Financial Accounting: Comprehensive Review of Client Transactions

This financial accounting assignment presents a detailed exploration of accounting principles through the analysis of client transactions. It includes journal entries, covering various financial activities such as purchases, sales, payments, and returns. The assignment also incorporates the application of accounting rules and principles like GAAP, entity rules, and measurement rules to different client scenarios. The solution provides a comprehensive overview of how to record and interpret financial transactions, including the creation of financial statements and the application of accounting conventions. The assignment covers a wide range of transactions, from initial capital investments to day-to-day operational expenses, and illustrates the importance of accurate financial reporting for decision-making and compliance with accounting standards. It also encompasses the preparation of journal entries for the month of May 2016 and May 2017, offering insights into the practical application of financial accounting concepts.

Financial Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
MEANING OF FINANCIAL ACCOUNTING...............................................................................1
REGULATIONS RELATED TO FINANCIAL ACCOUNTING..................................................2
ACCOUNTING RULES AND PRINCIPLES................................................................................2
CONVENTIONS & CONCEPTS RELATED TO CONSISTENCY & MATERIAL
DISCLOSURE ................................................................................................................................3
CLIENT 1........................................................................................................................................4
CLIENT 2......................................................................................................................................13
CLIENT 3......................................................................................................................................15
CLIENT 4 ...................................................................................................................................16
CLIENT 5......................................................................................................................................17
CLIENT 6......................................................................................................................................17
CONCLUSION..............................................................................................................................18
REFERENCES..............................................................................................................................19

INTRODUCTION
Financial accounting is a process which is used to disc the financial and accounting
information of an organisation in a specified structure. Financial accounting is a procedure of
recording, summarising and transcript the information as per accounting principles and
standards. Business operations contains various type of activities and financial transactions.
These transactions are required to be recorded in a specific format and structure (Ball, 2013).
Financial standards and accounting principles provide a structure to record these transactions in a
specific format. Financial position statement, cash flow and fund flow statement, balance sheet
as well as income statements are the formats which are followed in general business.
MEANING OF FINANCIAL ACCOUNTING
Financial accounting is considered as a series of set of rules, standards, regulations and
principles. Financial accounting standards are given by Financial Standards Boards and GAAP
(Generally Accepted Accounting Principles). It is one of the branches of evaluation and reporting
of financial statements and reports. Recording the monetary and non-monetary transactions in
books, preparing financial statements and cost accounting are the main areas considered in
financial accounting (Ball, Kothari and Nikolaev, 2013)
Financial reporting is one of the key criteria which help in managerial accounting.
Financial reporting helps in summarising the records and information to finalise the conclusion.
These information are also used in decision making strategies (Radebaugh, 2014). It is a style of
presenting financial information in the form of financial statements. These information are useful
for stakeholders, investors, financiers and for public. Basically, Historical Cost Accounting
(HCA) or Constant Purchasing Power Accounting (CPPA) are used while preparing financial
accounts. Cash flow statement, profit and loss account or income and expenditure statement as
well as financial position statement are considered in the financial statements.
Systematic recording and storing of information, determine the results as per the
transactions, define the financial position of business, providing required information to
managers for making strategies and plans, find out solvency position of organisation are the main
objective of financial accounting (Brown and et. al., 2015). There are five main bifurcations
made subject to financial transactions like revenues, expenses, assets, liabilities and equity,
revenue and expenditures. There are two type of transactions are fund such as capital nature
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transaction and revenue nature transaction. As per rules, principles provided by GAAP, capital
expenditures and incomes must be presented in the balance sheet and financial position
statements and revenue nature income and expenditures must be shown in profit and loss
statements or income statements. All the current and non current liabilities and assets are shown
in balance sheet(Francis, Hasan and Wu, 2013).
REGULATIONS RELATED TO FINANCIAL ACCOUNTING
Financial accounting rules and principles are controlled and sans action by both general
and international accounting standard boards (DRURY, 2013). GAAP (Generally Accepted
Accounting Principles) is one of the authorised bodies which provide standards and principles
regarding financial and accounting (Nilsson and Stockenstrand, 2015). It provides guidelines
which are used in the organisational context. International Financial Reporting Standards (IFRS)
is one of the governed authorities which issued rules and standards subjected to financial and
accounting reporting. It is a set of passionate accounting standards which help to bifurcate the
nature of transactions in different sections. International Accounting Standards Board (IASB)
issue the IFRS rules and regulations.
ACCOUNTING RULES AND PRINCIPLES
Accounting rules and principles are also known as GAAP.
(a) Boundary rules
Entity rules: This rule tells the definition of an entity and separates the existence of
organisation from the owner. It indicates towards the ownership and responsibilities of entity and
bifurcate the owner’s role in organisation.
Periodicity rule: As per this rule, all the transactions and records must be maintained for
annual basis. Period of maintaining records is 12 months (Gaffikin, 2014).
Going concern: It is an assumption subjected to existence of organisation. As per this
assumption, it is estimated that organisation will exist forever and all the transactions will be
made for the future growth.
Quantitative rules: There must be countable information recorded in books no any kind
of assumptions and perspective to be used in while preparing financial statements (Vogel, 2014).
(b) Measurement rules
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Monetary measurement: Every transaction must keep the details and information in a
specific manner and the details (Goh and et. al., 2015). There must be single currency opted as a
measurement tool.
Historic costs: This rule indicates towards valuation of assets in the books on their
historical cost when they were occupied. Records must not be changed as per the changes in
rates of asset values.
Realisation rule: It is considered as an important rule subjected to revaluation of assets
after a specified period (M Ancini, Vaassen and Ameri, 2014). As the cost of machinery was £
20000 but after revaluation, the cost of asset at present is £ 19800.
Matching Rules: As per this rule, the balance of assets and liabilities must be equal at the
end of year.
Dual Aspects: It is considered that there are two accounts get effected by every
transaction. As one account is debited and second account is credited (Gray, Coenenberg and
Gordon eds., 2013).
Material Rule: This rule says that there is no any need to open a separate account for
every insignificant thing. There should be a separate group to be assigned to record significant
transactions.
(c) Ethical Rules
Objectivity rule : Every transaction and events contains objective for specific period.
That objective must be cleared in reports as well as in books too (Hope, Thomas and Vyas,
2013).
Relevance rule : informations and records must be subject to the point in books. No any
kind of irrelevant informations published in reports or recorded in books of accounts.
CONVENTIONS & CONCEPTS RELATED TO CONSISTENCY &
MATERIAL DISCLOSURE
Convention of materiality : Accounting informations and details must be cleared and
relevant to the subject. No any kind of extra information, significant and insignificant details to
be considered in financial records. This convention points towards making accounting records
simple and understandable. Only relevant and subject to the point informations are used help
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managers to make strategies and plans. It helps to able provide fair judgement and make
decisions (Kuper, 2013).
Convention of Consistency : This accounting rule signify the scope of accounting
policies in organisation. This convention says that the policies and regulations regarding
accounting policies and financial standards must be remain unchanged for specific duration and
period (Convention related to consistency and materiality, 2018). As if an organisation uses
FIFO method to calculate the cost of closing inventory then this method must be followed at
least for 12 months (Lawrence, 2013).
CLIENT 1
(a) Books of prime entries
Journal entries (Figures in £)
Date Particular L/F Debit Credit
01/05/16
2/05/2016
3/05/2016
Storage a/c
To Bank a/c
(Being storage paid)
Purchase a/c
To D. Main
To S. Hood
To R. Foot
To W. Tone
(Being purchase made)
P. White a/c
T. Wilson a/c
F. Allen a/c
T. Cole a/c
F. Lane a/c
F. Syme a/c
To Sales a/c
400
6080
2420
1120
910
1640
770
2080
400
2060
1450
1610
960
8940
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4/05/2017
7/05/2016
9/05/2016
11/05/2016
14/05/2016
16/05/2016
(Being sales made)
Motor a/c
To Cash a/c
(Being expenses paid to motor)
Drawing a/c
To Cash a/c
(Cash withdrawal for personal use)
J. Fox a/c
T. Cole a/c
To Sales a/c
(being sales made)
Sales return a/c
To J. Syme a/c
To F. Wilson a/c
(Being Goods returned)
Van a/c
To Abel Motors Ltd
(Being assets (van) purchased )
Bank a/c
To F. Lane
To F. Syme
To P. Mullen
To J. Wilson
(being payment maid)
Discount allowed a/c
470
1500
1310
680
680
28500
6669
351
470
1500
1990
410
270
28500
2945
1587
1330
807
5

19/05/2016
22/05/2016
24/05/2016
27/05/2016
To F. Lane
To F. Syme
To P. Mullen
To J. wilson
(Being Discount Allowed)
R. Foot account a/c
To Purchase return a/c
(Being Purchase return)
Purchase a/c
To W. Wright
To L. Mole
(Purchase made)
J. Brown a/c
R. Foot a/c
S. Hood a/c
To Bank a/c
R. Foot a/c
S. Hood a/c
J. Brown a/c
To Discount received
(360+460+140)
(Payment made and discount received)
Salaries a/c
To Bank a/c
(Being salaries paid)
50
3740
4140
1260
3240
140
360
460
4800
155
84
70
43
50
1910
1830
8640
960
4800
6

30/05/2016
31/05/2016
1/05/2017
Business rates a/c
To Bank
(Being rates paid)
Abel Motors Ltd a/c
To cash a/c
To Bank a/c
(Being able motors paid by bank and
cash)
Premises a/c
Van a/c
Fixtures a/c
Inventory a/c
Receivable a/c (1400+3100)
Cash at bank a/c
cash in hand a/c
To payables a/c (2150+4600)
To capital a/c (Balancing Figure)
(Being owner's capital calculated)
1320
28500
340000
51250
8100
63900
4500
62400
5600
1320
8500
20500
6750
529000
Journal entries for the month of 1 may 2017
01/05/17 Premises a/c
Van a/c
Fixtures a/c
Inventory a/c
Receivable a/c (1400+3100)
Cash at bank a/c
cash in hand a/c
To payables a/c (2150+4600)
To capital a/c (Balancing Figure)
(Being owner's capital calculated
340000
51250
8100
63900
4500
62400
5600
6750
529000
Calculation of owner's capital as at 1 May 2017
7

Assets
Premises a/c 340000
Van a/c 51250
Fixtures a/c 8100
Inventory a/c 63900
Receivable a/c (1400+3100) 4500
Cash at bank a/c 62400
cash in hand a/c 5600
Total assets 535750
Less: liabilities 6750
Owner's capital 529000
(b) Ledger posting
Premises
a/c
Date Particulars Amount Date Particular Amount
01/05/16 To balance B/d 340000
01/05/17 by balance 340000
Total 340000 340000
Van
account
a/c
Date Particulars Amount Date Particular Amount
01/05/16 To opening
balance
22750
14/05/16 To abel Motors 28500
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01/05/17 by balance 51250
51250 51250
P. Mullen a/c
Date Particulars Amount Date Particular Amount
01/05/16 balance B/d 2800 16/05/16 By bank 1330
By Discount
allowed 70
01/05/17 by balance 1400
2800 2800
S. Hood
Date Particulars Amount Date Particular Amount
01/05/16 By balance b/d 1600
01/05/17 To Balance C/d 2150 02/05/16 By purchase 1450
2150 2150
S. Hood
Date Particulars Amount Date Particular Amount
01/05/16 By balance b/d 1600
01/05/17 To Balance C/d 2150 02/05/16 By purchase 1450
2150 2150
Storage
cost
Date Particulars Amount Date Particular Amount
01/05/16 To bank 400 01/05/17 By balance c/d 400
400 400
Sales a/c
Date Particulars Amount Date Particular Amount
03/05/16 By J. wilson 1120
By T. Cole 1640
By F. Syme 2080
9

By J. Allen 910
By P. White 2420
By F. Lane 770
09/05/16 By T. Cole 680
By J. Fox 1310
22/05/16 By L. mole 1830
01/05/17 To Balance C/d 14670 by W. Wright 1910
14670 14670
Purchase a/c
Date Particulars Amount Date Particular Amount
02/05/16 To S. hood 1450
To D. main 2060
To W. Tone 960
To R. Foot 1610
22/05/16 To L. Mole 1830
W. Wright 1910 01/05/17 By balance c/d 9820
9820 9820
Bank
account
Date Particulars Amount Date Particular Amount
01/05/16 To balance B/d 91392 01/05/16
By Storage
expensed 400
16/05/16 To P. Mullen 1330 24/05/16 By S. Hood 3240
To F. Lane 2945 By J. Brown 4140
To J. Wilson 807 By R. Foot 1260
To F. Syme 1586 27/05/16 By Salary a/c 4800
30/05/16 By Business rates 1320
31/05/16 By Able motors 20500
01/05/17 By balance c/d 62400
98060 98060
Fixtures a/c
10