Comprehensive Report on Financial Accounting Principles and Practices

This report provides a comprehensive overview of financial accounting principles, regulations, and practical applications. It begins with an introduction to financial accounting, its importance, and the relevant regulations, including IFRS, IASB, FRC, and GAAP. The report then details key accounting principles such as accrual, matching, cost, economic entity, going concern, full disclosure, and monetary unit principles. The report includes case studies of six clients, detailing journal entries, ledger accounts, trial balances, profit and loss statements, and balance sheets. It explores control accounts, suspense accounts, and the importance of depreciation. The report also includes financial statements for clients like Peter Piper and Raintree Limited. Overall, the report provides a thorough analysis of financial accounting practices and their application in various business scenarios, including the preparation of financial statements, and the importance of the discussed accounting principles.

FINANCIAL ACCOUNTING
PRINCIPLES

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
A. Report of accounting regulations to line manager of organisation........................................1
1. Describing financial accounting..............................................................................................1
2. Financial accounting regulations.............................................................................................2
3. Principles of accounting with its rules....................................................................................3
4. Concepts related to material disclosure and consistency........................................................3
CLIENT 1........................................................................................................................................4
1. Journal entry of client 1 as per date 1st may 2017...................................................................4
2. Drafting ledger account of above journal entries....................................................................7
3. Client 1's trial balance...........................................................................................................15
CLIENT 2......................................................................................................................................16
A. Profit and loss statement of Peter Piper for year ended 31st December 2017......................16
B. Balance sheet of Peter Piper for the year ended 31st December 2017..................................17
CLIENT 3......................................................................................................................................18
A. Income statement of Raintree limited for the year ended 30th Septmeber, 2017.................18
B. Financial position of client 3 (Raintree limited)...................................................................19
C. Justifying various principles and concepts of accounting principles...................................24
C. Importance of deprecation by both methods with context of organization..........................25
CLIENT 4......................................................................................................................................25
A. Objective of preparing bank statement.................................................................................25
B. Justification related to recording of bank statements...........................................................26
C. Cash book of client...............................................................................................................26
CLIENT 5......................................................................................................................................27
Drafting purchase ledger control account and sales ledger control account of Henderson for
May 2017..................................................................................................................................27
A. Describing control account...................................................................................................28
CLIENT 6......................................................................................................................................28
A. Define suspense account with features.................................................................................28
B. Drafting trial balance............................................................................................................28
C. Journal entries.......................................................................................................................29
D. Clearing account vs Suspense account.................................................................................29
CONCLUSION..............................................................................................................................29
REFERENCES..............................................................................................................................31

INTRODUCTION
In present era, financial accounting is determined as the most important element of
organization. The present report is giving brief discussion on various principles of accounting,
rules and regulations which are followed by all the industries. While following these concepts
along with regulation are giving great advantage for drafting financial performance of their own.
These concepts, rules and regulation will lead to achieve great success of the organization in
terms on monetary aspect and even brand image. The report is discussing about six clients in
which all the financial statements such as trial balance, balance sheet, profit and loss statement
are covered with proper journal entry and ledger account. This report has also highlighted on
control account that is sales ledger control account and purchase ledger control account.
A. Report of accounting regulations to line manager of organisation
To : Line Manager
From : Junior accountant
Subject: Expressing the term accounting and its awareness with respect to accounting
regulations
Respected Sir,
There is essential need of analysing all the rules and regulations as well as different
methods for applying various principles of accounting for improving the transactions which are
based on activities which are directly linked to business. Different accounting techniques help
in improving different business operations and all transactional activities. The outcomes of such
techniques will be beneficial for allocating cost, predicting and budgeting with different
operational tasks in context of business and organisation.
1. Describing financial accounting
Financial accounting refers to the area whose special emphasis is on giving useful
information to all external users. It is replicated as a way for reporting each and every business
activity and all important information related to finance has been provided to creditors,
investors and various people who are considered as outsiders but are relevant for organization.
Outsiders include creditors and investors as they use financial information of organization for
making appropriate decisions (Shroff, 2017). The set of financial statements which are been
issued to external users by organisation. Financial statements are of different types and which
1

provided very general objectives such as Profit and loss statement, Balance sheet, statement of
cash flow and statement of stockholder's equity. All the financial transactions are tracked with
the help of financial accounting. It can be summarized, recorded and presented in the financial
statements which are stated above. The financial statements are issued on daily schedule which
have been set by organization. As all these are used by outsiders, stock holders and even
lenders.
2. Financial accounting regulations
There are various rules and regulations in financial accounting which will be giving
great advantage for providing legal framework for accounting. In UK, there is presence of its
own government regulator which is named as Financial Reporting Council. There are various
disclosure about all units, corporates and different departments of government (Basic
accounting principles. 2018). In the series of regulations, there is the presence of different legal
frameworks which are accepted universally:
IFRS: International Financial reporting standards can be defined as standards which are
issued for giving a specific global language for the affairs of different business and so, in this
context, organizations will be able to understand the accounts and even it will be giving good
contribution towards comparison. IFRS standards provides a basic framework which will
include complete information in the perspective of financial statement and it will lead to attract
a high number of investors.
IASB: International Accounting Standards Board leads to private sector body and it also
has its significance in IFRS Foundation. It performs its various operations in technical matters
in the context of IFRS Foundation. The technical agenda has been pursued for developing full
liberty and even requirements of consultation with different trustees and public. In other words,
its main aim of IASB is to give information to accounting professionals and for framing
database of each financial with disclosure (International Accounting Standards Boards. 2017).
FRC: As discussed above, it is the regulator of UK for the purpose of audit, accounting
and actuarial professions and even for UK's corporate governance. It considers accounting
standards which are framed on the basis of executing all financial disclosure who are closely
related to accounting (Financial Reporting Council. 2017).
GAAP: Generally accepted accounting principles are the rules and procedures which
2

are defined by industry of professional accounting and they are mostly adopted by all US
companies who are traded publicly (GAAP generally accepted accounting principles. 2018).
3. Principles of accounting with its rules
There is presence of various accounting principles which are developed for basic usage
and on the basis of modern accounting. Some basic principles are as follows :
Accrual principle: All the accounting transactions should be recorded in that specific
accounting period when it has been actually occurred instead of period cash flow which is
associated with it.
Matching principle: While recording revenue, all the expenses related to same time
must be recorded. This refers as a cornerstone of principle of accrual basis of accounting.
Cost principle: In this concept, all assets, liabilities and equity investment should be
recorded at their original purchase price.
Economic entity principle: The transactions should be recorded separately of both
business and its owners. It will be preventing the mix match of assets and liabilities of various
identities.
Going concern principle: Business should stay in operation for future which can be
easily predictable as there is requirement of proper justification of deferring some expenses for
recognition.
Full disclosure principle: On the basis of this principle, all the financial statements
related to business must be included and it should be understandable for each reader. Various
disclosures of financial information should be implied by accounting standards (Financial
Accounting. 2018).
Monetary unit principle: Business should always record those transactions which can
be elaborated with respect to currency.
4. Concepts related to material disclosure and consistency
In the present era, there are different concepts and conventions related to financial
accounting such as materiality, full disclosure, conservatism convention and consistency. For
highlighting these principles, there is need to draft appropriate disclosure on the basis of various
accounts such as :
Materiality principle: The specific transactions must be traced in accounting records
3

which include various material required for accounting record and if there is absence of doing
this activity, then it has been altered in process of decision making for reading the financial
statement of company. This concept is usually known as very vague because it is tough to
quantify (Materiality Principle. 2018).
Consistency: This principle leads to be consistent. In other words, accounting principle
which has been adopted once should remain consistent until better principle or method has not
been generated. If there is mismatch in accounting principle from year to year then it will be
giving long term financial results very difficult for recognize.
CLIENT 1
1. Journal entry of client 1 as per date 1st may 2017
The journal entries are disclosed below as they are also required for analysing balance
sheet and profit and loss statement of May 2017 with context of Alexander. The transactions can
be recorded and traced with various techniques of accounting who are framed in specific
duration and transactions which are summarized in the given data set are:
4

5

6

2. Drafting ledger account of above journal entries
The above journal consist of each and every transactions on the basis of given dataset. All
the accounts consist of their own entries. The managers and owners will be getting great
advantage for giving their highlights on analysis of cost and gains which are required from
various sources from all activities on basis of company's operation by foreseeing the journal
entries (Warren and Jones, 2018). For decision making and planning, these entries plays huge
contribution and it will be decreasing the level of different cost and expenses on the perspective
of company.
7

8

9

10

11

Nominal ledger
12

13

Real ledger accounts
14

JOURNAL ENTRIES
ASSETS debit £ credit £
premises 340000
VAN 51250
FIXTURES 8100
INVESTMENTS 63900
RECEIVABLES:
P MULLEN 1400
F LANE 3100
CASH AT BANK 62400
CASH IN HAND 5600
LIABILITIES
PAYABLES
S HOOD 2150
J BROWN 4600
CAPITAL BAL FIG 529000
535750 535750
3. Client 1's trial balance
In the context of trial balance, various balance can be justified by the organization in the
series of journal and ledger (Easton and et.al., 2018). These accounts consist of different data
which is summarized and remaining transactions for balance are considered as a basic part of
general accounts. Alexander's trial balance of May 2017 is framed as follows:
Particulars Debit Credit
Van 28500
sales 4050
Purchase 220
Drawings 1500
Motor cost 8000
Bank amount 29500
Cash 1970
A/C payable 8220
A/C receivable 4050
Suspense account 17570
Total 51840 51840
15

Interpretation: The trial balance consists of various transaction related to sales and
purchase which are incurred in given duration (Trucco, 2015). Van, premises, fixtures and
inventory are considered as an asset which are again evaluated. The sales is aggregated as 10930
and purchase is 38320. It can be justified as there are more purchase as compare to sales so there
is deficit in expenses by comparing it to income. Various boards and association have issued
different accounting principles with the reference of trial balance which is formed above. There
are different transactions which are traced with format of trial balance according to the concepts
of GAAP, IASB and IFRS.
CLIENT 2
The Peter piper as client 2 has given different balances of the duration of 31st December
2017 which will be throwing light on financial statements such as profit and loss statement and
even for financial performance, stability and position of this same duration (Cochran, 2018).
A. Profit and loss statement of Peter Piper for year ended 31st December 2017
Particulars Amount
Revenue 121500
(Cost of goods sold) -759360
Gross profit margin 455640
Salaries and wages 177500
Outstanding wages 1220
(Indirect costs)
administration cost -17650
Motor cost -87400
Advertising -13280
Heating and lighting -4950
(prepaid) 8470
Depreciation on equipment -17250
(Premises) depreciation -5400
(Motor vehicle) depreciation -2800
Total indirect cost -318980
Net income 136660
16

B. Balance sheet of Peter Piper for the year ended 31st December 2017
The balance sheet depicts the financial position of the organization of Peter Piper, the
above income statement has been properly analysed by some major transaction in the given
duration. The organization will be befitted by these transactions for achieving specific growth
with equity and capital strength cab be briefed for these efforts on the basis of company's
operation. Financial performance can be disclosed in very efficient manner of Peter Piper:
17

CLIENT 3
The Raintree limited is client 3 in this scenario, various accounts of trial balance has been
given with the duration of 30th September 2017 and there is requirement of accurate analysis of
given profit and loss statement, depreciation and balance sheet. The depreciation is discussed in
both methods and there is presence of various concepts of accounting such as prudence and even
consistency (Eisenschmidt and Schmidt, 2018).
A. Income statement of Raintree limited for the year ended 30th September’ 2017
There is presence of different measurements of various expenses and income which has
been generated from production, sales and activities of specific duration which are interlinked to
company's operations.
Particulars Amount
Revenue 107000
(Sales return) 2000
Ending inventory 18000
Beginning inventory 17000
Purchase 32000
18

Gross margin 74000
(Indirect cost)
Additional depreciation 36000
administration cost 28000
Distribution cost 22000
(prepaid rent) 3000
Outstanding wages 2000
Operating gain 85000
Operating loss
(Interest payment) 11000
(Corporate tax) 4000
Profit from continuing
operations 7000
Net Income 18000
B. Financial position of client 3 (Raintree limited)
Specifications has been provided by Raintree limited with the context of various
information based on balance sheet and it is also presented in income statement and trial balance
on basis of business (Levy, Bouheni and Ammi, 2018).
19

20

21

22

23

C. Justifying various principles and concepts of accounting principles
The principles of accounting is always followed by every organisation and especially top
organizations and along with this various concepts of framing different financial statements as its
origin should be authenticated and accurate. Positive impact will be given to every organization
for improvising the activities of business's operation (McLaren, 2018). As it should clear and
precise to understand. The major concepts of accounting principles are elaborated as follows:
Consistency: This accounting concept is related to activities of business should be
operated in a continuous manner. After considering the principles of accounting, the forecasted
cost should be disclosed on daily basis and it should be performed by organization. It will lead to
attract huge number of investors, stakeholders and it will also lead to perform more efforts for
improvising the future.
24

Prudence: The revenues are not overestimated and even expenses are not
underestimated. The assets should be recorded in conservative manner and liabilities will be not
under estimated. The outcome must be conservatively stated financial statements. There should
be brief analysis of liabilities. With this context there is no need of efforts which are giving
advantage to business, principles and various concepts.
C. Importance of deprecation by both methods with context of organization
The fall in value of any asset is determined as depreciation as it gives different pros for
business for drafting efforts and presenting value of asset in present time. The asset devaluation
is main objective of aggregating depreciation in these statements along with the valuation of
purchase. There are two methods of depreciation which are as follows:
Straight Line method: It is evaluated as default method which decrease the fixed asset's
carrying amount over its useful life. The consumption pattern has been reflected by this method
along with pattern of asset which is underlying. It is implied when no pattern has been given in
illustration as it is mostly recommended because of ease in nature and few errors of calculation
(Rigot and Demaria, 2018.).
Written Down method: It is also indicated as diminishing balance or reducing balance
or reducing instalment method. This method is using depreciation amount at fixed percentage of
every year in the book value which has been decreased. In this scenario book value less
deprecation. The application of book value and depreciation's fixed rate gives the outcome as
decreasing the charges of depreciation within life span of that current asset.
While analysing income statement, there are different transactions which are traced and
giving net income of 10000 which is introduced for adequate balance. There is presence of
different income and expenses which are recordance and its balance will be appropriate outcome.
CLIENT 4
A. Objective of preparing bank statement
The main aspect of creating bank statement in the given duration for Kendal, there are
various transactions which creates ability for evaluating all gains and expenses with data set
which has been given. It will also help in understanding the aspect of cash flow. Business will be
benefitted by framing efforts and information in context of disclosure.
25

B. Justification related to recording of bank statements
There are many reasons which will be directly linked to creating benefit to organization
for justifying all factors which will be influencing in very high volume of tracing these
transactions in context of analysing deposit transit, cheque which are outstanding, dishonour of
cheque and interest charged in the specific duration (Weygandt, Kimmel and Kieso, 2015).
C. Cash book of client
Bank Reconciliation Statement
Bank Reconciliation statement as on 31st December 2017
Particulars Cheque number Amount
Balance according to bank
statement 17473
Outstanding lodgement 176
17659
(Un-presented cheques) 737 1163
Balance according to cash book 16496
Cash Book
Updated cash book for period on 31st December 2017
Dates receipts Figures Dates payments amount
Balance b/d 19973 31/12/17 Adjusted error 1
Adjusted error 9 Bank charges 47
Standing order 137
Direct debit 297
Balance c/d 19500
19982 19982
Bank statements as on 31st December 2017
Particulars Cheque number Amount
Balance according to bank
statement 19733
26

Outstanding lodgement 119
19857
(Un-presented cheques) 97 357
Balance according to cash book
on 31st December 2017 19500
CLIENT 5
Drafting purchase ledger control account and sales ledger control account of Henderson for May
2017
Purchase Ledger control account
Date Particulars amount date Particulars amount
To creditors 101010 01/05/17 By balance cd 9160
To discount
received 290 By bank 400
To bal bd 23320
By credit
purchase 116500
To purchase
return 1110
To set off 330
Total 126060 Total 126060
By balance bd 23320
Sales Ledger control account
Date Particulars amount date Particulars amount
01/05/17 To balance bd 12600 By debtors 141610
to credit sales 152350 By bad debts 120
By discount
allowed 380
By sales return 7320
By set off 330
]By balance cd 15190
27

Total 164950 Total 164950
To balance bd 15190
A. Describing control account
It is a summarized form of general ledger. This account includes aggregate of whole
transactions that are segregated individually for the level of subsidiary in account of ledger.
Accounts payable and receivable are summarized which include transaction in huge quantity as
there is need of differentiating the subsidiary ledger rather than collecting general ledger in a
detailed information (Jayaram and et.al., 2018).
CLIENT 6
A. Define suspense account with features
Suspense account is refereed as account for correcting error which are happened in past
year. The duration of this account is temporary (Mullinova, 2016). The problems should be
extracted and should be solved as soon as possible. Its major significance is that it should be
zeroed before preparing final accounts. When the problem has been extracted it should be
resolved it should be always in mind that it’s temporary with very less duration.
B. Drafting trial balance
Interpretation: The above table is depicting train balance of client of year end. The particulars
are extracted from all ledger accounts. If debit and credit side are matching then applicability of
trial balance is in a correct manner (Mullinova, 2016).
28

C. Journal entries
D. Clearing account vs. suspense account
CONCLUSION
It can be concluded from above report that financial accounting is essential in each and
every organisation whether it is small or big. There is the requirement of observing financial
performance and stability of organization and it can be measured by following different
accounting concepts i.e. materiality, prudence, etc.. This report has also enlighten the financial
statements such as trial balance, profit and loss statement and balance sheet of various client with
29

appropriate justification which is provided which is very important to know its own position in
the industry. Further it has been summed up that clearing and suspense account have different
features which are variations of each other.
30

REFERENCES
Books and Journals
Cochran, R. J., 2018. The Financial Accounting Standards Board’s Fair Value Mandate: Are
Level 3 Assets and Liabilities Being Measured Accurately?. Accounting and Finance
Research. 7(2). p.33.
Easton, P. D. and et. al., 2018. Financial Accounting for MBAs. Cambridge Business Publishers.
Eisenschmidt, K. and Schmidt, M., 2018. Integrating prediction markets into the due process of
international accounting standard setting: A possible path to achieving legitimate
accounting standards?. The Journal of Prediction Markets. 11(2). pp.77-102.
Jayaram, A. and et. al., 2018. MULTIPARTY RECONCILIATION SYSTEMS AND METHODS.
U.S. Patent Application 15/702,684.
Levy, A., Bouheni, F. B. and Ammi, C., 2018. Financial Management: USGAAP and IFRS
Standards. John Wiley & Sons.
McLaren, M., 2018. ‘Evidence-based policy-making’: a practitioner view. Accounting and
Business Research. 48(5). pp.609-611.
Mullinova, S., 2016. . 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.
Rigot, S. and Demaria, S., 2018. Potential impediments to long-term and low-carbon investment:
the international accounting standards at stake. International Journal of Sustainable
Energy Planning and Management. 15. pp.11-20.
Shroff, N., 2017. Corporate investment and changes in GAAP. Review of Accounting
Studies. 22(1). pp.1-63.
Trucco, S., 2015. Premises for the Convergence of Financial Accounting and Management
Accounting. In Financial Accounting (pp. 41-64). Springer, Cham.
Warren, C. S. and Jones, J., 2018. Corporate financial accounting. Cengage Learning.
Weygandt, J. J., Kimmel, P. D. and Kieso, D. E., 2015. Financial & managerial accounting.
John Wiley & Sons.
Online
Basic accounting principles. 2018. [Online]. Available through:
<https://www.accountingtools.com/articles/2017/5/15/basic-accounting-principles>.
31

Financial Accounting. 2018. [Online]. Available through:
<https://www.myaccountingcourse.com/accounting-dictionary/financial-accounting>.
Financial Reporting Council. 2017. [Online]. Available through: <https://www.iasplus.com/en-
gb/resources/other-regulatory/financial-reporting-council>.
GAAP (generally accepted accounting principles). 2018. [Online]. Available through:
<https://whatis.techtarget.com/definition/GAAP-generally-accepted-accounting-
principles>.
International Accounting Standards Boards. 2017. [Online]. Available through:
<https://www.iasplus.com/en/resources/ifrsf/iasb-ifrs-ic/iasb>.
Materiality Principle. 2018. [Online]. Available through:
<https://www.accountingtools.com/articles/2017/5/14/the-materiality-principle>.
32