Importance of Accounting in Preparation of Financial Statements - Report

Financial Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
A. Preparation of report clarifying accounting regulations to Line Manager........................1
Client 1.............................................................................................................................................4
A. Journal entries....................................................................................................................4
B. Preparation of ledger accounts...........................................................................................8
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C. Trial balance....................................................................................................................18
M1 Purchase and sale transactions.......................................................................................18
D1 Producing Trial balance..................................................................................................18
Client 2...........................................................................................................................................19
A. Profit and Loss account...................................................................................................19
B. Balance sheet for the trader.............................................................................................20
Client 3...........................................................................................................................................21
A. Income statement ............................................................................................................21
B. Producing balance sheet...................................................................................................23
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C. Principles of accounting...................................................................................................27
D. Purpose and significance of depreciation and discussing methods.................................28
M2 Balance sheet, cash flow statements and income statement..........................................29
D2 Accuracy of calculation for preparation of financials ...................................................29
Client 4...........................................................................................................................................29
A. Preparation of Bank Reconciliation Statement................................................................29
B. Causes of difference in bank records and organisation's accounting records..................29
C. Preparation of cash books................................................................................................29
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M3 Reconciliation process and explaining terms.................................................................30
D3 Producing Bank Reconciliation Statement along with concepts....................................31
Client 5...........................................................................................................................................31
A. Preparation of sales and purchase ledger control account...............................................31
B. Explaining meaning of control account...........................................................................31
Client 6...........................................................................................................................................32
A. Suspense account and features........................................................................................32
B. Producing trial balance....................................................................................................32
C. Journal entries..................................................................................................................32
D. Distinguish between clearing and suspense account.......................................................33
M4 Various types of accounts..............................................................................................33
D4 Accounting methods for the business.............................................................................33
CONCLUSION..............................................................................................................................33
REFERENCES..............................................................................................................................34

INTRODUCTION
Accounting is crucial for business to keep track on expenses incurred on operational
activities. Present report deals with importance of accounting in preparation of financial
statements in the best possible manner. Journal entries are recorded and then ledger accounts are
prepared. Moreover, trial balance is extracted by which financials such as income statement and
balance sheet is produced in effective way. Moreover, cash books and BRS is produced with
much ease. Furthermore, sales and purchase ledger control accounts are generated. Thus,
accounting is quite helpful to business.
A. Preparation of report clarifying accounting regulations to Line Manager
To: Line Manager
From: Junior Accountant
Subject: Accounting regulations and terms important for company
Respected Sir,
Accounting has immense importance in the business which helps in preparation of final
accounts in the best possible manner. It is useful because firm can easily attain financial
position whether it is producing profits or not. For overcoming this problem, financial
statements are prepared so that business may be able to analyse its health in effective manner.
The financials such as balance sheet, income statement and cash flow statement are quite
important to be prepared as it help to ascertain financial position of the firm with much ease. In
relation to this, such final accounts cannot be prepared without referencing and implementing
accounting principles, concepts, terms and regulations which forms the base for preparation of
financials of business. It guides accountant to easily prepare accounts by using such principles
and as such, fair and correct position of organisation can be extracted helpful for stakeholders to
effectively rely on final accounts in the best possible way. Moreover, it is beneficial for
company as forecasting can be done with help of financials (Richardson, 2017).
Meaning of financial accounting
This accounting is done in order to prepare final accounts of the firm in effective
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manner. It is termed as historical accounting as previous data is analysed and as such, business
transactions are recorded and then, financials are prepared exhibiting true view of performance
of the business with much ease. This type of accounting is helpful as various day-to-day
transactions occurred in organisation are recorded and financials are prepared helping
stakeholders to take better and enhanced decisions. Stakeholders such as investors and creditors
are one of the main external users of accounting information as they provide necessary funds to
the business. Investors rely on financials so that they may analyse whether net earnings are
adequate or not and dividends will be paid in good quantum or not. This means that financials
help them to assess whether funds should be provided to company or not. On the other hand,
creditors also rely on financials as solvency and liquidity position is analysed by them and as
such, they take better decision that funds in effective manner. Thus, by relying on the financial
statement, internal and external stakeholders are able to make better decisions with much ease.
Regulations of financial accounting
The regulations help in preparation of final accounts in that way which exhibits true
position of company in effective manner. Regulations help to easily assess fairness of financials
and as such, no manipulation may be done which affects stakeholders' decisions as inaccurate,
false information is imparted impacting on decision-making. In order to overcome such
manipulation, accounting regulations are provided by accounting bodies guiding accountants to
prepare financials as per the guidelines enacted by bodies. FRC guidelines are imparted by
corporate governance regulator of the nation which regulates accounting for organisations and
government units as well (Maynard, 2017). The frameworks are described below-
IASB: It is abbreviated as IASB (International Accounting Standards Board) guides accountants
so that accounts can be prepared without any manipulations in the best possible manner.
Moreover, principles enacted by IASB are universally acceptable by investors as financials
exhibits true and fair view as per the regulations made by board.
IFRS: This is a professional accounting body which help to guide accountant to easily prepare
financials without intercepting any errors. It stands for International Financial Reporting
Standards.
FRC: It is abbreviated as Financial Reporting Council which aims to foster development in the
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country in effective manner. Moreover, it also regulates firms and government departments.
Accounting rules and principles: Accounting is evaluating and to interpretation of book
keeping records. It is also prepares the financial information of the company which involves the
measurement of transactions. The main objective of accounting is to maintain the books of
accounts and to prepare the annual accounts. There are ten main accounting principles, these
are:
Economic entity assumption: In this principle of accounting, it will make difference between
business and owner. All books of accounts records the day to day transaction of the
business (Accounting Concepts, Principles and Basic Terms, 2017).
Cost principle: cost refers to the amount spent when a product originally obtained. According to
this concept an asset is ordinarily entered in accounting records at the price paid for the
assets. And this transaction should record in an accounting statements.
Monetary unit assumption: In this principle it is assumed that the currency of purchasing power
is not change over the time. So its results is company ignore the effect of inflation on
recorded amounts.
Time period assumptions: In this concept report the complex and ongoing activities of a
business in relatively short, difference between time such as five moths.
Full disclosure principle : In this record those transactions which is disclosed in the statements
this financial statements' information provide to the investors.
Going concern concepts: This principle allows the company to defer some its prepaid expenses
until accounting periods.
Matching principle: In this principle include those records that those expense be matched with
the revenues (Sela, Ashkenazy, Katoh and Pupko, 2015).
Revenue recognition principles: this is the concept of accounting records transactions which is
recognised as soon as the products has been sold and then the actual amount received.
Materiality: In these transactions should be materialistic, the transaction may be proven in this
concept.
Conservation: In these accountants to anticipate or disclose losses, and not allows a similar
action of gains.
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The conventions and concepts relating to consistency and material disclosure:
The convention of consistency requires that once an organization decide that this policy
has been used for some time and it should continue to follow year by year. Accounting process
should unchanged from one period to another. In this principle if any changes required in
techniques which may affect the business so it should be changed. Inconsistency in the
application of accounting methods it may affect the reported data. Materiality concepts refers
that it not need to a strict theoretically correct treatment, in this includes all significant things
should be recorded and the things or transactions which is insignificant in nature are avoided by
the company. Because if the cost which is insignificant in nature of recording and showing in
statement such events may not be justified and the investor doesn't take the right decision. So its
help to improve the quality of the financial statements, and the investors or outsider easily take
the decision regarding investments (Brausch, 2017). It is necessary to disclose all material
information to make the statements clear and understandable.
Client 1
A. Journal entries
Business records each and every transactions so that it may keep track on the operational
activities in effective manner. In relation to this, journal entries are recorded when business
transaction occurs. These entries are made in chronological order so that proper base can be
formed for preparation of final accounts quite effectually. Summarized set of transactions are
prepared with the help of recording journal entries in book of accounts. The entries are prepared
for Alexandra which is listed below-
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