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(PDF) Principles of Financial Accounting

Added on - 23 Nov 2020

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FINANCIAL ACCOUNTINGPRINCIPLES
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1MAIN BODY...................................................................................................................................11. Defining financial accounting and its purpose........................................................................12. Naming two internal and four external stakeholders of large business organisation andreason behind their interest in financial information of entity....................................................3CLIENT 1........................................................................................................................................51. Completing double entry recording within the relevant ledger..............................................52. Trail balance at 31st January 2019........................................................................................13CLIENT 2......................................................................................................................................14(A.) Statement of profit and loss of Munteanu Ltd...................................................................14(B.) Statement of financial position of Munteanu Ltd..............................................................14(C.) Explaining the following accounting concepts..................................................................15(D.) Describing the purpose of depreciation in formulating accounting concept with its twowidely used methods.................................................................................................................16(E.) Critically evaluating difference between financial statements prepared by sole trader andthe limited companies...............................................................................................................17CLIENT 3......................................................................................................................................17(a.) Explaining the purpose of bank reconciliation statement with reason of performingstatements on monthly basis......................................................................................................17(b.) Listing some areas which may cause record vary from the bank records..........................18(c.) Explaining the term 'imprest' which used in petty cash system..........................................18(d.) Bank reconciliation statement as at 30 September 2018....................................................18CLIENT 4......................................................................................................................................20(a.) preparation of sales and purchase ledger control account..................................................20(b.) Explaining need for preparing control account and the term control account....................20CLIENT 5......................................................................................................................................21(a.) Describing the term suspense account with its main features............................................21(b.) Trial balance from the figures............................................................................................22(c.) Preparation of journal entries with suspense account.........................................................22
CONCLUSION..............................................................................................................................23REFERENCES.............................................................................................................................24
INTRODUCTIONFinancial accounting principles are the rules and guidelines which must be followed byentity while reporting financial data in entities books of accounts. It is the specialised branch ofaccounting which generally keeps track on financial transactions of the entity (Peterson,Schmardebeck and Wilks, 2015). For the present report, selected small accountancy firm isHowlader & Co. which is a group of chartered accountants that provides services as both taxadvisers and CA. In this report, explanation will be provided on financial accounting and itspurpose with two internal and four external stakeholders of organisation. Further, study will bediscussed on the interest of each stakeholder’s in the financial information of the entity.Moreover, this report will also provide explanation related to methods of depreciation and needof bank reconciliation statements.MAIN BODYTo,The Line managerHowlader & Co,Date: 16 march 2019This is to inform you that for smooth running of business, here are some accounting rules andregulations which our company is aware about it.1. Defining financial accounting and its purposeFinancial accounting is a special branch of accounting which mainly helps entity to keeptrack of accounting transactions of the entity. It is the field of accounting which mainlyconcerned with the summary, analysis and reporting of financial transactions. This is an area ofaccounting which focuses on providing information related to internal and external businessaffairs to its users, stakeholders and creditors. Financial statements are issued by entity on theirroutine schedule and such statements are given to people outside the company so that they areable to take decision regarding investing their money on capital of the firm.In other words, financial accounting is also known as field of accounting which treat money as ameans of measuring entity's economic performance rather than measuring as the factor ofproduction. It is also considered as process under whichcompletemonitoring and control ofmoney takes place in order to analyse the amount of money which flow in and out from1
organisation in the context of assets and liabilities. Thus, it can be said that financial accountingis the process which keeps on track the cash flow of entity in order to run business with the longterm perspective.However, it is a fact that financial accounting is mainly termed as the language of businesswhich main function is to serve communication. Thus, in order to protect the interest of theshareholders, financial accounting is governed by both local and international accountingstandards. Through such accounting, Howlader & Co. will able to disclose its financialcapabilities and its performance in business market to the general public and to its stakeholders.Its main purpose are as follows-Main purpose of financial accounting is to provide the information which is important interms of decision making process of the entity. It is important to analyse that purpose offinancial accounting is not to report the business transaction. Rather, its goal is to provideenough information to users and customers so that they will able to assess the value andcapability of company for themselves.Its role is to prepare effective financial reports which will provide information regardingthe performance of the firms to its internal and external stakeholders such as investors,creditors, manager and customer as well. It is a process through which company's revenue,receivables, incomes and expenses are generally collected, measured and reported in the booksof accounts. Thus, it can be said that its purpose is to collect information regarding businessresults, its financial capabilities and cash flow of organisation.The other additional purpose of the financial accounting is as follows-Credit decision:financial statements used by the lender for analysing entire set ofbusiness information in order to determine whether the money which they have invested incompany will need to be extended or to be restricted. Thus, through this information, entitieswill able to attract more support from the creditors.Investment decision:financial statements are provided to investor so that they will usesuch information in order to decide whether to invest on entity's business capital or at price pershare (The purpose of financial statements,2018). Such information will analyse by them todecide capability of the firm to provide adequate return.Taxation decision:purpose of financial accounting is to serve the financial statements togovernment or tax authorities so that they will able to charge tax on business by analysing2
company's assets and income.Union bargaining decision:other purpose of financial accounting is to serve informationof business transaction to unions on which they can base their bargaining position by analysingability of the company to pay benefits to employees.2. Naming two internal and four external stakeholders of large business organisation and reasonbehind their interest in financial information of entityGenerally, stakeholders in every organisation plays an important role whether in termsof decision making process or in terms of investment. These are the group of people which mayor may not be affected by the business actions. Thus, basic definition of stakeholder state thatthose group of people without which support a business cease to get exist. There are two typesof stakeholder which include internal and external. Employees, managers and owners are thegroup of internal stakeholders and suppliers, government, customers and shareholders are thegroups external stakeholders.3Illustration1: internal and external stakeholders(source: Identifying and managing internal and external stakeholder interests,2017)
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