Introduction to Financial Accounting

This document provides study material and solved assignments for Introduction to Financial Accounting. It covers topics such as trading and profit and loss accounts, features of financial statements, importance of financial information, and more. The document also includes examples and explanations of gross profit margin, return on capital employed, current ratio, trade payable period, and trade receivables days. Suitable for UGB105 module.

UGB105 Module Title Introduction to Financial
Accounting

Table of Contents
Question 1a......................................................................................................................................4
1 b)...................................................................................................................................................4
Question 2a).....................................................................................................................................9
2 b).................................................................................................................................................11
2 c).................................................................................................................................................13

Question 1a
a. Trading A/c
Amount £ Amount £
Sales 30,000
Less: Cost of sales
Opening Stock 4,700
Purchases 15,700
Less: Closing Stock 4,400 16,000
Gross Profit 14,000
b. Profit and Loss A/c
Gross Profit 14,000
Less: Operating expenses
Shop wages 4,420
Light and heat 260
Rent 4,500
Insurance 120 9,300
Net Profit 4,700
1 b)
Features of information for users of financial statements
Thematic features of the financial statements summaries:
To understand

The data should be reasonably readily available to tax reporting clients. This means that the data
should be included in a transparent way, with additional data provided in the supporting
documents depending on the situation to facilitate interpretation.
Relevance
Data should be relevant to customers' needs, and this is where the data will influence their money
choices. This could include the disclosure of particularly relevant data or data that could be
affected by exclusion or error and that the client's financial preferences could be affected.
Reliability
The data should be free from material errors and biases, and should not be denied. Therefore, the
data should reliably manage different exchanges and times, show the hidden content of the times,
and react wisely to assessments and vulnerabilities through appropriate disclosure.
Comparability
The data should be similar to the cash data entered for other accounting periods, with the aim
that customers may be able to differentiate patterns in the presentation and cash position of the
detail material.
Six main features:
1. The budget should be relevant to the purpose for which it was prepared. One should stay away
from dense and complicated divisions and anything that is relevant and relevant to people in
general should be taken into consideration.
2. They should provide complete and accurate data on performance, position, progress and
commitment expectations. It is also important that those who prepare and submit tax reports do
not allow their own biases to distort conventional norms.
3. They must actually match a past explanation or definition of a comparative concern or
activity. Equality is based on the usefulness of tax relationships.
4. They should be placed in an organized structure so that a positive and meaningful study can
take place.

5. Budget reports should be prepared and presented at the right time. Too much delay in their
settlement would diminish the importance and usefulness of these claims.
6. Tax reports should have a common value and understanding. This can be achieved simply by
applying some "strict accounting guidelines" in their configuration.
The importance of the financial information:
The essence of tax summaries lies in their need to satisfy the movable interest of several types of
meetings such as administrative, tenants, public and so on.
1. Importance for governance:
The increase in the size and complexity of the elements that influence business activity requires a
logical and visionary approach in the management of current business activity.
The management team needs separate, accurate and systematic financial data for the purposes.
Tax summaries help the administration to understand the state, progress and prospects of the
business.
By giving management reasons for the industry's results, it empowers them to develop
appropriate strategies and approaches for the future. The administration disseminates in detail
through these budget reports, their presentation to various assemblies and legitimizes their
exercises and in this way the truth.
A close examination of the balance sheets reveals the pattern in the progress and position of large
corporations and allows the administration to implement appropriate improvements in ways to
avoid threatening situations.
2. Importance of shareholders:
The board is separate from the ownership owed to the organizations. Investors simply cannot
participate in the day-to-day running of the business. However, the impact of these exercises for
investors at the group's annual meeting should be reported as tax minutes.
These tests give investors the power to think about the capacity and adequacy of the
administration, as well as the supply chain and financial strength of the organization.

By reviewing tax reports, prospective investors could determine the extent of receiving benefits,
the organization's current position and future opportunities, and choose to pursue their interests
in this group.
Distributed budget reports are the main source of data for future lenders.
3. Importance for lenders / creditors:
Budget reports provide valuable guidance for current and future providers and potential group
loan experts.
It is through a fundamental assessment of balance sheet reports that these collections form a
reflection on an organization's liquidity, profitability and long-term distribution position. This
will help them decide their future strategy.
4. Importance for the job:
Employees are granted a reward based on the amount of benefit as disclosed by a verified
benefits and incidents account. In this way, P and L a / c seem to be very necessary for experts.
Likewise, in compensation exchanges, the amount of benefits and benefits achieved is extremely
significant.
5. Public importance:
Industry is a social stuff. A number of company meetings, while not directly related to business,
want to learn about the position, progress and prospects of a business venture.
They are monetary examiners, legal advisors, exchange affiliations, worker's guilds, monetary
press, research researchers and instructors, and so forth It is just through these distributed budget
reports these individuals can dissect, judge and remark upon business undertaking.
6. Significance to National Economy:
The ascent and development of corporate area, by and large, impact the financial advancement of
a country. Deceitful and false corporate administrations break the certainty of the overall
population in business entities, which is fundamental for monetary advancement and retard the
financial development of the country.

Budget summaries act the hero of overall population by giving data by which they can analyze
and evaluate the genuine worth of the organization and try not to be cheated by corrupt people.
The law tries to raise the degree of business profound quality by convincing the organizations to
plan budget summaries in an unmistakable and efficient frame and reveal material data.
This has expanded the certainty of people in general in organizations. Budget reports are
additionally fundamental for the different administrative bodies, for example, charge specialists,
Registrar of organizations, and so on They can decide whether the guidelines are as a rule
stringently followed and furthermore if the guidelines are delivering the ideal impact, by
assessing the fiscal reports.
Benefits:
Monetary records are important for the organization's bookkeeping framework. Organizations
frequently use bookkeeping as an approach to keep track of who's winning. Private ventures
frequently think that its essential to keep track of who's winning since precisely following
monetary data is the most ideal approach to decide the adequacy and effectiveness of their
activities. Neglecting to comprehend or follow monetary data can rapidly prompt hazardous
business circumstances, for example, low income or the chance of insolvency. Monetary records
can likewise give chronicled records to settling on future business choices.
Fiscal report Reviews
Monetary records permit organizations to foster budget summaries. Each record contains explicit
data that is gathered into a total accumulation of monetary data. Maybe than evaluating every
individual record for patterns and other examination, fiscal reports permit organizations to direct
a hierarchical audit of monetary data. Monetary record investigation with mechanized
bookkeeping frameworks can build the budget summary examination of individual records.
Automated explanation examination regularly permits organizations to "drill down" into singular
records and audit explicit monetary exchanges.
The pay explanation, asset report and articulation of incomes are the three most mainstream
budget summaries and business. Every one of these assertions contains diverse monetary records
and data identifying with business activities. Organizations may utilize monetary records to

foster other explicit monetary reports. These reports are frequently industry explicit and furnish
entrepreneurs or chiefs with explicit data in regards to business tasks.
Foster Budgets
Numerous organizations foster working spending plans for their activities. These spending plans
contain recorded data dependent on an organization's monetary records. Spending plans are
typically made by exploring chronicled data from different monetary records and endeavoring to
gauge whether these numbers will diminish, stay something very similar or expansion in future
tasks. Spending plans make a monetary guide that organizations can utilize when settling on
business choices.
Track Cash Management
Monetary records permit organizations to buy financial assets, products or administrations on
account from different organizations. These buys address exchange credit the business climate.
Organizations use creditor liabilities and records receivable monetary records to monitor this
data. Records payable addresses all cash owed to different organizations for assets bought.
Records receivable incorporates all cash not gathered from customer buys.
Question 2a)
Year 1 Year 2
Gross profit margin £000 £000
A Gross Profit 1,920 2,200
B Net Sales 4,940 6,850
A/B 38.87% 32.12%
Return on Capital employed
A Operating Profit 460 350
Total assets 4,370 5,600
Less: Current liabilities 560 840
B Capital employed 3,810 4,760

A/B 12.07% 7.35%
Current Ratio
A Current Assets 1,770 2,390
B Current Liabilities 560 840
A/B 3.16 2.85
Trade Payable period in days
A Trade Payable 560 840
B COGS 3,020 4,650
A/B * 365 68 66
Trade receivables days
A Trade Receivables 820 1,230
B Net Sales 4,940 6,850
A/B * 365 61 66
Gross profit Margin
A net margin estimates the profit from a job offer and results. It is introduced by deducting the
costs of direct labor, direct materials, and plant over contracts. The link between the cost of items
and the cost of these items should continue and is being monitored closely to see if item margins
are spreading over the long term.
Return on capital employed
Return on Capital Employed (ROCE) is a sum of money that can be used to study the
productivity and capital potential of an organization. Overall, this contribution can help see how
much an organization is reaping the benefits of its capital as it is used. The ROCE part is one of
the few product reports that fund managers, affiliates, and lenders can use when examining an
organization's profitability.
Current ratio

The current allowance is used to assess an organization's ability to meet its outstanding
commitments, for example, credit liabilities and salary. It is justified by the division of current
resources into current responsibilities. Entrepreneurs should pay attention to this allowance for
their organization, and lenders may find it helpful to review the available allowances of the
groups as they consider which shares to buy.
Trade payable period in days
The portion of the trade conversion payable, also known as the percentage of debt conversion or
tenant conversion allowance, is a proportion of working liquidity that is the normal number of
times an organization pays its banks over accounting periods. A portion is a percentage of cash
per minute, with a higher pay conversion percentage more appropriate.
Trade receivables days
The proportion of the lender's days (or credits as a trade) is related to liquidity.
The allowance focuses on how long it takes for borrowers to settle their bills. The allowance
shows whether people in debt are given unnecessary credit. A high figure (higher than normal
business) can cause common problems with bond mix or the position of important client money.
The effective and unique combination of customer responsibilities is a key component of
executives ’revenue, so this is a percentage that is strongly viewed in a number of organizations.
2 b)
a. Bank A/c
Dr. Amount
Amount
Cr.
To Capital 500 By Goods 150
To L Lock 450 By Rent 50
To Business takings 290 By advertising 25
To Business takings 240 By Goods 100
To Business takings 330 By Rent 50
To Business takings 180 By advertising

30
By Drawings 100
By Drawings 75
By Bal c/d 1,410
1,990 1,990
b. Business Takings A/C
Dr. Amount
Amount
Cr.
By Bank 290
By Bank 240
By Bank 330
To Balance c/d 1,040 By Bank 180
1,040 1,040
Drawings A/C
Dr. Amount
Amount
Cr.
To Bank 100
To Bank 75 By Bal c/d 175
175 175
Purchases A/C
Dr. Amount
Amount
Cr.
To Bank 150
To Bank 100 By Bal c/d 250
250 250
c. Trial Balance
Particulars Dr. Cr.
Sales 1,040
Purchases 250

Drawings 175
Bank 1,410
Advertising 55
Rent 100
L Lock 450
Capital 500
1,990 1,990
2 c)
i) Straight line Method
Amount Amount
2018 Depreciation £ 2,000 Income statement £ 2,000
£ 2,000 £ 2,000
2019 Bal c/d £ 4,000 Bal b/d £ 2,000
Income statement £ 2,000
£ 4,000 £ 4,000
2020 Bal c/d £ 6,000 Bal b/d £ 4,000
Income statement £ 2,000
£ 6,000 £ 6,000
ii) Reducing Balance Method
Amount Amount
2018 Bal c/d £ 2,400 Income statement £ 2,400
£ 2,400 £ 2,400
2019 Bal c/d £ 4,440 Bal b/d £ 2,400
Income statement £ 2,040
£ 4,440 £ 4,440
2020 Bal c/d £ 6,174 Bal b/d £ 4,440
Income Statement £ 1,734
£ 6,174 £ 6,174
iii)
Going Concern

Going concern is an accounting term for an organization whose resources are expected to
function indefinitely until it provides unexpected confirmation. This term also refers to an
organization's ability to earn enough money to stay out of the water or avoid discouragement.
Since a company is certainly not a running business, it means that it has gone bankrupt and its
resources have been exhausted.
Accountants use current corporate standards to determine the type of details that should appear in
tax records. Organizations that are an ongoing business can accept the appearance of long-range
assets at normal value or sell respect, but instead at a cost. An organization continues to function
when the provision of facilities does not hinder its ability to proceed with a business, such as the
decision of some branches to reassign representatives to different sub-offices within the
organization.
Materiality
The concept of materiality in accounting refers to the notion that all material matters should be
properly accounted for in the minutes of the balance sheet. Substances are considered to be those
things where the introduction or avoidance leads to drastic changes in the dynamics of corporate
data messengers.
A related opinion also considers the provision for negligence on other accounting standards
unless this affects the financial statements of the relevant company.
Business Entity Concept
The concept of the business element suggests that business-related exchanges should be
registered independently of the exchange of their respective owners or organizations. This
requires the use of remote accounting records for the association which completely avoids the
resources and responsibilities of some material or other owner. Without this idea, the charts of
the various elements would be mixed, making it very difficult to identify the financial or
available side effects of solitary activity.