Financial Accounting Assignment Solution for Students

This financial accounting assignment provides a comprehensive overview of key concepts and principles. It begins with a definition of financial accounting and its regulations, followed by an explanation of accounting rules and principles, including consistency and material disclosure. The assignme...Read More

FINANCIAL
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
Assignment A...................................................................................................................................1
1. Defining Financial Accounting...............................................................................................1
2. Regulations of financial accounting........................................................................................2
3. Accounting rules and principles..............................................................................................2
4. Consistency and material disclosure with respect to concepts and conventions.....................3
ASSIGNMENT B............................................................................................................................4
CLIENT 1........................................................................................................................................4
Books of prime entry...................................................................................................................4
Ledger book posting....................................................................................................................7
Trial balance..............................................................................................................................12
CLIENT 2......................................................................................................................................13
Profit and Loss Statement for Peter Piper as on 31st December 2016......................................14
Balance Sheet for Peter Piper as at 31st December 2016.........................................................15
CLIENT 3......................................................................................................................................16
Balance Sheet for Raintree ltd. As on 30 September 2016.......................................................17
c) Consistency and Prudence concepts.....................................................................................19
d) Purpose and methods of depreciation in formulating accounting statements.......................19
CLIENT 4......................................................................................................................................20
a) Reason of preparation for Bank reconciliation statement.....................................................20
b) Areas causing discrepancy in records...................................................................................20
c) BRS as on 1st December 2016..............................................................................................20
Cash book .................................................................................................................................21
BRS...........................................................................................................................................21
CLIENT 5......................................................................................................................................22
a) Books of Henderson for May 2016.......................................................................................22
Sales Ledger account.................................................................................................................22
Purchase ledger control Account..............................................................................................23
b) Describing 'Control Account'................................................................................................24

CLIENT 6......................................................................................................................................24
a) Meaning and features of suspense account...........................................................................24
b) Computation of Trial Balance...............................................................................................24
c) Preparation Journal entries....................................................................................................25
d) Difference in Suspense account and Clearing account.........................................................25
CONCLUSION..............................................................................................................................26
REFERENCES..............................................................................................................................27

INTRODUCTION
Financial accounting analyses, summarises and records the financial statement. Financial
statement can be classified into 3 types, statement of cash flow, statement of profit and loss and
statement of financial position. It is an important to tool assess the growth of the organisation
and evaluate the financial performance of the company (Edwards, 2013). The statements can be
analysed by the financial analysts to prepare growth strategies for the company. The report
covers various regulations and principles of financial accounting. Also, accounting concepts such
as the concept of prudence and consistency are being discussed in detail. Further, written down
and straight line method of depreciation are focussed upon. In the end, financial statement of
different companies including journal entries and trial balance are also prepared.
Assignment A
1. Defining Financial Accounting
Financial accounting helps to record financial transactions of the company. By using set
guidelines, transactions are recorded, outlined proposed in as financial report like income
statement or balance sheet. Issuing financial statement is routine work of an organisation. It
Facilitates rational decision making, planning and control operations, agreement with legal
requirements, evidence in court in case of dispute (Horngren and et. al, 2012). This is considered
as both external internal factors of the company, information by financial report is basically used
for decision making by externals like investors, suppliers, borrowers, tax authorities and
stockholders, who decides buying and selling of shares, to give loan to entity, and to impose
taxation amount and internals like management and managers of operations who helps in
analysing the profits incurred by products and operational units, to decide buying and selling
business segments, to evaluate new production facilities and to decide the need for cash flows to
support companies operations (Weygandt and et. al 2010). The information of financial
statements is also circulated to company's secondary beneficiaries like competitors, employees,
buyers, labour organisation and investment analysts. It is important for every company to prepare
financial report regularly not because company need to know its value rather it is to provide
enough information to others for evaluation of value of the company themselves. The
organisation is required to keep systematic records in order to protect business and find out profit
and loss operations. It further helps to evaluate company's financial standing, to uncover hidden
liabilities, to forecast future financials of the company.
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2. Regulations of financial accounting
Financial accounting is an important aspect of defining the financial position of the
company. The ultimate aim of financial accounting are as follows:
 Identifying: To identify the information which is required to be recorded in the books.
 Measuring: The extracted information is measured to evaluate the performance and take
further decisions (Beatty and Liao, 2014).
 Communicating: The information is communicated and presented in such a way that it is
understandable to the users.
There are various regulations that are required to be adopted by the companies while dealing in
the business within the country or across the geographical boundaries. Some of them are listed
below:
 The International Financial Reporting Standards (IFRS): IFRS are the standards
issued by IFRS foundation and International Accounting Standard Boards (IASB) to have
set goals of understanding and comparing accounts. It is an important regulation for the
companies dealing across international boundaries (Carvalho and Salotti, 2012). The
accountants have to maintain financial books which are comparable, understandable,
reliable and relevant while analysing the accounts.
 Generally Accepted Privacy Principles (GAPP): It assists Chartered Accountants
(CA) and Certified Public Accountants in managing and preventing privacy risk. It
covers the compliances over collection, use, retain, disclose and dispose personal
information of an individual.
3. Accounting rules and principles
It is important to understand the rules and regulations, in order to follow set standard of
accounting. There are three basic golden rules on accounting. They are:
 Debit the party who receive the fund and credit the party who give the funds
 Debit what is coming in the business and credit what is or will go out of the business
 Debit all expenses incurred and losses and credit all incomes incurred and gains
There are various principles of accounting that are required to be followed when maintaining
accounts. Some important principles are discussed below:
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 Full disclosure principle: It is important to disclose all the information that is required
by the investor within the statements or in the notes of the statements(Freeman and et.al.,
2014).
 Going concern principle: According to this principle, it is assumed that the functioning
of the company will be continued for a longer period to achieve its objectives and it will
not wind up in near future. If it is certain by the company's performance that it will
liquidate in coming years then it is required to be disclosed it in its assessment.
 Matching principle: The companies are suggested to use accrual basis of accounting
where expenses should match with the revenues. All the future benefits are not
considered in the current year. However, all the future expenses are taken into
consideration.
 Materiality principle: The basic principles are allowed to be violate in case some other
accounting principle is ideal for the situation. It is based on the judgement of the
company that whether the amount is insignificant or immaterial.
 Conservatism: In situation of two available alternatives of reporting, the principle
suggest which alternative should be chosen by the accountant which results to less net
income or less net asset. Accountants are required to be unbiased while taking this
decision and anticipate or disclose potential losses while reporting financial statements.
4. Consistency and material disclosure with respect to concepts and conventions.
Consistency is the principle which says that same management accounting principles
should be followed by the company while preparing financial statements over period. It helps the
management to draw important conclusion by doing comparative analysis of financial statements
over the years. If the company will use different principle in different years then it will be
difficult to evaluate and compare the performance on different postulates. If the company wants
to change its principles then it important to disclose the new principle and reason for the change
to all the stakeholders in annual general meeting of the company (Cuckston, 2013). For instance,
if the company is using written down method for depreciation then it is advised to continue the
same method of depreciation for upcoming years as well. However, to change the method and
convert it to straight line method, it is advised to make proper disclosure with the stated reason to
all the stakeholders of the company.
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The concept of material says that all the important is required to be disclosed by the
company to the stakeholders. This concept came into being in order to protect the rights of the
stakeholders. The investors and shareholders have right to know each and every necessary
information which can affect their decision. The information can be material or immaterial, the
company is required to take the judgement that whether it is important enough to be disclosed or
not.
ASSIGNMENT B
CLIENT 1
Books of prime entry
4

5

6

Ledger book posting
7

8

9

10

11

Trial balance
12

CLIENT 2
13

Profit and Loss Statement for Peter Piper as on 31st December 2016
14

Balance Sheet for Peter Piper as at 31st December 2016
15

CLIENT 3
Income statement for Raintree ltd. For the year ending 30 September 2016
16

Balance Sheet for Raintree ltd. As on 30 September 2016
17

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c) Consistency and Prudence concepts
Accounting concept of consistency discuses that the company has to continue with the
same accounting method consistently. If any changes take place then company is accountable to
disclose the reason of change in method to the stakeholders. Auditor should make sure that the
company is following the principle of consistency.
Accounting concept of Prudence states that the company should not overestimate its
revenues and underestimate its expenses. It is required to record the revenues which are certain
and record the expenses which are probable in nature. The company has to be in the least
favourable conditions and the financial statements should be realistic enough to make the
judgement (Konchitchki and Patatoukas, 2013).
d) Purpose and methods of depreciation in formulating accounting statements
Depreciation is used to record the cost of tangible asset based on its remaining useful life.
There are two methods of calculating depreciation. They are:
 Straight line Method: The depreciation value of the asset is calculated based on the
expected useful life of the asset. The company should be aware of the salvage value of
asset. It is a convenient method and the formula to calculate the depreciation is:
Depreciation per annum = (Cost of asset – Remaining value of asset) / Remaining useful life
or
Depreciation per annum = (Cost of asset – Remaining value of asset) * rate of
depreciation
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 Written Down Value Method: Based on this method, calculation of depreciation is on
fixed percentage. The formula is:
Net asset value = Cost * - Accumulated depreciation
Depreciation = rate of depreciation * Net book value
CLIENT 4
a) Reason of preparation for Bank reconciliation statement
Bank Reconciliation statement is prepared to check the recordings of bank transactions
that have been made by the company with that of pass book of the bank. The error or mismatch
in the recordings are corrected by using this method. It is an important part of financial statement
which is examined by the auditor at the end of the year. It is useful in checking bounced checks,
overdraft fees, fraudulent transactions and deposits in transit (Perols, 2011).
b) Areas causing discrepancy in records
There are various areas which can cause difference in passbook maintained by the bank
and cash book maintained by the company. Some of them are listed below:
 Overdraft fees charged by the bank.
 Check submitted by the customer got bounced leading to no entry in bank's pass book.
 Checks which are not yet been submitted by the supplier.
 Bank service charges.
 Error performed in recording the transactions.
 Payment directly been made by the bank on company's behalf.
 Electronic charges deducted by the bank on bank statement.
c) BRS as on 1st December 2016
20

Cash book
BRS
21

CLIENT 5
a) Books of Henderson for May 2016
Sales Ledger account
22

Purchase ledger control Account
23

b) Describing 'Control Account'
Control account is an account in general ledger. Corresponding subsidiary ledger is
prepared for control account. The supplement ledger have detailed information and control
account only consist of the balances from which entries are made in the trial balance. It is not
necessary to draw control account for small businesses. However, various transactions take place
in large organisation on daily basis and it is very tedious to make each and every transaction. For
that matter, control account comes to rescue and reduces details in ledger.
CLIENT 6
a) Meaning and features of suspense account
Suspense account is maintained in the general ledger when the proper account of
transaction is not determined, when it is recorded. When proper account is determined then the
transaction is transferred to that account. The purpose is to record the transaction for the time
being rather than recording it in wrong account. The accountant is required to review suspense
account after every interval in order to place the transactions to the correct account. For instance,
$1000 paid by the supplier in order to avail certain services (De Franco, Wong and Zhou, 2011).
Accountant is no sure where to record the transaction therefore, for the time being he recorded it
in suspense account.
b) Computation of Trial Balance
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c) Preparation Journal entries
d) Difference in Suspense account and Clearing account
Suspense and clearing account have various differences. Such as:
25

 Clearing account put the transaction on hold whereas suspense account post the
transaction temporarily.
 The origin of transaction is fixed in case of clearing account but it is not fixed in case of
suspense account.
 Transaction in clearing account are posted to till the time it has not been occurred but in
suspense account, transaction already exist and has already happened.
CONCLUSION
Based on the report, it can be articulated that the companies are required to prepare all the
necessary financial statements, such as, Cash flow statement, Profit and loss statement and
statement of financial sposition in order to assess companies growth. It also helps to disclose
material information to the stakeholders. The company has to follow various concepts while
making financial decisions in the organisation such as going concern concept, prudence concept,
material concept etc.
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REFERENCES
Beatty, A. and Liao, S., 2014. Financial accounting in the banking industry: A review of the
empirical literature. Journal of Accounting and Economics 58(2). pp.339-383.
Carvalho, L. N. and Salotti, B. M., 2012. Adoption of IFRS in Brazil and the consequences to
accounting education. Issues in Accounting Education. 28(2). pp. 235-242.
Cuckston, T., 2013. Bringing tropical forest biodiversity conservation into financial accounting
calculation. Accounting, Auditing & Accountability Journal. 26(5). pp. 688-714.
De Franco, G., Wong, M. F. and Zhou, Y., 2011. Accounting adjustments and the valuation of
financial statement note information in 10-K filings. The Accounting Review.86(5). pp.1577-
1604.
Edwards, J. R., 2013. A History of Financial Accounting (RLE Accounting)(Vol. 29). Routledge.
Freeman, R. J. and et.al., 2014. Governmental and nonprofit accounting: Theory and practice.
JPAEJOURNAL OF PUBLIC AFFAIRS EDUCATION VOLUME 20 NUMBER. 3. p. 441.
Horngren, C., Harrison and et. al, 2012. Financial accounting. Pearson Higher Education AU.
Konchitchki, Y. and Patatoukas, P. N., 2013. Taking the pulse of the real economy using
financial statement analysis: Implications for macro forecasting and stock valuation. The
Accounting Review. 89(2). pp.669-694.
Perols, J., 2011. Financial statement fraud detection: An analysis of statistical and machine
learning algorithms. Auditing: A Journal of Practice & Theory. 30(2). pp.19-50.
Weygandt, J. J., Kimmel, P. D. and et. al, 2010. Accounting principles. Issues in Accounting
Education. 25(1). pp.179-180.
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