Financial Accounting: Business Transactions, Accounting Systems, Financial Statements and Reports

This report covers various financial accounting concepts such as business transactions, accounting systems, financial statements and reports. It includes journal entries, ledger accounts, trial balance and the difference between financial statements and reports.

FINANCIAL ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION.......................................................................................................................................3
MAIN BODY..............................................................................................................................................3
SCENARIO 1..............................................................................................................................................3
Question 1...............................................................................................................................................3
Question 2...............................................................................................................................................4
Question 3.............................................................................................................................................11
Question 4.............................................................................................................................................12
Question 5.............................................................................................................................................13
Question 6.............................................................................................................................................15
Question 7.............................................................................................................................................17
SCENARIO 2............................................................................................................................................18
Question 1.............................................................................................................................................18
Question 2.............................................................................................................................................19
Question 3.............................................................................................................................................20
Question 4.............................................................................................................................................20
Question 5.............................................................................................................................................22
CONCLUSION.........................................................................................................................................24
REFERENCES..........................................................................................................................................26

INTRODUCTION
The Financial Accounting refers to the cycle of recording, summing up and dissecting the
financial exchanges to have productive decision making methodology. In the current situation,
there is essential prerequisite to acquire upper hands through creating efficient accounting
procedures for having useful practices in industry to lead the organization from comparative
association. The current report incorporates the depiction in regards to various business
transactions, different types of accounting framework, trail balance, contrast between financial
statements and the reporting along with other basic financial accounting concepts. In addition to
this, it provides an insight into creation of journal, ledger, cash flow statement or the
reconciliation statement.
MAIN BODY
SCENARIO 1
Question 1
Business transactions mainly refers to the exchange of the goods and services among the
two parties which helps in meeting up the desired organizational goals and objectives. The
business transactions can be classified into the two types: which are Cash and credit transactions
and internal and external transactions. The former one involves both cash and credit business
transactions. The event when the cash is paid or received immediately when the transaction
occurs, it is called cash transaction. On the other hand, credit transaction refers to the event when
the cash is not paid or received immediately but the transaction happens and the payment is done
in the future specified date is called as the credit transaction (Business transaction. 2020). The
internal transaction are those business transactions in which there is no external parties involved.
These exchanges don't include in the trading of values between two groups yet the
eventcomprises the exchange is quantifiable in money related terms and effects the monetary
situation of the business. Instances of such exchanges incorporate chronicle devaluation of fixed
resources and understanding the deficiency of resources brought about by fire and so on. On the
other side, external transactions are those which involves exchange of value with the third
parties. Mainly all the transactions excluding internal transactions are external only and accounts

for the usual transactions of the business. For instance, purchase of material from suppliers,
utility bills, payment of rent or salaries to employees and so forth.
A single-entry accounting framework records each bookkeeping exchange with a single
section to the bookkeeping records, as opposed to the more normal two-fold section framework.
The single accounting framework is focused on the aftereffects of a business that are accounted
for in the pay proclamation (Single- Vs. Double-Entry Bookkeeping. 2019). The center data
followed in a single-entry framework is cash payment and money receipts. The main form of
recording in this system is the cash book.In double entry bookkeeping accounting, the
transactions are recorded on two sides, debit and credit. This results into maintaining the
accuracy of the bookkeeping, reducing errors and omissions.it is used by all the business
organizations.
The trial balance refers to the statement which provides the balancing figures of all the
ledger accounts (Trial Balance. 2020). The main purpose behind creating trial balance is to
ensure mathematical accuracy. This is further used for the purpose of creating the financial
statements which involves the income statement, balance sheet, cash flow statement.
Question 2
1. Journal Entries for the month of June 2016
Date Particulars L.F Debit Credit
1-Jun Cash A/C Dr. 65000
To Capital A/C 65000
(Being capital invested for
starting company)
2-Jun Purchase A/C Dr. 8000
To Trade payables A/C 8000
(Being goods purchased on
credit)
7-Jun Cash A/C Dr. 4000
To Sales A/C 4000

(Being goods sold for cash)
8-Jun
Trade payables A/C
Dr. 4000
To Bank A/C 4000
(Being cheque issued to pay
creditors)
14-Jun
Prepaid Insurance A/C
Dr. 75
To Bank A/C 75
(Being prepaid insurance
expenses paid )
15-Jun
Trade receivables A/C
Dr. 12000
To Sales A/C 12000
(Being goods sold on credit)
16-Jun Purchase A/C Dr. 10000
To Trade payables A/C 10000
(Being goods purchased on
credit)
18-Jun
Computer Equipment A/C
Dr. 300
To Cash A/C 300
(Being computer equipment
purchased by paying in
cash)

20-Jun Prepaid rent A/C Dr. 150
To Bank A/C 150
(Being prepaid rent paid )
21-Jun Cash A/C Dr. 10000
To Sales A/C 10000
(Being goods sold for cash)
25-Jun Cash A/C Dr. 100
To Bank A/C 100
(Being amount withdrawn
from bank for keeping it into
petty cash)
30-Jun Stationary A/C Dr. 30
To Cash A/C 30
(Being stationary purchased
for taking money from petty
cash)
2. Ledger accounts
Capital A/c
Date Particulars J.F. Amount Date Particulars J.F. Amount
30-Jun To balance c/d 65000 1-Jun
By Cash
A/c 65000
65000 65000

Purchase A/c
Date Particulars J.F. Amount Date Particulars J.F. Amount
2-Jun To trade payables A/c 8000
16-Jun To trade payables A/c 10000 30-Jun
By balance
c/d 18000
18000 18000
Bank A/c
Date Particulars J.F. Amount Date Particulars J.F. Amount
8-jun
By Trade
payables
A/c 4000
14-Jun
By prepaid
insurance
A/c 75
20-Jun
By prepaid
rent A/c 150
30-Jun To balance c/d 4325 25-Jun
By Cash
A/c 100
4325 4325

Trade receivables A/C
Date Particulars J.F. Amount Date Particulars J.F. Amount
15-Jun To Sales A/c 12000 30-Jun
By balance
c/d 12000
12000 12000
Cash A/C
Date Particulars J.F. Amount Date Particulars J.F. Amount
1-Jun To Capital A/C 65000 18-Jun
By Computer
Equipment A/C
Dr. 300
7-Jun To Sales A/C 4000
21-Jun To Sales A/C 10000 30-Jun By Stationary A/C 30
25-Jun To Bank A/C 100 30-Jun By balance c/d 78770
79100 79100
Trade payables A/C
Date Particulars J.F. Amount Date Particulars J.F. Amount
8-Jun To Bank A/c 4000 2-Jun
By Purchase
A/c 8000
30-Jun To balance c/d 14000 16-Jun
By Purchase
A/c 10000
18000 18000

Sales A/c
Date Particulars J.F. Amount Date Particulars J.F. Amount
7-Jun
By Cash
A/c 4000
15-Jun
By trade
receivables
A/c 12000
30-Jun To balance c/d 26000 21-Jun
By Cash
A/c 10000
26000 26000
Computer Equipment A/c
Date Particulars J.F. Amount Date Particulars J.F. Amount
18-Jun To Cash A/c 300 30-Jun
By balance
c/d 300
300 300
Prepaid Rent A/c

Date Particulars J.F. Amount Date Particulars J.F. Amount
20-Jun To Bank A/c 150 30-Jun
By balance
c/d 150
150 150
Stationary A/c
Date Particulars J.F. Amount Date Particulars J.F. Amount
30-Jun To Cash A/c 30 30-Jun
By balance
c/d 30
30 30
Prepaid insurance A/c
Date Particulars J.F. Amount Date Particulars J.F. Amount
14-Jun To Bank A/c 75 30-Jun
By balance
c/d 75
75 75
3 Trial Balance:
Particulars Debit Credit
Cash A/c 78770
Sales A/c 26000

Bank A/c 4325
Capital A/c 65000
Purchase A/c 18000
Trade payables A/c 14000
Stationary account 30
Prepaid Insurance A/c 75
Prepaid Rent A/c 150
Trade receivables A/c 12000
Computer Equipment A/c 300
Total 109325 109325
Question 3
The financial statements and reports are broadly utilized as conversely for meeting the
assortment of business targets. Financial Reporting (FR) contains the assertions like pay, income
explanation, accounting report, and so forth.The motivation behind financial reportingis to figure
out the performance of the business and gaining better insight into the true and fair financial
position and performance of the entity. In addition to this, it helpsin determining whether the
fundamental goal and objective for the particular year is attained or not. FRs are broadly ready
on the quarterly and yearly premise to comply with its lawful commitments (Financial
Statements vs. Financial Reports – What’s the Difference? 2020). Financialstatementsare defined
to give data in regards to organization's present situation to a few partners. The purpose for
making financial statements to provide the management of the entity to have adequate
understandability of organization's present position. It helps organization to achieve capacity to
make dependable upgrades through correcting blunders and lacking regions on fitting time which
helps in acquiring upper hands in industry.
The financial reporting is utilized to give information to the users of it based upon
which meaningful business related decisions are being undertaken. This is helpful in gathering an
understanding pertaining to the financial condition, dependability, and so on there are a few sorts
of partners who are keen on using the data whichresults in making effective business decisions.

There are number of users of the financial reports which are both internal and external to the
business. They are all together called as the stakeholders of the company. The users of the
financial reportcomprise of representatives, proprietors, suppliers, vendors, financial backers,
financial organizations, analyst, banks, customers, government organizations and so on, that are
identified with either interior or outer business environment. The primary motivation behind
financial institution like banks is to used given data is to have capacity to detail compelling
dynamic.
Question 4
Accounting principles are important for the smooth functioning of enterprise so that
effectual decision making can be exerted by company for formulating systematic procedure. The
accounting principles give guidance to company for having desirable financial health. It includes
accrual, matching, conservatism, materiality, etc.
 Matching principle is concerned with recording expenses of company at the same time
when the revenue has been generated (Kimmel, Weygandt and Kieso, 2018). It is one of
the most important fundamental principle that gives instructions to organization that there
should be appropriate balance in these both in order accurate position of liquidity can be
ascertained. It gives several benefits like smooth and organized business processing with
significant knowledge of in and out going.
 Materiality Principle says that accountings standard can be neglected if does not have
much impact on the processing of company. The purpose behind this is to make
organizational processing effectual and smooth through removing irrelevant obstacles via
reducing inappropriate practices. It is basically related with making business aware of
recording all information that can make the financial statement material. It helps
company to gain trustworthiness and effectiveness in industry.
 Cost principle states that assets should be recorde at the sometime when it has acquired to
get significant alertness of actual amount spend on that. There is guidance to avoid
considering market value through executing changes in busies practices transaction. It is
concerned with taking all expenses which are actually incurred in particular period of
time. This gives properly instructions to have information regarding the current
requirements of funds.

 Accrual Principle is related with giving information in a manner of recording that states
the actual time when it has occurred. It is universally accepted to meet the legal
obligations of accounting through ensuring that all reliable and important data is given in
order to meet desirable position. It combines two principles like matching and revenue
reorganization to provide sufficient understanding of current scenario.
 Full disclosure principle is widely accepted by all types of business to make sure that
they are complying with it through processing effectively. In addition to this, it is
associated with ensuring that all types data in form of financial and non monetary are
provided through publishing in order to make stakeholders able to take strategic decisions
(Ramachandran and Kakani, 2020). It is essential for company to adhere with this
particular principle to neglect factors that can impact its financial condition.
 Revenue recognition principle states that firm should record only when it has actauilly
earned not when the cash is collected. This helps the stakeholders to understand earning
generating capacity of company in real sense. It aids in identifying actual risk rewards
associated with company’s process.
 Going concern is most important fundamental principle which gives clear picture of
organization through highlighting that firm will continue its operation for longer duration.
It gives trust to inventors, lenders suppliers that their funds are safe with company. The
all mentioned accounting principles are universally applicable in all types of industries to
ensure effectual processing of business
Question 5
Income Statement
Particulars Amount £ Amount £
Sales (Revenue) 900000
Opening inventory 12000
Add: Purchases 700000
Less Closing inventory 14000

:
Cost of goods sold 698000
Gross profit 202000
Less
:
Advertising 10000
Salaries 50000
Electricity 10000
Telephone 9000
General expenses 1200
Net profit 121800
Statement of financial position
Particulars Amount £
Assets
Fixed assets
Land and Building 400000
Plant and Machinery 30000
Vehicles 22000
Current assets
Inventory 14000
Receivables 110000
Total assets 576000
Liabilities
Current liabilities
Bank overdraft 20000
Payables 80000

Shareholder's equity
Capital 354200
Profit 121800
Total liabilities 576000
Question 6
Profit and loss account for the year ended 31 December 2017
Particulars Amoun
t £
Amount
£
Sales 125000
Less: Sales return 1000 124000
Opening inventory 9500
Purchase 75000
Less: Purchase return 1500
Less: Closing inventory 1000
Less: Cost of goods sold 82000
Gross profit 42000
Less: Wages and salaries 13200
Rent and rates 1840
Postage 900
Insurance 7089
Bad debts 550
Provision for bad debts 934
Depreciation 5000
Add: Interest received 1000
Rent received 4360
Net profit 17847

Balance sheet as on the year ended 31 December 2017:
Assets
Bank 10594
Cash 340
Debtors 12500
Motor Vehicle 25000
Less: Accumulated depreciation (5000+5400) 10400
Closing Inventory 1000
Prepaid Insurance 411
Loan given 100000
Total assets 139445
Liabilities
Capital 120800
Less: Drawings 5150
Add: Profit 17847
Creditors 3900
Provision for bad debts 934
Outstanding rates 340
Advance rent received 490
Allowance for bad debts 284
Total liabilities 139445
Question 7
Cash flow statement provides guidance to company to have information regarding
liquidity condition to make suitable decisions. It is highly taken into procedure for the purpose of
having significant data that are essential to consider while making policies, structures, etc so that

organizational objectives can be fulfilled in effectual manner. It is divided into three parts like
operating, investing and financing for giving higher consideration on business procedure to
derive effective understanding effectual pattern of earning higher liquidity. This gives sufficient
information that is crucial to identify while making strategic decision that is highly utilized by
internal as well external stakeholders. Firm concentrate that it is providing all required data
related with this specific statement to meet company’s legal obligation of making full disclosure
of cash position.
Drafting the Cash flow statement of Sainsbury as below:

SCENARIO 2
Question 1
 Bank reconciliation statement is associated with reconciles bank account with the
financial records of organization. It helps organization in various forms through offering
different types of advantages which aids it to achieve business goals in effectual manner.
This particular statement outlines deposits, withdrawals, etc practices which can impact
organization’s bank account for mentioned duration.
 It is widely prepared to fulfill objectives of identifying errors that can influence financial
position of company in both positive and negative manner (Bardina, 2021). Bank
reconciliation statement is formulated on the basis of specific period to make accurate
judgments of happening frauds and prevailing errors so that inappropriate practices can
be removed to have smooth functioning.
 There few steps which are taken into consideration by the organization in order to create
BRS (Ling, 2021). The foremost activity is that bank prepares the cash book which
comprises the bank column whose opening balanced is compared with bank statement’s
initial figure. Credit side of bank statement is compared with debit head of cash book to
make appropriate investigation of activities that are recorded in both or not.
 It helps in assessing entries that are being ignored or mistakenly recorded to make
suitable improvement in order to have significance result evaluation by comparing
revised with previous. There are some benefits which company obtains from BRS which
comprises detecting mistakes, investigating charges like fees & interest, tracking
receivables, etc. It helps in improving the organization process that helps company to
have efficient functioning.
Question 2
Control account is responsible for summarizing and involving all subsidiaries heads of
general ledger. It is widely taken into practice for summing up account related with receivables
and payables as there are concerned with containing higher volume of transactions. This is the
reason for which they are separated into subsidiary ledger with large data. These activities are
exerted on daily basis for having fluent functioning of large organization. Main purpose for

executing this account is to make sure clarifying and rechecking the individual account and their
transactions before positing it in subsidiary account. There are variety of purposes for which
company utilizes the control account which comprises locate errors, eliminate, clutter, protecting
against the fraud. This particular head contribute largely contributes in making the process of
financial management more effectively through performing several roles (Gheorghe, 2017). It
aids in summarizing transactions for evaluating important activities in order to make policy.
Quick decisions through prompt formulation of profit and loss account can be done with help of
control account in instant manner. Internal checking leads greater accuracy of records through
reconciling of cost and financial accounts. There is possibility that firm can have specialization
in making process through having ability to make division of work.
Question 3
Suspense account where business can hold unclassified transactions on temporary basis
to decide their appropriate head. This aids in comprising the information about discrepancies as
organization gather more data. It is formulated by small as well large organization which is
cleared out on regular basis. In addition to this, it is basically a holding account that can be either
an asset or liability depending upon the situation (Mahajan, 2018). Suspense account is taken
into procedure for following purposes that are crucial to emphasis for cooperating with current
scenarios. It aids in getting clarity when firm is preparing trial balance, received a partial
payment, unawareness about the payment maker, buying a fixed assets but haven’t received it
until cost is bear, unclassified head of activities, etc. Suspense account should be minimized to
add value to financial statement in order to provide guidance to management of firm to have
appropriate base for moving towards desire position (Ofori-Atta, Bruce-Twum and Appiah-
Gyamerah, 2017). The one of the main reason for this is to clarity by providing sufficient time
for making research for detailed information. Firm require to concentrate on drafting this
specific account to have ability to remove the lacking areas that are can influence financial
health. It provides assistance in smooth functioning of company through helping organization to
continue its activities without facing any hurdles that can hinder performance. Decision making
by having accurate financial statement becomes possible through rectifying and removing
discrepancies with help of suspense account.

Question 4
Revised Cash book as per the bank column
Particulars J.F.
Amount
£ Particulars J.F.
Amount
£
To balance b/d 1760
By Insurance
account 170
To D. Park A/c 270
By Talk Talk
bill 56
To Mr. Patel A/c 1070
By Arif
account 186
To Abbey A/c 325
By bank
charges 25
To Drawings A/c 105 By balance c/d 3093
Bank Reconciliation Statement as on 28th February 2010:
Particulars Amount
Balance as per the pass
book
3093
Add: Insurance claim 170
Talk Talk bill 56
Cheque received but not
credited
186
Bank charges 25
Less:
Cheque issued but not
presented for payment
270
Transfer to bank directly 1070
Dividend received by 325

Abbey bank
Drawings not recorded 105
Balance as per Cash book 1760
Direct Debit
This is concerned with direct withdrawals’ from the another party’s bank account for the
accomplishment of specific monetary transactions.
Standing Orders
This is associated with the practice of giving instructions to bank to pay certain form of
payments like interest, rent, bills, etc to payee’s account for having efficiency of commercial
transaction (Machera and Machera, 2017). It helps the user to have burden free process of
continuing practices.
Bank Charges
It involves all types of fees and charges obtained by bank from the customers in respect
to utilizing bank account’s services.
Dishonor cheque
It charges the penalty in outcome of dishonor cheque that has happed due to inappropriate
signatures, insufficiency of funds, etc.
Question 5
a) Journal entries
Particulars
L.F
. Debit Credit
1 Purchase A/C Dr. 2000
To A. Musa A/C 2000
(Being the goods purchased
on credit)

2 Cash A/C Dr. 1340
To Bank A/C 670
To SuspenseA/C 670
(Being the entry wrongly
entered twice in the cash
book)
3 G. Tahir A/C Dr. 650
To Suspense A/C 650
(Being the entry not made in
the G. Tahir account)
4 Electricity bill A/C Dr. 790
To Suspense A/C 790
(Being the electricity bill
account forgotten to be
debited)
5
Motor vehicle expense A/C
Dr. 500
To Motor vehicle A/C 500
(Being the motor vehicle
expense wrongly capitalized
to the motor vehicle
account)

6 Sales A/C Dr. 270
To Suspense A/C 270
(Being the sales account
overcast by 270)
7 L. Samantha A/C Dr. 380
To Cash A/C 190
To Discount received A/C 190
(Being the entry wrongly
debited and credited, again
rectified)
8 Suspense A/C Dr. 768
To Sales A/C 768
(Being the entry wrongly
debited to the sales ledger
account)
b) Suspense account which shows the rectification of difference amount
Dat
e Particulars J.F. Amount
Da
te Particulars J.F. Amount
To Sales
A/C 768 By Cash A/C 670
To balance
c/d 1612
By G. Tahir
A/Cs 650
By Sales A/C 270
By Electricity
A/C 790
2380 2380

CONCLUSION
It can be summarized that financial accounting is important for managing the major
factors impacting company’s success. The present report has included information regarding
business transaction, book keeping systems such as single & double, fundamental accounting
principles and differentiation between financial statement and reports. There is involvement of
practical examples regarding journal, ledger, trail balance, P&L A/C, balance sheet, etc.
REFERENCES
Books and Journals
Bardina, I. V., 2021. Development of Accounting and Control in the Digital Economy.
In Modern Global Economic System: Evolutional Development vs. Revolutionary Leap
11 (pp. 1328-1337). Springer International Publishing.
Gheorghe, H., 2017. Preliminary Accounting Works For The Establishment Of Financial
Statements. Annals-Economy Series. 1. pp.158-165.
Kimmel, P. D., Weygandt, J. J. and Kieso, D.E., 2018. Financial accounting: Tools for business
decision making. John Wiley & Sons.
Ling, J., 2021, April. Analysis of the Influence of Management Accounting on the Internal
Control of Enterprises. In 2021 2nd Asia-Pacific Conference on Image Processing,
Electronics and Computers (pp. 690-694).
Machera, R. P. and Machera, P. C., 2017. Computerised Accounting Software; A Curriculum
That Enhances an Accounting Programme. Universal journal of educational research.
5(3). pp.372-385.
Mahajan, M. K., 2018. Non Performing Assets in Banking Sector: An Indian
Perspective. ZENITH International Journal of Business Economics & Management
Research. 8(5). pp.1-8.
Ofori-Atta, K., Bruce-Twum, E. and Appiah-Gyamerah, I., 2017. Fundamentals of financial
Accounting 11.
Ramachandran, N. and Kakani, R. K., 2020. Financial Accounting For Management|. McGraw-
Hill Education.
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Business transaction. 2020. [Online]. Available
Through:<https://www.accountingformanagement.org/business-transaction/>.
Financial Statements vs. Financial Reports – What’s the Difference? 2020. [Online]. Available
Through:<https://www.fyisoft.com/financial-statements-vs-financial-reports/>.

Single- Vs. Double-Entry Bookkeeping. 2019. [Online]. Available
Through:<https://www.thebalancesmb.com/what-is-best-single-entry-or-double-entry-
bookkeeping-393004>.
Trial Balance. 2020. [Online]. Available
Through:<https://www.investopedia.com/terms/t/trial_balance.asp>.