Financial Accounting and VAT in UK

The assignment provides an overview of financial accounting and its significance for businesses in the UK. It explains how financial accounting is used to formulate final accounts such as trading, Profit & Loss (P&L), and Balance Sheets. Additionally, it discusses Value Added Tax (VAT) and its application in the UK, highlighting the importance of following rules and regulations when formulating different statements. The document also touches on the concept of prudence in accounting and its relevance to financial reporting.

Introduction to
Financial Accounting
Table of Contents
Table of Contents.............................................................................................................................2

INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Preparation of records and financial statement of Conga............................................................1
TASK 2..........................................................................................................................................14
Prudence and accrual concept and their application within Conga...........................................14
TASK 3..........................................................................................................................................15
The way in which VAT could be recorded in the books and reports of Conga........................15
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17

INTRODUCTION
Financial accounting can be defined as the process of formulating final accounts and then
analysing performance of the company with the help of different aspects such as profit, losses,
income, cash, expenditures etc. It is vital for all the business entities to conduct it on regular
basis so that actual financial status of business can be monitored and strategies decisions can be
formulated for future period (Chiang, Nouri and Samanta, 2014). This project report is based
upon Conga which is a small sole trader of toys and established in UK.
Various topics are being covered under this assignment which includes preparation of
accounting records and financial statement, explanation of prudence and accrual concept,
application of both of them etc. Explanation regarding recording of VAT is also being covered in
this report.
TASK 1
Preparation of records and financial statement of Conga
There are various types of tools that are used to analyse financial performance of a
company. All of them are as follows:
Journal entries: All the transactions are recorded in journals because it helps to make sure
that all the transactions are correct or not (De Waegenaere, Sansing and Wielhouwer, 2015). All
the entries for Conga are as follows:
Date Particulars L.F. Amount
Dr. Cr.
01/12/18 Purchase a/c Dr. 12000
To Crystal a/c 12000
01/12/18 Purchase a/c Dr. 14000
To Jim a/c 14000
02/12/18 Purchase a/c Dr. 16000
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To Kia a/c 16000
03/12/18 Purchase a/c Dr. 20000
To Aeron a/c 20000
04/12/18 Purchase a/c Dr. 19500
To Emily a/c 19500
05/12/18 Salary a/c Dr. 40000
To Cash a/c 40000
05/12/18 Repair a/c Dr. 5500
To Cash a/c 5500
06/12/18 Insurance a/c Dr. 3500
To Cash a/c 3500
07/12/18 Aeron a/c Dr. 2000
To return outward 2000
08/12/18 Emily a/c Dr. 1000
To return outward a/c 1000
09/12/18 Emily a/c Dr. 18500
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To Cash a/c 18500
10/12/18 Crystal a/c Dr. 12000
To cash a/c 12000
11/12/18 John a/c Dr. 25000
To sales a/c 25000
12/12/18 Henry a/c Dr. 18000
To sales a/c 18000
13/12/18 James a/c Dr. 16000
To sales a/c 16000
14/12/18 Ryan a/c Dr. 22000
To sales a/c 22000
15/12/18 Lisa a/c Dr. 17000
To sales a/c 17000
16/12/18 Cash a/c Dr. 12000
To sales a/c 12000
17/12/18 Cash a/c Dr. 8000
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To sales a/c 8000
18/12/18 Cash a/c Dr. 14500
To sales a/c 14500
19/12/18 Return inward a/s Dr. 2500
To John a/c 2500
20/12/18 Return inward a/s Dr. 2000
To Ryan a/c 2000
21/12/18 Discount Allowed a/c Dr. 1000
Cash a/c Dr. 17000
To Henry a/c 18000
22/12/18 Aeron a/c Dr. 18000
To discount received a/c 500
To Cash a/c 17500
23/12/18 Electricity a/c Dr. 3000
Rent a/c Dr. 5000
To Cash a/c 8000
24/12/18 Cash a/c Dr. 45000
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To capital a/c 45000
25/12/18 Loan a/c Dr. 20000
To Cash a/c 20000
26/12/18 Wages a/c Dr. 4000
To wages payable a/c 4000
27/12/18 P & L a/c Dr. 2000
To accumulated dep a/c 2000
28/12/18 Allowance for debts a/c Dr. 1998
To P & L A/c 1998
Ledgers: After journal ledger accounts are formulated to analyse that are recorded
amount is right of not (Gillett, 2016). Ledger posting of all the above transactions of Conga are
as follows:
Purchase account
Date Particular Amount Date Particular Amount
01-01-18 To balance b/d 135500 31-12-18 By balance c/d 217000
01-01-18 To Crystal 12000
01-01-18 To Jim 14000
02-12-18 To Kia 16000
03-12-18 To Aeron 20000
04-12-18 To Emily 19500
217000 217000
Sales account
Date Particular Amount Date Particular Amount
31-12-18 To balance c/d 497890 01-01-18 By balance b/d 390390
12-12-18 By Henry 18000
13-12-18 By James 16000
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14-12-18 By Ryan 22000
15-12-18 By Lisa 17000
16-12-18 By cash 12000
17-12-18 By cash 8000
18-12-18 By cash 14500
497890 497890
Cash account
Date Particular Amount Date Particular Amount
16-12-18 To sales 12000 05-12-18 By salary 40000
17-12-18 To sales 8000 05-12-18 By repair 5500
18-12-18 To sales 14500 06-12-18 By insurance 3500
21-12-18 To Henry 17000 09-12-18 By Emily 18500
24-12-18 To capital 45000 10-12-18 By Crystal 12000
31-12-18 By Balance c/d 28500 22-12-18 By Aeron 17500
23-12-18 By Electricity 3000
23-12-18 By rent 5000
25-12-18 By Loan 20000
125000 125000
Return outward account
Date Particular Amount Date Particular Amount
31-12-18 To balance c/d 3000 07-12-18 By Aeron 2000
08-12-18 By Emily 1000
3000 3000
Return inward account
Date Particular Amount Date Particular Amount
01-01-
2018 To balance b/d 6200 31-12-18 By balance b/d 10700
19-12-18 To John 2500
20-12-18 To Ryan 2000
10700 10700
Salary account
Date Particular Amount Date Particular Amount
05-12-18 To cash 40000 31-12-18 By balance c/d 40000
40000 40000
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Crystal account
Date Particular Amount Date Particular Amount
10-12-18 To cash 12000 01-01-18 By purchase 12000
12000 12000
Jim account
Date Particular Amount Date Particular Amount
31-12-18 To balance c/d 14000 01-01-18 By purchase 14000
14000 14000
Kia account
Date Particular Amount Date Particular Amount
31-12-18 To balance c/d 16000 02-12-18 By purchase 16000
16000 16000
Aeron account
Date Particular Amount Date Particular Amount
07-12-18 To return outward 2000 03-12-18 By purchase 20000
To discount
received 500
To cash 17500
20000 20000
Emily account
Date Particular Amount Date Particular Amount
08-12-18 To return outward 1000 04-12-18 By purchase 19500
To cash 18500
19500 19500
John account
Date Particular Amount Date Particular Amount
11-12-18 To sales 25000 19-12-18 By return inward 2500
31-12-18 By balance c/d 22500
25000 25000
Henry account
Date Particular Amount Date Particular Amount
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11-12-18 To sales 18000 21-12-18
By discount
allowed 1000
21-12-18 By cash 17000
18000 18000
James account
Date Particular Amount Date Particular Amount
13-12-18 To sales 16000 31-12-18 By balance c/d 16000
16000 16000
Ryan account
Date Particular Amount Date Particular Amount
14-12-
2018 To sales 22000
20-12-
2018 By return inward 2000
30-12-
2018 By balance c/d 20000
22000 22000
Lisa account
Date Particular Amount Date Particular Amount
15-12-
2018 To sales 14000
31-12-
2018 By balance c/d 14000
14000 14000
Repair account
Date Particular Amount Date Particular Amount
05-12-18 To cash 5500 31-12-18 By balance c/d 5500
5500 5500
Insurance account
Date Particular Amount Date Particular Amount
06-12-18 To cash 3500 31-12-18 By balance c/d 3500
3500 3500
Discount allowed account
Date Particular Amount Date Particular Amount
21-12-
2018 To Henry 1000
31-12-
2018 By balance c/d 1000
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1000 1000
Discount received account
Date Particular Amount Date Particular Amount
31-12-
2018 To balance c/d 500
22-12-
2018 By Aeron 500
500 500
Electricity account
Date Particular Amount Date Particular Amount
01-01-
2018 To balance b/d 22280
31-12-
2018 By balance c/d 25280
23-12-
2018 To cash 3000
25280 25280
Rent account
Date Particular Amount Date Particular Amount
01-01-
2018 To balance b/d 46400
31-12-
2018 By balance c/d 49400
23-12-
2018 To cash 5000
49400 49400
Capital account
Date Particular Amount Date Particular Amount
31-12-
2018 To balance c/d 195000
01-01-
2018 By balace b/d 150000
24-12-
2018 By cash 45000
195000 195000
Loan account
Date Particular Amount Date Particular Amount
25-12-
2018 To cash 20000
01-01-
2018 By balance b/d 60000
31/12/1/ To balance c/d 40000
60000 60000
9

Wages account
Date Particular Amount Date Particular Amount
01-01-
2018 To balance b/d 51000
31-12-
2018 By balance c/d 55000
26-12-
2018 To wages payable 4000
55000 55000
P & L account
Date Particular Amount Date Particular Amount
27-12-
2018 To acc dep 2000
28-12-
2018
By allowance for
debt 3275
31-12-
2018 By balance c/d 1275
3275 3275
Accumulated dep account
Date Particular Amount Date Particular Amount
31-12-
2018 To balance c/d 48000
01-01-
2018 By balance b/d 46000
27-12-
2018
By accumulated
dep 2000
48000 48000
Wages payable account
Date Particular Amount Date Particular Amount
31-12-
2018 To balance c/d 4000
26-12-
2018 To wages 4000
4000 4000
Allowance for receivable account
Date Particular Amount Date Particular Amount
28-12-
2018 To P & L a.c 3275
01-01-
2018 By balance b/d 7300
31-12-
2018 To balance c/d 4025
7300 7300
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Trial balance: The statement which is formulated after ledger accounts is known as trial
balance. All the transactions are recorded in debit or credit side according to their closing
balance and nature (Lubbe, Modack and Watson, 2014). It helps to find the mistakes that are
made by accounts while posting transactions in to ledgers. Trial balance for Conga is as follows:
Particulars Debit Credit
Purchase 217000
Sales 522890
Cash 28500
Return outward 3000
Return inward 10700
Receivables 109160
Payables 60900
Salary 40000
Repair 5500
Insurance 3500
Discount allowed 1000
Discount received 500
Electricity 25280
Rent 49400
Loan 40000
Wages 55000
Capital 195000
P & L 1275
Accumulated dep 48000
Wages payable 4000
Allowance for receivable 4025
Advertising 22000
Equipment 280000
Bank 15410
Drawing 9000
Suspense account 14860
882950 882950
At the end of year 2018 closing stock was 40000 for the company.
Trading and P & L account: All the expenses and incomes that are recorded in trial
balance helps to from trading and profit and loss account. It helps to assess that company is
acquiring profits or facing losses (Maskell, Baggaley and Grasso, 2016). Trading and P & L
accounts of Conga are as follows:
Particular Amount Particular Amount
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Opening stock 60140 Sales: 522890
Purchase: 217000 Less: Return: 10700 512190
Less return: 3000 214000 Closing stock 40000
Wages: 55000
Less: accrued: 4000 51000
Gross profit 227050
552190 552190
Salary 40000 Gross profit 227050
Repair 5500 Discount received 500
Insurance 3500
Discount allowed 1000
Electricity 25280
Rent 49400
Advertising 22000
Net profit 80870
227550 227550
Balance sheet: All the assets and liabilities are recorded in balance sheet that help to
analyse overall performance of the company. Balance sheet for Conga are as follows:
Liabilities Amount Assets Amount
Overdraft 28500 Closing stock 4000
Payables 60900 Receivables 109160
Accrued wages 4000 Loan 40000
Capital: 195000 Equipment 280000
Less: drawing: 9000 Bank 15410
Add net profit: 80870 266870
Accumulated dep 48000
Allowance for
receivable 4025
Suspense account 14860
Other current liabilities 21415
448570 448570
Different types of day books: In all the business entities may types of day books are
prepared in order to record credit and cash transactions (Maynard, 2017). Various day books for
Conga are as follows:
Conga sales day book
Date Customer Invoice
No.
Amount
12

11/11/18 John 25000
12/12/18 Henry 18000
13/12/18 James 16000
14/12/18 Ryan 22000
15/12/18 Lisa 17000
Total 98000
Conga sales return day book
Date Customer Invoice
No.
Amount
19/12/18 John 2500
20/12/18 Ryan 2000
Total 4500
Conga purchase day book
Date Customer Invoice
No.
Amount
01/01/18 Crystal 12000
01/01/18 Jim 14000
02/12/18 Kia 16000
03/12/18 Aeron 20000
04/12/18 Emily 19500
Total 81500
Conga purchase return day book
Date Customer Invoice
No.
Amount
07/12/18 Aeron 2000
08/12/18 Emily 1000
Total 3000
13

Conga cash receipt book:
Date Customer Invoice
No.
Amount
16/12/18 Sales 12000
17/12/18 Sales 8000
18/12/18 Sales 14500
21/12/18 Henry 17000
24/12/18 Capital 45000
Total 96500
Conga cash payment book:
Date Customer Invoice
No.
Amount
5/12/18 Salary 40000
5/12/18 Repair 5500
6/12/18 Insurance 3500
9/12/18 Emily 18500
1012/18 Crystal 12000
22/12/18 Aeron 17500
23/12/18 Electricity 3000
23/12/18 Rent 5000
25/12/18 Loan 20000
Total 125000
TASK 2
Prudence and accrual concept and their application within Conga
There are various types of accounting concepts that are used by business entities such as
Conga in order to record all their accounting information in different accounts for the purpose of
analysing financial performance (Nobes, 2014). There are two main concepts that are
implemented by managers of Conga. Both of them are as follows:
Prudence: Under this type of concept all the expenses and liabilities are recorded as soon as
possible but for revenues the rules get changed. These are recorded in the books of accounting
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only when they are realised or assured. It is also known as conservatism principle. It is applied
by the accountants of Conga for the purpose of analysing the incomes and make sure that the
revenues are not overestimated (Prudence concept, 2018). It is a fundamental concept which
helps Conga to enhance its trust worthiness. It guides the managers to form financial statements
in appropriate manner so that all the figures that are recorded in the accounts can show actual
position of the company. The main purpose of Conga behind applying this concept is to make
sure that the final accounts that are formed by the company are showing realistic picture of the
business(Shi, Zhang and Guo, 2014).
Accrual concept: All the financial statements that are formulated by business entities are
based upon accrual concept in which it is analysed that the incomes and expenses are recognised
in the respective financial year or not (Obay, 2014). In cash flow it is not implemented because
the main purpose of cash flow is to show the inflow and out flow of cash in a specific time
period. It is applied within Conga for the purpose of recording right transaction in the books
according to the year when they are generated.
TASK 3
The way in which VAT could be recorded in the books and reports of Conga
VAT: Value added tax is a consumption tax which is imposed upon the purchase of goods
and services from different countries. It is a main source income for the government and it is
very important for the countries to pay appropriate amount of tax to the legal parties according to
the legislation. In UK HMRC (Her Majesty Revenues and Customs) is responsible for the
collection of value added tax. Current rate of VAT in UK is 20% which is required to be paid by
the companies such as Conga (Schaltegger, Burritt and Petersen, 2017). As VAT is not recorded
in the books of the company but if it is required to be added then it will be recorded in a separate
liability account rather then income and expenditures account. The managers of Conga may
record VAT in balance sheet right after creditors. It is also a liability like other outward
payments that are paid to the government.
CONCLUSION
From the above project report it ahs been concluded that financial accounting is the process
of formulating final accounts such as trading, P & L and balance sheet for the purpose of
analysing actual performance of the company. It is very important for all the business entities to
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