Introduction to Financial Accounting

This article provides an introduction to financial accounting and its importance in corporate circles. It discusses the need for financial and management reporting and how it can help improve overall company performance. The article also focuses on accounting records and financial statements for WAVE, a small sole trader company.

INTRODUCTION
TO FINANCIAL
ACCOUNTING

Contents
INTRODUCTION......................................................................................................................3
MAIN BODY.............................................................................................................................3
1. Accounting records & financial statements for WAVE....................................................3
2. Explain the Prudence and accrual (matching) Concept...................................................16
3. Explain how VAT would be recorded in Wave accounting records and reports............17
CONCLUSION........................................................................................................................18
REFERENCES ........................................................................................................................19

INTRODUCTION
In present business era, financial and management reporting in corporate circles are both
necessary for every company to succeed. This can assist management of internal to handle
accounts and assist executives in policy making to improve an overall company performance
(Alver, Alver and Talpas, 2013). Financial management is important for organizations that
can help maintain and preserve a consistent database of financial transactions through
industries. Management prepares annual reports as per the guidelines and in particular to
format, interpret and make any conclusion to improve of increase the profit margin.
Reporting including balance sheet, profitability statement as well as trading P&L accounts.
Wave has indeed been chosen in this article which is a small sole trader company. This
article reports many single investor trades, recognizing the principle of prudence and
matching. Besides this value-added tax significance and its contributions to the Wave
accounts and reports have been chosen.
MAIN BODY
1. Accounting records & financial statements for WAVE
S. No. Particulars Debit Credit
1 Purchase a/c 30000
To Alex Ronald a/c 30000
2 Purchase a/c 10000
To Adam a/c 10000
3 Purchase a/c 25000
To Michael a/c 25000
4 Purchase a/c 32000
To William a/c 32000

5 Purchase a/c 40000
To Nick a/c 40000
3 Expenses paid in cash
S. No. Particulars Debit Credit
1 Rent
To Cash a/c
5000
5000
2 Salary a/c
To Cash a/c
50000
50000
3 Electricity expenses a/c
To Cash a/c
3000
3000
At least 2 Return Outwards
S. No. Particulars Debit Credit
1 Michael a/c
To Purchase Return a/c
5000
5000
2 William a/c
To Purchase Return a/c
15000
15000
At least 2 payments to trade payables
S. No. Particulars Debit Credit
1 Alex Ronald a/c 30000
To Cash a/c 30000
2 Adam a/c 10000
To Cash a/c 10000
At least 5 sales on credit and 3 sales for cash

S. No. Particulars Debit Credit
1 Mr Otis a/c 15000
To Sales a/c 15000
2 Mr Jack a/c 35000
To Sales a/c 35000
3 Mr Joe a/c 50000
To Sales a/c 50000
4 Mr Sean a/c 10000
To Sales a/c 10000
5 Mr Kawin a/c 25000
To Sales a/c 25000
S. No. Particulars Debit Credit
1 Cash a/c 50000
To Sales a/c 50000
2 Cash a/c 35000
To Sales a/c 35000
3 Cash a/c 45000
To Sales a/c 45000

At least 2 return inward
S. No. Particulars Debit Credit
1 Sales Return a/c
To Mr Kawin a/c
8000
8000
2 Sales Return a/c
To Mr Joe a/c
15000
15000
At least 2 receipts from trade receivables
S. No. Particulars Debit Credit
1 Cash a/c
To Bills Receivables a/c
15000
15000
2 Cash a/c
To Bills Receivables a/c
10000
10000
A discount received and allowed
S. No. Particulars Debit Credit
1 Cash a/c 30000
Discount Allowed a/c 5000
To Jack a/c 35000
2 Michael a/c 32000
To Discount Received a/c 4000
To Cash a/c 28000
£3000 cash spent on electricity and £5000 spent on rent
S. No. Particulars Debit Credit
1 Electricity a/c 3000

To Cash a/c 3000
2 Rent a/c
To Cash a/c
5000
5000
A receipt of £45,000 capital provided by the owner.
S. No. Particulars Debit Credit
1 Cash a/c
To Capital a/c
45000
45000
The Repayment of £20,000 of its loans.
S. No. Particulars Debit Credit
1 Loan a/c
To Bank a/c
10000
10000
Wages accrued of £4,000
S. No. Particulars Debit Credit
1 Wages a/c
To Wages Payable a/c
6000
6000
S. No. Particulars Debit Credit
1 Depreciation a/c 45000
To Accumulated Depreciation a/c 45000
S. No. Particulars Debit Credit

1 Bad Debts a/c 3500
To Allowance for doubtful debts a/c 3500
S. No. Particulars Debit Credit
Bank A/c 30000
To Equipment A/c (22000 - 4000) 18000
To Profit on sale of Equipemnt 12000
Ledger Accounts –
Purchase Account
Date Particular Dr Date Particulars Cr
1/12/2019 To Balance b/d 125500
1/12/2019 To Alex Ronald a/c 30000 31/12/20
19 By balance c/d 262500
2/12/2019 To Adam a/c 10000
3/12/2019 To Michael a/c 25000
4/12/2019 To William a/c 32000
5/12/2019 To Nick a/c 40000
262500 262500
Sales Account

Date Particular Dr Date Particulars Cr
31/12/2019 To Balance c/d 540390 1/12/201
9 By Balance b/d 280390
1/12/200
2 By Otis a/c 15000
2/12/200
2 By Jack a/c 35000
3/12/200
2 By Joe a/c 50000
4/12/200
2 By Sean a/c 10000
5/12/200
2 By Kawin a/c 25000
6/12/200
2 By Cash a/c 50000
7/12/200
2 By Cash a/c 35000
8/12/200
2 By Cash a/c 40000
540390 540390
Cash a/c
Date Particular Dr Date Particulars Cr
1/12/2019 To Balance B/d 0
To Sales a/c 50000 By Rent a/c 5000
To Sales a/c 35000 By Electricity a/c 3000

To Sales a/c 45000 By Salaries a/c 50000
To Mr Otis a/c 15000 By Alex Ronald 30000
To Mr Sean a/c 10000 By Adam a/c 10000
To Jack a/c 30000 By Michael a/c 28000
To Capital a/c 45000
By balance c/d 104000
230000 230000
Return Outwards a/c
Date Particular Dr Date Particulars Cr
2018 To Balance c/d 20000 2018 By Michael 5000
By William 15000
20000 20000
Return Inwards a/c
Date Particular Dr Date Particulars Cr
To Balance B/d 6200
To Mr Kawin a/c 8000 By Balance c/d 29200

To Mr Joe a/c 15000
29200 29200
Rent expense Account
Date Description Dr Date Description Cr
Balance b/d 36,400
Rent paid (CB) 10,000 Balance C/d 46,400
_____ _____
46,400 46,400
Salary a/c
Date Particular Dr Date Particulars Cr
Salaries Paid 50000 Balance c/d 50000
Electricity a/c
Date Particular Dr Date Particulars Cr
Balance b/d 12280 By balance c/d 18280
Electricity Paid 6000

Discount Allowed a/c
Date Particular Dr Date Particulars Cr
To Sophie a/c 30000 By balance c/d 30000
Discount
Received
a/c
Date Particular Dr Date Particulars Cr
To balance c/d 40000 By Jennifer a/c 40000
Capital a/c
Date Particular Dr Date Particulars Cr
To Drawing 45000
By Balance B/d
(Capital less
Drawing)
131000
To balance c/d 86000
86000 131000
Depreciation a/c
Date Particular Dr Date Particulars Cr

To Accumulated
Depreciation a/c 45000 By Balance c/d 45000
45000 45000
Allowance for bad debts a/c
Date Particular Dr Date Particulars Cr
To Allowance for bad
debts a/c 12886 By Balance b/d 7300
By Allowance 5586
12886 12886
Accounts Receivable a/c
Date Particular Dr Date Particulars Cr
To balance B/d 36720 By Cash (Otis) 15000
To Mr Otis a/c 15000 By Cash (Sean) 10000
To Mr Jack a/c 35000 By Cash (Jack) 30000
To Mr Joe a/c 50000 By Discount 5000
To Mr Sean a/c 10000
To Mr Kawin a/c 25000 By Balance c/d 111720
171720 171720
Accounts Payable a/c

Date Particular Dr Date Particulars Cr
To Cash (Alex Ronald
a/c) 30000 By Balance b/d 20960
To Cash (Adam a/c) 10000 By Alex
Ronald a/c 30000
To Cash (Michael a/c) 28000 By Adam a/c 10000
To Discount 4000 By Michael
a/c 25000
By William
a/c 32000
By Nick a/c 40000
To balance C/d 85960
157960 157960
Bank A/c
Date Particular Dr Date Particulars Cr
To Balance b/d 15410 By Loan 10000
To Equipment 18000
To Profit and Loss 12000 By Balance C/d 35410
45410 45410

Trial Balance

S. No. Ledger a/c Debit Credit
1 Capital a/c 86000
2 Purchase a/c 262500
3 Sales a/c 540390
4 Cash a/c 104000
5 Return Inward a/c 29200
6 Return Outward a/c 20000
7 Rent a/c 46400
8 Salary a/c 50000
9 Electricity a/c 18280
10 Discount Allowed a/c 5000
11 Discount Received a/c 4000
12 Allowance for doubtful
debt 12886
13 Trade Receivables 111720
14 Trade payable 85960
15 Bank 35410
16 Equipment 158000
17 Depreciation on
Equipment 77000
18 Inventories 48000

19 Advertising 12000
20 Loan 40000
21 Wages 41000
22 Wages Outstanding 6000
23 Suspense Account 30874
912310 912310
Profit and Loss Account
To Opening
Inventory 60140 By Sales 540390
To Purchases 262500 By Return Outward 20000
To Return Inward 29200 By Closing Stock 48000
To Wages 41000
Add: Wages
Accrued 6000 47000
To Gross Profit 209550
655390 608390
To Rent 46,400 By Gross Profit 209550
To Salary 50000 By Discount Received 4000
To Electricity
Expenses 18280 By Allowance for Receivables 12886
To Discount
Allowed 5000

To Advertisement 12000
To Depreciation 41000
To Net Profit 53,756
2,26,436 2,26,436
BALANCE SHEET
PARTICULARS As on 31-12-2018
Equity and liabilities :
Shareholders fund:
Capital 86000
Add: Profit 53756 139756
Non current liabilities:
Loan 40000
Current liabilities:
Trade payable a/c 85960
Wages accrued 6000
Allowance for doubtful debt 12886

Other Current Liabilities 95528
Total 380130
Assets:
Fixed assets:
Equipment 81000
Current assets:
Inventory 48000
Trade receivables 111720
Cash in hand 104000
Cash at bank 35410
Total 380130
2. Explain the Prudence and accrual (matching) Concept
Accounting standards and values practiced by administrators when planning budgets
and various kinds of records (Bryer, 2012). The organization follows various fundamental
concepts: continuity concern, prudence, accounting methodology and time frame, full
disclosure. Some of the following was addressed below:
Prudence Concept: This is the principle of company management which refers to
bookkeeping. The company shall not measure revenue, properties and benefit and losses,
costs and obligations shall be taken into consideration for that reason (Chiang, Nouri and
Samanta, 2014). The prudence principle allows Wave in financial reporting and improves the
faith in numbers. In the reporting principle, the company's final reports are an alert when the
estimates that impact spending and income are published. This represents that a sensible

approach must be adopted by the organization to assess cash, revenue and profit. The
financial records that are currently understood must be registered. Manager of ITV can thus
use the positive approach to address accurate figures such as cost, responsibility and expense
in financial reports. Such financial reports have an effect on the decision-makers ' phase
related to the company's economic prospects. This cautionary definition has been
incorporated into many norms as IAS (International Accounting Standard) & GAAP
(generally agreed accounting principles). This principle is therefore practiced by a company
to ensure to generate a regular business audit (Chiaravalloti, 2014).
Matching Concept: This term applies to the value of defining revenue and spending
in the time frame they contribute to instead of cash (Collis, Holt and Hussey, 2017). This
definition notes that at the moment of creation, sales were reported in accounting records. In
the tax process in which the accumulated money is earned it must be reported as profits.
Contrary expenditures may be recoded throughout the books of accounting when it occurred
but are classified as expenditures by company. The generally agreed theory of accounting
assists in creating an accrual annual report. Individual costs and profits for an individual
accounting cycle are reported under this concept (Dauderies and Annand, 2019). In preparing
regular ITV accounts, the spending and sales is determined in the accounting cycle at the time
happen not at cash basis. Under this definition all sales & outcomes can be defined to
recognize where they are actually occurring.
Therefore, prudence as well as the accrual principle is required to understand By ITV in
their Annual Report. For example, the principle of prudence extends for the development of
income and sales reports by ITV in order to assess the overall effectiveness of cash generated
and used in a specific year. Revenues could be established and successful decision making
could be encouraged. To order to establish the general financial condition, the principle of
accrual serves to plan the assets and liabilities, which is generated by the administration of
the ITV PLC.
3. Explain how VAT would be recorded in Wave accounting records and reports
Currently taxation is regarded as one of the key and important means of national
finance. it is observed that through consistent application in taxation countries can improve
the productivity and financial growth and Vice versa (Libby, 2017).
 Value added tax: This is a form of tax imposed on a company as interest is applied
from manufacturing to revenue at each stage in the distribution chain. In 1973 it is

known as purchase tax. The sum of VAT charged by consumers on the product cost
would be less the production content. It has already been taxed for the products that
are produced by company. This is an additional tax that government collects in order
to increase the overall economy (Rathore, 2019). Throughout the Countries in Europe,
this tax have been implemented within entire production cycle such as from begin to
end as products are commonly prepared. It is required to charge the products by
several nations. It is imposed first of all in France and is also referred to as the value
added tax. In certain cases, VAT has paid the exported commodity but, for fact, has
ignored the dual fiscal issue and it has not taxed export goods. It will repay the
individual charging it if paid (Van Mourik, 2013). Throughout the United Kingdom,
there are specific VAT thresholds that apply are discussed underneath:
 20 percent normal rate extends to goods & facilities.
 Goods & services relevant to car seats and house electricity are lowered by 5 percent.
 Zero percent tax on nutrition & kid clothes levied by the British government.
 Several products such as property transactions, postmarks and financial transactions
are excluded from Value added tax (Sellami and Tahari, 2017).
CONCLUSION
It was derived according to the above discussions that perhaps the financial accounting
aspect of reports will lead to the preparing of an effective accounting report. Such reports are
compiled in compliance with accounting standards. Entire accurate information concerning
each case about the business during the reporting period is important to maintain and keep in
suitable format which ease in making decision for increase profit margin. The principle of
continuity and prudence is used to establish the balance sheet, the income statement as well
as other essential records for a company. Finally, VAT is a kind of indirect tax which
increases the government funds that can be further used for many economic development.

REFERENCES
Books and Journals:
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introductory financial accounting. Accounting Education. 23(1). pp.42-53.
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44(2). pp.61-89.
Collis, J., Holt, A. and Hussey, R., 2017. Business accounting. Palgrave.
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