Accounting Fundamentals: Financial Statement Presentation Essay

This essay provides a comprehensive overview of accounting fundamentals, beginning with the preparation of financial statements for General Supplies Ltd. for the year ended 31/12/2021, including an adjusted trial balance, an income statement, and a balance sheet. It then critically analyzes key accounting principles such as the consistency principle, materiality principle, monetary unit principle, and going concern principle, explaining their relevance in the presentation of final accounts. The essay highlights how these principles ensure reliability, completeness, and relevance in financial reporting, enabling stakeholders to make informed decisions. Desklib offers more resources for students.

Essay on Accounting
Fundamentals

Contents
INTRODUCTION...........................................................................................................................2
TASK...............................................................................................................................................2
1.Financial Statements of General Supplies Ltd for the Year ended 31/12/2021:......................2
A. Adjusted Trial Balance:..........................................................................................................3
B Statement Showing Financial Performance:............................................................................4
C Statement Showing Financial Position:...................................................................................5
2.Critically analysis the accounting principle with relevance to the presentation of the final
accounts:......................................................................................................................................7
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................12

INTRODUCTION
Accounting fundamentals is the basic function of maintaining the standard which include
keeping of records of the monetary information. For this, every organisation has to use standard
forms to store the data so that it can be retrieved easily when needs (AGĂNENCEI, GHERMAN, and
Sîrbulescu, 2021). These transactions which recorded should be accurate because it helps to take
decisions for the growth of the business. Some of the basic principle are mandatory for every
business entity to follow as it helps in gaining the information about the costs and incomes that
the business incur by ensuring the statutory compliance report. In the below report, trial balance
is adjusted of the General Supplies Ltd. and further for this income statement and balance sheet
is made. In the second part the principle of accounting fundamentals is explained with respective
to the preparation and representation of the financial documents.
TASK
1.Financial Statements of General Supplies Ltd for the Year ended 31/12/2021:
Financial Statement highlight the financial performance of the organisation during the
accounting period. These statement are thee written records that explains the activity of business
and performance of the entity. It is necessary to obtain certificate from the accountants that these
statements are audited completely. Financial Statements are divided into following categories
such as: -
 Income Statement: Income statements represents the profit earned by the entity during the
year. These statements reflect the operating performance of the entity in accounting
period (Bergmann, Fuchs, and Schuler, 2019).
 Statement of financial Performance: This statement is also known as Balance Sheet.
Balance shows the position of Assets and liabilities as on the particular data. These are
the reports which shows the company assets, liabilities and shareholders equity. It is one
of the important aspects of financial statement and the users evaluate balance sheet
properly in order to determine that whether to make investments in company or not.
 Statement of Changes in Equity: This statement includes total comprehensive income of
the entity, which includes annul profit, the effect of changes in equity, and correction of
any errors that the entity made during the accounting year

 Notes to Accounts: Notes to account are the supporting information which is annexed in
the bottom of financial statements which shows the details of adjustments made in the
balance sheet with respect to assets, liabilities, income and expenses (Blakey, 2021).
A. Adjusted Trial Balance:
Adjusted trial balance list the balance of various accounts after meeting all the adjustments
related to outstanding or prepaid expenses, unearned or accrued income etc. The total of adjusted
trial balance must be tallied before preparation of financial statements. The purpose of adjusted
trial balance is to ensure that all debits and credits in general ledger accounts are properly
transferred to financial statements (Breton, 2018.)
Adjusted Trial Balance For the
year ended 31/12/2021
Particular Debit Credit
Finance Income 4000
Finance Expense 16000
Share Capital 347900
Outstanding Rent and Rates 3220
Bank 2000
Opening Inventory 90000
Machinery at cost 120000
Buildings at cost 750000
Provision for Depreciation –
Buildings 137500
Depreciation on Building 37500
Prepaid Insurance 1520
Provision for Depreciation on
Machinery 55000
Depreciation on Machine 30000
Legal expenses 7000
Heating and Lighting 10000
Long Term Loans 200000

Rent and Rates 28000
Insurance 16000
Postage and Stationery 6000
Share Premium 100000
Sales Revenue 900000
Retained Profits 50000
Travelling Expenses 5000
Motor Running Expenses 8700
Salaries and Wages 150000
Bad Debt 5000
Purchases 560000
Revaluation Reserve 100000
Provision for bad debts 4000
Taxation 12900
Trade Receivables ( debtors ) 400000
Trade Payables ( creditors ) 350000
Total 2253620 2253620
B Statement Showing Financial Performance:

Income Statement for the period ending 31/12/2021
Particular Amount
( £ )
Amount
( £ )
Revenue 900000
Other Finance Income 4000 904000
Total Revenue 904000
Less: Cost of Goods Sold : -
Purchases 560000
Add : Opening Stock 90000
Less : Closing Stock 125000 525000
Gross Profit 379000
Operating Expenses: -
Finance Expenses 16000
Bad Debts 5000
Salaries and Wages 150000
Travelling expenses 5000
Postage and Stationery 6000
Rent and Rates 28000
Add: Outstanding Rent 3200 31200
Depreciation on Building 37500
Depreciation on Machine 30000
Insurance expense 16000
Less Prepaid Expenses 1520 14480
Legal Expenses 7000
Heating and Lighting 10000
Motor Running Expenses 8700
Tax Provision 12900
Total Operating Expenses 333780
Net Profit / (Loss) 45220
C Statement Showing Financial Position:

Balance Sheet as in 31/12/2021
Particulars Amount
( £ )
ASSETS
Current Assets:
Closing Stock 125000
Bank 2000
Accounts Receivable 400000
Less Provision of Doubtful
Debts 4000 396000
Total Current Assets (A) 523000
Non-Current Assets:
Machine at Cost 120000
Less Provision 55000 65000
Building at Cost 750000
Less Provision 137500 612500
Total Non-Current Assets (B) 677500
Total Assets ( A+B ) 1200500
EQUITY AND LIABILITY
Liabilities:
Current Liabilities:
Accounts Payable 350000
Cash Balance 7380
Non-Current Liability
Loan Term Loans 200000
Total Liability (A) 557380
Equity:
Share Capital 347900
Reserve and Surplus: -
Share Premium 100000
Retained Profits 50000
Add: Net Profit 45220
Revaluation Reserve 100000 295220
Total Equity (B) 643120
Total Liability ( A + B ) 1200500

2.Critically analysis the accounting principle with relevance to the presentation of the final
accounts:
Consistency Principle: The basic accounting principle of consistency states that the its should
remain the same the accounting methods are applied in the financial period of time. It is helpful
is measuring the trends. It is a significant for a business both according to bookkeeping and
reviewing perspective as having a reliable arrangement of bookkeeping standards, systems helps
bookkeepers in recording deals in a deliberate way (Callejas and Ocampo-Salazar, 2021). While on
account of reviewers, it helps looking at business information a lot more straightforward as
similar bookkeeping strategies are followed reliably. It additionally furnishes the partners and
investors with a feeling of fulfilment that the exhibition of the business can be followed utilizing
an attempted and tried bookkeeping philosophy which gives predictable outcomes. The exactness
of the gave data can be guaranteed as there is no change while following consistency standard,
which empowers investors and the board in settling on better business choices.
Comparable fiscal information: By utilizing a steady bookkeeping strategy starting with one
bookkeeping period then onto the next, the monetary reports will all hold a comparable
construction. This makes it more straightforward for investors, supervisors, banks, and different
partners to think about the presentation of the business over various monetary years (Emilina,
Hisam, and Norsuriati, 2018).
Familiarisation: A steady bookkeeping strategy can be both expense and time effective.
Bookkeepers and supervisors will get comfortable with the bookkeeping strategy, and by being
predictable, you will just require the underlying preparation for this technique.
Auditors: Examiners are outside people who are prepared to ensure the bookkeeping
information given by an organization compares to the exercises of that organization. Following
the consistency guideline, examiners will request purposes behind any progressions that could
influence the translation of the fiscal reports of a business.
It likewise furnishes the partners and investors with a feeling of fulfilment that the presentation
of the business can be followed utilizing an attempted and tried bookkeeping strategy which
gives steady outcomes.

Principle of Materiality: It is a bookkeeping guideline which expresses that all things that are
sensibly prone to affect the investors are very dynamic and should be recorded or announced
thoroughly in the entities fiscal reports utilizing GAAP principles.
Basically, materiality is connected with the meaning of data inside an organization's budget
reports. Assuming an exchange or business choice is sufficiently huge to warrant answering to
investors or different clients of the fiscal reports, that data is "material" to the business and can't
be excluded (Jassem and Razzak, 2021). The materiality standard is particularly significant while
concluding whether an exchange ought to be recorded as a feature of the end interaction, since
dispensing with certain exchanges can altogether diminish how much time expected to give
budget reports. It is valuable to talk about with the organization inspectors comprises a material
thing, so there will be no issues with these things when the budget summaries are evaluated.
It also states the business concern does not need to accumulate all the petty information which
will not have a crucial impact on the accounting performance of the business. It also measures a
significance of the user of the financial statement which is relevant in nature for the organisation.
Significance:
Reliability: The oversight of a material or significant truth from the fiscal summaries might
think twice about client's capacity to take right choices. This is on the grounds that the greater
part of the financial backers chooses whether to put resources into an organization or not in light
of their investigation of that organization's fiscal reports. Along these lines, assuming the fiscal
reports of an organization discard specific data, the unwavering quality of the budget summaries
will turn out to be low (Jourdain, 2021).
Completeness: As per GAAP, the fiscal reports of an organization should address 'valid and fair'
perspective on the business. To have the option to do this, the data contained in its budget reports
should be 'finished' in all material viewpoints. Thus, on the off chance that a material piece of
data is absent in an organization's budget reports, the assertions cannot be thought of as

complete. Furthermore, in this manner, they are unequipped for giving a valid and fair
perspective on the business.
Relevance: Just the material data is applicable to the necessities of clients. Thus, in the event
that the Income Statement of an organization is loaded down with such countless classes of costs,
with a little pay from a wide range of sources, etc., which don't at all mainly affect the choices of
clients, a significant piece of the pay explanation becomes immaterial for the. Subsequently, the
materiality idea additionally impacts the importance of the data introduced in the fiscal reports of
a business (Madsen, 2020).
Principle of monetary unit: According to this principle the entity can record those transaction
only which are expressed in terms of currency only. It means that who transaction’s which are
not in monetary terms such as the employees skill test in terms of unskilled or skilled, the service
quality that a concern serves to their customer, the technical performance of engineering
personnel etc are not to be adjusted in final accounts of entity. It can be explained with help of
example such as when an organisation purchase plant and machine worth Rs 100000 of its office
use and such asset useful life is 35 years. The monetary value of Rs 100000 is recorded as
purchases in the books however is non-monetary life of 35 years cannot be recorded (Moerman
and van der Laan, 2021).
This principle is again one of the generally accepted accounting principle that must be complied
by all the business enterprise. Over the period of time, money has been adopted as a unit for
measurement principle. According to this principle when any transaction occurs between party’s
then firstly it is converted into money and recoded in books of accounts of both parties involved
in transaction. This principle considers one assumption that the value of currency is stable over
the period of time. It means that in day-to-day use, monetary unit allows accounts executive to
consider financial statements of company which are recorded from multiple financial periods
assuming they were same during those periods.
Principle of going concern: According to this principle the organisation will run forever in the
foreseeable future. It assumes that the business will not be liquidate its operation and ran
continuously in future but the only difference is its management and board of directors’ changes

in the upcoming period. Considering this assumption, the management of enterprise defers
certain expensed to be debited in profit and loss account over certain period. It is a predefined
assumption in any sort of business that it will run but however when the management notices that
they are unable to meet the obligation raised by creditors and debt holders in future then they
have to mentioned the fact in report that their going concern is affected so that users of business
concern can understand the actual picture of organisation (Predeus, Mashentseva, and Predeus,
2021).
In order to judge the going concern assumption the company auditor evaluated organisation’s
ability to continue for one year period following the date for financial statements being audited.
The auditor considers following items which raises doubt in their mind about entity’s ability to
continue as going concern. They are as follows: -
 There is negative operating cash flows which includes series of losses the organisation
faces.
 The entity is making default in repayment of loan on due dates.
 The supplier of entity is denying credit to entity.
 There are extravagant commitments for long period which bound the entity (Prosekov,
2020).
 There is legal proceeding initiated against the company by various customer for quality
issues or other matters etc.
This are certain issues which must be addressed by the auditor in his audit report by
qualifying the same so that investors get the true working picture of entity.
CONCLUSION
Financial Statements are essential part of business organisation as they define the performance of
the organisation over the accounting period. These statements are prepared by the accountant of
the entity for 12 months and then these statements are audited by auditors of business concern. In
this report financial statements are prepared which includes adjusted trial balance, income
statement and balance sheet. Further accounting principle such as concept of materiality,
monetary unit principle, going concern assumptions are briefly explained along with live
examples. These principles are essential part of account process which directly work around
these principles and must be duly complied with by management of enterprise otherwise the
statements prepared does not reflect true picture of corporation. These accounting principle built

a strong foundation for an enterprise for the longer period and investors are ready to invest their
funds in those enterprise whose books of accounts are clear with respect to compliance of these
principles.

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