Financial Accounting Principles: Homework Assignment Solution

This document presents a comprehensive solution to a financial accounting assignment. It begins with an introduction to financial accounting, its role in determining a business's financial performance, and the importance of financial statements. The solution then delves into relevant acts, accounting rules, principles, conventions, and concepts like consistency and material disclosure. It includes examples and explanations of journal entries, the double-entry system, ledgers, trial balances, and the preparation of financial statements (profit and loss, financial position). The assignment also addresses bank reconciliation statements, control accounts (sales and purchase ledger), and suspense accounts. The solution covers key accounting concepts, provides practical examples, and offers a detailed analysis of various financial accounting aspects.

FINANCIAL ACCOUNTING
PRINCIPLES

INTRODUCTION
Accounts are related by an individual in order to record each and every transactions in
their business as their basic aim is to consider all the key factors in their business. This report
emphasizes on various accounting cycle which involves preparing journal entries till the
preparation of all the financial statements.
a)
1. Explain financial accounting
Financial accounting is regarded as specialised sector on which every business focuses in
order to determine its financial performance over a specific period. The emphasises of this type
of accounting lies on improving the current financial performance of an enterprise as financial
position of an entity will be determined easily wit he helps of this particular accounting style. An
employer will be easily records all the transactions of its business in this type of accounting
statements which helps in preparing financial statements of the business in order to compare
actual and standards framed by the business. Standard forms of financial statements prepared by
an enterprise owner includes income statements and balance sheet which stresses on the existing
facts and figures in order to generate desired outcome within a given span of time. Role of the
business get increases with the emergence of external business environment changes which
enhances the existing performance of the business entity.
Financial statements are regarded as one of the important source of external information
as this reflects the true performance of an entity over a certain period in order to enhance the
overall performance. Deviation in the current performance of an entity can be easily find out
with the help of all the financial accounts prepared by an enterprise with the help of financial
accounting principles. Discrepancy in the financial statements will be rectified by emphasises on
the desired aims and the objectives of the business over a particular time period.
2. Explain the acts related to financial accounting
Financial statements are prepared in an entity in order to reflect the financial performance
of an entity. Various regulations will be followed by an enterprise owner in order to prepare
various financial statements. Greater emphasises will be given by an entity owner in order to
reflect transparent business conditions of an enterprise. Accounting standards will be adopted by
an enterprise owner while preparing financial statements as the basic motive of the business is to
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present its competencies in front of the external stakeholders. Performance of an entity are
categorised into qualitative and non-qualitative that will be helpful for an entity owner in order to
rectify all its weaknesses that helps in accomplishing all the goals and the objectives within a
given span of time.
Accounting standard will be used by the owner in order to increase the quality of all the
information included in the financial statements of the business enterprise. Different items
covered in the financial statements are separately treated in the books of accounts which helps in
enhancing the overall business performance of an entity within a given span of time. Delivering
right output is the major concern of the business which relates loyalty among all the users in the
external business environment.
Schedules 6 will be used in order to prepare balance sheet and income statements in
particular format in order to present true financial information in meeting various needs and
expectations of al the users of the business. Balance sheet formats differ from one business to
another as every business structures adopted different formats in order to communicate important
information from one end to another. Use of various formats will be transparent and legally
recognised to convey important financial information to the stakeholders as their interest is
associated with each and every business decisions.
3. Describe accounting rules and principles
Basic rules of accounting is often regarded as the survival pillars of accounting without
which no entity will perform accounting of all the transactions of the business in determining the
financial performance of an entity. Three rules of accounting is also related with the accounts
prepared in the business such as nominal and real accounts related in the business enterprise.
Debit the receiver and credit the giver, debit all expenses and losses and credit all income and
gains and last accounting rule is debit what comes in and credit what goes out. These three basic
accounting rules will be used as direct weapon in order to record each and every transactions of
the business to ascertain the financial performance of an entity as the journal entries are created
in order to prepare the financial statements as the accounting cycle will be followed by an entity.
Traditional accounting principles are required to be followed by an entity in order to
improve its existing business efficiency as the transactions are properly treated in the books of
accounts whose effects is properly shown on the financial performance of an enterprise owner.
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Financial accounting standard board has launched various guidelines and accounting
principles in order to enhance the overall business performance of an entity in order to achieve
desired aim and the objectives of the business enterprise within a given span of time. GAAP is an
acronym that stands for generally accepted accounting principles whose primary motive is to
apply various principles in improving the recoding procedures of all the business transactions
properly in the books of accounts.
4. Describe conventions and concepts relating to consistency and material disclosure
One of the accounting policy used in improving the current business conditions of the
business enterprise includes consistency principle which suggest that once an accounting policy
will be used in the business will e followed throughout the ear without changing the same. For
example, SLM selected by an entity as method of depreciation will be consistently followed in a
whole year as any changes made in the current policy will account to disclosure to the financial
accounts. Changes incurred in the business can be of two types such as both material and non-
material changes takes places in the business. Changes takes places in the business will be
disclose in the end of the financial account if the current change is material to the business.
Material change refers to a change that affect the overall financial performance of an entity over
a certain period.
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CLIENT 1
a) Prime book entry
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b) Double entry system using ledgers
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c) Trial balance
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CLIENT 2
a) Statement of profit and loss
b) Financial positional statements
Particulars £ £ £
Assets Cost
Accumulated
depreciation NBV
Non current asset
Freehold premises 42900 270000 42900 227100
Equipment 114750 172500 114750 57750
Motor vehicle 16800 28000 16800 11200
Total non-current
assets 470500 174450 296050
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Current assets
Closing stock 101640
Trade receivables 106960
Prepaid
advertising
expenses 8470
Cash in hand 2440
Total current asset 219510
Total assets 515560
Equity and
liabilities
Equity
Share capital 332120
Add net profit 136660
Less drawings 42640
Total equity 426140
Current liabilities
Trade payables 76910
Bank overdraft 11290
Outstanding wages
and salaries 1220 89420
Total current
liabilities 89420
Total equity and
liabilities 515560
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CLIENT 3
a) Income statement
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b) Financial position statements
c) Consistency and prudence
Consistency accounting principles states that one policy adopted by an entity will be
followed through the year without any kind of stoppage (Chen and et.al., 2010). Changes in
middle of the year in the accounting policies needs to be disclosed by an entity as all the changes
affects the financial performance of an entity in a particular span of time.
Prudence concept focuses on the future of an entity as in this particular approach current
fact's and figures are analyses in order to protect the interest of an entity from external
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uncertainties. For example, provision created in order to save the business firm from the
depreciation.
d) Two methods of charging depreciation
Straight line method- In the current depreciation technique, depreciation charged by an entity
by deducting residual value from the cost divided by the life of asset. The amount of depreciation
remains stable in the existing approach which imposes pressure on an entity.
WDV- Written down value method states that deprecation will be charged on the basis of
appropriate rate helps in determining the depreciation amount. The amount of depreciation gets
reduces with the passage of time.
CLIENT 4
a) Purpose of BRS
Business reconciliation statements prepared by an entity is to compare its cash book
balance with the balance of its pass book in order to identify any kind of errors found in the
existing system (Bamber, Jiang and Wang, 2010). Business weaknesses will be easily identified
by an entity owner in order to emphasizes on each and every aspects of the organization as the
major motive is to reconcile the facts and figures included in the business. All business
transactions take places in an entity are properly analysed in order to help all the users of the
business in delivering true business aspects in an entity.
b) Reasons for changes in BRS
Changes in the bank reconciliation statements is due to several changes which created
problems for the business as they need to match their existing figures as compared to the
standards framed by an entity. Changes in bank reconciliation occurs due to several things such
as cheque deposited in bank but doesn't credit by them. This created changes in the balances of
cash book ad pass book. This discrepancy will be identified with the help of current statements
that showcase the strengths of an entity. Bank interest deducted by bank from the bank balance
of an individual will not shown properly in the balance of an individual in its cash book.
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c.
BRS as at 1 December 2016
Prepare updated cash book
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Bank reconciliation statements as at 31st December
CLIENT 5
Sales ledger control account
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Purchase ledger control account
c) Control accounts
Control accounts are created by an entity owner in order to regulate the overall business
performance of an enterprise over a particular financial year (Badertscher, Burks and Easton,
2011). An entity owner will keep track on its expenses and income in order to improve the
existing business conditions. It is prepared in order to regulate the financial performance of an
entity by preparing both sales and purchase ledger control under this particular section.
CLIENT 6
a) Features of suspense accounts
Suspense account is created by an entity in its business for the temporary purpose as the
omissions of transactions in the business will be considered in the books of accounts. Current
books of accounts will get updated with the inclusion of all other transactions in improving the
existing business conditions of an entity.
b) Trial balance
Trial balance is regarded as effective control used in the accounting process of an entity
in which arithmetical accuracy will be checked with the help of current statements. All accounts
created in ledgers will be record in the rial balance in order to find out any kind of errors
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included in the business which is linked with the existing business performance of an enterprise
owner. Trial balance is act like a controlling measure which helps in achieving desired market
aims and targets within a given span of time.
c) Rectification of errors
This concept is regarded as one of the important concept according to which all errors are
rectified by the business by considering all committed transactions in the current business as the
role of an entity get increases by improving their existing performance within a given span of
time.
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d) Difference between clearing and suspense
Difference and similarities between suspense and clearing account is that it comes into
existence for the temporary purpose in order to achieve the desired market aims and targets
within a given spa of time (Agoglia, Doupnik and Tsakumis, 2011). Clearing account usually
involves clearing various customer's transactions in the bank.
CONCLUSION
It can be articulated from the above study that financial accounting principles are utilized
by an entity in improving their existing business conditions. Emphasises of the current project
reports is on recording all the transactions of the business in order to ascertain the financial
performance of an entity.
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