Financial Accounting Report: Muhammad's Business, Akram & Milky

This financial accounting report comprehensively addresses key concepts in financial accounting, including the preparation of journals, ledgers, and trial balances for Muhammad's business. It also details the creation of final accounts, specifically a profit and loss account, and balance sheet for Carol Andrew. The report further extends to bank reconciliation statements for Akram and the process of creating rectified entries for Milky, utilizing appropriate journal entries and addressing the suspense account. The content covers a range of accounting tasks, from recording transactions to summarizing financial data, demonstrating a solid understanding of accounting principles and practices, and providing a practical application of these concepts through specific business scenarios and the preparation of key financial statements. The report also provides a detailed explanation of terms and concepts involved in Bank Reconciliation Statement.

Financial Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
LO1..................................................................................................................................................1
P1. Preparing the journal and the ledger for recording and classifying the business
transactions..................................................................................................................................1
P2&M1&D1.Producing the trial balance by analysing all the transactions ...............................5
LO2..................................................................................................................................................6
P3. Preparation of the final accounts of Carol Andrew..............................................................6
LO3..................................................................................................................................................8
P5. Preparation of bank reconciliation Statement ......................................................................8
a). Explaining various terms and the difference between the terms used in Bank
Reconciliation Statement ...........................................................................................................8
LO4..................................................................................................................................................9
P6. Producing the process of the rectified entry by passing the journal entries..........................9
CONCLUSION .............................................................................................................................11
REFERENCES .............................................................................................................................13

INTRODUCTION
Financial accounting is the area of the accounting in that emphasizes on facilitating the
useful information to the internal and the external users such as the management, owners,
employees, creditors, government, investors and the tax authorities. It is the way in which the
business could record its financial transactions so that it could be communicated or reported to
the ultimate users. It provides for the financial information which helps the users in making the
critical decisions regarding their investment by tracking the performance and the position of the
organization through the accounting. It is known as practice of identifying, recording, classifying
, summarizing, interpreting and communicating the results. It provides for the preparation of the
financial statements like profit and loss account, balance sheet and the cash flow statement that
reflects the true and fair view of the performance and the position of the companies in the overall
market as it is formulated by following all the guidelines provisioned by the GAAP and the
international accounting standards. It facilitates the information regarding the income, assets ,
liabilities and the common equity. The present study is based on the preparation of the journal,
ledger, trial balance, profit and loss account and the balance sheet for different companies or the
firm. Furthermore, the report includes the formulation of the journal, ledger and the trial balance
for Muhammad's business and final accounts for Carol Andrew. In the scenario 2, the bank
reconciliation for the month of the February is prepared of Akram and Rectified entries for the
Milky by passing the appropriate journal entries and suspense account.
LO1.
P1. Preparing the journal and the ledger for recording and classifying the business transactions
Journal- It is stated as the record of the financial transactions in a logical order. The
transactions are recorded as per considering the double entry book keeping system which means
that every transaction contains the dual effect of recording that is debit as well as the credit. It is
used for referring the trading transactions which involves the details of the trades that are made
by the investor (Mullinova, 2016). Journal is the called as the primary books of the accounting
as it includes the recording aspect of the transactions. Journal entries act as the basis for the
general ledger accounts. The process in which recording takes place is known as the journalizing
and the record of the every single transaction is called as journal entry. Journal is also said as the
book of the original entry.
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Muhammad
Journal entries
Date Particulars Debit Credit
01/06/16 Cash A/c Dr. £65,000.00
To Capital A/c £65,000.00
02/06/16 Purchase A/c Dr. £8,000.00
To Creditors A/c £8,000.00
07/06/16 Cash A/c Dr. £4,000.00
To sales A/c £4,000.00
08/06/16 Creditors A/c Dr. £4,000.00
To Bank A/c £4,000.00
14/06/16 Insurance A/c Dr. £75.00
To Bank A/c £75.00
15/06/16 Debtors A/c Dr. £12,000.00
To sales A/c £12,000.00
16/06/16 Purchase A/c Dr. £10,000.00
To Creditors A/c £10,000.00
18/06/16
Computer equipment
A/c Dr. £3,000.00
To Cash A/c £3,000.00
20/06/16 Rent A/c Dr. £150.00
To Bank A/c £150.00
21/06/16 Cash A/c Dr. £10,000.00
To sales A/c £10,000.00
25/06/16 Cash A/c Dr. £100.00
To bank A/c £100.00
30/06/16 Stationary A/c Dr. £30.00
To Cash A/c £30.00
Ledger- It is the principle or secondary book that flies the recording made in the journal
and sum up the economic transactions that are measured in context of the monetary value. The
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transactions recorded are classifies into various accounts with the separate columns of the debits
and the credit (Tong and Saladrigues, 2018). It indicates the summary of the amount of all the
transactions entered in for supporting the journal. Ledger facilitates the preparation of the trial
balance as it shows the carry forward balance of each and every account. The major purpose of
the ledger is to summarize all the journal entries so that it can be used for the future referencing
and also for formulating the financial statements.
Ledger A/c
Dr. Cash A/c Cr.
Date Particulars Amount Date Particulars Amount
01/06/16 To Capital A/c £65,000.00 18/06/16
By Computer
Equipment A/c £3,000.00
07/06/16 To sales A/c £4,000.00 30/06/16
By stationary
A/c £30.00
21/06/16 To sales A/c £10,000.00
25/06/16 To bank A/c £100.00
30/06/16 By balance c/d £76,070.00
£79,100.00 £79,100.00
Dr. Capital A/c Cr.
Date Particulars Amount Date Particulars Amount
01/06/16 By cash A/c £65,000.00
30/06/16 To Balance c/d £65,000.00
£65,000.00 £65,000.00
Dr. Purchase A/c Cr.
Date Particulars Amount Date Particulars Amount
02/06/16
To Creditors
A/c £8,000.00
3

16/06/16
To Creditors
A/c £10,000.00
30/06/16 By balance c/d £18,000.00
£18,000.00 £18,000.00
Dr. Creditors A/c Cr.
Date Particulars Amount Date Particulars Amount
08/06/16 To Bank A/c £4,000.00 02/06/16
By Purchase
A/c £8,000.00
16/06/16
By Purchase
A/c £10,000.00
30/06/16 To Balance c/d £14,000.00
£18,000.00 £18,000.00
Dr. Sales A/c Cr.
Date Particulars Amount Date Particulars Amount
07/06/16 By cash A/c £4,000.00
15/06/16
By Debtors
A/c £12,000.00
21/06/16 By cash A/c £10,000.00
30/06/16 To Balance c/d £26,000.00
£26,000.00 £26,000.00
Dr. Bank A/c Cr.
Date Particulars Amount Date Particulars Amount
08/06/16
By Creditors
A/c £4,000.00
4

14/06/16
By Insurance
A/c £75.00
20/06/16 By Rent A/c £150.00
30/06/16 To Balance c/d £4,325.00 25/06/16 By cash A/c £100.00
£4,325.00 £4,325.00
Dr. Insurance A/c Cr.
Date Particulars Amount Date Particulars Amount
14/06/16 To Bank A/c £75.00
30/06/16 By balance c/d £75.00
£75.00 £75.00
Dr. Debtors A/c Cr.
Date Particulars Amount Date Particulars Amount
15/06/16 To sales A/c £12,000.00
30/06/16 By balance c/d £12,000.00
£12,000.00 £12,000.00
Dr.
Computer
equipment
A/c Cr.
Date Particulars Amount Date Particulars Amount
18/06/16 To Cash A/c £3,000.00
30/06/16 By balance c/d £3,000.00
£3,000.00 £3,000.00
5

Dr. Rent A/c Cr.
Date Particulars Amount Date Particulars Amount
20/06/16 To Bank A/c £150.00
30/06/16 By balance c/d £150.00
£150.00 £150.00
Dr. Stationary A/c Cr.
Date Particulars Amount Date Particulars Amount
30/06/16 To Cash A/c £30.00
30/06/16 By balance c/d £30.00
£30.00 £30.00
P2&M1&D1.Producing the trial balance by analysing all the transactions
Trial Balance- It is worksheet that describes the balances of all the ledgers that are
compiled into the credit and the debit account. An organization frames the trial balance
specifically at the period end (Chan and et.al., 2016). Trail balance facilitates formulation of the
financial statements accurately. It records for the balance of the several ledger accounts at the
one place that enables the firm knowing the information in respect of the overall business
transactions. The main objective of the trial balance is to detect the errors if any present in the
book of accounts such as errors in the posting and balancing the accounts (Bailey and Samuels,
2018). Through trial balance corrective measures can be taken for locating and rectifying the
errors.
Trial Balance for the Year
ended 2016
Particulars Debit Credit
Cash in hand £76,070.00
capital £65,000.00
purchase £18,000.00
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creditors £14,000.00
sales £26,000.00
Bank £4,325.00
Insurance £75.00
Debtors £12,000.00
Computer equipment £3,000.00
Rent £150.00
Stationary £30.00
£109,325.00 £109,325.00
LO2.
P3. Preparation of the final accounts of Carol Andrew
Profit and loss account- It is the income statement that summarizes the sales revenue,
operating cost and the expenses that are incurred during an accounting period (Chychyla, Leone,
and Minutti-Meza, 2019). This statement shows the profits and the losses of the business during
the specific time period. It allows the firm in knowing its performance and the ability of an entity
in generating the profits with increment in the revenue and by reduction in the cost. Gross
profits, operating profits and the net profit margins are ascertained through profit and loss
account which are useful for evaluating the ratio analysis so that comparison can be assessed for
several years.
Profitability statement of carol andrew for the year ended 2017
Particulars
Figures
(in £)
Figures
(in £)
Net
figure
(in £)
Sales 125,000
Less: sales return 1000 124,000
Closing stock 1000 125,000
Opening stock 9500
Purchases 75000
Less: purchase return 1500 73500 83000
GP 42,000
interest received 1000
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Rent received 4850
Less: Unearned rent 490 4360 5360
Wages & Salaries 13200
Rent and Rates 1500
add: Outstanding business
rates 340 1840
Postage 900
Depreciation on motor
van 5000
Insurance 7500
Less: prepaid insurance 411 7089
Bad debts 1200
less: 650 550 28579
NP 18,781
Balance sheet- It is the statement that includes the reporting of the assets, liabilities and
the shareholders funds of the corporate for the specific time period (Shen, and Han, 2019).
Balance sheet is the base for evaluating the return percentage and assessing the capital structure
of the company. It is a snapshot of the owing of the enterprise and the invested amount by the
shareholders. It list down all the assets and the liabilities of the business for determining that
there are enough assets with the entity for meeting its obligations (Trabelsi and Felton, 2018).
This statement is produced at the end of the accounting year. Balance sheet is useful for the users
as it depicts the financial position of an enterprise. Leverage ratios and the liquidity ratios are
calculated by using the balance sheet statement.
Balance sheet for the year ended 2017
Particulars
Figures
(in £)
Figures
(in £)
Net
figure
(in £)
Current assets :
Bank 10594
cash 340
Debtors 12500
add: bad debts 650
Less: provision for bad and doubtful
debts 934 12216
Closing stock 1000
Prepaid insurance 411
8

Total current assets 24561
Motor van at Cost 25,000
Less: Accumulated depreciation 5400
Less: depreciation 5000 14,600
Loan given @ 10% 100,000
Total fixed assets 114600
Total assets 139161
Current liabilities
Creditors 3900
Business rates outstanding 340
Unearned rent 490 4730
Total current liabilities
Shareholders’ equity
Capital 120800
Less: drawing 5150
Add : net profit 18,781
Total Shareholders’ equity 134,431
Total liabilities 139,161
LO3.
P5. Preparation of bank reconciliation Statement
Bank reconciliation statement- It is the process that describes the deviation present in
between the bank balance that is supplied by bank and the cash balance which is maintained by
the person (Hsieh, Ma, and Novoselov, 2019). It is the summary of all the banking and the
activities of the business that reconciles the bank account of an entity to that of the financial
records of the business. BRS outlines the withdrawals, deposits and the other activities that
affects the bank account for a particular period.
Bank reconciliation statement for the month of February
Particulars Amount Total amount
Balance as per cash book 1760
add: Direct transfers 1070
Add: Withdrawal 105
add: cheques not presented 270
Add: Dividend collected by 325
9

bank
less: Bank charges 25
less: Insurance Expenses 170
Less: bill paid 56
less: cheques received but not
recorded 186
Balance as per bank statement
(Cr.) 3093
a). Explaining various terms and the difference between the terms used in Bank Reconciliation
Statement
Direct Debit- It is the financial transaction where one party withdraws the funds from the
another party's bank account. Direct debits are specifically used for the recurring payments that
include utility bills and the credit cards where the amount of the payment varies from one
transaction to another (Chychyla, Leone and Minutti-Meza, 2019). In other words it is the
arrangement that is made with the bank in order to allow the third party in transferring the money
from the account of the person on the agreed dates, particularly for paying the bills. For instance-
Authorizing the bank or the credit card corporate for debiting the bank account in relation to the
monthly balance.
Standing Order- The instruction given by the account holder to its bank for paying the
specified amount at regular periods to another or the payee account. It is typically used for
making the rent payment, fixed expenses, mortgage etc. Under this, Bank full authority in
making the fixed payment on behalf of the client to the particular organization (Azar, Zakaria
and Sulaiman, 2019). It is a kind of the pre-authorized payments. For example- bank debiting
the payment on a regular basis of the holder for making the payments relating to the insurance
premiums, subscription and the installments of mortgage etc.
Bank Charges- It is the term that covers all the charges and the fees that are made by
bank to the customers. Bank charges often incurs in relation to the personal account or the
checking account. Such charges could be in any form such as the monthly charges occurred for
provision of the account, charges in respect of the particular transactions, interest charges of the
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overdrafts and the fees for the exceeding limit of the overdraft (bank charges, 2019). In
respect of the current account bank charges fixed monthly charge for the additional service.
Dis-honor cheques- It means the condition when the bank refuses for paying the cheque
amount to the other party or the payee. At the time of the dishonor of the cheques the bank of the
drawee instantly issues the return cheque memo to payee with specification relating the grounds
for the dishonor. There are several reasons due to which the dishonor condition ha s to be faced
by the payee such as overwriting on the cheque, signature is not made, payee name is not
mentioned, amount in the word column differs from the figure, on the orders of the drawer, lack
of the funds and the on the order of court (What is dishonoured cheque?, 2019). For example-
Drawer filed a cheque for the payment to payee for the amount $ 120000, but in the account of
the drawer there is only $ 90000 which means the funds are not sufficient. This results in the
dishonor of the cheque.
LO4.
P6. Producing the process of the rectified entry by passing the journal entries.
Rectification of errors- It is defined as correcting the errors which is been made in books
of the entity because of any reason that might be ignoring or not having the knowledge regarding
the accounting principles. Errors occurred may be because of the cheating by the accountant or
an employee. Correcting the errors present in the accounting in the confined manner is known as
rectification of errors.
Milky
Journal entries for rectification of errors
Right
entry Debit Credit
Wrong
entry Debit Credit
Rectified
entry Debit Credit
Purchase
A/c Dr. £2,000.00
Purchase
A/c Dr. £2,000.00
To Musa
A/c £2,000.00
Entry
omitted
To Musa
A/c £2,000.00
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Van A/c
Dr. £670.00
Van A/c
Dr. £670.00
Cash A/c
Dr. £1,340.00
To bank
a/c £670.00
To Cash
A/c £1,340.00
To Bank
a/c £670.00
G Tahir
A/c Dr. £650.00
Not
entered in
G Tahir
A/c
G Tahir
A/c Dr. £650.00
To Sales
A/c £650.00
To sales
A/c £650.00
To
Suspense
A/c £650.00
Electricity
bill A/c
Dr. £790.00
Suspense
A/c Dr. £790.00
Electricit
y bill A/c
Dr. £790.00
To cash
A/c £790.00
To Cash
A/c £790.00
To
Suspense
A/c £790.00
Motor
vehicle
Expense
A/c Dr. £500.00
Motor
Vehicle
A/c Dr. £500.00
Motor
vehicle
Expense
A/c Dr. £500.00
To cash
A/c £500.00
To Cash
A/c £500.00
To Motor
Vehicle
A/c £500.00
Sales
Balance £1,030.00
Sales
Balance £1,300.00
Sales A/c
Dr. £270.00
To £270.00
12

Suspense
A/c
L
Samantha
A/c Dr. £190.00
Discount
Allowed
A/c Dr. £190.00
L
Samantha
A/c Dr. £190.00
To
Discount
Received
A/c £190.00
To L
Samantha
A/c £190.00
Suspense
A/c Dr. £190.00
To
Discount
received
A/c £190.00
To
Discount
Allowed
A/c £190.00
Bank A/c
Dr. £384.00
Sales A/c
Dr. £384.00
Bank A/c
Dr. £384.00
To D
Jones A/c £384.00
To
suspense
A/c £384.00
To sales
A/c £384.00
CONCLUSION
From the above report it can be summarized that the reports and the statements prepared
under the financial accounting helps in reporting about the overall well being and the health of
the enterprise. It enables the firm in developing the accuracy in the accounting reports so that
reliable decisions can be made for predicting the future needs in relation to the cash flow and the
availability of the funds. It helps in systematic planning in context of taxation as it facilitates
13

recording of the tax liabilities. Financial accounting is commonly used as the tool for assessing
the operations of the business and reviewing the business operations so that task can be
performed in accordance with the strategies framed. The main objective of the financial
accounting is to specify the information regarding the income, cash flow and the finances. It
helps in protecting the properties of the business and in ascertaining the operational profit within
the enterprise. It assists the firm in keeping the systematic records of the financial or monetary
transaction of the business.
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