Financial statements of an organisation

Unit 10 Financial Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
CLIENT 1........................................................................................................................................4
A. Journals entries for the company.......................................................................................4
B. Ledger Account..................................................................................................................6
C. Trial balance ...................................................................................................................14
CLIENT 2......................................................................................................................................15
A. Laurent's income statement.............................................................................................15
B. Financial statements of Laurent.......................................................................................15
CLIENT 3......................................................................................................................................16
A. Preparation of profit and loss account.............................................................................16
B. Formulation of statement of the financial position of an organisation............................16
(c). Accounting concept such as prudence and consistency.................................................17
(d). Purpose of depreciation in formulating accounting statements.....................................18
CLIENT 4......................................................................................................................................19
A). Purpose of preparing Bank Reconciliation Statement....................................................19
B). Several areas in which bank reconciliation statement should be made..........................20
C. I) Cash book for the company..........................................................................................20
C. II) Bank reconciliation statement for the company.........................................................21
CLIENT 5......................................................................................................................................21
A. Preparation of Ledger accounts ......................................................................................21
(b). Control account..............................................................................................................22
CLIENT 6......................................................................................................................................23
A. Suspense account and its core features............................................................................23
B and C. Formulation of Trial Balance making correction .................................................24
(d). Differences in between suspense account and clearing account....................................24
CONCLUSION..............................................................................................................................25
REFERENCES..............................................................................................................................26

INTRODUCTION
Financial accounting is the significant part of accounting that used in the process of
making a company's final statement. It provides help to the accountant for preparing income &
expenditure, balance sheet and other statements (Abernathy and et.al., 2015). In other words, this
is the systematic process of recording and summarizing all transactions with the organisation for
a specific time period. This report is based on different terminologies of financial accounting and
covers the rules and regulations regarding accountancy. It also includes concepts and
conventions related to the material discloser & consistency and find out its importance in an
organisation for presenting the financial data accurately. Further, it shows some type of financial
issues and also provide its proper solution. Lastly, it covers concept of prudence and
depreciation. It also includes nature of suspense account and differences between clearing and
suspense account.
MAIN BODY
To The Line Manager,
From – Junior Accountant
Subject – Regulations and concepts relating to accountancy.
Financial accounting and its purpose – Financial accounting is all about recording, classifying
the data and information related to the organisational transactions. It also covers reporting of all
such information to company's stakeholders. The main purpose of financial accounting in a
running business is reporting periodically to the owners of that particular business. It also shows
the actual image of business to the investors, customers, regulators, public, government,
creditors etc. It dictates all amounts owe by customers in favour of company and amount that
owe to suppliers (Barth, 2015). Management team can be able to finalize significance features
of the company such as monthly expenses and revenues, sales volume and many more. For
controlling the financial accounting, it requires the adequate understanding and knowledge in
finance field because there are too many principles and conventions that should be considerable.
So for this reason financial accounting is beneficial for the management to know about financial
position of the business in its target market.
Regulations relating to financial accounting – For accomplishing need of financial
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accounting, it is necessary to regulates and control the accounting standards, principles and
features. Many companies use it for determining their financial data and justify their position in
market. In this context, the Accounting Standards Board (ASB) provides principles that are
useful for framework of all accounting standards and corporate reporting issues. It has the
power to issue its standards for meet out the obligations that are arises in an organisation (Beatty
and Liao, 2014). There is another board Financial Reporting Council, its member's main work is
to appoint persons in the ASB. In this context, it also collaborates with the accounting standard
setters that is International accounting Standards Board (IASB) and it regulates to the
development of international standards. All accounting standards are produced by the ASB and
further it called Financial Reporting Standards (FRSs). It is also known as Generally Accepted
Accounting Principles (GAAP) and all organisations should follow in precise manner to
measure their growth in their respective target market.
Accounting rules and principles that governs the financial statements – Accounting rules
used for maintaining the image of company and calculate their financial statements. According
to the GAAP, these are used for governing organisational performance. Such principles and
rules are described as follows:
Full Discloser – It is used as, all companies should disclose their financial information’s that
are useful for lender or investor to make investment (Beaumont, 2015). It is compulsory to show
all final statements such as income & expenditure account, balance sheet and other statements to
its stake holders. Management should apply it in their rules and conducts all activities with
following such principle.
Going Concern – It is the significant principle of accounting that describes, each company is
said to have an eternal existence in its target market and once it is formed than it is only end or
finished by its dissolution. For every organisations, there is an assumption that they are going
concern for unlimited time so that it have to right for conducting its business activities. An
organisation is only close through accomplishing its objectives or legal formalities.
Time Period – In this concept, the business should report their operations with a specific time
(Dutta and Patatoukas, 2016). It can be assumed that companies should apply such principle and
show their financial statements for fix time duration such as quarterly, half yearly, yearly etc.
Matching – This accounting principle describes that organisational revenues is matched with its
expenses. for example sales commissions expenditure should be reported within the period in
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which sales were made. This concept is also known as accrual basis so that all expenses and
incomes should be relevant for a specific duration. So for this reason, management must able to
show all revenues and expenses in its periodically financial statements.
Revenue Recognition – It means that company should recognise their revenues at the time of
receiving and expenses are recognised at the time when it is payable. In other words,
expenditure should consider prior and income should not consider until it is received (Gassen,
2014). It provides the accuracy in revenue generation. This principle is applied only if the
company follow the matching or accrual concept.
Materiality – This accounting principle refers that an organisation record only those
transactions which are related to their business and have some value. For example, if
management purchase calculator and although it is an asset of company but they may record this
transaction in purchase book. Materiality describes that record only those transactions which
can influence to the final statement or have some value for their stakeholders.
Conservatism – It describes the situation where, the management team want to hope for the
best thing and also ready for worst condition. So for this reason they can prevent from any
future uncertainty (Henderson and et.al., 2015). For applying this principle, management should
be unbiased and objective for their organisation. Further, it leads to the accountants to disclose
and anticipate various losses and does not allow a similar action for any profit.
Reliability – It suggests that record only those transactions that can be proven and relevant to
the business. This is the useful concept for management in order to search constantly for the
evidence supporting transactions.
Money measurement – This accounting principle is described that record only those
transactions that are expressed in terms of money. Other transactions are recorded separately in
books of accounts. Management should consider money related things so that they can be able
to justify the actual amount of profit and loss.
Cost Concept – It is closely related to the conservatism principle and advocates that
management should list out all transactions in final statements at the cost price (Hoskin, Fizzell
and Cherry, 2014). For example, all assets of an organisation should be mentioned at historical
cost and shows as actual cost less depreciation value to show better financial representation.
Concepts and conventions relating to consistency and material disclosure – Concepts of
accountancy describes the best way to make financial statements. In this context, such concepts
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is describes as under:
Consistency – It is refered as the business should run continuously for unlimited period and
management once follow an accounting technique or principle than should apply regularly until
there are not any circumstance (Khan, 2015). Accountants are expected to be consistent in the
process of applying accounting practices, principle and procedures. It describes the way in
which company follow same standards for whole period and it is useful in making comparison
in two year financial data. Management is bound for all such accounting methods or standards
for whole period for calculating all data and understanding the total amount or profit and loss
for that particular period. Consistency principle is one of the most important standard that
provide guidelines that are required for running every business. Its major benefit is, organisation
can able to hold their financial data or similar structure for the next period.
Materiality – It describes as that management of an organisation may violate another
accounting standard if the amount of such transaction is small enough that the final statement
will not be misleading (Lafond, McAleer and Wentzel, 2016). In other words, the accountant
should consider only measurable amount and leave immaterial transactions that must give
impact on the final statement of the company. It is not only taken up the monetary amount of an
item, but also associated with the nature of the item in a given situation.
CLIENT 1
A. Journals entries for the company
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