Financial Accounting Report: Analysis of Regulations and Client Data

This financial accounting report provides a comprehensive overview of financial accounting principles and practices. It begins with an introduction to financial accounting, emphasizing its importance in recording and summarizing monetary transactions for various clients. The report includes a detailed explanation of accounting regulations, the role of financial statements (income statement, balance sheet, and cash flow statement), and the importance of adhering to accounting standards like IFRS, IASB, and GAAP. The report then delves into practical applications, presenting journal entries, ledger accounts, and trial balances for multiple clients. It covers producing income statements, balance sheets, bank reconciliation statements, and discussing control accounts and suspense accounts. Furthermore, it explores key accounting concepts such as economic assumption, full disclosure, going concern, materiality, and consistency. The report concludes with an evaluation of financial statements and a discussion on the importance of depreciation and accounting methods. This assignment provides a thorough understanding of financial accounting processes.

Financial Accounting &
Principles

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
A. Report to Line Manager for explaining accounting regulations........................................1
CLIENT 1........................................................................................................................................4
A. Journal entries for Alexandra............................................................................................4
B. Ledger accounts for the firm..............................................................................................8
C. Producing trial balance for business................................................................................18
M1. Purchase and sale transactions from trial balance.........................................................19
D1. Consideration of accounting rules and regulations and constructing trial balance.......19
CLIENT 2......................................................................................................................................19
A. Producing income statement............................................................................................19
B. Preparing balance sheet for the business.........................................................................20
CLIENT 3......................................................................................................................................22
A. Preparing income statement.............................................................................................22
B. Producing balance sheet for the organisation..................................................................23
..............................................................................................................................................25
..............................................................................................................................................28
..............................................................................................................................................28
C. Concepts and principles of accounting............................................................................28
D. Importance of charging depreciation and presenting methods of depreciation...............29
M2. Evaluating balance sheet and cash flow statement and income statement...................29
D2. Accurate computations in accounting............................................................................29
CLIENT 4......................................................................................................................................29
A. Producing bank reconciliation statement.........................................................................29
B. Outlining causes of recording transaction in statement...................................................30
C. Cash books.......................................................................................................................30
..............................................................................................................................................30
M3. Process of reconciliation and accounting terms............................................................31
D3. Bank reconciliation statement.......................................................................................31
CLIENT 5......................................................................................................................................31

A. Sales and purchase ledger account for the firm...............................................................31
B. Discussion on control account.........................................................................................32
CLIENT 6......................................................................................................................................32
A. Suspense account and discussing features of suspense account......................................32
B. Trial balance for business................................................................................................32
C. Journal entries..................................................................................................................33
D. Difference between clearing and suspense account........................................................33
M4. Types of accounts.........................................................................................................34
D4. Accounting methods for business..................................................................................34
CONCLUSION..............................................................................................................................34
REFERENCES..............................................................................................................................35

INTRODUCTION
The financial accounting is one of the useful branch of accounting as it helps company to
records monetary transaction occurred on day-to-day basis. Present report deals with importance
of financial accounting in business and as such, problems regarding financials are resolved for
various clients. Furthermore, suspense and control account are discussed. It can be said that
without recording and summarising accounts, business entity cannot prepare financial
statements.
A. Report to Line Manager for explaining accounting regulations
To: Line Manager
From: Junior Accountant
Subject: Accounting regulations, concepts and principles to be considered by firm for injecting
business operations
Respected Sir,
Accounting plays crucial role in the business as day-to-day transactions can be
effectively recorded and summarised data can be taken out with much ease. It is an art of
recording business transactions in accounting books so that each and every information may be
accounted for and serve ultimately for preparation of financial statements in the best possible
manner. It is required in organisation as it provides fruitful information to the management and
external users to take into account information and analyse financials for taking enhanced
decisions. It is essentially needed to be prepared by organisation as without it, final accounts
cannot be formulated in effective way (Beaumont, 2015). The main financial statements in the
business are income statement, balance sheet and cash flow statement which are prepared so
that users of accounting information may be benefited quite effectually.
Balance sheet provides position of business in terms of assets and liabilities for a
particular period. Income statement shows income earned and expenditures incurred in the
company. On the other side, cash flow statement shows cash position in effectual manner. This
is required so that company may be able to prepare financials in the best possible way.
However, for making financials accurate, accounting regulations have to be followed in order to
produce fair statements helping stakeholders in taking better decision regarding profitability
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aspect of company. The accounting principles and regulations are required to be followed, if
organisation do not follow the same, then true position cannot be provided to users. False
information will be imparted to them affecting their decision-making.
By complying with regulations, creditors, investors and other external parties are
benefited up to a high extent. Creditors' analyses solvency and liquidity position of company as
they provide loans on stated terms and conditions. While, investors' are benefited by assessing
profitability aspect of the firm. Hence, it can be said that organisation is required to be abide by
laws and regulations so that it may impart appropriate and true financial statements highlighting
overall performance (Klychova and et.al, 2015).
Explaining meaning of Financial Accounting
The financial accounting is termed as gathering past data and then preparing financial
statements quite effectually. It is the base for producing financials because accounting records
are taken in and then statements are prepared with much ease. All monetary transactions that
occurs in the business is accounted for and as such, firm is able to prepare financials in effective
way. In simple words, financial accounting is summarising, analysing and then reporting of
transactions which pertains to organisation. Hence, they are then provided to stakeholders for
taking better decisions quite effectively. The financial reports are prepared which then given to
external parties serving them needed information highlighting efficiency, profitability, liquidity
and solvency position in the best possible manner.
The financial accounting deals with preparation of journal entries which are recorded on
daily basis in chronological order. From this, entries are posted in general ledger accounts.
After this, trial balance to check over any mathematical errors might have occurred in posting
transactions in ledger from journal (Nash, 2018). Hence, afterwards, balance sheet, cash flow
statement and income statement are prepared. Thus, financial accounting implies useful
information regarding business operations and as a result, internal and external parties are able
to take decisions.
Discussing Financial Accounting Regulations
The regulations are important to be taken into account so that authenticated financials
may be prepared with ease. Accounting professional bodies have imparted legal frameworks
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which are to be followed by accountants in order to construct accurate financial statements
highlighting fair and true position of company quite effectually. In relation to this, UK
corporate and government regulatory, FRC has given guidelines regarding preparation of final
accounts. This will be helpful for external parties as they rely on such statements and take
decisions thereof. If accounts are manipulated, then financials will not provide fair view of
business (Goh, Li Ng and Yong, 2015). Hence, to eradicate manipulation in final accounts, it is
required to follow guidelines of professional bodies. The legal guidelines or frameworks are
listed as under-
IFRS (International Financial Reporting Standards)- The body provides effective guidelines
to accountants so that they may prepare financial reports in accordance to prescribed forma. It is
then imparted to the stakeholder for assessing and take decisions.
IASB (International Accounting Standards Board)- It is another body which highlights
various standards of financial accounting by which information can be presented in proper
manner to the stakeholders. Furthermore, true view regarding financials is imparted to external
parties.
FRC (Financial Reporting Council)- It is a body limited by guarantee and regulates
government departments and corporate sector as well. Aim of FRC is to promote investment in
UK and as a result, entire country is benefited up to a high extent.
Accounting rules
The accounting rules are imparted by GAAP (Generally Accepted Accounting
Principles) which is another vital body governing accountants in effective manner. The
accounting rules provided by the body are as follows-
Economic assumption- The accounting rule states that economic environment is assessed by the
company and then, assumption are implemented. These assumptions are made in order to find
out how it will impact on business operations or on upcoming project (Busco and Quattrone,
2018).
Principle of full disclosure- All the monetary transactions should be taken into account so that
business may prepare appropriate financial statements. For attaining transparency, all
statements must be compiled in single statement.
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Going concern concept- The business prepares financials on the basis of going concern
principle. It is assumed that organisation will continue operations for longer period and will not
wind up in short run. Hence, financial statements are produced with much ease.
Materiality concept- This concept states that business should take into consideration only
material items which has impact over financials. This means that immaterial items can be
ignored if they do not serve as the purpose of taking decisions by stakeholders.
Monetary unit assumption- This rule is based on currency value. It assumes that business
transactions may be made in universally acceptable currency. In relation to this, US Dollar is
acceptable currency in worldwide (Damodaran, 2016).
Concepts of Material Disclosure and Consistency
Material Disclosure- The accounting concept postulates that organisation should include only
those items in the financials which affects decision-making of external users up to a high extent.
It can be analysed that immaterial items should be ignored which does not influence decision by
stakeholders. Hence, such items must be forego in preparing financials in effective way.
Consistency- This concept states that accounting policies should be followed consistently for
years in order to gain reliability in the best possible manner. It implies that organisation follows
particular method in current year, then same should be followed in consecutive coming years.
This will impart reliable results in effective way. For example, if written down value method of
depreciation is implemented, then same should be used for charging depreciation in
forthcoming years to maintain reliability.
CLIENT 1
A. Journal entries for Alexandra
The journal entry is the basic or first step in preparation of financials quite effectually. It
is also termed as books of original or prime entry as transactions are recorded on day-to-day
basis. In simple words, all monetary transactions occurring in the business is recorded in journal
so that clarity may be attained regarding financial receipts and withdrawals in effectual way. The
main essence of journal is that entries are recorded as per chronological order as when they
occur. This helps to attain clarity and transparency of various transactions occurred. Hence, it
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serves main purpose for general ledger accounts and further statements can be prepared with the
help of journal entries. These are made for Alexandra below-
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B. Ledger accounts for the firm
The ledger accounts are prepared from the journal entries made. The ledger is summary
of all the accounts which are prepared in the journals. In simple words, separate or individual
accounts are formulated with the help of entries are made. The complete detail of information
regarding various accounts are ascertained in respect of payments and receipts. This effectively
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helps organisation's management to take into consideration costs and then measures are adopted
to minimise expenditures in the best possible manner. It can be interpreted that ledger accounts
are important part of information which is then used for constructing trial balance. The ledger for
sole trader are produced below-
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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
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C. Producing trial balance for business
The steps of preparing of journal entries and then posting the same into ledgers are over,
then next is to prepare trial balance in effective manner. The main purpose of this statement is to
check over arithmetical accuracy so that transactions on both side such as debit and credit are
matched properly (Trial Balance, 2018). On the other side, if both balances do not match, then
certain errors are present affecting balance on two sides. If from this information, financial
statements are formulated, then false information will be imparted and statements will not be
appropriate. Hence, to overcome this, trial balance is prepared for rectifying mistakes. It is
produced for firm below-
Particulars Dr Cr
Capital 529000
Van 51250
Furnitures 8100
Stock held 63900
Office Premise 340000
Sales 10930
Return inwards 680
Purchases 38320
Return Outwards 50
Drawings made by Owner 1500
Stock storage costs account 400
motor expense 470
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Bank Balance 36700
Cash 3630
F. lane A/c 770
Discount received 960
Miscellaneous income attained 5132
Discount allowed 352
Total 546072 546072
M1. Purchase and sale transactions from trial balance
The sales are 10930 while purchases are 38320. Thus, it can be said that expenditures are
more in comparison to the income earned. This is possible with the help of trial balance.
D1. Consideration of accounting rules and regulations and constructing trial balance
The accounting rules are considered and trial balance is prepared in effective manner.
This is prepared to assess mathematical errors if any and as such, trial balance is extracted in a
better way.
CLIENT 2
A. Producing income statement
Income statement is useful financial statement which is prepared in order to take into
account, all expenses made and revenue garnered. It is formulated to effectively analyse how
much firm has gained income by spending on cost of sales and other operating expenditures for a
particular year. The income statement is also called as Profit and Loss account as it shows profit
earned or loss made in business operations. It can be said that costs are controlled in effective
manner with the help of such statement and profits may be maximised up too much extent. The
income statement is prepared for sole trader as under-
Particulars Amount
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Sales 1215000
Less: Cost of Sales -759360
Salary and wages 177500
O/S wages and salaries 1220
Gross profit 276920
Less: Indirect expense
Administration costs -17650
motor expense -87400
Advertising cost -13280
Heating and Lighting cost -4950
Less: Prepaid 8470
Equipments' Depreciation -17250
Premises' Depreciation -5400
Motor vehicle Depreciation -2800
Total indirect expenses -140260
Net profit 136660
B. Preparing balance sheet for the business
The balance sheet serves as useful piece of information regarding overall financial
position of company in the best possible manner. It is a statement showing assets and liabilities
for a particular time frame usually it is prepared at the end of financial year. It is used to analyse
financial position that whether assets in hand are adequate in meeting out liabilities of company.
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Hence, balance sheet is useful for assessing health in effectual way. The balance sheet is
constructed below-
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CLIENT 3
A. Preparing income statement
The income statement highlights position of business with relation to the revenue attained
and expenses incurred in a financial year. The statement shows whether income earned exceeds
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expenditures or not. If income is low and expenses are more, then firm initiates control upon
expenses so that income may be maximised. Hence, income statement is formulated for Raintree
Ltd below-
Particulars Amount
Revenue 107000
less: Return inwards 2000
Closing stock 18000
Opening stock 17000
purchases 32000
Gross profit 74000
Less: Indirect expense
Depreciation (additional) 36000
distribution expense 22000
Administration cost 28000
Less: Prepaid rent 3000
Add: Outstanding wage 2000
Corporate tax applicable on
firm 4000
Less: Paid interest 11000
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Net profit 18000
B. Producing balance sheet for the organisation
The statement of financial position is also termed as balance sheet which is prepared to
analyse assets and liabilities held at a particular year. The assets should be enough in quantum so
that liabilities can be paid off quite easily. The balance sheet shows whether sufficient assets are
available to meet liabilities in effective manner (Warren Jr, Moffitt and Byrnes, 2015). Hence, it
can be said that balance sheet is useful financial statement is prepared below for organisation-
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C. Concepts and principles of accounting
The principles are required to be followed to prepare proper financials. These are listed
below-
Consistency-
The consistency concept is quite useful because it states that accounting policies should
be followed constantly for years. It is essentially required because when constant changes are
made, then reliability is diminished and thus, same methods should be followed by organisation.
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Concept of Prudence-
The prudence concept is important one which is used in business. It states that
organisation should estimate all losses and gains should not be estimated. This is done because
business runs in a dynamic world where changes occur frequently.
D. Importance of charging depreciation and presenting methods of depreciation
The depreciation is charged on asset which reduces its useful life after certain time.
Obsolescence is one of the factor in it. Depreciation is an expense and reduces income of entity.
Basically, two methods of depreciation are as follows-
Straight line method : It is used to charge depreciation on the basis of fixed rate until life of
asset is equal to zero. This means that fixed rate is accounted for.
Written down method : The method is completely different from straight line method which is
based on diminished value. This method is preferred and accounted by tax department as correct
measure of depreciation is charged.
M2. Evaluating balance sheet and cash flow statement and income statement
The financial statements provide effective way of information to the stakeholders so that
they may be able to take into account these informations and take financial decisions in effective
manner (Schneider, 2018). On the other hand, they are able to analyse whether company is
earning profits or not.
D2. Accurate computations in accounting
The calculations are required to be accurate so that financials may be matched in
effective way. Assets held are 137000 and shareholders' equity are 102000 and hence, liabilities
equals 137000.
CLIENT 4
A. Producing bank reconciliation statement
There are various reasons by which balances differs of bank's records and that of
accounting records maintained by organisation. In order to rectify the same, bank reconciliation
statement is prepared to effectively account for differences up to a high extent. Furthermore, if
cheque is provided to bank, organisation records it. While, bank does not clear off the cheque on
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the same day. Thus, discrepancies occurs and bank reconciliation is prepared to remove the same
(Robson, Young and Power, 2017).
B. Outlining causes of recording transaction in statement
The causes are cheques outstanding, dishonoured cheque, deposit in transit are some of
reasons for which differences occur.
C. Cash books
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M3. Process of reconciliation and accounting terms
1. Cheques outstanding- When cheque is presented but it is not cleared by bank, balances in
records of business entity and of bank differs.
2. Deposit in transit- It includes coins and currencies which are not taken into account by bank
and thus, balances differs.
3. Insufficient funds- The dishonoured cheques are included in it because of unavailability of
required funds in the bank account. Hence, it should be written-off as early as possible.
D3. Bank reconciliation statement
The concepts are ratio analysis, trend analysis etc in preparing bank statements.
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CLIENT 5
A. Sales and purchase ledger account for the firm
Sales ledger account
Purchase ledger account
B. Discussion on control account
There are numerous transactions which takes place in the organisation. It is required to
take into account each and every transaction so that clarity may be attained in a better way. In
order to attain control on costs, an account named as control account is opened so that costs can
be controlled quite effectually. It is usually open by large organisation which have numerous
transactions on daily basis (Glaum, Keller and Street, 2018).
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CLIENT 6
A. Suspense account and discussing features of suspense account
It is known as temporary account as firm when unable to classify transaction's nature,
opens suspense account on temporary basis. It is opened when undisclosed transactions are taken
into account. Furthermore, main feature of suspense account is that when doubts prevail with
regards to transaction, then it is opened quite effectually.
B. Trial balance for business
C. Journal entries
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D. Difference between clearing and suspense account
M4. Types of accounts
The financial statements such as balance sheet and income statement are important
accounts which are used to analyse overall financial health of company.
D4. Accounting methods for business
Methods are required to effectively carry out financial statements highlighting true and
fair view of accounts.
CONCLUSION
Hereby it can be concluded that business is benefited by recording transactions occurred
in normal operations. The financial statements cannot be prepared without taking into account,
financial accounting. Furthermore, various accounting regulations imparted by professional
bodies guides accountants to prepare fair financials quite effectually.
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REFERENCES
Books and Journals
Beaumont, S. J., 2015. An investigation of the short‐and long‐run relations between executive
cash bonus payments and firm financial performance: a pitch. Accounting & Finance.
55(2). pp.337-343.
Busco, C. and Quattrone, P., 2018. Performing business and social innovation through
accounting inscriptions: An introduction. Accounting, Organizations and Society.
Damodaran, A., 2016. Damodaran on valuation: security analysis for investment and corporate
finance (Vol. 324). John Wiley & Sons.
Glaum, M., Keller, T. and Street, D.L., 2018. Discretionary accounting choices: the case of IAS
19 pension accounting.Accounting and Business Research, 48(2), pp.139-170.
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Goh, B. W., Li, D., Ng, J. and Yong, K. O., 2015. Market pricing of banks’ fair value assets
reported under SFAS 157 since the 2008 financial crisis. Journal of Accounting and Public
Policy.34(2). pp.129-145.
Klychova, G. S. And et.al, 2015. Development of accounting and financial reporting for small
and medium-sized businesses in accordance with international financial reporting
standards.Asian Social Science. 11(11). p.318.
Nash, P., 2018. Financial Accounting Entries. Effective Product Control‐Controlling for Trading
Desks, First Edition. pp.271-289.
Robson, K., Young, J. and Power, M., 2017. Themed Section on Financial Accounting as Social
and Organizational Practice: Exploring the work of financial reporting. Accounting,
Organizations and Society. 56. pp.35-37.
Schneider, A., 2018. Studies on the Impact of Accounting Information and Assurance on
Commercial Lending Judgments. Journal of Accounting Literature.
Warren Jr, J. D., Moffitt, K. C. and Byrnes, P., 2015. How Big Data will change
accounting. Accounting Horizons. 29(2). pp.397-407.
Weygandt, J. J., Kimmel, P. D. and Kieso, D. E., 2015. Financial & Managerial Accounting.
John Wiley & Sons.
Online
Trial Balance, 2018 [Online] Available Through:
<http://www.accountingexplanation.com/trial_balance.htm>
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