Financial Accounting Report Analysis and Value Added Tax

The assignment discusses the significance of financial accounting reports in representing a company's financial position. It highlights the importance of adapting accounting concepts like prudent and accrual concepts for preparing financial statements. The analysis also delves into the payment of value-added tax, which is mandatory for registered businesses with sales exceeding a prescribed limit. This process helps enhance business revenue and sales, ultimately contributing to the economy and business growth.

The Accounting records and Financial
statements
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Table of Contents
INTRODUCTION...........................................................................................................................1
1-prepare the accounting records and financial statement for Conga, a sole trader toy retailer
business-......................................................................................................................................1
....................................................................................................................................................1
2- Prudent concept and Accrual concept ..................................................................................17
3- In future the government might require VAT on sales then VAT would be recorded in
Conga accounting and report....................................................................................................18
CONCLUSION..............................................................................................................................20
REFERENCES..............................................................................................................................21

INTRODUCTION
Financial Accounting is the process of identify , analysis and recording and summarised all
financial transactions are summarised in financial statement it includes income statement ,
balance sheet , cash flow statement and equity shareholder statement. Generally acceptable
accounting principle is standard framework for financial accounting. Financial statement
represent financial position of the company and helps to compare with other company that useful
for internal and external stake holders (Williams and Dobelman, 2017).
Present report based on Conga company which is UK base company and having retail business
of toys.
This report will include accounting records and financial statement like trail balance, income
statement and balance sheet of Conga company. It also includes prudent concept and accrual
concept of financial accounting which adapt while preparing financial statement Further it
prescribes that value added tax is mandatory for all company so Conga company also record
value added tax in accounting reports.
1-prepare the accounting records and financial statement for Conga, a sole trader toy retailer
business-
Journal entries
s.no. Particulars Debit Credit
1 Credit purchase account Dr. 2000
To trade payable 2000
2 Credit purchase account Dr. 400
To trade payable 400
3 Credit purchase account Dr. 300
To trade payable 300
4 Credit purchase account Dr. 200
To trade payable 200
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5 Credit purchase account Dr. 500
To trade payable 500
6 Expenses account Dr. 200
To cash 200
7 Expenses account Dr. 200
To cash 200
8 Expenses account Dr. 400
To cash 400
9 Trade receivables account Dr. 150
To return outwards 150
10 Trade receivables account Dr. 150
To return outwards 150
11 Cash account Dr. 100
To trade payables 100
12 Cash account Dr. 200
To trade payables 200
13 Trade receivable account Dr. 300
To credit sales 300
14 Trade receivable account Dr. 400
To credit sales 400
15 Trade receivable account Dr. 500
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To credit sales 500
16 Trade receivable account Dr. 400
To credit sales 400
17 Trade receivable account Dr. 250
To credit sales 250
18 Cash account Dr. 150
To sales 150
19 Cash account Dr. 150
To sales 150
20 Cash account Dr. 250
To sales 250
21 Sales return account Dr. 100
To trade payables 100
22 Sales return account Dr. 100
To trade payables 100
23 Allowance for doubtful accounts Dr.. 1100
to accounts receivables 1100
(3% of accounts receivables are allowance for
doubtful debts)
24 Allowance for doubtful account Dr.. 6200
to accounts receivables 6200
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25 Cash account Dr. 2000
Discount account Dr. 2000
to accounts receivables 4000
26 Trade payable account Dr. 3000
To cash account 2000
To discount receivable account 1000
27 Electricity expenses account Dr. 3000
To cash 3000
28 Rent expenses account Dr.. 5000
To cash 5000
29 Cash account Dr. 45000
To capital 45000
30 Loan account Dr. 40000
Interest account Dr. 20000
To bank account 60000
31 Wages account Dr. 4000
To accrued wages 4000
Total 138700 138700
Conga Sales Day Book December 2018
Date Customer Invoice Amount dr cr
No.
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30-Nov-18 sales 390390
31-Dec-18 cash 150
31-Dec-18 cash 150
31-Dec-18 cash 250
31-Dec-18 accounts
receivables 300
31-Dec-18 accounts
receivables 400
31-Dec-18 accounts
receivables 500
31-Dec-18 accounts
receivables 400
31-Dec-18 accounts
receivables 250
Total 392790
Conga Sales Returns Day Book December 2018
Date Customer Invoice Amount
No. dr cr
30-Nov-18 Return inwards 6200
31-Dec-18 trade payables 100
31-Dec-18 trade payables 100
Total 6400
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Conga Purchase Day Book December 2018:
Date Customer Invoice Amount dr cr
No.
30-Nov-18 purchases 135500
31-Dec-18 Trade payable 2000
31-Dec-18 Trade payable 400
31-Dec-18 Trade payable 300
31-Dec-18 Trade payable 200
31-Dec-18 Trade payable 500
Total 138900
Conga Purchase Returns Day Book December 2018:
Date Customer Invoice Amount dr cr
No.
31-Dec-18 accounts recievables 150
31-Dec-18 accounts recievables 150
Total 300
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Conga Cash Receipts Book December 2018
Date Customer Invoice Amount
No. dr cr
accounts
recievables 2000
31-Dec-18 Trade payables 100
31-Dec-18 Trade payables 200
31-Dec-18 sales 150
31-Dec-18 sales 150
31-Dec-18 sales 250
capital 45000
Total 47850
Conga Cash Payments Book December 2018:
Date Customer Invoice Amount
No. dr cr
31-Dec-18 expenses 200
31-Dec-18 expenses 200
31-Dec-18 expenses 400
31-Dec-18 Trade payables 2000
31-Dec-18 Electricity
expenses a/c dr 3000
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31-Dec-18 Rent expenses
a/c dr. 5000
Total 10800
GENERAL LEDGER:
Sales Account
Date Description Dr Date Description Cr
to balance b/d 390390 By balance Cf 387990
by accounts
recivables 300
by accounts
recivables 400
by accounts
recivables 500
by accounts
recivables 400
by accounts
recivables 250
cash 150
cash 150
cash 250
total 390390 total 390390
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Purchases Account
Date Description Dr Date Description Cr
To trade
payables 2000 By balance b/d 135500
To trade
payables 400
To trade
payables 300
To trade
payables 200
To trade
payables 500
to balance C/f 132100
Total 135500 total 135500
Expenses Account
Date Description Dr Date Description Cr
To cash 200
To cash 200 By balance c/f 800
To cash 400
Total 800 Total 800
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accounts recievables Account
Date Description Dr Date Description Cr
to retuern
outwards 150 allowance for doubtfull
debts 1100
to retuern
outwards 150 allowance for doubtfull
debts 6200
to credit sales 300 cash 2000
to credit sales 400 discount allowed 2000
to credit sales 500 By balance b/d 36660
to credit sales 400
to credit sales 250
To balance c/f 45810
Total 47960 Total 47960
Trade payables Account
Date Description Dr Date Description Cr
to cash 2000 by cash 100
to discount
received 1000 by cash 200
to balance b/d 30900 return inward 100
return inward 100
By balance
c/f 33400
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Total 33900 Total 33900
Discount allowed Account
Date Description Dr Date Description Cr
to accounts
recievables 2000 balance c/f 2000
Total 2000 Total 2000
discount recievable Account
Date Description Dr Date Description Cr
to balance c/f 1000 Trade payable 1000
Total 1000 Total 1000
Electricity expenses Account
Date Description Dr Date Description Cr
to cash 3000 By balance b/d 22280
To balance c/f 19280
total 22280 total 22280
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Rent expenses Account
Date Description Dr Date Description Cr
to cash 5000 balance b/d 46400
To balance c/f 41400
Total 46400 Total 46400
capital Account
Date Description Dr Date Description Cr
To drawings 90 by cash 45000
to balance c/f 194910 by balance b/d 150000
total 195000 total 195000
loan Account
Date Description Dr Date Description Cr
to bank 20000 by balance b/d 60000
To balance c\f 40000
Total 60000 total 60000
12

Interest on loan Account
Date Description Dr Date Description Cr
to bank 20000 By balance C/f 20000
Total 20000 Total 20000
bank Account
Date Description Dr Date Description Cr
by interest 20000
by loan 40000
To balance c/f 75410 by balance b/d 15410
Total 75410 Total 75410
wages Account
Date Description Dr Date Description Cr
to accrued wages 4000 by balance b/d 51000
To balance c/f 47000
Total 51000 Total 51000
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accrued wages Account
Date Description Dr Date Description Cr
to balance c/f 4000 by wages 4000
Total 4000 Total 4000
allowance for doubtful Account
Date Description Dr Date Description Cr
To accounts
receivables 1100 balance c/f 7300
To accounts
receivables 6200
Total 7300 Total 7300
Sales return Account
Date Description Dr Date Description Cr
To trade
payables 100 by balance b/d 6200
To trade
payables 100
To balance c/f 6000
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Total 6200 Total 6200
Advertisement Account
Date Description Dr Date Description Cr
to balance c/f 22000 by balance b/d 22000
Total 22000 Total 22000
Purchase return Account
Date Description Dr Date Description Cr
accounts recievables 150 by balance c/f 300
accounts recievables 150
Total 300 Total 300
Inventories Account
Date Description Dr Date Description Cr
To balance c/f By balance b/d 60140
Closing
inventories 40000 By sales 387990
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Purchase 132100 Return
outwards 300
Return inwards 6000
To balance c/f 270330
Total 448430 Total 448430
Equipement Account
Date Description Dr Date Description Cr
Depreciation on
equipment 46000 By balance b/d 280000
To balance C/f 234000
Total 280000 Total 280000
Depreciation on Equipment Account
Date Description Dr Date Description Cr
By balance b/d 46000
To P&l 46000
Total 46000 Total 46000
Conga Trial Balance at 31 December 2018:
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Ledger Account Dr Cr
Sales 387990
Purchase account 132100
Expenses account 800
Accounts receivables accounts 45810
Trade payable account 33400
Discount allowed account 2000
Discount receivable Account 1000
Electricity expenses Account 19280
Rent expenses Account 41400
Capital Account 194910
Loan 40000
Interest on loan 20000
Bank account 75410
Wages account 47000
Accrued wages 4000
Allowance for doubtful Account 7300
Return inward Account 6000
Advertisement Account 22000
Inventories Account 270330
Equipment Account 234000
Depreciation on equipment 46000
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Return outward 600
Suspense account 94490
Total 862910 862910
Conga Income Statement for the year
ending 31 December 2018
Particulars Details Amount
Sales revenue 387990
Less Cogs
Opening 60140
Add: purchase 132100
Less: Closing 40000 152240
Gross profit 235750
Operating expenses
Expenses 800
Discount allowed account 2000
Discount receivable Account 1000
Electricity expenses Account 19280
Rent expenses Account 41400
wages account 47000
Allowance for doubtful Account 7300
advertisment 22000
depreciation on equipment 46000
Total operating expenses 186780
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Total operating income 48970
Interest on loan 20000
Net income 28970
Conga Statement of Financial Position at
31 December 2018.
Particulars Details Amount
Assets
Current assets
cash 37050
bank 75410
account receivables 45810
inventories 270330
total current assets 428600
fixed assets
equipment 234000 234000
662600
Liabilities
trade payable 33400
accrued wages 4000
loan 40000
other liabilities 361320
Total 438720
Equity 194910
capital 28970
add net profit 223880
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662600
2- Prudent concept and Accrual concept
Prudent concept – It is a significant accounting principle which is useful for effective judgement
while manager adapting accounting policies of the company. Sometimes Conga company
business transactions are uncertain then company follows this concept. Prudent concept describe
that company must record all expenses and losses as soon as possible but all revenue and assets
records in the books of accounts on the time of realised (Basu,Ma and Tran, 2018). This concept
helps to provide better and realistic position of the company and all profits are not anticipated
over the expenses, losses and liability. This concept also known conservative concept of
accounting. By using this concept Conga company get all accurate information which is useful
for preparing financial statement. Conga Company should never underestimate the expenses and
liability such as wages, rent , depreciation , trade payable electricity expenses , loans that would
helps in minimising the losses, liability and financial risk of the Conga company. Accountant
should never overstate profits like trade receivable ,bank balance and net profits of the company.
Further reason for adopting this concept because it records all losses as soon possible that help to
company for preparing meet out the obligations that will improve financial position of the
company and enhance market share, profitability of the company. Conga company evaluate
performance of the company that helps to take decision and making polices for accomplish goals
and objective of the company (Robinson and et.al., 2015).
Accrual concept - Conga company adapt accounting concept of the accounting that refers to all
revenues and income record when they are realised, not to be recorded on the time of receive in
cash. All losses and expenses record when they are incurred , not on the time of paid in cash
form. Accrual concept is important because it over all impact on income statement and balance
sheet that is used to depict liabilities and company non cash assets. It is scientific tool which is
used to compare to cash basis. This concept is also known as matching concept because it
focuses on all expenses and revenue match in the end of accounting period. Conga company
keeps all trade receivable and trade payable over a particular time period that helps to make all
payment and reducing the liabilities. Company can ascertain about the future growth and
opportunities by ensuring the best policies and optimise use of scare resources like human
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resources, capital etc. company reduce all operating losses from the profits and receivable for
calculating net profit (Demmer, Pronobis, and Yohn, 2018). It recognises surplus amount and
deficit amount of the company that helps to analysis that they have sufficient profits for meet out
its short term liabilities and long term liabilities. Further it evaluates performance that will helps
to enhance profitability and growth. Manager of the Conga company effectively and efficient
communicate accurate all financial information to its end users that helps to increase in sales
sand reduce expenditure.
3- In future the government might require VAT on sales then VAT would be recorded in Conga
accounting and report
Value added tax is indirect tax which lived on sales of goods and services provided by registered
company (Senteney, Stowe and Stowe, 2019). VAT is consumption based tax because indirectly
buyers are responsible to pay tax. Sellers collect tax from buyers to pay UK government.
Regulations regarding Value added tax-
 UK government decide standard tax rate recently it is 20% which is applied on purchase
of product. Government can change standard tax according to economy and their
priorities. This rate is applied on such product like alcoholic drink, chocolate , cloths and
footwear etc.
 Second is reduce tax recently it is 5% which is apply on products like energy saving
material , smoking products , gas , electricity , heating oil etc.
 Third is zero rate which is decided by UK government this rate is applied on necessary
goods like food, books , children's cloths etc and this rate is recorded in value added
return (Schenk, Thuronyi and Cui, 2015).
 Forth is exempted which is applied to cultural events, financial services , funeral plan
insurance , postage stamp and sports activities. This does not count in sales taxable
turnover and business can voluntary registered for value added tax.
 Company have turnover more than 85000 pound then registered company have to pay
value added tax to government.
 Business collect tax from its customers then pay to HM revenue and customers When
they file value added tax record.
 Value added tax return usually due every months.
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 Faster Payment to be done in the mode of debit card , BACS and other mode when HM
revenue and custom accept value added tax payment (Edmonds, Smith and Stallings,
2018).
 Invoice must be clear and record all information such as invoice number , date , name of
the buyer and sellers , value added tax registration number , amount , quantity , discount
amount (Imhof, Seavey and Watanabe, 2018).
 Inclusive price of value added tax to be calculated by
value added tax standard rate is 20 % multiply by price then exclude value added tax by 1.2.
value added tax reducing rate is 5% multiply by price then excluded value added tax by 1.05.
company also calculate exclusive price -
price excluded standard rate that is 20% divided by price including value added tax rate by 1.2
price excluded reducing rate of value added tax divided by including value added tax by 1.05.
 When person give gift which value is less than 50 within twelve months then value
added tax will not chargeable.
Conga company's selling is more than 8500 pound so that company is liable to pay tax to
government (Majeed, Yan and Tauni, 2018). As per UK regulations of value added tax Reduce
rate of value added tax to be charged because Conga company have toy business. If company
pay tax then it will helps to generate constant revenue on low tax rate of value added tax and it
is benefit for growth of the country.
CONCLUSION
Financial accounting report concluded accounting and preparation of financial accounting is
important because it represents financial position of the company. It is useful to manager ,
investors, customers get all information which helps to take decision of investments. This report
also concluded that company have to adapt accounting concept like prudent concept and accrual
concept for preparing the financial statement. By analysing financial statement manager can take
decision to achieve short term goals and long term goals of the company. Further report
described payment of value added tax is mandatory to all registered business whose sale is more
than prescribe limit it helps to enhance business revenue and sales . Ultimately value added tax
pay to government which is important for economy and business.
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