Financial Accounting Report: Frankham Consultancy Group Analysis

This report provides a comprehensive overview of financial accounting, focusing on its definition, purpose, and the roles of internal and external stakeholders. It examines the preparation of financial statements, such as balance sheets and income statements, and their importance in decision-making for both internal management and external parties like investors and creditors. The report also delves into the application of Generally Accepted Accounting Principles (GAAP) and the importance of accurate financial reporting. Additionally, the report includes practical examples of journal entries and ledgers for a fictional company, Alexandra Study, demonstrating the recording of various financial transactions including purchases, sales, expenses, and payments. The analysis includes detailed examples of how to record transactions related to owner's capital, purchases, sales, returns, and payments, illustrating key accounting concepts.

FINANCIAL
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Part (a)..........................................................................................................................................3
Part (b).........................................................................................................................................6
CONCLUSION..............................................................................................................................19
REFERENCES..............................................................................................................................20

INTRODUCTION
Financial accounting can be defined as a type of accounting system which is related with
the collecting, analysing, presenting and interpreting the financial transactions of any company
(Christensen, Cottrell and Baker, 2013). This accounting system includes preparation of various
kind of financial statements such as income statement, balance sheet, profit & loss account etc.
These financial statements play an important role in the context of internal and external decision-
making. Herein, for this project report frankham consultancy group limited firm is selected
which is an accountancy firm and provides different kind of accounting services such as
auditing, tax consultant etc. In this report definition of financial accounting, its purpose and
internal, external stakeholders are mentioned. Apart from it, various tasks are completed as per
the given data about the clients.
MAIN BODY
Part (a)
1. Definition of financial accounting and its purpose.
Financial accounting- The financial accounting can be defined as a kind of accounting
system which is associated with the preparation of various financial statements that is useful in
providing information regarding to the financial performance of the organisations (Eng, Lea,
2014). Apart from it, this accounting system provide a kind of framework which can be
beneficial in making appropriate financial decisions. Additionally, these financial statements are
not only beneficial for the internal decision making but also useful for the external stakeholders.
It can be understand by an example like if a company prepares financial statements such as
balance sheet, profit & loss accounts etc. Due to this their external stakeholders like investors,
creditors can evaluate their actual financial conditions. It is helpful for the internal management
of that company. So overall due to these financial statements businesses can take many crucial
decisions whether they should invest more capital or not. In other words, it reflects the actual
position of the company in front of internal and external stakeholders.
Apart from it, this is necessary for the organisations to follow the Generally accepted
accounting principles (GAAP). Eventually, it is the responsibility of an accountant to follow all
the rules and regulations during preparation of financial statements so that information can be
reliable and accurate. In the absence of implementing proper accounting principles, it can be

difficult for the companies to take risky decisions. For this purpose, organisations conduct
auditing process so that accuracy of financial statements can be analysed. Herein, some purposes
of financial accounting are mentioned below: Provide financial information- The basic purpose of financial accounting is to provide
needed reliable financial information with the help of different kind of financial accounts
such as balance sheet, income statements etc. Provide framework for decision-making- The financial accounting is also helpful in
taking many crucial and important decisions on the basis of prepared financial statements
(Knežević, Stanković and Tepavac, 2012). Helpful in taking taxation decisions- Additionally, this accounting system is useful in
taking taxation decision. On the basis of income and expenditures companies can
calculate the actual taxation. Helps in comparison- Due to the financial accounting system, companies can compare
their current year's profits and expenditures from past year. It can be possible by
comparison of previous year's profit & loss account and balance sheets with current year.
With the help of it, organisation can analyse their actual condition.
 Beneficial in making future plans and strategies- The another purpose of financial
accounting system is that on the basis of financial information, companies can make their
further plans and competitive strategies. It becomes possible because several financial
statements consist important which can be useful in making important strategies. Helpful in attracting investors- If company's financial statements are presenting better
financial condition then it can be profitable for them to attract more investors. This is
why because investors make invest on the basis of financial condition and it is provided
by financial accounting in the form of income statements, balance sheet etc.
2. Internal and external stakeholders.
Stakeholder- It can be defined as a person or group of person who are interested in the
activities of any business. The main purpose of them to show the interest is to evaluate financial
position so that they can make invest in companies. Eventually, there are two types of
stakeholders which are internal and external stakeholders. If companies change their plans,
policies and strategies then it impacts to the stakeholders. As well as for organisations it is

beneficial if they have more stakeholders then there will be possibility of higher investment.
Herein, below internal and external stakeholders are mentioned:
Internal stakeholders- These stakeholders are the group of person who can be effected
by the company (Vogel, 2014). The internal stakeholders are employees, managers etc.
Basically, these stakeholders are the main part of the organisations because all necessary
decisions are taken by them. Herein, below some types of internal stakeholders are mentioned
below: Employees- These are the group of individuals who performs various kind of tasks and
activities as per their skills and capabilities to get wages, salary in return. Though the
employees are just hired to perform organisational task but they have the interest in the
financial position of the company. This why because if employees will aware about the
financial condition of the company then they will ensure about their growth. Board of director- The board of director is a panel or group of some people who make
rules and regulations for organisations and these rules must be followed by all the
members. The broad of directors are interested in the financial information of the
company because on the basis of it they can take important decision for the organisation.
As well as can make competitive strategies and plans.
External stakeholders- These stakeholders are those who are not the part of organisation and are
not involved in the day to day activities. Some example of these stakeholders are such as
customers, regulators, government, investors, suppliers etc. Herein, below these stakeholders are
mentioned below:
 Suppliers- These are the group of person or individual who provides raw material, goods
and services to the organisations. The suppliers might be interested in the financial
information of the company because on the basis of financial situation of the company
they judge to provide credit facility. If financial situation of an organisation is weak then
suppliers will not provide raw material or other facility to them on credit. On the other
hand, if financial condition is weak then suppliers will not offer material on credit.
 Investors- The investors are those who invest their fund in the companies with an
expectation to earn profit on the invested fund. These investors are interested in the
financial information of the company because on the basis of financial condition of the
company they take decision whether they should invest further in that company or not.

 Creditors- The creditors are those who gives fund or goods on credit to the companies.
Eventually, they give the credit on the basis of financial condition of the organisation.
They show their interest in the financial information of the company to check their
profitability, borrowings etc. On the basis of their financial condition, creditors lend
money to the companies. Government- Eventually, the government is one of the important stakeholder for the
companies. They set the particular laws, rules and regulations which must be followed by
the organisations. They might be interested in the financial information of the companies
so that tax rate can be determined of the organisations.
Part (b)
Client 1.
Journals- In the context of accounting, journal entry means putting the financial
transactions in an accounting journal that defines debit and credit balance (Aiken, 2013). Herein,
it is important that addition of debit and credit side must be equal.
Owner's capital- The account of owner's capital defines about how much capital from the
total capital is invested by the owner of company.
(a) Journal Entries and Ledgers in the book of Alexandra Study

To S Hood A/c 1450
To D Main A/c 2060
To W Tone A/c 960
To R Foot A/c 1610
(Being goods purchases on credit from various parties)
03/01/19 J Wilson A/c ................................................................ Dr. 1200
T. Cole A/c ................................................................ Dr. 1650
F. Syme A/c ................................................................Dr. 2100
J. Allen A/c ................................................................ Dr. 1020
P. White A/c ................................................................Dr. 2520

F Lane A/c ................................................................ Dr. 980
To Sales A/c 9470
(Being goods sold on credit to various parties)
04/01/19 Motor Expenses A/c …..................................................Dr. 470
To Cash A/c 470
(Being motor expense is paid)
07/01/19 Capital A/c................................................................Dr. 1500
To Cash A/c 1500
(Being cash withdrawal by owner himself)
09/01/19 T. Cole A/c................................................................ Dr. 680
J. fox A/c................................................................ Dr. 1310
To Sales A/c 1990
(Being goods purchase on credit with various parties)
11/01/19 Sale Return A/c............................................................. Dr. 680
To J. Wilson A/c 270
To F. Syme A/c 410
(Being goods is returned back by the parties
16/01/19 Bank A/c................................................................ Dr. 7020
To P. Mullen A/c 1400
To F. Lane A/c 3100
To J. Wilson A/c 850
To F. Syme A/c 1670

(Being Payment received from various parties)
19/01/19 R Foot A/c ................................................................ Dr. 50
To Purchases Return A/c 50
(Being Goods is returned to creditor)
22/01/19 Purchases A/c................................................................ Dr. 3740
To L Mole A/c 1830
To W Wright A/c 1910
(Being goods purchased on credit)
24/01/19 S Hood A/c ................................................................ Dr. 3600
J Brown A/c ................................................................ Dr. 4600
R Foot A/c ................................................................ Dr. 1400
To Bank A/c 6000
(Being payment is made to creditors)
27/01/19 Salaries A/c ................................................................ Dr. 4800
To Bank A/c 4800
(Being salaries are paid through cheque)
30/01/19 Business Rates A/c.........................................................Dr. 1320
To Bank A/c 1320
(Being business rates are paid through cheque)

Books of accounting:

Date Particulars Amount Date Particulars Amount
01/01/18 To Opening
Balance (B/f)
6100 16/01/19 By Bank A/c 3100

03/01/18 To Sales A/c 980 31/01/18 To Closing Balance C/d 3980
Total 7080 Total 7080
Cash A/c
Date Particulars Amount Date Particulars Amount
01/01/19 To Opening
Balance (B/f)
15600 04/01/18 By Motor Expenses A/c 470
07/01/19 By Capital A/c 1500
31/01/19 By Closing Balance
C/d
13630
Total 15600 Total 15600
Sales Return A/c
Date Particulars Amount Date Particulars Amount
11/01/19 To J Wilson A/c 270 31/01/19 By Trading and P&L
A/c
680
To F Syme A/c 410
Total 680 Total 680
L Mole A/c
Date Particulars Amount Date Particulars Amount
31/01/19 To Closing
Balance C/d
1830 22/01/19 By Purchases A/c 1830
Total 1830 Total 1830
W Wright A/c
Date Particulars Amount Date Particulars Amount
31/01/19 To Closing
Balance C/d
1910 22/01/19 By Purchases A/c 1910
Total 1910 Total 1910

J Brown A/c
Date Particulars Amount Date Particulars Amount
01/01/19 By Opening Balance
b/f
16600
24/01/19 To Bank A/c 4600 31/01/19 By Closing Balance
C/d
31/01/19 To Closing
Balance C/d
12000
Total 16600 Total 16600
Business Rates A/c
Date Particulars Amount Date Particulars Amount
30/01/19 To Bank A/c 1320 31/01/19 By Trading and P&L
A/c
1320
Total 1320 Total 1320
Storage Cost A/c
Date Particulars Amount Date Particulars Amount
01/07/19 To Bank A/c 450 31/07/19 By Profit & Loss A/c 450
Total 450 Total 450

J Wilson A/c
Date Particulars Amount Date Particulars Amount
03/01/19 To Sales A/c 1200 11/01/19 By Sales Return A/c 270

16/01/19 By Bank A/c 850
31/01/19 By Closing Balance
c/d
80
Total 1200 Total 1200
F Syme A/c
Date Particulars Amount Date Particulars Amount
03/01/18 To Sales A/c 2100 11/01/19 By Sales Return A/c 410
16/01/19 By Bank A/c 1670
31/01/19 By Closing Balance
c/d
20
Total 2100 Total 2100
P White A/c
Date Particulars Amount Date Particulars Amount
03/01/19 To Sales A/c 2520 31/01/19 By Closing Balance
c/d
2520
Total 2520 Total 2520

Trail balance
Client 2.
(a) Statement of Profit and Loss of Munteanu Ltd., for the year ended 31st December 2018
Particular Amount £ Particular Amount £
To opening stock
To Purchase - 61000
less – Return outwards - 1500
To Gross profit
15000
59500
80500
By closing stock
By sales -138000
less – return inwards - 3000
20000
135000
155000 155000

To Administration cost
To Distribution cost
To Corporate Tax
To finance cost
To Depreciation on building
To Gross Profit
32000
32000
2000
1500
8800
4200
By Gross profit 80500
80500 80500
(b)The Statement of financial Position of Munteanu Ltd., as at 31st December 2018
Particular £ Amount £
Assets :
Non Current assets :
Land
Building
Less: Accumulate depreciation
Depreciation for the year
Plant and machinery
Less : Accumulate depreciation
Depreciation for the year
Current assets :
Inventories
Prepaid rent
Account receivable
40000
10000
800
60000
20000
8000
20000
29200
32000
20000
3000
26000
130200
Equity and Liabilities :
Share capital
Share premium
Retained earning with profit during the year
Current liabilities :
40000
20000
26200

Tax liabilities
Accrued salaries
Bank overdraft
Accounts payable
2000
2000
18000
22000
130200
(c) Concept of consistency and prudence.
In the aspect of accounting, it is necessary to follow the accounting concept during
preparation of financial statements. Due to these, accounting concepts financial statements
become more reliable and accurate. Herein, below some concepts are mentioned below:
Concept of consistency- As per this concept, companies should not change their
accounting policies and rules. So organisations should follow the concept of consistency in their
accounting functions.
Concept of prudence- According to this concept, the amount of revenue and expenditures
should not be ignored. In other words, the revenue amount should not be overestimated and
expenditure amount should not be underestimated.
(d) Purpose of depreciation
It is necessary for the organisations to evaluate their fixed assets at the current true value
and for this purpose depreciation is charged on the assets. Eventually, the depreciation means
deduction in the value of an assets so that actual value of assets can be evaluated.
Herein, below two methods of depreciation are mentioned below:
 Straight line method- It is a kind of method for calculated the depreciation which
is charged by the companies on each and every year till the salvage value of assets
( Trucco, 2015). The formula of this method is as follows:
Depreciation- (Original cost of assets- Salvage value)/ Estimated life of assets.
This method can be used wherein, company wants to written of the value of assets in less time.
 Written down value method- In this method, the depreciation is calculated on the
book value of the fixed assets and decreased continuously by the amount of
annual depreciation. The annual depreciation is calculated by using a fixed % of

depreciation. Herein, below formula of calculating this fixed % is mentioned
below:
Depreciation rate- 100* {1- number of years*√(scrap value/ cost of assets)}
This method can be used in the situation wherein, company wants to calculate the depreciation
on fixed percentage.
(e) Difference between the financial statements prepared by the Sole Trader and the Limited
Companies:
Basis Sole traders Limited companies
Format They do not use any format for
preparation of financial
statements.
While limited companies apply a
particular format given by IFRS.
Developer In this, sole trader prepares the
financial statements itself.
In the limited companies, accountant
prepares the financial statements.
Type of capital Under this, only one capital
account is prepared.
On the other hand, they prepares
various kind of capital accounts for
company's members.
Importance Financial statements are not so
important for them.
For them, financial statements are very
important.
Client 3.
(a) Purpose of preparing the Bank Reconciliation Statement- The main purpose of preparation of
the bank reconciliation statement is to evaluate whether amount entered in the cash book is
correct or not. The main purpose of the Bank Reconciliation Statement is to deducting the frauds
and errors in the cash and bank book.
(b) Key reason due to which difference may arise in cash book and bank statement: Herein,
below some reasons are mentioned-
 Lack of awareness to the client about bank charges.
 Any deposit in transit can be the reason of difference.
(c) Imprest- It can be defined as a cash account which is used by the companies for making
payment of day to day expenditures.

(d) Bank-reconciliation Statement as at 30 September 2018:
Particular Amount £
Bank balance as per pass book
Add : Item which have excess balance as per pass book
bank charges not recorded in cash book
Adjustment of direct debit rate
Less: Item which have less balance as per pass book
payment to:
C David
S Leeming
C lyons
398
36
105
122
116
87
Bank balance as per cash book 214
Corrected cash book as per bank reconciliation
Date Particular Amount £ Date Particular Amount £
31/12/1
9
To balance B/d
overstate amount
19973
9
31/12/1
9
By overstate amount
By bank charges
By standing order
By 310923 (Direct D)
By balance c/d
1
47
137
297
19500
19982 19982
Client 4.

(b) Control account- It may be defined as a general ledger which includes the total amount of
account balance of individual ledgers. Eventually, the purpose of preparation of this account to
check the amount of ledgers.
Client 5.
(a) Suspense account- The suspense account is a type of account which is prepared by the
companies to record all the suspicious amount whether it could be the income or expense (Alali
and Foote, 2012). In this account, the amount is derived from the trial balance. Herein, below
some features of suspense account are mentioned below:
 This account can be used as the memorandum account.
 The suspense account is also helpful in deducting the errors in the trial balances.
(b) Trail Balance by using a control account as balancing Figure:

(c) Correction through journal entries:

CONCLUSION
From above project report it has been concluded that financial accounting is very
important for the companies because this includes various kind of financial statements. These
financial statements are very useful for both to the internal and external stakeholders. As well as
financial accounting consists assumptions such as consistency assumption, prudence assumption
etc. Additionally, companies should follow all the concepts, rules and regulations in preparation
of financial statements like IFRS.

REFERENCES
Books and journals:
Christensen, T., Cottrell, D. and Baker, R., 2013. Advanced financial accounting. McGraw-Hill.
Eng, L. L., Lea, B. R. and Cai, R., 2014. Use of clickers for assurance of learning in introductory
financial accounting. In Advances in Accounting Education: Teaching and Curriculum
Innovations (pp. 269-291). Emerald Group Publishing Limited.
Knežević, S., Stanković, A. and Tepavac, R., 2012. Accounting Information System as a
Platform for Business and Financial Decision-Making in the Company. Management
(1820-0222). (65).
Vogel, H. L., 2014. Entertainment industry economics: A guide for financial analysis.
Cambridge University Press.
Aiken, M., Lu, W. and Ji, X. D., 2013. The new accounting standard in China. Perspectives on
Accounting and Finance in China (RLE Accounting). 8. p.159.
Trucco, S., 2015. Financial accounting: development paths and alignment to management
accounting in the Italian context. Springer.
Alali, F. A. and Foote, P. S., 2012. The value relevance of international financial reporting
standards: Empirical evidence in an emerging market. The international journal of
accounting. 47(1). pp.85-108.