Financial Accounting 1 Report: Business Transactions and Accounting

This report provides a comprehensive overview of financial accounting principles and practices. It begins by exploring different types of business transactions, differentiating between internal and external transactions, and explaining single-entry and double-entry bookkeeping methods. The report then delves into the importance of trial balances and their role in ensuring the arithmetical accuracy of accounts. It further examines journal entries, ledger accounts, and the preparation of trial balances. A significant portion of the report contrasts financial reports and financial statements, highlighting their differences in content, scope, and users. The report also outlines the fundamental principles of accounting, including monetary unit assumption, going concern, and matching principles. Finally, the report includes profit and loss accounts and balance sheets to demonstrate the practical application of these concepts. The second part of the report focuses on bank reconciliation, control accounts, and suspense accounts, providing a detailed understanding of these crucial accounting processes.

Financial Accounting
1

Contents
INTRODUCTION...........................................................................................................................3
SCENARIO 1..................................................................................................................................3
Question 1....................................................................................................................................3
Question 2....................................................................................................................................5
Question 3. Difference between financial report and statement................................................10
Question 4. Description of the fundamental principles of accounting......................................12
Question 5..................................................................................................................................13
SCENARIO 2................................................................................................................................15
Question 1. Description about bank reconciliation....................................................................15
Question 2. Description about control accounts........................................................................16
Question 3. Description about suspense account.......................................................................16
Question 4..................................................................................................................................17
Question 5..................................................................................................................................19
CONCLUSION..............................................................................................................................20
REFERENCES..............................................................................................................................22
2

INTRODUCTION
Financial accounting refers to the procedures or process of preparing financial statements
that an organisation uses with purpose to show their financial position and performance to
outsider of company such as creditors, investors, customers and suppliers. In simple word, it is a
particular branch of accounting that includes different process such as recording, summarizing
and reporting results of transactions from business operations over a specific time period (Al-
Sulaiti, Ousama and Hamammi, 2018).
This report is divided into two sections and each section has different questions. For
completing section first, there is need of following some questions such as types of business
transactions that includes single entry and double entry book keeping, and trial balance and its
importance. In this section, second question is based on Journal entries for each transaction,
Ledger accounts, and Trial balance. Difference between financial statement and financial report,
Fundamental principles of accounting and Profit and loss account are also a main part of this
section. Section second is based on bank reconciliation, control accounts, suspense account,
journal entries and many other aspects.
SCENARIO 1
Question 1
Types of business transaction
Business transactions introduces as an event that has happened within an economic enterprise
which can be precise in terms of money. Business transaction has financial or direct impact on
the company. There are several forms of business transactions and within this, all these are
divided into internal as well as external transactions. This will be described as below:
 Internal business transactions: In this transaction, involvements of external parties are
not allowed. Such type of transactions has direct impact over financial performance of
company because it not includes any exchange of values with external parties. For
example: internal business transactions include recording depreciation of fixed assets as
well as realizing the defeat of assets reasoned by fire etc.
 External business transactions: Within this transactions, an organisation exchange
money with external parties. These are basic transactions that are performed by company
on daily basis. For example: external transactions include sale of goods to customers,
3

purchase of goods from suppliers, electricity or water bills payment of gas, payment of
salary to employees etc.
Single entry and double entry book keeping
Single entry book keeping refers as a straightforward and single method of
bookkeeping. In which each and every business transaction are recorded at the same time as a
single-entry in journal. Single entry book keeping is a cash-based bookkeeping technique that
tracks incoming as well as outgoing value in a journal (Biddle, Ma and Song, 2020).
Date Description Transaction value Balance
XX-XX-XXXX £000.00 £000.00
Double entry book keeping is another method or technique of recording transactions of
business where for each transaction; an entry is recorded within at least 2 accounts which are
credit or debit. In a double-entry system, the amount of capital is recorded as debits should be
equal to the amounts of capital recorded as credits. The double-entry bookkeeping system works
according to the accounting equation, such as Assets= Liabilities + Owner’s capital. Structure of
Double entry book keeping will be shown as below:
Date Description L.F Debit Credit
XX-XX-XXXX £000.00
£000.00
Trial balance and its importance
Trial balance introduces as an accounting or booking report that includes lists of balance
within each of business’s general ledger accounts. Debit balance amounts are scheduled in a
column with appropriate heading "Debit balances" as well as the credit balance amounts are
scheduled in an additional column with the accurate heading "Credit balances." The sum of each
of these 2 columns must be identical (Dutta and Patatoukas, 2017). There are number of
importance and significance of Trial balance that helps an organisation in its business
transactions. Some main importance of trail balance will be explained as below:
 Trial balance is an effective tool because it supports company in checking of arithmetical
accurateness of their accounts by make Suring the equal balance of trail balance for both
sides.
4

 Trial balance shows the credit and debit balance of the business transactions. If the debit
balance does not match with the credit balance, it indicates that there are few errors
within the record. Therefore, trail balance helps an organisation in locating of errors.
 Trail balance help company in preparing of final accounts. It keeps the record of account
balance that supports an organisation to prepare final account. At the end of financial
year, final account will be prepared by knowing financial position, operating results and
performance of a business.
Format of trial balance
Account name Debit (£000) Credit (£000)
Question 2
This includes the presentation of journal entries, ledger accounts and trial balance.
Journal entries in relation to each transaction
5

Ledger accounts
6

7

8

Trail balance
9

Question 3. Difference between financial report and statement
Financial report understands as the document that provides the information related to the
all monetary transactions of an organisation. The main reason behind development of this report
is to record every financial transaction of a company to determine the impact of same over
organisational functioning. There is no fixed time period in respect to the formulation of report.
However, financial statement is different from the financial report that defined above. Financial
statement is the mandatory documents which is needed to prepare by every organisation for
presentation of their profit and loss to their stakeholders. The another difference which is clearly
visible in both i.e. every financial statement is a report but all financial report is not a financial
statement (Garbowski and et al., 2019).
The detailed level of different in between these is presented below with the aid of different
points;
Origin of variance Financial report Financial statement
Content This includes all the monetary
transactions related to an
This includes only those
transactions and information which
10

organisation. are prioritized by the governance
authority
Governance The whole process related to
financial report is governed by
IASB. This is known as
international accounting standards
board.
Here, the process of formulating
financial statements is governed by
the standards which were developed
by IASB.
Scope The scope of financial report is
wide as compared to the financial
statement. This will understood on
two basis, first all financial
transaction are presenting under
this and second all the financial
statements are report but not all
the financial reports and financial
statements (Kimmel, Weygandt
and Kieso, 2018).
The scope of financial statements is
narrow as compared to the financial
reports. This is because only limited
transaction are recording under
same.
Examples There are numerous number of
examples are present that can be
presented as example of financial
report includes bank statement,
accounts receivable report, bad
debts report, debtor analysis report
etc.
In actual there are no examples are
existing in respect to the financial
statements. But, this of four types
such as income statement, balance
sheet, statement of cash flows and
stamen of changes in equity.
Requirement These reports are required to see
by business managers because
through which they get the
information that how much
expenses and purchases were done
by an organisation so they can
build effective budget for the
Financial statements used in the
organisations but only for the
certain purposes. These are
basically studied by the
stakeholders for an organisation in
relation to the ascertainment of
financial performance, position,
11

future period of time. The usage
scope of these reports is higher as
compared to another because this
will provide all information related
to an organisation. Further, these
reports also used by management
in development of financial
strategy through which they able
to attain large number of profits
along with reduction in amount of
expenses.
availability of cash and market
position of a company. Further,
these reports are also used by the
external investors in relation to the
decision making about investment
in organisation or not.
Users The different number of users
which are commonly uses these
reports include business managers,
board members and all other users
of financial statements as these are
also the part of financial reports.
The users who uses financial
statements commonly includes
investors, suppliers, creditors,
clients, public, government, debtors
and many other.
Question 4. Description of the fundamental principles of accounting
Crucial bookkeeping standards are the rules which confines and constrains the business
associations while creating budget summaries and detailing money related information. There are
different essential standards which oversee the business association. These standards depend on
the measures given by "for the most part acknowledged bookkeeping gauges" and "worldwide
budgetary revealing principles". A portion of the significant crucial standards of bookkeeping
include:
Monetary substance presumption: According to this rule, a business association must be
given its own character and name under which it can work together. The element of the business
association must be not quite the same as the element of its proprietor (Lento, 2016).
Money related unit supposition: This rule expresses that all the budgetary exchange
which have happened in a business association must be recorded utilizing an equivalent fiscal
unit with the goal that a recognition and consistency can be kept up.
12