Financial Accounting Principles Report: Analysis and Client Data

This report provides a comprehensive overview of financial accounting principles, regulations, and their application. It begins with an introduction to the purpose and concepts of financial accounting, followed by an exploration of financial accounting regulations, including IFRS, IASB, FRC, FRSB, and GAAP. The report then details ten key accounting rules and principles, such as time period assumption, economic entity, monetary unit, cost principle, full disclosure, going concern, matching, revenue recognition, conservatism, and materiality. The report further defines material disclosure and consistency. The report includes practical applications with journal entries, ledger accounts, trial balances, income statements, statements of financial position, and bank reconciliations for multiple clients. It also addresses suspense accounts, depreciation methods, and the accounting concepts of prudency and consistency, providing a well-rounded understanding of financial accounting practices. The report concludes with a summary of the key findings and references.

FINANCIAL ACCOUNTING
PRINCIPLES

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
1. Demonstrating the purpose and concept of financial accounting...........................................2
2. Ascertaining financial accounting regulations........................................................................2
3. Determining the 10 accounting rules and principles that will be governed in financial
statements....................................................................................................................................4
4. Defining concepts of material disclosure and consistency.....................................................6
CLIENT 1........................................................................................................................................6
A. Journal entries........................................................................................................................6
B. Ledger accounts......................................................................................................................8
C. Trial Balance........................................................................................................................23
CLIENT 2......................................................................................................................................24
A. Drafting an income statement..............................................................................................24
B. Preparing a statement of financial position..........................................................................25
CLIENT 3......................................................................................................................................26
A. Preparing and Income statement..........................................................................................26
B. Presenting a statement of financial position.........................................................................27
C. Defining the accounting concepts of Prudency and Consistency.........................................27
D. Demonstrating the purpose of depreciation as well as methods used in analysing
depreciation on assets................................................................................................................28
CLIENT 4......................................................................................................................................29
A. Ascertaining the purpose of preparing BRS statement........................................................29
C. Preparing the cash book (bank only) for Kedal Ltd.............................................................30
CLIENT 5......................................................................................................................................33
A. Drafting and balancing the accounts....................................................................................33
CLIENT 6......................................................................................................................................34
A. Purpose of suspense accounts..............................................................................................34
B & C. Drafting the trial balance with consideration of suspense accounts.............................35
D. Differentiating among Suspense Account and a Cleaning account.....................................36
CONCLUSION..............................................................................................................................36
REFERENCES..............................................................................................................................37

INTRODUCTION
Reports and various dataset are being prepared with the motive of creating proper records
of all transactions. Determination of funds, costs and requirements of bringing alternatives which
will reduces these expenses that will be gathered from drafting proper transactional statements.
Disclosure of financial database on the other side plays a significant role in bringing information
among stakeholders associated with business.
In the present report, there will be brief discussion regarding financial accounting
concepts, principles and various regulations. Along with this, there will be presentation of
various data set and accounts such as income statement, financial position, bank reconciliation,
journal, ledgers, trial balance, etc. Further, motive is based on resolving all accounting and
recording issues that will be addressed with proper justification as well as suggestions given to
various clients.
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To: Line Manager
From: Junior Accountant
Subject: Usefulness of financial accounting reports along with its principle and concepts
Sir,
Addressing the facts which insists that, financial disclosure and preparation of various
accounts will be helpful and adequate in making appropriate operational practices. It will be
useful and satisfactory in making profitable changes and determination of all facts. Influences of
various principles, concepts etc. as proposed by international standards, boards and authorities.
Therefore, there will be discussion based on financial accounting concept along with the rules and
regulations which will have influences of all these activities.
1. Demonstrating the purpose and concept of financial accounting
To make an effective economic decision which helps in bringing appropriate details regarding
financial scenario of business. Defining the concept of financial accounting which will be
beneficial in influencing better operational control. Analysing the performance of organisation on
which liabilities of firm is needed to be managed and monitored by the business professionals.
Considering the imapcts of various accounting standards which are based on principles and
regulation that funnels accounting professional with information and demonstration of all the
activities (Johnston and Petacchi, 2017). It is a record of all detail and information relevant with
stockholders, suppliers, banks, employees, government agencies etc. Making disclosure of
accounts will be beneficial in bringing information regarding financial status of industries in long
run.
It is necessary that accounting professionals or auditors in organisation present a fruitful
disclosure which will be appropriate and adequate as per meeting goals in a right time. There has
been various rules and regulations which brings issues and monitoring activities of the firm.
Influences of accounting standard such as GAAP, IFRS, FRC, FRSB etc. will be supporting in
drafting the statements and disclosing financial information among company stakeholders in the
authentic manner.
2. Ascertaining financial accounting regulations
There are various statements which have been prepared in adequate and prominent way as per
making better records of all the transactions. Implication rules and regulations which will be
fruitful in bringing an appropriate framework and structure of setting database in various accounts
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of entity (Nilsson and Stockenstrand, 2015). Aim behind setting the regulations and rules behind
financial disclosures as well as reporting techniques is for bringing a uniformity as well as legal
structure to present the data set. This will be universally accepted by individuals in all nations.
Thus, there are some countries who has their own standards along with international standards on
which UK is one of them (Dutta and Patatoukas, 2016). To facilitating the rules and regulations
among accounting professionals which bring them better monitoring and operational control in
entity such as:
International Financial Reporting Standards (IFRS):
In relation with setting the permanent goal language for the business affairs and the
organisation which are operating activities in capital markets. This standard of preparing the
financial reports are enforced by IASB board which brings the appropriate information,
framework and structure to the businesses in preparing the disclosures (Mullinova, 2016).
Guidelines will be based on drafting final accounts such as incomes statement, balance sheet,
changes in equity, cash flows etc. have proper structured transactional entries which are needed to
be made and prepared accordingly (Henderson and et.al., 2015). On the other side, it will be
profitable to the industries in generation of international investors as these statements being
accepted universally. However, it has been aimed at disclosing the financials of business with
consideration of all the issues and operational practices.
International Accounting Standard Board (IASB):
This is the board, which consist of the information that has an influence in operations and
records of all transactions are based on proper ethics and morals for recording them in the books.
This board presents appropriate guidance and framework among professionals for the purpose of
making better understanding relevant with books and entries associated (International Accounting
Standard Board, 2018). It enables accounting professionals in preparing proper set of books and
accounts which will be used for the internal as well as external purpose (Beatty and Liao, 2014).
For instance, recording income and expenses in income statement as well as in balance sheet
there will be recording based on assets and debts of firm in the proposed period.
Financial reporting council (FRC):
It is the personal boards or reporting council of UK and Republic of Ireland. It approaches
towards facilitating the authentic and adequate corporate governance and reporting of financial
accounts of businesses (Diouf and Boiral, 2017). It has been incorporated with various operating
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bodies such as Accounting standards board, financial reporting review panel, Accountancy and
actuarial discipline board, professional’s oversight board, auditing practices board and board for
actuarial standards (Hope, Thomas and Vyas, 2017). However, it consists of adequate corporate
governance and valuable practices, which will help the industries and investors in relation with an
appropriate control over the financial aspects of a business.
Financial Reporting Standards Board (FRSB):
Preparation of all the reports based on recording with appropriate influences of all the
rules which are stated in its guidelines (Hoitash and Hoitash, 2017). The motive is for reflecting
most adequate appropriate reports that will be beneficial and adequate in meeting the goals of
business in the right time. Execution and monitoring of corporate reporting will be based on
influences of IASB.
Generally Accepted Accounting Principles (GAAP):
Considering all the accounting principles which have been addressed and used by auditors
and accounting professionals as per making better operational control and determination of all the
variables (Johnston and Petacchi, 2017). It has the influences in relation with preparing the data
set and compelling with proper consideration of all the principles and rules which will be helpful
in making appropriate records of transactions.
3. Determining the 10 accounting rules and principles that will be governed in financial
statements
Rules and Regulations have been associated with business as per making appropriate
determination of all records and operations. However, these principles are based on adequate
operational increment such as rise in industrial efficiency, stable financial activities etc. However,
it has been considered by the professionals that they must appropriate execution of all the
resources which will have positive influences in each record of transactions. However, there will
be discussion based on 10 principles of accounting such as:
Time period assumption: Preparation of the statements as well as their disclosure will be
based on implicating adequate time frame in practices. Thus, disclosing the accounts will be
based on periodical basis such as half yearly, quarterly and annually.
Economic entity: It has been considered here that, sole proprietor and business units are
the single units which has separate books of accounts and determination of the all the personal
and professional transactions (Nilsson and Stockenstrand, 2015). The term which insist that the
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business is itself a separate legal entity.
Monetary unit: The final disclosure of the books and accounts will be based on recording
all the transactions in US dollars (Dutta and Patatoukas, 2016). Thus, it is the international
currency which brings the appropriate information regarding the financial conditions of business
in the legal manner.
Cost principle: This principle governs that all the transaction which has been recorded in
the books must have transactional entries after the transaction incurred. Additionally, it will be
helpful in analysing the costs incurred in all the transactions (Accounting Principles, 2018).
Full disclosure: It ascertains that all the financial statements are needed to be well
designed and framed and they must have proper disclosure of them. Therefore, there will be
preparation of all statements such as income statement, balance sheet, cash flows and statement of
change in equity (Mullinova, 2016).
Going concern principle: It has been assumed here that the business will have on-going
operations and the operations will be performed by them on the regular basis (Khan, 2015). It can
be said that the life period of business undefined and it will operate for the longer terms.
Matching: This principle consists of operations, which assists that transactions must be
recorded at dual accounts. Thus, if an entry has debit balance than there will be one credit
transaction for the same (Macve, 2015). Similarly, after completion of all the transactional
entries in various accounts these are needed to be compiled and the balances are needed to be
match in balance sheet and trail balances.
Revenue recognition: It has been assumed that the transactions are needed to be entered
in books must be completed such as the purchase has been made as well as sales has been
incurred. It helps in reducing the manipulation of various accounts.
Conservatism: There have been records of the transactions that will be adequate and
helpful to the business professionals in influencing the alterations in the accounts. The alteration
will be used in making less net income of less amount of assets which approaches the accountant
in being unbiased and have objections in the practices (Beatty and Liao, 2014).
Materiality: It can be said that the disclosure of all the accounts has been prepared on the
basis of making appropriate concrete evidences such as bills, invoices and the transactions which
ensures the existence of such entries (Diouf and Boiral, 2017).
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4. Defining concepts of material disclosure and consistency
Material Disclosure: It comprised with the information that there will be use of all the
relevant information (Hope, Thomas and Vyas, 2017). Thus, the transactions which have been
records in the books of accounts are needed to have valid reason and proof of their existence.
Consistency: There is needed to have appropriate administration and preparation of
accounts on the regular basis. However, on which it will be said that professionals are bound to
make disclosure of accounts on the regular basis (Hoitash and Hoitash, 2017). The transactions
are needed to be recorded in the books daily or at the time transactions took place.
CLIENT 1
A. Journal entries
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7

B. Ledger accounts
Purchase ledger
Sales Ledger
8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

C. Trial Balance
23

CLIENT 2
A. Drafting an income statement
24

B. Preparing a statement of financial position
25

CLIENT 3
A. Preparing and Income statement
26

B. Presenting a statement of financial position
C. Defining the accounting concepts of Prudency and Consistency
Demonstration of all the accounting concepts and operational practices which will be
adequate and appropriate in balancing the books of accounts and managing the financial
activities of firm (Johnston and Petacchi, 2017). Thus, there are two more concepts which are
needed to discuss as per having better information relevant with the facts.
Prudence: This is the concept which is comprised with the information that all the
concepts which have been used or stated in the books has the appropriate transactional
influences. It ensures the records of assets and gains are not overstated as well as the liabilities
which are being used in the transactions are not understated (Nilsson and Stockenstrand, 2015).
Influences of such facts will bring the assurance that the transactions are being recorded in the
books with the valid reason and evidences.
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Consistency: There is need to have adequate consistency and determination of all the
operational requirements of business. Thus, it can be said that the accounts are needed to be
disclosed by accounting professionals on the most constant basis. Recording transactions in
accounts are required to be exit on the daily or regular basis (Dutta and Patatoukas, 2016). Thus,
such record of transactions brings convenience to accounting professionals in making
appropriate auditing in all transactions (Mullinova, 2016). There will be rise in the level of
operations as per increment in various activities. It will be helpful in making the summarised
statements and having the appropriate financial disclosure at the end of the period.
D. Demonstrating the purpose of depreciation as well as methods used in analysing depreciation
on assets
Depreciation has been charged over assets as per its useful life and the costs. Influences of
such information will be adequate and helpful as per making better analysis over all the activities
(Khan, 2015). It brings the information amount the costs of assets which will be compared with
the revenue obtained through such assets in the due period. It will be charges on the assets listed
in the balance sheet and have reduction in the balances over there but the entry of such
transaction will be recorded in the income statement (Macve, 2015). Thus, identifying the
accurate value will be very helpful to the business in making appropriate analysis over the costs
of such assets in the book. However, there has been influences of two methods which will be
used in analysing the transactions such as:
Straight line method: This method is influenced with the process of analysing the actual
value of the assets on the basis of fixed proportionate reduction in the value of assets in all period
(Henderson and et.al., 2015). It reduces the fix amount from the total cost of assets till it become
zero. On the other side, implicating these techniques will be more convincing and easy in
analysing the charges.
Written Down method: This is quite complex in analysing the actual depreciation charges
incurred over assets. It reduces the value over assets on the same proportionate reduction in the
value. Thus, such reduction will be made on each year’s remaining balance, but it does not make
the asset at zero level of amount (Beatty and Liao, 2014). Thus, there will be some balance
remain after the completion of useful life only reduction will be made on the assets as per the
charging same proportion over each asset.
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CLIENT 4
A. Ascertaining the purpose of preparing BRS statement
A bank reconciliation is a summary of banking and business activity, which checks the
entity's bank account with its financial records. Bank reconciliation statements ensures that
payments have been processed and cash collection is deposited in the bank. Statements help in
identify difference between the balance in cash book and bank statemen, in order to make any
necessary adjustments or correction. Bank reconciliation statements helps in comparing the
internal financial record against the recorded provided by bank (Diouf and Boiral, 2017).
Sometimes, balance in both the accounts do not match, this is due to the fact that, at any
particular date, checks can be outstanding, deposits may be in transit to bank, errors may have
occurred etc, therefore the company has to make bank-reconciliation-statement accounting for
difference between the cash balance and cash balance in bank statements
The purpose of Bank-reconciliation-statement is as follows:
 It confirms the accuracy of the balance shown in company's book and bank records.
 It provides a check on the accuracy of entries made in both the books and bank records.
 It rectifies any error if committed in the books (Hope, Thomas and Vyas, 2017). to check
any the undue delay in the collection and clearance of some cheques.
 It detects any missing entries and gives indication to update the entries if they are not
recorded in the books.
 BRS assists in the internal auditing procedure of the company, as auditor will always
analyse the company's bank-reconciliation-statement as part of testing procedures.
 BRS helps in producing accurate financial statements and helps in reducing the risk of
any financial fraud that take place (Hoitash and Hoitash, 2017).
BRS helps in internal control over the company's cash flow.A monthly Bank reconciliation
statements helps to catch and identify any unusual transaction might be in caused by fraud or
accounting errors, especially if company has more than one bank account. A regular review of
your accounts can help you identify problems before any problem came. A high-volume
businesses or situations with higher risk of fraud will need to reconcile the bank transaction even
more often.
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B. Reason for the difference in bank statements.Bank Reconciliation statement is prepared
to reconcile the difference between the cashbook and bank statents balance. All transactions in
between company and the bank are reported separately by both parties (Johnston and Petacchi,
2017). The records may disagree due to various reasons which show difference between cash
book and pass book.. The reasons for the deference in balances in both the accounts are as
follows:
 Outstanding cheques: according to the accounting principles, the transactions shall be
recorded as and when they occur in order to show the real time accounting (Nilsson and
Stockenstrand, 2015). Suppose, business entity pays by cheque to a creditor, however the same
is not presented in the bank by the creditor in the month in which the cheque was drawn by the
entity. This mismatch will result in cash balance lower than the bank statement
 Service charges: interest charged on overdraft account, various charges of banks etc. the
accountant of will come to know about the deduction only when he receives bank statement at
the end of the months. This will result in showing higher balance in cash book than the bank
statements balance (Dutta and Patatoukas, 2016). To avoid this mismatch, all the unrecorded
transactions will be recorded in the cash book before the month end..
 Deposit in transit: it is cash that company has received from the customer and entry are
made in cash book but does not appears in the bank statements.. This usually occurs on the last
day of the month. will result in showing higher balance in cash book than the bank statements
(Mullinova, 2016).
 Errors in recording: sometimes, errors may be commited by company in cash book like
omission is recording any transaction, wrong recording of payment withdrawal or payable . In
this case there would be difference between balance as per cash book and pass book. Similarly,
any error commited by bank like not recording of any transaction, unrecorded lodgment.
C. Preparing the cash book (bank only) for Kedal Ltd.
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Cash book
31

BRS Statement
32

CLIENT 5
A. Drafting and balancing the accounts
Sales Ledger control account
Purchase ledger control account
B. Identifying the purpose of preparing control accountsIn a general ledger, there can be
hundreds of accounts from assets and liability accounts to income and expenses. Each account
can have more than hundreds of smaller accounts called subsidiary. It would be very large,
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unorganized and difficult to use ledger if all this account was included in it (Khan, 2015). This is
why control accounts are used to summary data from the numbers of related data. Control
account is a general ledger account that summarizes or control a subsidiary ledger group of detail
accounts. The control account is of two types: Sales ledger account: this account resembles the account of a debtor, but instead of
containing transactions concerned with just one person or business, it contains transaction
related to all debtors (Macve, 2015).
Purchase ledger account: this account resembles the account of a creditor, but instead of
containing transactions concerned with just one person or business, it contains transactions
relating to all creditors.Advantages of control-accounts are:
 control accounts helps in preparing trail balance from the adjysted general ledger..
 If the trail balance does not balance, only the accounts whose control account does not
reconcile need to be checked for errors.
 A different person can maintain the control account as a check against fraud.
 Control account reduces amount of detail needed in general ledger.
 It is essential to facilitate the preparation of profit and loss accounts and balance sheet at
the end of accounting period by providing figures quickly.
CLIENT 6
A. Purpose of suspense accounts
Suspense account is the account in general ledger where transactions are recorded
temporarily. The suspense account is used because the proper account for the amount could not
be determined at the time that the transaction was recorded. When the proper account for
amount is determined, it will be moved from suspense account. It is account for the unclassified
transaction (Henderson and et.al., 2015). Anytransaction recorded in suspense account should be
there on temporarily basis only, . It is important to keep unidentified amounts in a separate
account in order to stay organised and identify them later more easily. The suspense account
gives them a temporarily place until they can be properly placed. The main features of suspense
accounts are:
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 While making trail balance after an accounting period, it its getting out of the balance like
debit can be larger than credit or vice versa, then the difference of the amount will be recorded
in suspense account. It will be listed as other asset.
 It is a temporarily account, it is made because of an unclassified or unidentified
transaction which needs to be recorded in the right account. Once the source of the difference in
amount is found, the amount will be transferred to its account and suspense account is closed
from the trial balance.
 Suspense account is important to settle the unidentified transactions, it helps in record of
the transactions of which the customer has made payments or which invoice the customer wants
to pay.
B & C. Drafting the trial balance with consideration of suspense accounts
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D. Differentiating among Suspense Account and a Cleaning account
Suspense account is found on the general ledger that is used to record certain amounts on
a temporarily basis. Because the appropriate accounts is unidentified at the time of recording the
transactions. Once the correct account is found the amount will be transferred to the account.
Clearing account is a general ledger account which is used as a reminder for services or
goods received and sold that have not yet billed or other transactions which can’t yet be recorded
in detail. Clearing accounts hold the amount for specific period of time unless it got transferred
to another account.
The difference between suspense and clearing account are:
 Temporarily account: Both clearing and suspense account is temporarily accounts, but
the functions are different. Clearing account is made to hold the amount for sometimes
until the transaction are completely and correctly recorded in its account. Whereas,
Suspense account is opened when the source of transaction is unknown. The unclassified
amount will be transferred to its account until the right account is identified. Indication: Clearing account indicates that particular transaction is incomplete, whereas
suspense account indicates resolution in the amount (Beatty and Liao, 2014).
 Closing of both accounts: both the suspense and clearing account will be closed to zero .
Everything will be moved to other account leaving the account to close permanently.
Suspense account will be closed when the problem of uncontained amount will be solved,
while clearing accounting is closed when the transaction is completed.
CONCLUSION
On the basis of above report, it can be said that there has been identification of all the
principles and concepts which have been proposed by various authorities such as IFRS, IASB,
FRC, FRSB and GAAP. They have special influences in recording the transactions, preparing
statements and making their disclosures among the external environment. Considering the
influences of such transactional activities which will be adequate as per making the better
analysis and audit of the accounts. Further, preparation of various accounts such as income
statements, balance sheet, trial balance, BRS statement etc. have facilitated the plethora of
information regarding such facts and figures.
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REFERENCES
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Diouf, D. and Boiral, O., 2017. The quality of sustainability reports and impression management:
A stakeholder perspective. Accounting, Auditing & Accountability Journal. 30(3).
pp.643-667.
Dutta, S. and Patatoukas, P. N., 2016. Identifying conditional conservatism in financial
accounting data: theory and evidence. The Accounting Review. 92(4). pp.191-216.
Henderson, S. and et.al., 2015. Issues in financial accounting. Pearson Higher Education AU.
Hoitash, R. and Hoitash, U., 2017. Measuring accounting reporting complexity with XBRL. The
Accounting Review. 93(1). pp.259-287.
Hope, O. K., Thomas, W. B. and Vyas, D., 2017. Stakeholder demand for accounting quality and
economic usefulness of accounting in US private firms. Journal of Accounting and
Public Policy. 36(1). pp.1-13.
Johnston, R. and Petacchi, R., 2017. Regulatory oversight of financial reporting: Securities and
Exchange Commission comment letters. Contemporary Accounting Research. 34(2).
pp.1128-1155
Khan, M., 2015. Accounting: Financial. In Encyclopedia of Public Administration and Public
Policy, Third Edition-5 Volume Set (pp. 1-6). Routledge.
Macve, R., 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision,
Tool, Or Threat?. Routledge.
Mullinova, S., 2016. Use of the principles of IFRS (IAS) 39" Financial instruments: recognition
and assessment" for bank financial accounting. Modern European Researches. (1). pp.60-
64.
Nilsson, F. and Stockenstrand, A.K., 2015. Financial accounting and management control. The
tensions and conflicts between uniformity and uniqueness. Springer, Cham.
Online
International Accounting Standard Board. 2018. [Online]. Available through: <
https://www.ifrs.org/groups/international-accounting-standards-board/>.
Accounting Principles. 2018. [Online]. Available through: <
https://www.accountingcoach.com/accounting-principles/explanation >.
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