation of funds, forecasting future and so on. Hence, most of the large companies are
implementing this process and appointing expertise people for accomplishing this task in an
effective manner. There are certain objective for which these are prepared:
 It can be helpful in making comparison about the records those are being done the bank.
The transaction those are done by individual are known as balance of cash books are
termed as cash balance while, those which are perform by banks are said to be bank
balance.
 It is also helpful to absolute a bank reconciliation in order to see if any individual can
check has bounced. Or, any check that are issues by them changes or in case stolen
without the knowledge of customer. For the purpose of detecting fraud these can be key
aspect for the person as well as individual.
 At the time of auditing the accounts offers use to analyse bank statements as part of there
testing process.
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b): list of some records that are varies
Below mention, few of the areas under which a company's records can be vary from bank
accounts.
 Fees: Banks charges certain amount for its services like as account fee on monthly basis.
 NSF checks: It can be stated that net sufficient funds. It is the responsibilities of banks
to reject few of the deposited checks of customers as the business and individual can
issue because of there insufficient amount in the accounts.
 Recording errors: It is a kind of situation which can be happen because of both side
mistake such as recording or deposit of incorrect checks.
c): Calculation
Date Particulars Details Amount
31/12/17 Bank Balance as per cash book (Dr.) 19973
01/12/17 Add: opening balancing figure 987
02/12/17 Add: deposits 176
06/12/17 Add: Difference between balance of 783 9
17/12/17 Add: payment to Cook 97
29/12/17 Add: Deduction of rent 260 1529
Total 21502
02/12/17 Less: 780 426
02/12/17 Less:781 737
05/12/17 Less: bank charges 47
10/12/17 Less: standing orders 137
11/12/17 Less: 310923 297
24/12/17 Less: difference of cash deposit (sales) 1
30/12/17 Less:Payment received from Fred 119 1764
Balance as per passbook (Cr.) 19738
Cash
book
Date particular amount Date particular amount
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01/12/1
7
To balance b/d(Balancing
figure) 20208 02/12/17 By 780 426
01/12/1
7 To balance adjustment 987 02/12/17 By 781 737
02/12/1
7 To Deposits 176 05/12/17 By bank charges 47
06/12/1
7 To difference of balance 9 10/12/17 By standing orders 137
17/12/1
7 To cook 97 11/12/17 By 310923 297
29/12/1
7 To rent 260 24/12/17 By cash deposit 1
30/12/17 By Fred a/c 119
By balance c/d 19973
21737 21737
CLIENT 5
a): Ledger control accounts
1: Sales ledger control a/c
It is also known as the trade debtors control account and it is the part of balance sheet.
Sales ledger control account balance should be equal with the individual customers account. It
shows at a given time that how much a company owned they and their customers. This presents
the gross trade debtors of an organization at the determined time period (Financial Accounting,
2018). Double entry keeping method books has been used in the control account. Where the
credit and debit entry are made of every transaction. Reconcile of this account has been done on
each month.
Particulars Amount Particulars Amount
To balance b/d (Debit balance) 12600
To credit sales 152350 By Sales return 7320
By Receipts from debtors 141610
By opening balance 12600
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By Discount allowed 380
By Bed debts written off 120
By Transfer to purchase ledger 330
By balance c/d (Debit balance) 2590
164950 164950
2: Purchase ledger control a/c
Such kind of account is also known as trade creditor control account. It has an equal
balance on the individual supplier accounts. Purchase control account is a part of a balance sheet
and it is shown on the same time when they own with the suppliers. All the single transaction are
posted to the supplier ledger. It controls the accounts of exists for both the debtors and creditors
and they ensure that there should have no errors in the account of ledger. There are the various
sources of purchase ledger control are:
 Opening creditors drawn up at the end of the previous period.
 Credit purchases are the total of purchases.
 Purchases return are the total of journal.
 Discounts are received from the cash book.
 Closing creditors are drawn up the balances at the end of the periods.
Particulars Amount Particulars Amount
To general ledger control
a/c By opening balance on (Cr. balance) 9160
Purchase return 1110 Credit purchase 116500
Payment to creditors 101010
Discount Received 290
To transfer from sales
ledger 330
To balance c/d 22920
125660 125660
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b): Advantage of using ledger control account
There are certain effective aspect those are effective in order to increase the profitability
of the company. Some benefits are:
 It will provide a complete summary of every transaction that are recorded in different
ledger accounts.
 It can be possible that division of accounting work that are kept between ledger posting.
 It will be useful in making income expenses and balance sheet at the closing of each
accounting year.
CLINET 6
a): Suspense a/c
This account is mainly used for the purpose of recording general ledger accounts in the
books of company's accounts. It is essential because of proper account that would not be estimate
at the point when transactions are recorded.
b): Trail balance
Particular Debit amount Credit amount
Capital 710
Purchase 700
Sales 1100
Receivables 320
Cash at bank 840
Travel Expenses 160
Payable 350
Rent paid 250
Suspense a/c 110
Total 2270 2270
c): Journal entry
Date Particular Debit amount Credit amount
a. Jone's Personal A/c...............Dr 420
22

To suspense A/c.......................Cr
(Being amount adjusted for sakes)
420
b. Suspense a/c..............................Dr
To White a/c................................Cr
(Adjustment in purchase account )
750
750
c. Simon A/c................................Dr
To Smith A/c..................................Cr
(Finding of error)
220
220
d): Comparison among suspense and clearing account
It is crucial for the accounts departments to keep record of every transaction as per the
data they are occur during the activities (Sharma and Panigrahi, 2013). The clearing a/c is require
to keep the entries into posting and maintain balance at the both parts. It has been observe that
suspense account is require at that point when there is a problem of balancing occurs.
CONCLUSION
From the above project report, it has been concluded that financial accounting is an
effective techniques to record transaction into the books of company's accounts. This will
provide essential information about financial statements such as income statement and balance
sheet those are prepare for the purpose of decision making.
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