Purpose of Financial Accounting - PDF
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Added on 2021-02-20
Purpose of Financial Accounting - PDF
Added on 2021-02-20
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Table of ContentsINTRODUCTION...........................................................................................................................4A.......................................................................................................................................................41. Financial accounting and its purpose......................................................................................42. Internal and external stakeholders in the organization............................................................5B.......................................................................................................................................................9Client 1........................................................................................................................................9A. Double entry system...............................................................................................................9...................................................................................................................................................10...................................................................................................................................................13...................................................................................................................................................14...................................................................................................................................................15...................................................................................................................................................16Trial balance..............................................................................................................................18...................................................................................................................................................18Client 2......................................................................................................................................19A. profit and loss account..........................................................................................................19B. Statements of financial position...........................................................................................19C. Accounting concept..............................................................................................................20D. Purpose of depreciation with different methods..................................................................20E Sole traders and limited companies financial statements......................................................21Client 3 .....................................................................................................................................21A. Purpose of preparing bank reconciliation account...............................................................21B. Reason behind the variation of the company financial record from the bank record...........21C. Imprest system......................................................................................................................22D. Bank reconciliation statements.............................................................................................22...................................................................................................................................................23Client 4......................................................................................................................................23A Sales ledger and purchase ledger control account.................................................................23B. Need to prepare the control account.....................................................................................24
Client 5......................................................................................................................................24A. Suspense account and its features........................................................................................24B. Trial balance.........................................................................................................................25CONCLUSION..............................................................................................................................26REFERENCES..............................................................................................................................27
INTRODUCTIONFinancial accounting is used to present the financial data in more understandable manner withdifferent accounting reports like balance sheet, cash flow statement and profit and loss account.Financial accounting is used to provide the information to the internal and external record andrecord the monetary transaction. Expert wealth management company service based companyand situated in UK. It is a financial consultancy company which provides its innovative ideas andsuggestions to their clients to improve their wealth and profit by investing in different securitiesand portfolio. The report highlights the purpose of financial accounting in the company and howthe internal and external stakeholders are interested in financial information. It explains theaccounting concept like consistency and prudency in the company. It also explains the differentmethod used by the company like the straight line method and written down value method. Thereport also highlights the various financial statements used by the sole traders and company. Ithelps to understand the requirement of control account in the company and the role of suspenseaccount in trail balance.A1. Financial accounting and its purposeFinancial accounting : it refers to the branch of accounting system which keep recordsof the financial transaction of the organization and maintain the financial records for the furtheruse by the organization. The transaction are summarized, analyse, recorded and evaluate in astandard guideline (Henderson, and et.al., 2015). It presents the data in various financial reportslike income statement, profit ans loss account, balance sheet and trading account and cash flowaccount. The information presented in the financial statement are mainly used by the externaluser of the company. They evaluate t eh data to gain the share in the profit and capture the largeshare of market.Purpose of financial accountingRecording : It helps the organization to prepare the data in systematic manner byrecording them in the various statement. The aim of financial accounting is to record the data toget t eh useful information and make the decision on the basis of the data. Expert wealthmanagement consultancy firm record the financial data to get the financial position of thecompany in the market and evaluate performance in respect of tits competitor performance(Parson, and et.al., 2015).4
Decision : The purpose of the financial accounting is to present the data in that mannerthat a firm can take the decision on the basis of the data. They present the data to thestakeholders, suppliers, shareholder., customer etc. to evaluate the performance and take thedecision of investing the amount in the company. Expert wealth management use the financialdata of their clients to take the decision regarding maximize the wealth of the customer bydifferent investment decisions. Accuracy : Accuracy used to determine the reliability of the data. Financial accountingpurpose is to provide the accurate data to the stakeholders by evaluating and measuring the datain different formats. Expert wealth management company provide the accurate data to itssuppliers, customer, so they can reliable on the performance of the company. It also helps toencourage them to invest in the company assets (Schaltegger, and Burritt, 2017).Measuring performance : the purpose of financial accounting is to measure theperformance of the organization via comparing its data with the past information or performance.Every organization need the reliable sources to evaluate the performance via the accounting toolslike key performance indicators, balance score card and benchmarking. Expert wealthmanagement company measure the performance by analyse their clients performance and thefinancial data like the sales of the organization, changes in the profit and gaining the marketshare.Prepare financial report : Financial report of the company are used to maintain the datain different accounts like profit and loss account, cash flow and balance sheet account. Thefinancial reports help the company to measure their performance and evaluate the trend of thevariances by comparing it to the last year performance (Drake, Hales, and Rees, 2017). Expertwealth management company prepare the balance sheet, cash flow and trading and profit andloss account to measure weather the company is grown in favourable manner or not. 2. Internal and external stakeholders in the organizationInternal stakeholder : Internal stakeholders are the person which work within theorganization and have interest in the financial and management information of the company.Internal stakeholder of the company are its employees, manager and owner. The demand ofemployee is to earn more money from the performance of the company. Owner are interested inrising the profit of the company (Farooq, Rupp, and Farooq, 2017). 5
1. Employees : Employee are the persons who work for the organization to earn the money assalary and incentives. They get remuneration from the management team on services provided bythem to the organization.Interest of employees in the financial informationEmployees are more interested in the financial performance of the company because theincrement of the salary is based on the growth of the organization. The employees monitor theaccounts of the company to get the information that whether the company id perform better inthe market or not. It also helps them to aware about the various transaction of the company likethe expenses, profit and loss and source of income (Hameed, and et.al., 2016). The financialinformation of the company encourage and motivate them to provide their valuable suggestion,participate in the company activities and work toward the common goal of the organization liketo provide the better plan to the customer to increase their wealth and get the higher profit fromthe different portfolio with minimum risk.2. Owner : Owner are the person who have the highest interest in the performance and profit idthe company because they are the real stakeholders. The profit of the company are belongs tothem, and they take the important decisions for the organization. The term owner is used for theindividual and group of people who have invested in the capital of the company.Interest of owner in the financial informationThe owner of the company are interested in the financial information because they haveto take the important decision regarding the policies, procedure and methods for improving thefinancial position and have to monitor and control the internal management. The financialinformation like profit, revenue, expenses help them to take the important decisions likedistribute the profit as dividend or retain in the organization as capital reserve (Leonidou, andet.al., 2017). It also helps them to take the decision whether they have to continue the businesswith the present method or change the method to get Higher profit. The large organization usesthe Financial information like the total cash inflow and outflow and provide the information tothe owner to control the expenses and encourage the investor to invest more in the company.External stakeholder : They are the individual and group of the individual which are notthe part of the organization, but they are interested in the organization activity and indirectlyaffect the business of the company. There are different kind of external stakeholder like6
suppliers, government, creditors, customer, intermediary and competitors (BusinessStakeholders: Internal and External, 2019).1. Creditors : Creditors are the individual, bank and financial institute which provide finance tothe company for the efficient running of the business (Ramus, and Vaccaro, 2017). Bankprovide finance to the Expert wealth management company against some security. They regulatethe performance of the company via the financial statement and may also conduct the internalaudit to check the accuracy if the data.Interest of creditor in the financial informationCreditors are interested in the financial information of the organization like theprofitability, productivity and performance to regulate the growth profit and loss of the company.They use the financial information to know that whether the company is able to pay the debt infuture or not (Subrahmanyam, Tang, and Wang, 2017). They also conduct the internal or externalaudit of the company before providing fund to run the business of organization. Company canborrow the money from the bank and from various financial institute to run the businesseffectively and efficiently.2. Customer : Customer are the end user of the product and services of the organization. Theyconsume or purchase the services to satisfy their demand and needs (Hirshleifer, amd et.al.,2018). They influence the company to improve their services according to the taste andpreferences of the customer. The satisfaction of the customer with the product and services aremore important for the company. Customer is the valuable person of the company because theypurchase the product and services.Interest of customer in the financial informationCustomer have interest in the financial information of the company like the product andservices offered by the company and their growth trend. They regulate the financial account tomeasure the performance of the company and make the decision that whether they have topurchase the services or not. Customer gets the financial information from the various reportpublished in newspaper and websites which help them to analyse the performance of thecompany (Rikhardsson, 2017). The accuracy of the data make the customer more reliable uponthe company. The growth and profit of the company attract their client and customer to involvein the financial information.7
3. Suppliers : suppliers are the person who supply the raw material to the company andnegotiate with them regarding the price of the product and services. Supplier play and importantrole in the growth and development of organization. The problems in supply of the product affectthe productivity and profitability of the company. Interest of suppliers in the financial informationSuppliers need the financial information to know the accuracy of the data andperformance of the company in market, so they can set the price of their product and services andalso negotiate with the current price (Maas, Schaltegger, and Crutzen, 2016). Suppliers providethe raw material to the company. The financial information regarding the sales and revenue andprofit of the company help them to get the price of their product in compare to the competitors inthe market. They also use the financial information to make the decision regarding the safety ofthe credit provided by them to the company.4. Competitors : Competitors are the person who do the same business or deal in same productline in market. They compete in the market with the price of the product or the customer share inthe market. The number of competitors in the market affect the price of the product and services.If there are large number of competitors then the profit of the firm will reduce.Interest of competitors in the financial informationCompetitors in the market are more interested in the financial information of thecompany because the information regarding the price of product, method of pricing anddepreciation help the competitors to increases or decrease the price of the product and servicesand get the higher profit from their competitors (Sethi, Martell, and Demir, 2017). Theinformation regarding the investor of the company their advertising strategy and investmentstrategy influence the company to change their strategy and adopt the new strategy which helpthem to get higher market share.BClient 1A. Double entry systemJournal entries in the books of Alexandra for January 2019 are as follows Date particulars Debit Credit 1st jan 2019Storage exp.A/c Dr 450To bank A/c 8
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