Financial Accounting: Regulations, Rules, Principles and Conventions

This report provides a comprehensive overview of financial accounting, defining its core functions and exploring the regulations that govern its practice. It elucidates key accounting rules and principles, including the conventions of materiality and consistency, which ensure the accuracy and comparability of financial statements. The report also includes practical applications through several client examples, demonstrating journal entries, ledger postings, trial balances, and the creation of profit and loss statements and balance sheets. The accounting concepts of consistency and prudence are explained, alongside the purpose of charging depreciation and its different methods. Desklib provides this and other solved assignments to help students learn and excel.

Accounting
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Contents
a........................................................................................................................................................3
1. Define financial accounting.....................................................................................................3
2. Explain the regulations relating to financial accounting..........................................................4
3. Describe accounting rules and principles.................................................................................4
4. Explain the conventions of materiality and consistency..........................................................5
b.......................................................................................................................................................6
Client 1:........................................................................................................................................6
Client 2:......................................................................................................................................14
Client 3:......................................................................................................................................17
Client 5:......................................................................................................................................21
Client 6:......................................................................................................................................22
Bibliography..................................................................................................................................25
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a.
1. Define financial accounting.
Financial accounting can be categorized as a special branch of accounting in which the
transactions relating to a company will be recorded and presented in an appropriate manner.
Thus financial accounting can be referred as the process of identifying, recording, summarizing
and reporting the events and transactions resulting from the various types of business operations
over a period of time in a company. The various types of transaction in financial accounting are
summarized while preparing the financial statement which includes the balance sheet of
company, income statement of company and cash flow statement. The same will also include the
notes to accounts which will have detailed information about the various items reported in the
financial statement of company (Scott, 2015). The financial accounting utilizes the series of
accounting principles to be applied in financial reporting. The external users of the company
including creditors and various types’ f investors will utilize the financial information presented
by the company while making their economic decisions. Thus the objective of financial
accounting is to provide information to external users of company for taking their investment or
credit decisions. The type of information presented in financial reports will be used by these
external users for analyzing and evaluating the information about the company and its financial
performance and position. In other words the financial accounting can be referred to as the
system of reporting the business activities and the related financial information to the investors,
creditors and people outside the company or the business organization. The focus of financial
accounting is to provide appropriate reports which contain detailed information about the
forecasts of managers of company. The same will include different types of statements:
Balance sheet of company – The balance sheet of company is the main statement of financial
reports which include information about the financial position of company and the detailed data
about the assets and liabilities of company as the particular point of time. The same will help in
taking investment decision.
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Income statement – The income statements in financial, accounting is concerned with working
out and presenting the various type of incomes and revenues of the company together with the
types of expenditures (Weygandt, 2015).
Cash flow statement – The cash flow statement of company contains the brief information
about the various types of cash inflows and outflows of the company during the year which is
prepared after considering the cash information presented in the financial accounts of company.
2. Explain the regulations relating to financial accounting.
The need for accounting regulation comes from the fact that the financial, reports as presented
and reported by the management must present accurate and correct information about the
company’s financial, position and performance. For ensuring a high level of relevancy and
understandability in financial information presented a broad range of accounting regulating has
been developed which are required to be followed when preparing the financial statement. When
all the accounting regulatory requirements are formed and combined they results in Regulatory
framework or Generally Accepted Accounting Practices (GAAP). The term GAAP has been
widely used in relation to accounting regulation framed. The accounting regulations framed for
the preparation and presentation of accounting reports for a company are subjected to follow the
various types of rules which covers the follow up of GAAP in which various set of principles
and regulations has been mentioned in order to ensure the comparability and accuracy of the
reports internationally or globally. The accounting rules also includes follow up of various
standards which are described under International Accounting Standard Board which is the board
responsible for issuing various standards under which accounting transaction must be recorded
and presented under financial statements. The international financial reporting framework (IFRS)
also refers to the framework under which financial reports and estimations must be made by the
accountants of companies (Hoyle, 2015).
3. Describe accounting rules and principles.
There is various accounting principle and rules issued regarding the preparation of accounting
reports and the selection of accounting principles depends on the accounting regulation as
applicable to the company. For ensuring international comparability the International Financial
Reporting Framework has to be followed by the company and the establishment of policies
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should ensure that the adoption of accounting principles provides the consistent information to
all the available users.
4. Explain the conventions of materiality and consistency.
Convention of materiality – As per the materiality convention of accounting only significant
items and events should be recorded and the insignificant components and events should be
ignored. The main reason behind implementing this convention is to release the burden on the
accounting work of company. The identification of significant items is the matter of judgment
and it requires the decision making of managers. The materiality concept refers to ten situations
where the value of the information must exceed the cost of providing the information. The
method of materiality adopted in accounting conventions will allow the accountants to
concentrate on all the significant matters and events of company. The materiality in accounting
records would mean that the transactions and events which can affect the decision making of the
users in general will be reported adequately and disclosed in the financial statement of company.
Convention of Consistency – Te convention requires the adoption of the fact that the accounting
practices and policies should remain unchanged from one period to another period. The
consistency convention is followed in order to ensure comparability in accounts of company. The
consistency does not mean inflexibility and does not forbid improvements in accounting
techniques as applied in the accounting work. The convention does not mean that the treatment
of various different categories of transactions must be consistent and parallel to one another but
it requires that only the transactions in a given category should be treated consistency from one
accounting period to another accounting period. The consistency principle will thus allows the
company to maintain a comparability of accounts amongst different periods and this will help in
getting accurate and correct results (Zeff, 2016).
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b.
Client 1:
a) You are required to draw a journal and calculate the owner’s capital on 1st May 2017.
Journal entry:
Particulars Dr. (£) Cr. (£)
Cash at bank A/c Dr.
Cash in hand A/c Dr.
Premises A/c Dr.
Van A/c Dr.
Fixtures A/c Dr.
Inventory A/c Dr.
Receivables A/c Dr.
To Payables A/c
To Owner’s Capital A/c (B/F)
62400
5600
340000
51250
8100
63900
4500 6750
529000
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b) Ledgers:
Cash at Bank A/c
Date Particulars J.F £ Date Particulars J.F £
Bal b/d
To Accounts
receivable
62400
6669
By Storage
cost
By Accounts
payable
By salaries
paid
By business
rates
By Accounts
payable
Bal c/d
400
8640
4800
1320
20500
33409
69069 69069
Accounts Receivable A/c
Date Particulars J.F £ Date Particulars J.F £
B/d
To sales A/c
To sales A/c
4500
8940
1990
By sales
returns
By Cash in
bank
Bal c/d
680
6669
8081
15430 15430
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Miscellaneous expense A/c
Date Particulars J.F £ Date Particulars J.F £
To Storage
costs
To motor
expenses
To salaries
paid
To Business
rates
400
470
4800
1320
Bal c/d 6990
6990 6990
Cash in hand A/c
Date Particulars J.F £ Date Particulars J.F £
B/d 5600 By Motor
expenses
By drawings
Bal c/d
470
1500
3630
5600 5600
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Van A/c
Date Particulars J.F £ Date Particulars J.F £
B/d
To Accounts
payable A/c
51250
28500
Bal c/d 79750
79750 79750
Furniture and fixtures A/c
Date Particulars J.F £ Date Particulars J.F £
B/d 8100 Bal c/d 8100
Inventory A/c
Date Particulars J.F £ Date Particulars J.F £
B/d 63900 Bal c/d 63900
63900 63900
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Sales A/c
Date Particulars J.F £ Date Particulars J.F £
To J Wilson
To F Syme
To bal c/d
270
410
10250
By J Wilson
By T Cole
By F Syme
By J Allen
By P white
By F Lane
By T Cole
By J Fox
1120
1640
2080
910
2420
770
680
1310
10930 10930
Building A/c
Date Particulars J.F £ Date Particulars J.F £
B/d 340000 Bal c/d 340000
340000 340000
Purchases A/c
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Date Particulars J.F £ Date Particulars J.F £
To S hood A/c
To D Main
A/c
To W Tone
A/c
To R Foot
To L Mole
To W Wright
1450
2060
960
1610
1830
1910
By R Foot
Bal c/d
50
9770
9820 9820
Accounts Payable A/c
Date Particulars J.F £ Date Particulars J.F £
To Goods
returned
To Cash at
bank
To Cash at
bank
To bal c/d
50
8640
20500
15880
B/d
By purchases
A/c
By Abel
Motors
By purchases
A/c
6750
6080
28500
3740
45070 45070
Drawings A/c
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Date Particulars J.F £ Date Particulars J.F £
To cash A/c 1500 By bal c/d 1500
1500 1500
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