Financial Accounting: Record Transactions and Prepare Final Accounts

This assignment covers the basics of financial accounting, including recording transactions using double entry bookkeeping system, preparing final accounts for different business types, and performing bank reconciliation statements. It also explains accounting rules, principles, and conventions related to consistency and material disclosure.

HNC BUSINESS
(UNIT 10 FINANCIAL
ACCOUNTING)

Assignment cover sheet
Name: Inderdeep Bal
Address: 51 Cedar Close
Armley
Leeds
Post code / Zip: LS12 1SL
Telephone No: 07581363395
Email Address: [e-mail]
Date: 15/6/18
Course Name: Business, accounting and finance
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Tutor Name: Jeremy Oughton
Assignment
Name:
Unit 10– Financial accounting
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TABLE OF CONTENT
4

S
INTROUCTION........................................................................................................................1
LO1 Record transactions in business using double entry book keeping and also extract trial
balance........................................................................................................................................2
Define financial accounting....................................................................................................2
Explain regulations related to the financial accounting.........................................................2
Explain accounting rules and principles.................................................................................3
Describe conventions and concept of consistency and material disclosure...........................4
P1 Apply debit and credit system of the double entry book- keeping system and also record
sales and purchases transactions in a general ledger account.................................................4
P2 Develop trial balance by using the balance off rules to match the figures........................6
M1 Evaluate sales and purchase transactions to compile a trial balance by using the system
of double entry book keeping.................................................................................................7
D1 Record transactions in a correct way by producing an accurate trial balance by
completing the balance off ledger accounts in accordance with the accounting principles...8
LO2 Prepare final accounts for Sole traders, partnerships or limited companies by using
accounting principles, conventions and standards...................................................................11
P3 Prepare final accounts from trial balance figures adjusting for accrual, depreciation and
prepayments..........................................................................................................................11
P4 Generate final accounts examples for different business types such as sole traders,
partnerships or limited companies........................................................................................15
M2 Analyze various financial statements by using example such as profit and loss
accounts, balance sheet and cash flow statement.................................................................16
D2 Use appropriate calculations for preparing the final accounts.......................................19
LO3 Perform Bank reconciliation statements to ensure validity of the bank records.............20
P5 Use the bank reconciliation process to prepare a number of bank reconciliations.........20
M3 Apply the reconciliation process by reflecting the use of deposit in transit, outstanding
checks and not sufficient funds check..................................................................................21
D3 Prepare bank reconciliations by applying tools and techniques to check general
accounts and balance sheets.................................................................................................21
LO4 Reconcile control accounts and shift the recorded transactions from the suspense
account into the correct account...............................................................................................22
P6 Describe the processes to reconcile control accounts and clearing of the suspense
accounts by using several examples.....................................................................................22
M4 Show different types of accounts and explain how and why these are reconciled........23

D4 Generate accurate accounts that will reconcile by using various methods.....................24
CONCLUSION........................................................................................................................24
REFERENCES.........................................................................................................................25

INTROUCTION
Accounting has become the most integral business function which helps in managing
all the risks identified by an entity owner. The requirement of the accounting will get
increases with several changes takes places in the external entity such as changing the
taxation requirements, determining the financial position and the actual worth of an entity.
The motive of an entity behind using the accounting system is to record all the transactions
takes places in a business by using single entry or double entry system of bookkeeping which
selects by various business users according to their purpose. A focus of the current
assignment lies in reflecting the financial accounting concepts by explaining the accounting
principles, conventions and all the standards used in an entity for different business purposes.
The worth of an entity will be ascertained by the business owner by recording all the
transactions related to various categories such as purchases, sales, and expenses. This
assignment will highlight various learning objectives which help an individual in completing
this report as per the desired objectives to get the relevant data. The first learning objective of
this assignment reflects the recording of all the business transactions by using the double-
entry book-keeping system under which every transaction has double effects which are
shown while preparing the final accounts which consists of two financial statements out of
the standard three financial statements such as profit and loss account and balance sheet. A
particular transaction is recorded by showing the business transaction’s recording as debit and
credit which have different meanings as per the different business accounts in which they are
recorded. Trial balances are recorded to get rid of all the mistakes found in the journals and
all the ledger accounts by matching the balance of the overall trial balance. The
appropriateness and the validity of the entire balance are checked by using accounting
principles to determine the actual worth of the business concern as their motive is to attract
all its stakeholders by keeping a transparent relationship with all its clients who, in turn, helps
in enhancing the overall production of the company. Second learning objective of the current
report is related with the preparation of the final accounts for different users of the business
such as sole traders, partnerships or limited companies by following the double entry system
of bookkeeping which will uses the double effect of all the transactions recorded in the
journals and general ledgers as all these further posted in two of the final accounts. The final
accounts consist of two of the accounts which are two of the statements used in determining
the financial position of an enterprise. This will emphasize on several final accounts
adjustments for all the accruals, depreciation and prepayments transactions booked in the
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business which are carried forward from the general accounts to the final accounts as per
their nature of accounts. The third objective is all about the preparation of bank reconciliation
statement and its importance for an entity in comparing its business vouchers with the bank
statements to know the gaps occurred in these statements. All the differences are rectified by
using various approaches and method. Lastly, this report will focus on the reconciliation of
all the bank statements by focusing on the suspense accounts which consists of all the
adjustments used in the business transactions. In this phase, control measures are used by an
entity.
LO1 RECORD TRANSACTIONS IN BUSINESS USING DOUBLE
ENTRY BOOK KEEPING AND ALSO EXTRACT TRIAL BALANCE
Define financial accounting
Financial accounting is a term used to describe the procedure for preparing a various
set of financial statements that help in determining the entire financial performance of the
company. This will consist of preparing the income statement, positional statement, and cash
flow statements and changes in equity. This accounting procedure will focus on meeting all
the needs of the users that get benefit from the prepared statements includes inventors who
rely on the financial status of an entity before investing in it, creditors, suppliers and lastly the
major user of an entity is its customers. Financial accounting is used by an entity in
predicting future performance of the business concern as compared to the management
accounting whose motive is just to create all kinds of budgets to ensure proper business
management (Financial accounting, 2018). Different financial statements are based on using
several formulas to know the actual worth of an entity such as expenses deducted from the
generated revenues will help in determining the net income earned by the firm, liabilities
incurred in an entity + equity shareholders held by an entity will collaborated to form total
assets of the concern and cash inflow is estimated by adding up cash balances of different
sectors such as cash from operating activities, cash from financing and cash from investing
sector.
Explain regulations related to the financial accounting
Generally accepted accounting practices are a world-recognized practice that
facilitates all the users in the domestic as well as in the global region in meeting all their
accounting requirements. This regulation is a standardized framework that helps all the firms
to keep their accounting records in a systematic order. This framework consists of various
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steps which consist of professional regulation, UK Company’s law requirements, EU
directives and lastly stock exchange regulations (UK financial accounting regulations, 2013).
UK GAAP will emphasize meeting various needs of different business users which consist of
several users such as charity, pensioners, insurance and banking companies in dealing with
the accounting needs of an entity. Statement of recommended practice issues by all the stated
business sectors by using all the accounting conventions which helps in determining the
financial performance of an entity. The preparation of the financial statements will get easy
by using all these statements as per the stated guidelines mentioned in the UK regulations.
Explain accounting rules and principles
There are three rules of accounting which are also considered as the golden rules of
accounting on which the whole system of accounting based upon. First among the three
accounting rule is ‘Debit the receiver and the credit the giver’ is one of the accounting rules
applied in the case of personal account as when a real person receives the cash then this will
shown as debit and when they pay any amount will show as a credit in the accounts
(Accounting rules, 2018). Another rule is ‘ Debit what comes in and credit what goes out is
for the real accounts such as land and building and plant and machinery account under which
debit signifies the incoming of the amount and cash outflow will show as a credit balance. By
default, all these accounts have a debit balance. Third and last rule of accounting is ‘Debit all
these expenses and losses and credit income and gains will apply in the case of nominal
account.
Accounting principle
 Accrual- Under this concept, the transactions will get booked in the books of
accounts when the transactions get due and cleared when the receipt of the
transactions will get completed. Under this all the credit and cash transaction are
recorded as the double entry book system is also based on this principle (Accounting
principles, 2017).
 Consistency- This principle says that once an accounting method or principle uses by
an entity will continue until the wound up of the company for a long-term purpose.
 Going concern- Every entity wants to run its business for an indefinite period of time
so as can be done according to this principle, in which the existence of an entity is
assumed to be run for the indefinite period as all the transactions are adjusted
accordingly.
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Describe conventions and concept of consistency and material disclosure
The convention is a term used to denote all the customs and traditions used by an
individual in treating all the business transactions properly as per the stated rules and the
regulations. An entity owner will use several accounting conventions to guide all the
accountants who are handling business transactions by posting the same into several accounts
to determine the financial position of an entity owner. This phase will include the accounting
conventions related to the consistency and the material concept to treat various transactions
takes places in an entity are given as below:
Consistency Convention- Consistency convention says that the accounting method uses by
an entity for depreciation or for managing all the inventories will remain the same without
changing all the used method unless and until the pronouncements of the statutory body
otherwise note is to be attached at the end of the financial statement for changing the method
frequently in a particular financial year.
Materiality Convention- This convention states the treatment of all the business transactions
by checking its materiality to be considered in the books of account (Accounting conventions,
2016). The consideration of all the transactions in the books of account which will have a
significant impact o the financial performance are covered in the accounts and rest are not
considered as out of scope as they regarded as the non-material items which do not require
disclosure in the final accounts in determining the financial status of an entity.
P1 Apply debit and credit system of the double entry book- keeping system and also record
sales and purchases transactions in a general ledger account
Double entry system of bookkeeping is a modernized system of recording all the
business transactions which have a dual effect which reflects the preparation of all the final
accounts. Under this method, all the discrepancies will be checked by an entity owner and an
accountant by reconciling all the accounts as every transaction are recorded twice in two of
the financial statements such as profit and loss accounts and balance sheet. Every transaction
is categorized into debit or credit entries which have different meaning while treating the
same in journals, ledgers, trial balance as per the default balances of all the accounts covered
in the books of accounts (Double entry accounting, 2017). Debit entries are recorded on the
left side and credit entries of all the transactions. In the system of double-entry
bookkeeping, debit means receipt and credit means the payment made by an individual or
company who balance will get reduces by showing credit balances. Debit shows the increases
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in the asset, cash or reducing the overall liability incurred in an entity while on another hand,
credit refers to an increment of the liability and decreasing all the liabilities.
Examples of accounts having debit balance
 Cash and bank balance
 Plant and machinery
 Trade receivables
 Inventory in hand
 Current asset
 Cost of revenue
 Wages
 Trade payments
Examples of accounts having credit balance
 Sales
 Trade payable
 Gain on sale of machinery
 Retained earnings
 Equity capital
Sales and the purchases are two common events takes places in a normal daily routine
of an entity in order to determine the entire financial performance of an entity in a given
period of time. Every entity operates its business to conduct saes activities which, in turn,
generates revenues to meet up the total costs of purchases incurred by an entity owner to
purchases the inventories and raw materials for producing the final output. Sales and
purchases leader under the double entry system of accounting will consists of both cash
and the credit sales incurred by the firm in a particular time span. Cash sales and cash
purchases are covered in the cash account ledger and rests credit sales as the credit
purchases are only covered in the sales and the purchases leader created by the firm by
preparing general leader accounts.
Sales Ledger
Particulars Amount Particulars Amount
To cash £10000 By Receivables £20000
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By Receivables £30000
To Balance carry
down
£40000
£50000 £50000
Purchase Ledger
Particulars Amount Particulars Amount
To cash £12000 By balance carry
down
£32000
To Payable £20000
£32000 £32000
P2 Develop trial balance by using the balance off rules to match the figures
The trial balance is one the tool used under the double entry bookkeeping system
which considers all the general ledger account balance used in an entity. The fraud can easily
be detected by using this account as all the figures will get matched to ensure the off by
showing zero balance at the end of the trial balance to know the total debit and credit
balances occurred in the business concern of an entity the mismatched figures will show
alarming situation for an entity to keep a track on the activities of an entity to rectify the same
within a given time limit. There are two kinds of trial balance which consist of normal trial
balance which involves the consideration of all the general accounts used by an entity in its
daily routine books of accounts and adjusted trial balance will focus on all the adjustments
takes places in the firm by including the suspense account, selling of a particular asset or any
changes takes places in the company’s books of accounts after finalization of
the pervious trial balance which should be modified as according to the current change.
The purpose of the trial balance is to match all the balancing figures of all the
accounts mentioned in the general accounts with the balance amount stated in the business
vouchers to know the discrepancy done by an accountant whether intentionally or done by
mistake (Trial balance, 2017). Aim and purpose of this trial balance are to develop the
standard financial statements such as profit and loss accounts, balance sheet and cash flow
statements which are regarded as the best suitable statements to know the financial
performance of an entity. Trial balance will also highlight the proper posting of all the
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transactions from the ledger account to the trial balance as most of the time, accountants will
commit a mistake of wrongly posting all the entries from the journal to all the ledgers will, in
turn, creates mismatched figures which should be rectified after getting knowledge about this
as this will leads to the total failure of an entity and its entire financial performance.
XYZ LTD
Trial balance for the year ending 31st December 2018
Particulars Debit Credit
Capital £500000
Sales £200000
Purchases £150000
Furniture £60000
Cash £50000
Trade receivables £40000
Inventory £100000
Plant and machinery £200000
Trade payable £80000
Salary expenses £40000
COGS £600000
Payroll taxes £40000
Wages £10000
Commission £200000
Rent £150000
Other Expenses £350000
Total £800000 £800000
M1 Evaluate sales and purchase transactions to compile a trial balance by using the system of
double entry book keeping
The trial balance is also considered as the period stated that shows the Actual
performance of an entity as this will act as a reality checker for an entity as this tests the
validity of all the account balances covered in this statements. The adjustments take places in
an entity can be easily tracked with the help of a trial balance. The summarization of the
entire accounting cycle will show in the trial balance as accounting follows a systematic
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procedure which consists journal in which journal entries are performed by an accountant
for treating all the business transactions such as purchase of machinery, acquisition of an
equipment by an entity owner, expenses, payment schedule, borrowing account from lender,
sales, trade receivables and trade payables, receipt of revenue, bad debts are written off and
declaring of dividend (Rectification of errors, 2017). All the journal entries covered in the
journal of an entity are further posed into general ledger accounts which will further be
recorded in the trial balance to comment upon the correctness and the validity of all the
transactions takes places in an entity.
Rectification of errors method is used in evaluating sales and purchases transactions
takes places in an entity to get the corrected account which will help in compiling the trial
balance. There are different kinds of errors which helps an accountant in getting known about
all the errors takes places in the preparation of all the accounts specifically sales and the
purchases accounts which are two common accounts prepared by an entity. It includes
various errors such as errors of commission, errors of omission, errors of principle and
compensating by using which an account will review the account balances by reconciling
with the prepared vouchers of all of them to ensure the overall performance of an entity. An
error of commission is related with the wrong posting of sales of one party into another
party’s name (Trial balance and Rectification of errors, 2016). The error of omission is
related with the omitting of the whole transactions completing or partial transactions which
will be captured by comparing the vouchers with the accounts used in the trial balances.
Errors of principle occur when an account is treated by neglecting the accounting Principle
which will result in various problems which will further create balance matching issues.
Compensating errors are those errors which both are compensated with each other without
affecting the trial balance for example purchases are overcast by £2000 and sales inward is
under cast by £2000 which results in zero effect as these errors will not be identified as this
does not result in any negative effect on the financial performance of the company.
D1 Record transactions in a correct way by producing an accurate trial balance by completing
the balance off ledger accounts in accordance with the accounting principles
Trial balance created by an entity is to check the arithmetical accuracy of all the
accounts as the balances of all of the accounts are covered in this statements to match both
the debt and the credit account balances to ensure the entire performance of the firm within a
given span of time to rectify the same in safeguarding the firm’s financial position from all
the uncertainties that may incurred in the future. This statement will shows the weakness of
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an accounting in mistakenly recorded the wring account balances under wrong head as i is
essential to take acre about all the accounting principles. Revenue and capital expenditure is
to be followed while positing transactions from the journals to all the ledgers as the wrong
posting of revenue item in the capital head will create balancing issues as in that case the
figures will not get matched as this will leads to the problem in generation of financial reports
such as income statement and palace sheet which are two important financial records that
certifies the existing financial performance of an entity.
Three methods are there in preparing the trial balance such as total method, balances
method and total cum balances method in compiling the trial balance by considering all the
trial balances as their motive is to match two of the columns which consist of both debit and
the credit columns of the trial balance.
Total method- In this method of preparing trial balance, separate columns are totally
separately in this document to show the burden of debit or credit total of all the accounts to
ascertain the higher accuracy of the figures as this will help an accountant in comparing all
the balances with the business documents.
Trial balance for the year ending 31st December 2018
(Using total method)
Particulars Debit Credit
John £60000
Steve £50000
Anny £50000
Sales £150000
Cash £100000
Wages £50000
Depreciation £20000
Purchases £40000
Total £260000 £260000
Balances method- Under this approach, the balances of all the debit and credit items of all
the transactions are shown separately by adding the word capital after the names of all the
individuals whose account lies in an entity, the debtors and creditors are shown by word
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sundry debtors and sundry creditors. This will cover the default nature of the accounts
whether debit or credit by preparing the trial balance.
Trial balance for the year ending 31st December 2018
(Using Balances method)
Particulars Debit Balance Credit Balance
John’s Capital £60000
Steve £50000
Anny Capital £50000
Sales £150000
Cash £100000
Wages £50000
Depreciation £20000
Purchases £40000
Sundry debtors £40000
Sundry Creditors £40000
Total £300000 £300000
Total cum balances method- This method is a mixture of both the elements by adding the
features of both the methods such as total and balances method by compiling a trial balance.
Trial balance for the year ending 31st December
2018
(Using Balances method)
Particulars Debit Total Credit Total Debit Balance Credit Balance
John’s Capital £60000 £60000
Steve £50000 £50000
Anny Capital £50000 £50000
Sales £150000 £150000
Cash £100000 £100000
Wages £50000 £50000
Depreciation £20000 £20000
Purchases £40000 £40000
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Sundry debtors £40000 £40000
Sundry Creditors £40000 £40000
Total £300000 £300000 £300000 £300000
LO2 PREPARE FINAL ACCOUNTS FOR SOLE TRADERS,
PARTNERSHIPS OR LIMITED COMPANIES BY USING
ACCOUNTING PRINCIPLES, CONVENTIONS AND STANDARDS.
P3 Prepare final accounts from trial balance figures adjusting for accrual, depreciation and
prepayments
Final accounts are prepared by considering all the adjustments related to the
inventory, accruals and prepayments, interest, depreciation and bad debts are given as below:
Inventory- As per International accounting standards 2, This is for the treatment of all the
inventories used in the books of accounts. The inventory is valued at the value of realization
of inventory and the cost of inventory by taking the lower of both of this value Cost of
revenue includes the amount of opening stock by adding purchases and deducting closing
stock (Adjustments in the final accounts, 2018).
Inventory account
Particulars Amount Particulars Amount
To statement of
profit and loss
(previous year
inventory)
£350000
Inventory account
Particulars Amount Particulars Amount
To statement of
profit and loss
(previous year
inventory)
£350000 By Statement of
Profit or
loss( Current year
inventory)
£40000
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Accruals and prepayments- Accrued and prepaid transactions are adjust to help in preparing
the final accounts. All the accrued and prepaid expenses are included in the profit and loss
account which is to be adjusting to know the actual performance of an entity. Expenses
covering under this adjustment are the expenses that are related to the current period which
are paid or not paid within the given timeline have to be cleared.
Statement of profit or loss
Particulars Amount
Wages(Actual wage + accrued wages) £35000+£15000
£50000
Insurance( Actual insurance – prepaid) £50000-£15000
= £35000
Statement of financial position
Particulars Amount
Current assets
Inventory
Trade receivables
Prepayments £15000
Cash -
Current liabilities
Trade creditors -
Accrued payments £15000
Wages A/c
Particulars Amount Particulars Amount
To cash £35000 By profit and loss £50000
To accruals £15000
£50000 £50000
Insurance A/c
Particulars Amount Particulars Amount
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To cash £50000 By prepayments £15000
By profit and loss £35000
£50000 £50000
Interest- The amount of interest payable on the loan is taken by an entity owner from the
external lenders needs to be adjusting by using a specific rate of interest applied on the loan.
The current interest on the loan taken by an entity is considered in this account along with the
amount of accrued interest which will get deducted from the total interests.
Particulars Debit Credit
Accrued interest on loan £4000
Profit and loss account £96000
To 6% loan on debentures a/c £100000
Depreciation- Depreciation is a wear and tear for using an asset for a longer period of time
as these costs will get deducted from the total costs of an asset (Final accounts, 2018). The
cost of depreciation is to be ascertained by using the straight line or written down value
method.
Depreciation account
Particulars Amount Particulars Amount
To profit and loss
account
£50000 By sales £50000
£50000 £50000
Statement of financial position
Particulars Cost Accumulated
depreciation
Carrying amount
Equipment £50000 -(£30000) £20000
Building £60000 -(£20000) £40000
Motor vehicles £80000 -(£40000) £40000
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Equipment A/c
Particulars Amount Particulars Amount
To balance brought
down
£20000 By balance carry
forward
£70000
To cash £50000
£70000 £70000
Equipment’s Accumulated depreciation A/c
Particulars Amount Particulars Amount
To balance carried
down
£80000 By balance brought
down
£30000
By profit or loss £50000
£80000 By balance brought
down
£80000
Building A/c
Particulars Amount Particulars Amount
To balance brought
down
£50000 By balance carry
forward
£110000
To cash £60000
£110000 £110000
Building’s Accumulated depreciation A/c
Particulars Amount Particulars Amount
To balance carried
down
£40000 By balance brought
down
£20000
By profit or loss £20000
£40000 By balance brought
down
£40000
Motor Vehicle A/c
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Particulars Amount Particulars Amount
To balance brought
down
£15000 By balance carry
forward
£95000
To cash £80000
£95000 £95000
Motor Vehicle’s Accumulated depreciation A/c
Particulars Amount Particulars Amount
To balance carried
down
£60000 By balance brought
down
£40000
By profit or loss £20000
£60000 By balance brought
down
£60000
Bad debts- Bad debts and allowances for debtors are adjusted in trial balance as all these
items are appeared in the trial balance which should be adjusted.
Particulars Amount
Trade receivables £600000
Less: Allowances for debtors -(250000)
Net Trade receivables £350000
P4 Generate final accounts examples for different business types such as sole traders,
partnerships or limited companies
The preparation of the final account for all these users of the business will differ from
one another which include various business users’ types such as sole trader, partnerships, and
limited companies. In preparing these final accounts includes two of the final accounts such
as profit and loss accounts and balance sheet. The differentiation of all the users are given as
below which help all the internal as well as the external users to get to know about
the financial performance of an entity:
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Sole trader- The Single capital account is prepared in the books of account of a sole trader
and all the profits earned by the owner belong only to the owner without any kind of
distribution.
Partnerships- The partnership will include the profit and loss distribution account for all the
partners who help in showing the distribution of the total profit among all the active partners
in a specified ratio (Final accounts of sole traders and partnerships, 2018). Other than the
profit and loss distribution schedule created for all the partners, a balance sheet is also
prepared which consist of the capital held by all the partners as this showed the investment
applied by all the partners in meeting the partnership expenses. Apart from the income
statement and balance sheet, the changes in the equity held by all the partners in an entity are
also prepared.
Limited companies- the Limited company is considered as a business entity whose entity is
a separate legal entity whose final accounts are prepared just like other individuals but the
components used in creating the financial statements where the shareholders are the owner of
an entity that invests capital which will be shown as equity capital (Final accounts of limited
companies, 2010).
M2 Analyze various financial statements by using example such as profit and loss accounts,
balance sheet and cash flow statement
Two methods of financial statement analysis by using horizontal and vertical analysis
used to judge the financial performance of an entity by assessing profit and loss account and
the positional statement. Ratio analysis is another method used to ascertain the financial
performance of the company by comparing them with the previous year figures.
Horizontal analysis- Under this analysis, the income statement and balance sheet’s
components are assessed by ascertaining difference that is the variances occurred when the
current period’s figures are compared with the previous year period (Horizontal analysis,
2017).
Vertical analysis- The balances of the income statement and the balance sheet are analyzed
by estimating the percentages of a particular component out of the total revenue and total
assets held by an entity in a particular period (Vertical analysis, 2017).
Financial Statements for XYX Corporation
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Actual Actual Actual
Year 2010 2011 2012
Sales £ 200,000.00 £ 250,000.00 £ 300,000.00
COGS £ 100,000.00 £ 125,000.00 £ 150,000.00
Gross Profit £ 100,000.00 £ 125,000.00 £ 150,000.00
Expenses £ 40,000.00 £ 50,000.00 € 60,000.00
Profit before Taxes £ 60,000.00 £ 75,000.00 £ 90,000.00
Taxes £ 24,000.00 £ 30,000.00 £ 36,000.00
Net Income £ 36,000.00 £ 45,000.00 £ 54,000.00
Cash £ 30,000.00 £ 40,000.00 £ 60,000.00
Trade receivable £ 100,000.00 £ 110,000.00 £ 130,000.00
Inventory £ 50,000.00 £ 60,000.00 £ 80,000.00
Current Assets £ 180,000.00 £ 210,000.00 £ 270,000.00
Net Plant & Equipment £ 80,000.00 £ 90,000.00 £ 118,000.00
Total Assets £ 260,000.00 £ 300,000.00 £ 388,000.00
Accounts Payable £ 45,000.00 £ 50,000.00 £ 60,000.00
Accrued Expenses £ 10,000.00 £ 20,000.00 £ 30,000.00
Current Liabilities £ 55,000.00 £ 70,000.00 £ 90,000.00
Equity £ 970,000.00 £ 1,015,000.00 £ 1,069,000.00
Total Liabilities & Assets £ 1,025,000.00 £ 1,085,000.00 £ 1,159,000.00
Vertical Analysis with Sales
Actual Actual Actual
2010 2011 2012
100% 100% 100%
50.0% 50.0% 50.0%
50.0% 50.0% 50.0%
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20.0% 20.0% 20.0%
30.0% 30.0% 30.0%
12.0% 12.0% 12.0%
18.0% 18.0% 18.0%
15.0% 16.0% 20.0%
50.0% 44.0% 43.3%
25.0% 24.0% 26.7%
90.0% 84.0% 90.0%
40.0% 36.0% 39.3%
130.0% 120.0% 129.3%
22.5% 20.0% 20.0%
5.0% 8.0% 10.0%
27.5% 28.0% 30.0%
485.0% 406.0% 356.3%
512.5% 434.0% 386.3%
Horizontal Analysis
Actual Actual
2011 2012
25.0% 20.0%
25.0% 20.0%
25.0% 20.0%
25.0% 20.0%
25.0% 20.0%
25.0% 20.0%
25.0% 20.0%
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33.3% 50.0%
10.0% 18.2%
20.0% 33.3%
16.7% 28.6%
12.5% 31.1%
15.4% 29.3%
11.1% 20.0%
100.0% 50.0%
27.3% 28.6%
4.6% 5.3%
5.9% 6.8%
D2 Use appropriate calculations for preparing the final accounts
Various kinds of calculations help in the preparation of sub-accounts prepared by an
entity owner while preparing the final accounts of an enterprise. While adjusting the sales and
the purchases accounts incurred in an entity. Firstly the entity owner is required to adjust
return inward and return outward accounts.
Return inward refers to the sales returns accounts that will reduce the total amount of sales as
the sales return by an entity. On another hand, return outward shows all the purchases which
are return back by the buyer to its seller to deduct the number of total purchases in the books
of accounts of an entity (Calculations in preparing final accounts, 2010).
Carriage inward account that is sales returns will get added in the purchases available in the
trading account and on another hand, carriage outward is considering as expenses to be
shown in the profit and loss account.
Prepayments reflects the amount which an individual paid in advance will be shown as a
prepayment with a dual effect under the double-entry bookkeeping where this will deduct
from the total expenses paid by an entity in its trial balance and similar effect of this will be
that the same amount will get added in the trade receivables in the trial balance. Accruals are
another adjustment’s calculation which shows the due amount of all the transactions incurred
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in an entity in a particular period of time. The accrual of transactions will have a dual effect
such as adding this amount in the expenses in a compilation of a trial balance and adding the
same in the trade creditors. Depreciation expense is charged on the plant and machinery by
using a straight-line method in which the depreciation is estimated by multiplying the cost of
machinery-salvage value by the life of the plant and the machinery.
LO3 PERFORM BANK RECONCILIATION STATEMENTS TO
ENSURE VALIDITY OF THE BANK RECORDS
P5 Use the bank reconciliation process to prepare a number of bank reconciliations
Bank reconciliation process selected by an entity under which cash and bank balances
of an entity recorded n its books of accounts are compared with the bank statements to know
any financial discrepancy as with the help of this prices, the changes book and passbook will
be identified easily (Bank reconciliation process, 2017). This method also helps in checking
the arithmetical accuracy of all the transactions related to the bank covered in the books of
accounts. There are various terms used in the bank reconciliation process to compare the
current accounting records with the bank statements in which the account balances are
compared to ensure the authenticity of all the transactions related to the cash and bank are
appropriate or not.
An entity is required to follow a particular procedure in performing the processes of
bank reconciliation statement are given as below:
Preliminary stage- It is the first and foremost step under which an accountant will create a
complete list which consists of uncleared cheques and uncleared deposits of an entity.
Checking bank statements- Under this process, the bank statements such as the passbook
are checked which states all the bank transactions such as receiving or issuing a check from
and to the parties by comparing the same with the cash account in the books of account of an
entity.
Entering expenses- This will consist of all the expenses visible on the bank statement which
are not recorded in the books of account of an entity.
Checking the end balance of bank statement- In this step, the accounts book and bank
balances of the passbook will be matched to know any positive or negative differences arises
to reconcile the same.
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M3 Apply the reconciliation process by reflecting the use of deposit in transit, outstanding
checks and not sufficient funds check
 Deposit in transit- This is a term which refers to that all the checks deposited by an
entity in the bank for clearance as they recorded the entity in its books of account but
the same is not shown in the entry in the bank as the same is not presented for the
payment due to delay in the clearance.
 Outstanding check- Amount of cheque which is issued by the company but does not
get cleared by the bank as the amount is not debited from the company’s account as
this will be shown as a deduction from cash will create a difference in the books of
account.
 NFS check- This term signifies the dishonour of the cheque when the cheque issued
by an entity to the supplier for paying the amount for the purchase of raw materials is
considered as the default issue when the fund is not available with an entity. When a
party issues cheque to someone but sufficient balance is not the in its account then the
bank will charge a fee from the accountholder for defrauding the bank as bank apply
its efforts in processing the cash but founds non-sufficient cash in its account.
D3 Prepare bank reconciliations by applying tools and techniques to check general accounts
and balance sheets
By following the process of the bank reconciliation the bank reconciliation statement
will be created is mention as below (Bank reconciliation process, 2018:
Adjusting the balance as per bank
Particulars Amount
Balance as per bank on 31st July 2018 £40000
Add: deposits in transit £20000
Less: Outstanding checks (£60000)
Add:/Less Bank errors (£20000)
Corrected balance as per bank £40000
Balance as per Books
Particulars Amount
Balance as per books on 31st July 2018 £60000
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Less: Bank charges £10000
Less: NSF checks and fees (£10000)
Less: Printing charges (£10000)
Add: Interest received £10000
Add: Trade receivable collected by bank £10000
Add/Less Errors in firm’s cash account (£10000)
Adjusted balance as per books £40000
Comparing adjusted balances- The amount in step 1 and step 2 should be equal to move to
the next stage in preparing the journal entries
Journal entries
All the adjustments made in the bank reconciliation statement are covered in the journal
entries to modify the overall balance in the books of accounts.
LO4 RECONCILE CONTROL ACCOUNTS AND SHIFT THE
RECORDED TRANSACTIONS FROM THE SUSPENSE ACCOUNT
INTO THE CORRECT ACCOUNT
P6 Describe the processes to reconcile control accounts and clearing of the suspense accounts
by using several examples
A suspense account is a temporary account used to record the transactions which are
not recorded earlier in the books of account as all the transactions occurred recently as a
sudden change. This account is created to make adjusting entries in the books of accounts that
separate an unclassified item from all other classified transactions mention in the books f
accounts (Suspense account, 2017). This suspense account is a general ledger account which is
a current asset as the payment hold by an entity consider as the accounts receivable. On
another hand, this also acts as a liability which is treated as a trade payables account. When
the differences arise in the trial balance, the difference can be matched by adding the
suspense account in the trial balance by transferring the difference amount into that suspense
account.
When receiving partial payment
Particular Debit Credit
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Suspense account £10000
To cash £10000
When full payment is received
Particular Debit Credit
Suspense account £15000
To Accounts receivable £15000
Control account- It is a controlling account created by an entity which is also considered as
the summary account which consists of the all the information related to the accounts
receivables and accounts payable to keep track on debtors and creditors account by creating
the schedule (Control accounts, 2018).
M4 Show different types of accounts and explain how and why these are reconciled
Account receivables and account payables are reconciled by an entity as both these
are regarded as the most important accounts which need to be managed by the company by
comparing all their balances with the vouchers existing in the books of accounts of an entity.
Debtor control account- The effect of transactions are different under this particular account
such as the total amount of debtor’s account will include the amount of value added tax is
debited into this account which will further increase the account (Controlling of accounts,
2018).
Creditor control account- Amount of vat will be credited in the creditor’s control account
which in turn increases the balance as tax has a credit balance in the books of account.
Purchases will debit this account and decreases the balance of this account.
D4 Generate accurate accounts that will reconcile by using various methods
 Items covered in cash book and not in the bank statement- This will cover cheque
issue but not presented for payment by bank and deposits in transit. Using this method
the bank balances and the account balances are reconciled with each other to identify
the timing differences takes places in the books of accounts and the bank statement’s
balances.
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 Items shown on bank statements and not in cash book- This will include bank
interest or charges, standing orders, auto debits, credit or wire transfers, cheque
dishonoured (Reconciliation of the accounts, 2016).
 Cash book defaults- This will consists of various errors which will be occurred due
to the mistake of an accountant includes casting errors into an incorrect account,
wrong figure posted unto wrong account, transactions omitted in the ledgers and
duplicate entry recorded in journals and general ledgers.
CONCLUSION
It is concluded from the above assignment that accounting system of double entry has
explained in the above assignment by highlighting all the accounting principles and
accounting conventions used by an entity in streamlining the process of accounting in
recording all the transactions takes places in the business for a particular period of time. A
researcher faces difficulty in collecting data for recording double entry accounting
transactions in the books of account and this will posted into final accounts.
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