Financial Accounting: Transactions, Statements, and Principles

This financial accounting assignment provides a comprehensive overview of key concepts. It begins with an introduction to financial accounting and its importance, followed by an in-depth analysis of business transactions, single and double-entry systems, and the role of trial balances. The assignment includes detailed journal entries and ledger accounts, culminating in the preparation of a trial balance. It also explores the differences between financial statements and financial reporting, the various users of financial information, and the fundamental accounting principles, including accrual, conservatism, cost, going concern, full disclosure, materiality, and revenue recognition. The assignment then delves into the formulation of financial statements like the profit and loss account, balance sheet, and cash flow statements, with additional focus on bank reconciliation, control, and suspense accounts. The content is presented through detailed scenarios and practical examples to enhance understanding of accounting concepts.

FINANCIAL ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION.......................................................................................................................................3
SCENARIO 1..............................................................................................................................................3
Question 1...............................................................................................................................................3
Question 2...............................................................................................................................................4
Question 3.............................................................................................................................................11
Question 4.............................................................................................................................................13
Question 5.............................................................................................................................................14
Question 6.............................................................................................................................................15
Question 7.............................................................................................................................................17
SCENARIO- 2...........................................................................................................................................18
Question 1.............................................................................................................................................18
Question 2.............................................................................................................................................19
Question 3.............................................................................................................................................20
Question 4.............................................................................................................................................20
Question 5.............................................................................................................................................22
CONCLUSION.........................................................................................................................................24
REFERENCES..........................................................................................................................................26

INTRODUCTION
Financial accounting is significant procedure concerned with activities like summarizing,
recording and interpreting data in proper way. In present scenario, it has becomes crucial for
organization to develop financial accounting plans for accomplishing its business objective. The
present report will give emphasis explaining business transaction, single & double entry, trial
balance. Journal entries, ledgers to prepare trail balance will be included to give detail
information. Difference between financial statement & reporting along with users will be given.
Fundamentals accounting principles will be highlighted in current case study. It will focus on
formulation of profit & loss account, balance sheet, cash flow statements. Bank reconciliation,
control and suspense accounts along with necessity will be addressed in present report. The
current case study will help to get deep emphasis regarding accounting concepts with practical
examples
SCENARIO 1
Question 1
 Business transaction is an activity in which two or more parties are involved for
accomplishing their company objectives such as selling goods, services, etc. There are
different types of transactions held in company which occurs in form of cash or credit for
the purpose like purchase of material, assets, selling goods, etc. It becomes essential for
organization to record each and every transaction in order to get accurate monetary
position (Waqas and Md-Rus, 2018). Other transactions are paying wages, interest,
deriving dividend, raising finance, debt, etc. The broad classification of transactions are
exerted as internal and external so that proper segregation for measuring in terms of
money can become possible. In order to get sustainability and stability in industry it
becomes important to derive significant recording, summarizing and interpreting business
transactions.
 Single entry provides one way picture of organization through recording one aspect of
company’s activities. On the other side double entry book keeping system gives emphasis

on both sides of business practices to get complete picture. In addition to this, single
entry book keeping is economical but not accurate as all practices are not tracked because
it’s incomplete type of recording mechanism. Evaluation of identifying errors becomes
efficient in double entry as compared to other type. Preparation of financial statements
through giving emphasis on double entry book keeping to ascertained financial position
of organization.
 Trail Balance (TB) is utilized as basis for creating financial transaction through
recognizing mistakes for efficient formulation. It is list of all ledgers for ensuring
mathematical accuracy of company’s recording (Blaufus and Hoffmann, 2020). There
are various benefits for outlining TB in company’s accounting procedure which includes
proper estimation of credibility. Fair auditing, implementing adjustments through posting,
ensuring arithmetical accuracy, etc. Trial balance of organization provides assistance in
evaluating financial health in proper manner. all these benefits can be derived through
offsetting errors at initial stage only to save time & other related resources.
Question 2
1. Journal Entries for the month of June 2016
Date Particulars L.F Debit Credit
1-Jun Cash A/C Dr. 65000
To Capital A/C 65000
(Being capital invested for
starting company)
2-Jun Purchase A/C Dr. 8000
To Trade payables A/C 8000
(Being goods purchased on
credit)
7-Jun Cash A/C Dr. 4000
To Sales A/C 4000

(Being goods sold for cash)
8-Jun Trade payables A/C
Dr.
4000
To Bank A/C 4000
(Being cheque issued to pay
creditors)
14-Jun Prepaid Insurance A/C
Dr.
75
To Bank A/C 75
(Being prepaid insurance
expenses paid )
15-Jun Trade receivables A/C
Dr.
12000
To Sales A/C 12000
(Being goods sold on credit)
16-Jun Purchase A/C Dr. 10000
To Trade payables A/C 10000
(Being goods purchased on
credit)
18-Jun Computer Equipment A/C
Dr.
300
To Cash A/C 300
(Being computer equipment
purchased by paying in
cash)

20-Jun Prepaid rent A/C Dr. 150
To Bank A/C 150
(Being prepaid rent paid )
21-Jun Cash A/C Dr. 10000
To Sales A/C 10000
(Being goods sold for cash)
25-Jun Cash A/C Dr. 100
To Bank A/C 100
(Being amount withdrawn
from bank for keeping it into
petty cash)
30-Jun Stationary A/C Dr. 30
To Cash A/C 30
(Being stationary purchased
for taking money from petty
cash)
2. Ledger accounts
Bank A/c
Date Particulars J.F. Amount Date Particulars J.F. Amount
8-jun By Trade payables
A/c
4000
14-
Jun
By prepaid
insurance A/c
75

20-
Jun
By prepaid rent A/c 150
30-Jun To balance c/d 4325 25-
Jun
By Cash A/c 100
4325 4325
Trade receivables A/C
Date Particulars J.F. Amount Date Particulars J.F. Amount
15-Jun To Sales A/c 12000 30-Jun By balance
c/d
12000
12000 12000
Capital A/c
Date Particulars J.F. Amount Date Particulars J.F. Amount
30-Jun To balance c/d 65000 1-Jun By Cash
A/c
65000
65000 65000

Cash A/C
Date Particulars J.F. Amount Date Particulars J.F. Amount
1-Jun To Capital A/C 65000 18-Jun By Computer
Equipment A/C
Dr.
300
7-Jun To Sales A/C 4000
21-Jun To Sales A/C 10000 30-Jun By Stationary A/C 30
25-Jun To Bank A/C 100 30-Jun By balance c/d 78770
79100 79100
Sales A/c
Date Particulars J.F. Amount Date Particulars J.F. Amount
7-Jun By Cash A/c 4000
15-Jun By trade
receivables A/c
12000
30-Jun To balance c/d 26000 21-Jun By Cash A/c 10000
26000 26000
Trade payables A/C
Date Particulars J.F. Amount Date Particulars J.F. Amount
8-Jun To Bank A/c 4000 2-Jun By Purchase
A/c
8000

30-Jun To balance c/d 14000 16-Jun By Purchase
A/c
10000
18000 18000
Purchase A/c
Date Particulars J.F. Amount Date Particulars J.F. Amount
2-Jun To trade payables A/c 8000
16-Jun To trade payables A/c 10000 30-Jun By balance
c/d
18000
18000 18000
Computer Equipment A/c
Date Particulars J.F. Amount Date Particulars J.F. Amount
18-Jun To Cash A/c 300 30-Jun By balance
c/d
300
300 300

Prepaid Rent A/c
Date Particulars J.F. Amount Date Particulars J.F. Amount
20-Jun To Bank A/c 150 30-Jun By balance
c/d
150
150 150
Stationary A/c
Date Particulars J.F. Amount Date Particulars J.F. Amount
30-Jun To Cash A/c 30 30-Jun By balance
c/d
30
30 30
Prepaid insurance A/c
Date Particulars J.F. Amount Date Particulars J.F. Amount
14-Jun To Bank A/c 75 30-Jun By balance
c/d
75
75 75
3 Trial Balance:
Particulars Debit Credit

Cash A/c 78770
Sales A/c 26000
Bank A/c 4325
Capital A/c 65000
Purchase A/c 18000
Trade payables A/c 14000
Stationary account 30
Prepaid Insurance A/c 75
Prepaid Rent A/c 150
Trade receivables A/c 12000
Computer Equipment A/c 300
Total 109325 109325
Question 3
Financial Statements (FS) and reports are two different terms which are used as common
phase by various people. These two mentioned statements are separate from each other which
need to be taken into consideration. Financial reporting provides in depth analysis for making
several business decisions for getting accurate position. FR (Financial Reports) are broad term
which comprises statements such as income, cash flow, change in equity's, balance sheet, etc to
get data regarding business practices. This information are utilized by stakeholders to make
significant decisions through focusing on published data in form of reports like annual, general
to accomplish purpose of meeting company's legal requirements. With helps of income statement
company can get details of its ability of generating profits (Coyne and McMickle, 2017). Cash
flow fives insights about in and out flow to know organization's smooth functioning through
identifying financial health in industry.
The financial reports are broader concepts that includes various statement that are widely
utilized by users. The users are distinct as internal and external who uses these published sources

for accomplishing their particular purpose (What is Financial accounting? 2021). Company
shared information to complete its obligations towards society, government, etc. Reason behind
giving emphasis on mentioned part is to obtain knowledge regarding company's liquidity,
efficiency, profitability, etc. Investors utilize financial information to met its objective of
identifying firm's revenue generating capacity so that higher return on it can be obtained.
Investment analyst show interest in analyzing presented statement to give guidance to clients
regarding corrective path for moving towards desirable position. In addition to this, financial
institutions, bank, creditors, etc make evaluation of these shared data to recognize firm's
credibility and trustworthiness in order to know its paying capacity. These assist in having
information relating to organization solvency position through analyzing current and fixed assets
in turn efficiency to meet legal as well other obligations can be known.
There are various other stakeholders who show interest in company's practices to reach
particular conclusion. Internal users such as owner, management and employees go through
specified financial statements to know lacking areas. Company's progress through performance
evaluation on the basis of operational efficiency via determining operating, net and gross profits.
In addition to this, the purpose behind formulation s to make comparison between previous and
current performance so that position in sector can be assessed. With helps of data entity can
evaluate its accuracy of price strategies, business structure, policies, marketing and promotional
actions contribution in success (Köchling and Posch, 2018). Competitors as well look into other
organization's practices to assess success determinate so that appropriate course of action can be
taken. Government ensures relevancy, reliable, timelines, comparison, etc such qualitative
characteristics are followed by business to give stakeholders assistance in fulfilling objective. It
is also given emphasis by government on firm's activities regarding taxation for checking its
fairness.
Question 4
Accounting principles are regulations and rules that are served as guidelines for
formulating financial statements. It is utilized as accounting standards for recording, analysis and
controlling financial information. These principles are universally applicable which gives
assistance in meeting various obligation in systematic patter.
Accrual principle

It is one of accounting principle that is concerned with recording transactions in time in
which they incurred regardless of actual cash flow received. The purpose behind executing this
particular form of principle to ensure that revenue are matched against expenses (Zhou and
Wang, 2020). It permits organizational process to combined present cash in & out with future
expectations regarding same to get detailed and accurate information of company' s position.
Conservatism principle
It is concerned with giving guidance in recording uncertainty and estimates. It helps in
indentifying expenses and losses when there is uncertainties but in case revenue it should be
exerted only when there is assurance (Castaldi and et.al., 2019). It helps companies to get proper
details in order to make policies & strategies to overcome situation in more meaningful manner.
Cost principle
This is related with recording assets, investment, etc at their original cost without making
any changes in it. Business must follow this principle to provide sufficient and reliable
information through giving details on the basis of historical cost.
Going concern
It is one of important principle of accounting that is basically an assumption implemented
while preparing financial statements. In addition to this, this provides assistance to make
structure and strategies for longer duration for attracting investors by giving them assurance of in
depth business operations. Going concern concept gives crucial materiality scale of operations
via ensuring its long term stable position.
Full disclosure
Full disclosure principle provide guidance to organization that sufficient, reliable and
relevant information via financial statements is given. This fundamental accounting principles
play role in safeguarding both publisher as well users parties interest. It helps company to avoid
irrelevant legal obligation arising due to the same. Stakeholders can get full data of
organization's information to take appropriate decision.
Materiality principle
The purpose of this principle is to make information available such as that accounting
standard can be ignored in case of its small impact on financial statements users decision
making. It varies based on the size of entity so proper consideration while implementing should

be provided. In addition to this, it is one of the significant principle which leads smooth
accounting processes.
Revenue recognition principle
It is feature of accrual principle that state revenue should be recorded when it is earned
not when cash received. Revenue recognition principle play important role in providing fair
position of liquidity for specified period of time.
Question 5
Income Statement
Particulars Amount £ Amount £
Sales (Revenue) 900000
Opening inventory 12000
Add: Purchases 700000
Less
:
Closing inventory 14000
Cost of goods sold 698000
Gross profit 202000
Less
:
Advertising 10000
Salaries 50000
Electricity 10000
Telephone 9000
General expenses 1200
Net profit 121800

Statement of financial position
Particulars Amount £
Assets
Fixed assets
Land and Building 400000
Plant and Machinery 30000
Vehicles 22000
Current assets
Inventory 14000
Receivables 110000
Total assets 576000
Liabilities
Current liabilities
Bank overdraft 20000
Payables 80000
Shareholder's equity
Capital 354200
Profit 121800
Total liabilities 576000
Question 6
Profit and loss account for the year ended 31 December 2017
Particulars Amoun
t £
Amount
£
Sales 125000
Less: Sales return 1000 124000
Opening inventory 9500
Purchase 75000

Less: Purchase return 1500
Less: Closing inventory 1000
Less: Cost of goods sold 82000
Gross profit 42000
Less: Wages and salaries 13200
Rent and rates 1840
Postage 900
Insurance 7089
Bad debts 550
Provision for bad debts 934
Depreciation 5000
Add: Interest received 1000
Rent received 4360
Net profit 17847
Balance sheet as on the year ended 31 December 2017
Particulars Amount
Assets
Bank 10594
Cash 340
Debtors 12500
Motor Vehicle 25000
Less: Accumulated depreciation (5000+5400) 10400
Closing Inventory 1000
Prepaid Insurance 411
Loan given 100000
Total assets 139445

Liabilities
Capital 120800
Less: Drawings 5150
Add: Profit 17847
Creditors 3900
Provision for bad debts 934
Outstanding rates 340
Advance rent received 490
Allowance for bad debts 284
Total liabilities 139445
Question 7
Cash Flow Statement (CFS) is one of the financial data provider tool that assistance in
getting information regarding in and out flow. Making judgment on liquidity position becomes
possible through formulation of financial statements. It is prepared in three parts operating,
investing and financing for accomplishing purpose of identifying effectualness of each source of
generating liquidity. Company's accuracy of managing debt with available resources can be
identified via focusing on CFS. With helps of this particular statement identifying more
productive segment to derive better financial position can be obtained. It an be deeply
understood by giving emphasis on below drafted CFS of Deutsche Bank

SCENARIO- 2
Question 1
Bank reconciliation statement is one of the crucial part of financial accounting which
represents the banking and business activities. This statement outlines the deposits, withdrawals
and other different forms of business transactions that affect bank account. In addition to this, it
becomes essential for organization to prepare bank reconciliation state to derive significant
knowledge regarding its company’s financial practices (Onoh and Okoro, 2017). The purpose
behind preparing BRS is to obtain various significant actions such as improvement in prevailing
scenario. Identification of error with help of formulation of BRS provides assistance in getting

accurate data in order to formulate crucial business policies to move towards success. BRS aids
in detection of frauds through spotting fraudulent practices in company which gives ability to
save resources from misuse. There are various other benefits that company attains through
specified transaction such as tracking of fees, interest & several charges set by bank for utilizing
its services. Firms derives ability to avoid duplication of practices, missed payments, etc for
saving its cost and efforts. The accurate information regarding receivables, payables, etc are can
be known by company through implementing this specific activity.
In order to attain efficient Bank Reconciliation statement (BRS) emphasis should be
given on systematic procedure. This is concerned with recognizing, eliminating and controlling
mistakes to have clarity and transparency related to monetary position. For this purpose closing
balance of bank statement is compared with prepared activity to know there is any
differentiation. Comparison of opening balance, evaluation of missed recording of transaction,
replacing errors with correct figures, placing all essential activities becomes possible by
executing the efficient BRS. In order to get equal balance with specified official statement bank
reconciliation is prepared to mitigate risk.
Question 2
Control Account (CA) can as well referred as adjustment statement in general. It keeps
the general ledger clean of details but includes accurate balance which can be taken into
consideration for preparing financial statement. it is basically created for summarizing the details
of account receivables & payables as these obtains a lot of transactions. The subsidiary ledger
permits evaluation of transaction in further manner as proper individual activities are included in
both these mentioned accounts but CA includes only closing balance (Ginting and Hidayat,
2019). This is one of the reason for which they are segregated rather than clutter up so that
detailed data can be derived. The main purpose for creating CA is to get ability to recognize the
mistakes of subsidiary ledger, permitting trail balance formulation via control account. In
addition to this, its significance can be identified by giving emphasis on the trial balance tally as
it does not shows balanced figure until CA is not reconcile (What is Control account? 2021).
This is utilized as preventive measure against fraudulent practices. With respect to this, it helps
in getting accurate availability of data on the basis of which relevant & reliable information can
be obtained.

Role of Control account in Financial Management (FM) is crucial as provides assistance
in speed functioning of organization process. The usage of CA in specified field is to make
smooth functioning of daily activities (Cascino and et.al., 2020). The financial management of
large organization take this into practice to have proper recording of transaction in systematic
pattern. This is provides bottom line of specific account which is transferred to designated
account according to nature of transaction. In FM this helps company to facilities delegation of
duties among debtors & creditors. Effective preparation of financial management in FM
becomes continent as single balance can be easily extracted through it. Control account assist in
taking strategic decision through giving emphasis on all relevant and crucial information so that
lacking areas can be identified to execute suitable improvement actions.
Question 3
Suspense Account (SA) is utilized by organization to record uncategorized items on
temporary basis. It is taken into practice when proper account of particular transaction is
unknown therefore it play role of holding account which keeps items for specified period. When
the appropriate account is determined the categorized item is transferred to it. It is utilized as
control risk that assures SA is cleared at some point that is formulated for various reasons. In
addition to this, the main purpose for preparing the Suspense account to tally trail balance when
book keeper is unsure about its practices (Huikku, Mouritsen and Silvola, 2017). The reason
behind drafting suspense account is to get effectual completion of financial statement, trial
balance, etc through eliminating discrepancies. Rectifying errors after preparing final accounts
becomes difficult as it requires high utilization of resources. with help of SA identifying
appropriate category of transaction becomes possible which enable smooth functioning of
financial process. Time for investigation to obtain correct details for having proper data to take
strategic decisions for fluent functioning of organization.
Question 4
Revised Cash book as per the bank column
Particulars J.F. Amount
£
Particulars J.F. Amount
£
To balance b/d 1760 By Insurance
account
170

To D. Park A/c 270 By Talk Talk
bill
56
To Mr. Patel A/c 1070 By Arif
account
186
To Abbey A/c 325 By bank
charges
25
To Drawings A/c 105 By balance c/d 3093
Bank Reconciliation Statement as on 28th February 2010:
Particulars Amount
Balance as per the pass
book
3093
Add: Insurance claim 170
Talk Talk bill 56
Cheque received but not
credited
186
Bank charges 25
Less: Cheque issued but not
presented for payment
270
Transfer to bank directly 1070
Dividend received by
Abbey bank
325
Drawings not recorded 105
Balance as per Cash book 1760
Direct Debit
It is instruction from one side party to banking institution in order to pay to collect from
instructor’s account in terms of withdrawals

Standing Orders
This is referred as instructing bank to pay certain amount of money in payee’s account
Bank Charges
It is charged by bank from accountholders for utilizing its services.
Dishonor cheque
This is outcome of insufficient fund, incorrect signature, etc
Question 5
a) Journal entries
Particulars L.F. Debit Credit
1 Purchase A/C Dr. 2000
To A. Musa A/C 2000
(Being the goods purchased
on credit)
2 Cash A/C Dr. 1340
To Bank A/C 670
To SuspenseA/C 670
(Being the entry wrongly
entered twice in the cash
book)
3 G. Tahir A/C Dr.s 650
To Suspense A/C 650

(Being the entry not made in
the G. Tahir account)
4 Electricity bill A/C Dr. 790
To Suspense A/C 790
(Being the electricity bill
account forgotten to be
debited)
5 Motor vehicle expense A/C
Dr.
500
To Motor vehicle A/C 500
(Being the motor vehicle
expense wrongly capitalized
to the motor vehicle account)
6 Sales A/C Dr. 270
To Suspense A/C 270
(Being the sales account
overcast by 270)
7 L. Samantha A/C Dr. 380
To Cash A/C 190
To Discount received A/C 190

(Being the entry wrongly
debited and credited, again
rectified)
8 Suspense A/C Dr. 768
To Sales A/C 768
(Being the entry wrongly
debited to the sales ledger
account)
b) Suspense account which shows the rectification of difference amount
Date Particulars J.F. Amount Da
te
Particulars J.F. Amount
To Sales
A/C
768 By Cash A/C 670
To balance
c/d
1612 By G. Tahir
A/Cs
650
By Sales A/C 270
By Electricity
A/C
790
2380 2380
CONCLUSION
From the above report it can be summarized that financial accounting is important to get
accurate position in industry. Business transactions, single, double entry book keeping, trial
balance, difference between financial reports & statement has been included in case study.
Fundamental accounting principles such as accrual, cost, revenue, ongoing concern, etc are
included. In addition to this, profit & loss account and balance sheet has been formulated. Cash

flow statement has been draft for specified organization. Bank reconciliation, control as well
suspense account's information in required format as been comprised in present report.

REFERENCES
Books and Journals
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financial accounting compliance costs. Journal of Business Economics.
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the field. Available at SSRN 3008083.
Castaldi, S and et.al., 2019. Business group affiliation and foreign subsidiary
performance. Global Strategy Journal. 9(4). pp.595-617.
Coyne, J. G. and McMickle, P. L., 2017. Can blockchains serve an accounting purpose?. Journal
of Emerging Technologies in Accounting. 14(2). pp.101-111.
Ginting, C. U. and Hidayat, W., 2019. The Effect of a Fradulent Financial Statement, Firm Size,
Profitability, and Audit Fim Size on Audit Delay. International Journal of
Innovation, Creativity and Change. 9(7).
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Economics & Finance. 6(1). p.1545739.
Zhou, N. and Wang, H., 2020. Foreign subsidiary CSR as a buffer against parent firm reputation
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Online
What is Control account? 2021. [Online].
https://www.accountingtools.com/articles/2017/5/4/control-account
What is Financial accounting? 2021. [Online]. Available through:
https://www.freshbooks.com/hub/accounting/financial-accounting–