Financial Accounting Principles and Practical Application

This document presents a detailed solution to a financial accounting assignment, encompassing various aspects of the subject. It begins with an introduction to financial accounting, including regulations, rules, and principles like consistency, material disclosure, and cost concepts. The assignment then progresses through several client-based scenarios, starting with primary book entries and journal entries, including computations of capital. It covers double-entry recording systems, trial balance preparation, and the creation of financial reports, including profit and loss accounts and statements of financial position. The solution also explores depreciation methods (WDM and SLM), bank reconciliation statements, control accounts, and suspense accounts. Furthermore, it includes examples like balance book preparation, sales and purchase ledger control accounts, and journal entries. The assignment concludes with a discussion on the differences between suspense and clearing accounts and provides references for further study. Overall, the document serves as a comprehensive guide to understanding and applying financial accounting principles through practical examples and case studies.

Financial Accounting
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Table of Contents
INTRODUCTION................................................................................................................................4
TASK 1.................................................................................................................................................4
1.1Financial accounting...................................................................................................................4
1.2 Regulations related to the financial accounting.........................................................................4
1.3 Accounting Rule and principles.................................................................................................5
1.4 Convention and cost concept related to consistency and material disclosure...........................6
Client 1.................................................................................................................................................7
Primary Book Entry.........................................................................................................................7
1 Journal Entries with computation of capital.................................................................................7
A) Book of primary entry frame work.............................................................................................7
B) Completing Double entry recording System..............................................................................9
B) Trial balance preparation..........................................................................................................18
Client 2...............................................................................................................................................19
A) Framing Financial report Profit and Loss account...................................................................19
B) Making Financials statement for getting current position........................................................22
CLIENT 3.............................................................................................................................................1
A) Organization like Raintree limited and preparation of Gain and loss account ........................1
B) Preparation of statement of financial position or balance sheet for Raintree limited.................1
C) Description of two accounting principles used for preparing financial statements....................2
D) Explanation of WDM and SLM in order to derive amount of depreciation...............................3
CLIENT 4.............................................................................................................................................4
A) Bank reconciliation statement (BRS) along with its purposes...................................................4
B) Determining the causes which lead to create difference among bank records and cash book.. .5
C) Bank Reconciliation Statement for December 2016..................................................................5
Updated cash book...........................................................................................................................6
Bank Reconciliation Statement dated on the 21st December.........................................................6
Client 5.................................................................................................................................................7
A) balance book preparation of Henderson for May 2016 .............................................................7
Sales ledge control account.............................................................................................................7
Purchase ledge control account preparation....................................................................................7
B) Control account and requirements for preparing this account....................................................8
Client 6.................................................................................................................................................9
A) Suspense account and its key features........................................................................................9
B) Trial balance with the help of control account.........................................................................10
C) Journal entries...........................................................................................................................10
D) Difference between Suspense and clearing account.................................................................10
Conclusion..........................................................................................................................................11
References..........................................................................................................................................13
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INTRODUCTION
Financial accounting is the filed or branch of accounting business concern with the summary
,investigation and reporting of financial transaction refer to an enterprise and reports of all the
transaction. Companies issue fiscal statement on a routeing basis like quarterly, half-yearly and
annually as per the business requirement. So this project is about the business transaction using
book keeping, trial balance. Sole trade, partnership, limited company in accordance with the
appropriate principle. Bank reconciliation statement and bank records, Regulations of the financial
accounting, Accounting rules and principles are explained.
TASK 1
1.1Financial accounting
This is the branch of company's accounting which deals with the tracking of financial
concepts of the company. (Deegan, C., 2013). According to its standard criteria the transactions are
summarised, presented and recorded in reporting of financial income statement and balance sheet.
Companies issue financial statement on routine basis(Francis, J., 2013). The statement that consider
external because they are issued and given to outside of the company for people, investors,
stakeholder as well as certain leaders. Other financial reporting and statements are broadly
calculated if a corporation stokes are traded publicaly, it helps to provide information to outside
sources such as customers, employees, labour, competitors and other investment analysts. In US
Financial Accounting Standard Board can be referred as a process of financial accounting which
contains process of transcription, summarising and reporting that varied of transaction resulting
from business operation over a period of time.
1.2 Regulations related to the financial accounting
Some accounting bodies like FASB (Financial accounting standard board) set different
standards by accepting principles of accounting. Talking about the FASB is private non profit
organisation established in US to set general accepted accounting principles in public interest. In
UK Financial reporting standards (FRS) and financial Reporting Exposure draft are followed.
Studying how other standard reflects in financial accounting and the different particular starting of
transactions are governed by International Accounting Standards (IAS). Earlier before, international
standards of accounting were developed by IASC (Board of International Accounting Standards)
but from 2001, the new set for accounting was launched which is International Financials Reporting
standards and issued by IASB. The Basis of fundamental principles in accounting are cost
principles, full disclosure principles, matching principles, revenue recognition principles, economic
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entity principles, monetary assumption principle are, time period principles, going concern concept,
materiality and conservatism principles are included. Last two principles are constrains.
1.3 Accounting Rule and Principles
For any business, full disclosure Principle requires a company to provide all the necessary
information to those people who are engaged in finance related decision making in the company
(Beatty, A. and Lios, S., 2014). The company's Financial statements include any supplementary
schedule and notes. However, management analysis and discussions are included in publicly traded
corporation annual report to U.S. security exchange commission.
Ten basic Principles that make the accounting rules as describes by GAAP are:
 Separate Legal Entity: Legally a business is a separate and legal entity. The activities been
carried out in the business remain separated from its owner. Legally it is said that a business
can survive longer till the existence of promoters and owners.
 Currency specified principle: A currency must be specified for the over all business
transactions. Like in U.S. all currency is represented in dollars and companies who conduct
their business outside their home country then they need to convert their transaction into
USD and they have to use the current exchange rate while reporting the financial statements.
 Specific time period principle: Financial statement always refers to a specific time. All the
income statements have a start and an end date. So, that the readers can identified the
transaction period and business transactions would be carried out.
 Historical Cost: This principle is used for valuing the items. The price at which the items are
bought and sold can be used for valuation. The Real value of the items changes during the
course of time because of inflation, recession, depreciation on assets over time.
 Full disclosure principle: Full disclosure principle is always in keen focus on all accounting
standards in today's world. It states that every company disclose every aspect of financial
statement to their related outsiders.
 Recognition: It states that the company reveal its income and expenses in the same period in
which they have been occur.
 No death principle: It states that business will continue to function eternally and have no
end.
 Matching principle: It states that accrual accounting system to be used and for every debit
there should be a credit and vice-versa.
 Principle of materiality: It states that if there is any error in book keeping then the way to
rectify the error is need to be followed by the organisation. Because there are few principles
which requires the book keeping to use their judgement rather than short tricks.
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 The conservative principle of accounting: It states that every expenses must be recorded
immediately, but incomes are need to be recorded when the actual income has been
received.
1.4 Convention and cost concept related to consistency and material disclosure
Accounting convention consist of guidelines that arises from practice applications of
accounting principles. It is not legal bound practice but is generally accepted convention based on
customs and design to help accountants and overcoming problem that arises at the time of
preparation of financial statement(Benjamin, M., 2015). If an organisations like Safety and
securities of exchange commission (SEC) or financial accounting Standards board (FASB) set a
guidelines that address the same accounting convention, convention is applicable for longer period.
Accounting Property principle: Consistence principle states that ones an adopted accounting
rules, method or time period then need to be followed consistently in future accounting
period(Board, A.P., 2015). Any business can changes accounting principles if Accounting bodies
circulates necessary changes and principles to make change in particular accounting technique.
Accounting audits activities follows the consistency rule so that reports results from period to
period are comparable. An observer may refuse to provide financial views is on a client fiscal
statement if there are clear-cut and unwarrantable violation of rules.
Materiality concept in accounting: It states that an accountancy modular board can be
neglected the gross effect of doing something so has such a little impact on financial statement that
the reader of the financial statement would not be confused. under GAAPS no demand to
implement the provisions of explanation standard if item is incorporeal. Safety and Legal
instrument exchange commission has recommended for the presentation purpose that an item
correspond at least 5% of total assets should be separately disclosed in balance sheet. Smaller or
larger item who have an impact on net profit or loss need to be considered in financial accounting
and is considered as material. A transaction would also be considered as material if that cost change
the ratio and impact on profitability.
CLIENT 1
Primary Book Entry
There are separate journals for recording different type of entries and book keeping and are
collectively known as Book of primary entries, Book of original entries and subsidiary book. All
transaction are recorded in Primary books and original entries (Sangster, A., 2015). Counselling to
programme and system evaluable multiple GAAPS in accounting information systems). The third
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books indicate that these are subsidiaries of journal. There are 8 type of subsidiary book. Petty cash
book, day to day transactions and journal entries are recorded in this book.
1 Journal Entries with computation of capital
A) Book of primary entry frame work
Journal of Alex Studies for the month of May 2016
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B) Completing Double entry recording System
The system in which day to day financial transactions are recorded two times because it can
reflect in two account one in debit and in credit side are called as Dual entry system. The system of
accounting or bookkeeping means that every organization business transaction will involve two
accounts are debit and credit side (Edwards, J.R., 2013). For ex, When companies borrow money
from bank institution cash account will increase and its creditors or liability account payable will
also increased. If company's pay advertisement expenses $400 then its cash will be decrease and
Expenses account will also increase by $400. Dual entry system also allow for explanation equality
like Possession = Liabilities + owner's equity to be always in balance. In the example of
advertisement expenses, the accounting position remain in the balance expenses caused owners
equity is decrease. this ex. cash decrease and owner capital account in owners equity will also
increase.
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