Financial Accounting and VAT

The assignment discusses the significance of financial accounting in managing a company's annual records. It highlights the application of accounting concepts and principles to prepare accurate financial statements. Additionally, it provides an overview of VAT in the UK, including different rates and exemptions.

INTRODUCTION
TO FINANCIAL
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1. Accounting records & financial statements for Conga...........................................................1
2. Explain the Prudence and accrual (matching) Concept........................................................12
3. Explain how VAT would be recorded in Conga’s accounting records and reports..............14
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Today, in business world financial accounting and management accounting both are
important for survive any business (Bevis, 2013). It can help to manager for manager internal
books of accounting and help to managers for decision making process and provide overall
efficiency of a company. Financial accounting is essential for business which can support to
maintain and hold systematic record of overall business firm financial transaction. It helps to
management to prepare financial report according to guideline in specific manner to record,
summarise and present annual report and accounts. There are including reports such as income
statement, cash flow and balance sheet. In this report, Conga has been selected it is a small sole
trader toy retailer business. In this report records several transaction for sole trader business,
understand concept of prudence and matching concept. Apart this importance of value added tax
and their application to accounting records and reports of Conga has been selected.
MAIN BODY
1. Accounting records & financial statements for Conga
Journal Entries – In the term of accounting journal entries are defined as the logging of
different happening in an accounting journals that displays a total of company debit and credit
balances (Bushman, 2014) .
S. No. Particulars Debit Credit
1 Purchase a/c
To Alex Ronald a/c
30000
30000
2 Purchase a/c
To Adam a/c
10000
10000
3 Purchase a/c
To Michael a/c
25000
25000
4 Purchase a/c
To William a/c
32000
32000
5 Purchase a/c
To Nick a/c
40000
40000
1

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 Bills Payable a/c
To Cash a/c
15000
15000
2 Bills Payable a/c
To Cash a/c
20000
20000
At least 5 sales on credit and 3 sales for cash
S. No. Particulars Debit Credit
1 Mr Otis a/c
To Sales a/c
15000
15000
2

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

To Bills Receivables a/c 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
Discount Allowed a/c
To Miss Sophie a/c
25000
5000
30000
2 Miss Jennifer a/c
To Discount Received a/c
To Cash a/c
40000
4000
36000
£3000 cash spent on electricity and £5000 spent on rent
S. No. Particulars Debit Credit
1 Electricity a/c
To Cash a/c
3000
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 20000
4

To Bank a/c 20000
Wages accrued of £4,000
S. No. Particulars Debit Credit
1 Wages a/c
To Wages Payable a/c
4000
4000
Estimated depreciation for the year to 31 December 2018
S. No. Particulars Debit Credit
1 Depreciation a/c
To Accumulated Depreciation a/c
45000
45000
Allowance for doubtful debts should be 3% of the year end receivables.
S. No. Particulars Debit Credit
1 Bad Debts a/c
To allowance for doubtful debts a/c
3500
3500
Ledger Accounts – It is known as general ledger to maintain system for business with
financial data with the help of two column credit and debit (Glover, 2014). There are transactions
are recorded from journal entries in related column.
Purchase Account
Date Particular Dr Date Particulars Cr
2018 2018
01/12/01 To Alex Ronald a/c 30000 By balance c/d 137000
02/12/01 To Adam a/c 10000
03/12/01 To Michael a/c 25000
04/12/01 To William a/c 32000
5

05/12/01 To Nick a/c 40000
137000 137000
Sales Account
Date Particular Dr Date Particulars Cr
2018 2018
To Balance c/d 265000 01/12/02 By Otis a/c 15000
02/12/02 By Jack a/c 35000
03/12/02 By Joe a/c 50000
04/12/02 By Sean a/c 10000
05/12/02 By Kawin a/c 25000
06/12/02 By Cash a/c 50000
07/12/02 By Cash a/c 35000
08/12/02 By Cash a/c 45000
265000 265000
Cash a/c
Date Particular Dr Date Particulars Cr
2018 2018
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 bills Receivable a/c 15000 By Bills payable a/c 15000
To bills Receivable a/c 10000 By Bills payable a/c 20000
To Sophie a/c 30000 By Jennifer a/c 36000
6

To Capital a/c 45000 By balance c/d 101000
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 Mr Kawin a/c 8000 By Balance c/d 23000
To Mr Joe a/c 15000
23000 23000
Rent a/c
Date Particular Dr Date Particulars Cr
To Cash a/c 5000 By balance c/d 5000
Salary a/c
Date Particular Dr Date Particulars Cr
To Cash a/c 50000 50000
Electricity a/c
Date Particular Dr Date Particulars Cr
7

To Cash a/c 3000 By balance c/d 3000
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 balance c/d 45000 By Cash a/c 45000
45000 45000
Depreciation a/c
Date Particular Dr Date Particulars Cr
To Accumulated
Depreciation a/c 45000 By Balance c/d 45000
45000 45000
Bad Debts a/c
Date Particular Dr Date Particulars Cr
8

To Allowance for bad
debts a/c 3500 By balance c/d 3500
3500 3500
Accounts Receivable a/c
Date Particular Dr Date Particulars Cr
To balance c/d 25000 By Cash a/c 15000
By Cash a/c 10000
25000 25000
Accounts Payable a/c
Date Particular Dr Date Particulars Cr
To Cash a/c 15000 By Balance c/d 35000
To Cash a/c 20000
35000 35000
Trial Balance – It is a form of bookkeeping worksheet that shows the balance of all
ledger that are further compiled into credit and debit amount that must be equal (Liu, Yao and
Yao, 2012). It is observed by company to know all remaining balances of each ledger account to
know increase and decrease amount as compare to last year.
S. No. Ledger a/c Debit Credit
1 Capital a/c 45000
2 Purchase a/c 137000
3 Sales a/c 265000
4 Cash a/c 101000
9

5 Return Inward a/c 20000
6 Return Outward a/c 30000
7 Rent a/c 5000
8 Salary a/c 50000
9 Electricity a/c 3000
10 Discount Allowed a/c 30000
11 Discount Received a/c 40000
12 Depreciation a/c 45000
13 Bad Debts a/c 3500
14 Bills Receivable a/c 25000
15 Bills Payable a/c 35000
16 Suspense a/c 24500
429500 405000
Income Statement – It is very important part of financial statements which can provide
proper financial information about company. With the help of this statement know about total
expenditure and incomes of a company (Mancini, Vaassen and Dameri, 2013). On the basis of
these income & expenses management can take effective decision.
Statement of profit & loss
PARTICULARS AMOUNT
I Revenue from operations:
Sales a/c 249000
ii Other incomes
iii Total revenue (i+ii) 249000
10

iv Expenses:
Cost of material used
Depreciation 50000
Purchase of stock in trade 60000
Rent a/c 25000
Electricity a/c 22000
Salary a/c 45000
Total exp. 202000
v Profit before exceptional
and extra ordinary items(iii-
iv) 47000
vi Exceptional items
vii
Profit before extra ordinary
items 47000
viii Extra ordinary items
ix Profit before tax 47000
Cash Flow – In accounting, a statements defined about cash inflow and cash outflow in
particular financial year. Cash flow statement provides all accurate information related to all
activities. Cash flow divided into three activities which are – cash flow from operating activities,
cash flow from financial activities and cash flow from investing activities (McCarthy, Shelmon
and Mattie, 2012).
Cash flow statement for the year ending march 2019
Particulars Amount
Receipts
11

Interest received 30000
Proceeds from sale of goods 70000
Cash collected from customers 60000
Proceeds from long term debts 40000
200000
Payments
Fixed expenses:
Rent 10000
Salary paid to employees 50000
Interest expenses 12000
Variable expenses:
Payments made to suppliers 10000
Cost of electricity 12000
Direct material 15000
Commissions 14000
Labour cost 20000
Total (fixed+variable exp) 143000
Net balance (receipts – payments)
Cash balance in the beginning
Cash balance in the end
12

Balance Sheet – It is a last part of financial statement which can shows total assets and
total liabilities of company. With the help of this statement know actual position of a company.
In the term of business, balance sheet is a financial statement that help to know invested amount
which is invest by shareholders and support to management for identify capital structure.
BALANCE SHEET
PARTICULARS As on 31-12-2018
Equity and liabilities :
Shareholders fund: (45000)
Non current liabilities:
Current liabilities:
Accounts payable a/c 30900
Total 30900
Assets:
Fixed assets:
Current assets:
13

Inventory 60140
Accounts receivables 35000
Total 95140
Types of Books
In present time companies are prepares different types of accounting books which can
help to maintain internal account and systematic record of Conga. Some are mention below -
Purchase book
Date Customer Invoice no Amount
01/12/01 Alex Ronald a/c 30000
02/12/01 Adam a/c 10000
03/12/01 Michael a/c 25000
04/12/01 William a/c 32000
05/12/01 Nick a/c 40000
Total 137000
Sales book
Date Customer Invoice no Amount
01/12/01 Otis a/c 15000
02/12/01 Jack a/c 35000
03/12/01 Joe a/c 50000
04/12/01 Sean a/c 10000
05/12/01 Kawin a/c 25000
14

135000
Return out wards book
01/12/01 Michael a/c 5000
02/12/01 William a/c 15000
Total 20000
Return inwards book
01/12/01 Kawin a/c 8000
02/12/01 Joe a/c 15000
Total
2. Explain the Prudence and accrual (matching) Concept
In accounting terms, basic concepts and principle followed by manager at the time of
preparing accounts and different types of financial statements. There are many fundamental
concept which is applied by company that are – Consistency, prudence, going concern,
accounting equation and period, full disclosure. Some of these are discussed below -
Prudence Concept – It is the concept of accounting and applied by company when
maintain accounting books. Firm must not estimate revenues, assets & profits and for this
purpose losses, expenditure and liabilities are needed to be consider. The concept of prudence
helpful to conga regarding to financial statement and increase trustworthiness of amounts. The
accounting concept suggests that final accounts of corporation have reflects caution while
presenting the figures that affect expenditure & gains (McLaney and Atrill, 2014). It reflects that
company should show a conservative approach while analysing assets, revenues and profit. It is
required to record in accounting books which are actually realised. Therefore, Conga can apply
proactive approach in order to present reliable amounts in financial statements such as losses,
liabilities and expenditure. These financial statements impact on decision making process which
can take by manager regarding to future perspective of company. As IAS (International
15