Accounting in Context and Budgetary Control

Unit 5: Accounting Principles
Accounting in Context and Budgetary Control
Part-2 (LO2&3)
Table of Contents

Introduction......................................................................................................................................3
Preparing financial statements from a given trial balance for sole traders, partnerships and not-
for-profit organizations, to meet accounting principles, conventions and standards......................3
Producing financial statements from a given trial balance, making appropriate adjustments.........5
Calculating and presenting financial ratios from a set of final accounts.........................................7
Financial ratios compare a company's performance over time......................................................10
The evaluation financial statements to assess organizational performance using a range of
measures and benchmarks to make justified conclusions..............................................................11
Conclusion.....................................................................................................................................11
References......................................................................................................................................12
Introduction
The steps of recognizing, measuring, documenting, categorizing, summarizing, and evaluating
financial data are all part of the accounting process. The accounting department of a corporation

is accountable for maintaining precise records of the firm's income and expenditures, in addition
to providing quantitative financial information.
Preparing financial statements from a given trial balance for sole traders,
partnerships and not-for-profit organizations, to meet accounting principles,
conventions and standards.
Sole traders, partnerships, and not-for-profit organizations are the three most common legal
forms of business in the United Kingdom. To get a handle on the status of the business, they'll
need to put together a set of financial statements.
Financial Statement: There are two types of financial statements: public and internal. The latter
is a public account of the company's financial performance. It gives a complete picture of the
company's performance, standing, operations, and so on (Murugan, 2021).
Income statement: When calculating a corporation's net income or loss, the income statement is
the best place to start.
The amount of "profit" a company makes varies greatly. Sole proprietorships and partnerships:
To put it simply, gross profit is the difference between what a company makes in sales and what
it pays out in expenses. The operational profit is calculated by subtracting the company's gross
profit from its overall operating expenses. Net profit is the consequence of deducting (or
growing) operating profit and deducting (or raising) finance costs.
When we emphasize not-profit-organization, it is achieved by subtracting (or raising) the
operating profit's financing charges from the operating profit. Taxes are deducted from operating
earnings to arrive at net profit. When calculating a company's yearly retained profit, dividends
given to shareholders are subtracted from the company's net profit after tax.
Balance sheet: The balance sheet is a snapshot that details all of an organization's assets,
liabilities, and shareholders' equity. Every asset must have the same value as the total liabilities
and equity held by shareholders. It indicates the whole value of the firm.
Cash Flows: All of the company's cash and cash equivalents are shown on this document, which
is known as a cash flow statement. Non-cash transactions are not shown. It displays the cash
flows of operational, financial, and investment operations (Murugan, 2021).

Accounting principles, conventions, and standards
To regulate financial accounting, a number of accounting principles, conventions, and standards
have emerged over time.
Controversial conventions with two sides: Financial statements are affected by two unique
components of every transaction in accordance with this standard. Getting a bank loan to expand
a firm's office space, for example, would raise both the assets and liabilities in the report of
financial condition of the organization in question.
Precedented cost-based convention: Consequently, assets are listed in the financial statement at
their historical performance. There are many who think the current market value of an asset
should be the primary consideration for valuing an asset. These efforts to appraise the assets at
their present values have been fruitless.
With the continuation of the business convention: When you observe this, you could reason
that the business will continue to operate out of the same location for some time to come. As a
consequence of making this assumption, assets will be evaluated at what they were worth in the
past. In order to successfully liquidate a business, all of the assets need to have their net
realizable value determined. A different approach will have to be used in order to create the
financial statements.