Financial Accounting Principles: Homework Assignment

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Financial Accounting Principles
Student name:
Student number:
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Table of Contents
A..................................................................................................................................................................4
1. Define financial A/cing and its purpose...........................................................................................4
2. Two internal stakeholders and four external stakeholders of a large business which use the financial
information..............................................................................................................................................4
Purchase Ledger......................................................................................................................................6
General Ledger........................................................................................................................................7
Cash Accounts.........................................................................................................................................8
Sales Ledger............................................................................................................................................8
Nominal ledgers......................................................................................................................................9
Client 2......................................................................................................................................................11
a) Profit and loss statement for Munteanu Ltd. for year ended 31st December 2018..............................11
b) Statement of financial position of Munteanu Ltd. as at 31st December 2018.....................................11
c) Consistency and Prudence.................................................................................................................11
d) Depreciation......................................................................................................................................12
e) Financial statement by sole trader vs Limited company....................................................................12
Client 3......................................................................................................................................................13
a) Need of bank reconciliation Statement..............................................................................................13
b) Areas of difference in bank and cash statements...............................................................................13
c) Imprest in petty cash system..............................................................................................................13
d) Bank reconciliation system................................................................................................................13
Updated cash book for Burcu Ltd:.........................................................................................13
Banking Reconciliation statement at 30th September 2018...................................................14
Client 4......................................................................................................................................................14
a)............................................................................................................................................................14
i) Sales ledger control Account..............................................................................................14
ii) Purchase ledger Control Account......................................................................................14
b) Control Accounts..............................................................................................................................15
Client 5......................................................................................................................................................15
a) Suspense account...............................................................................................................................15
b) Trial Balance.....................................................................................................................................15
c) Suspense account...............................................................................................................16

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d) Rectification entries...........................................................................................................16
Clearing of suspense account.................................................................................................16
References.................................................................................................................................................17

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A.
1. Define financial A/cing and its purpose
The financial A/cing is the procedure where the transactions which come up from business
operations for a given period of time are recorded, summarised and reported. So financial
Accounting can be explain as the preparation of financial statements which includes income
statement, balance sheet and cash flow statements. Reports provide with the operating
performance of the organisation in a given time period. There are lots of A/cing Principles
applied for creating financial A/c and these A/cing principles are chosen for fulfilment of the
regulatory reporting requirements.
The purpose of financial A/cing is to give the five major classifications of financial data which
are equity, liabilities assets, expenses and revenues. The equity, liabilities and assets are shown
into the balance sheet with the revenue and expenses stated into the income statement. The
outcomes of the financial A/cing in deciding the net income is shown at the bottom of the
income statement. The aim of financial A/cing is to provide information to parties which are not
part of the business that is the external stakeholders. The financial statement is highly relevant to
external parties. It gives information which is required for making sound economic decisions.
The external parties which use this information are investors, tax authorities, and creditors.
2. Two internal stakeholders and four external stakeholders of a large business which use
the financial information
Internal stakeholders are entities in a firm (e.g., the board of directors, workforce, managers, and
investors).
 Workforce: The staffs wish to earn funds and continue to be employed; therefore they are
interested in the financial position of the business.
 Managers and owners: The owners are concerned about maximization of the profit which
the firm makes.
 Investors: They are worried of earning income from their investments into the business.

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External stakeholders are those who are not inside a business itself however they are concerned
about or are impacted with its performance (e.g., investors, customers, regulators, suppliers).
 Government: The government desires the company to pay taxes, employ additional
individuals, abide by laws, and candidly report its financial circumstances.
 Customers: The clients want the business to give premium goods or services at low cost.
Suppliers desire that the business should keep on buying from them.
 Creditors: Creditors wish for getting repaid on time and completely.
 Society: The society desires the organization to add positively to its local surroundings and
residents.
Dr Amount Cr Amount
1. Storage cost Dr 450
To bank 450
2. purchase A/c Dr 4630
to S Hood 1450
To D Maine 2060
to W Tone 960
To R Foot 1610
3. J Wilson Dr 1200
T Cole Dr 1650
F Syme Dr 2100
J Allen Dr 1020
P. White Dr 2520
F. Lane Dr 980
To sales 9470
4. Motor expenses Dr 470
To cash 470
7. Drawings Dr 1500
To cash 1500
9. T Cole Dr 680
J Fox Dr 1310
To sales 1990
11. Sales returns Dr 680
To J Wilson 270
To F Syme 410
16. Cash A/c Dr 7020
To P. Mullen 1400
To F. Lane 3100
To J. Wilson 850
To F. Syme 1670
19. R. Foot Dr 50
To purchase return 50

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22. Purchase A/c Dr 3740
To L. Mole 1830
To W. Wright 1910
24. S. Hood Dr 3600
J. Brown Dr 4600
R. Foot Dr 1400
To bank A/c 9600
27. Salary A/c Dr 4800
To bank A/c 4800
30. Business rates A/c Dr 1320
To bank A/c 1320
Purchase Ledger
Hood A/c
Particulars
Dr
Amount Particulars
Cr
Amount
Cash At bank 3600 By balance b/d 12150
To Balance c/d 10000 By Purchases 1450
13600 13600
Maine A/c
Particulars
Dr
Amount Particulars
Cr
Amount
To Balance c/d 2060 By Purchases 2060
2060 2060
Foot A/c
Particulars
Dr
Amount Particulars
Cr
Amount
To Purchase return 50 By Purchases 1610
To Cash at bank 1400
To balance c/d 160
1610 1610
Wright A/c
Particulars
Dr
Amount Particulars
Cr
Amount
To balance c/d 1910 Purchases 1910
1610 1910
Brown A/c
Particulars
Dr
Amount Particulars
Cr
Amount
To Cash at bank 4600 By Balance b/d 16600
To balance c/d 12000
16600 16600

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Tone A/c
Particulars
Dr
Amount Particulars
Cr
Amount
To balance c/d 960 Purchases 960
960 960
Mole A/c
Particulars
Dr
Amount Particulars
Cr
Amount
To balance c/d 1830 Purchases 1830
1830 1830
General Ledger
Premises A/c
Particulars Dr Amount Particulars Cr Amount
To balance b/d 240000 By bal c/d 240000
240000 240000
Fixtures A/c
Particulars Dr Amount Particulars Cr Amount
To balance b/d 8100 By bal c/d 8100
8100 8100
Capital A/c
Particulars Dr Amount Particulars Cr Amount
By bal. c/d 389000 To bal b/d 389000
389000 389000
Van A/c
Particulars Dr Amount Particulars Cr Amount
To balance b/d 51250 By bal c/d 51250
51250 51250
Inventory A/c
Particulars Dr Amount Particulars Cr Amount
To balance b/d 23900 By bal c/d 23900
23900 23900
Drawings A/c
Particulars Dr Amount Particulars Cr Amount
To cash in hand 1500 By bal c/d 1500
1500 1500

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Cash Accounts
Cash At Bank A/c
Particulars Dr Amount Particulars Cr Amount
to bal b/d 68400 Storage costs 450
To Mullen 1400 By Hood 3600
To Lane 3100 By Brown 4600
To Wilson 850 By Foot 1400
To Syne 1670 By Salaries 4800
By business rates 1320
By bal c/d 59250
75420 75420
Cash in Hand A/c
Particulars Dr Amount Particulars Cr Amount
to bal b/d 15600 By motor expenses 470
By Drawings 1500
By bal c/d 13630
15600 15600
Sales Ledger
Lane A/c
Particulars Dr Amount Particulars Cr Amount
to bal b/d 980 By cash in bank 3100
To Sales 6100 By bal c/d 3980
7080 7080
Wilson A/c
Particulars Dr Amount Particulars Cr Amount
To Sales 1200 Sales Return 270
Cash at bank 850
By bal c/d 80
1200 1200
Mullen A/c
Particulars Dr Amount Particulars Cr Amount
to bal b/d 4400 By cash in bank 1400
By bal c/d 3000
4400 4400
White A/c
Particulars Dr Amount Particulars Cr Amount
To Sales 2520 By bal c/d 2520
2520 2520

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Cole A/c
Particulars Dr Amount Particulars Cr Amount
To Sales 1650 By bal c/d 2330
To Sales 680
2330 2330
Syne A/c
Particulars Dr Amount Particulars Cr Amount
To Sales 2100 Cash at bank 1670
Sales return 410
By bal c/d 20
2100 2100
Allen A/c
Particulars Dr Amount Particulars Cr Amount
To bal b/d 6100 By bal c/d 7120
To Sales a/c 1020
7120 7120
Fox A/c
Particulars Dr Amount Particulars Cr Amount
To Sales a/c 1310 By Sales Return 1310
1310 1310
Nominal ledgers
Sales A/c
Particulars Dr Amount Particulars Cr Amount
to bal b/d 11460 To debtors 9470
To debtors 1990
11460 11460
Storage cost A/c
Particulars Dr Amount Particulars Cr Amount
To Cash at bank 450 By bal c/d 450
450 450
Salaries A/c
Particulars Dr Amount Particulars Cr Amount
Cash at bank 4800 By bal c/d 4800
4800 4800

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Sales returns A/c
Particulars Dr Amount Particulars Cr Amount
To Wilson 270 By bal c/d 680
To Syne 410
680 680
Purchases A/c
Particulars Dr Amount Particulars Cr Amount
To creditors 6080 By bal c/d 9820
To creditors 3740
9820 9820
Motor Expense A/c
Particulars Dr Amount Particulars Cr Amount
Cash in Hand 470 By bal c/d 470
470 470
Business Rates A/c
Particulars Dr Amount Particulars Cr Amount
Cash at bank 1320 By bal c/d 1320
1320 1320
Purchase Returns A/c
Particulars Dr Amount Particulars Cr Amount
By bal c/d 1610 By Foot 1610
1610 1610

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Client 2
a) Profit and loss statement for Munteanu Ltd. for year ended 31st December 2018
Income and expense A/c
Particulars Dr Amount Particulars Cr Amount
Sales 61000 Purchases 61000
Less COGS -20000 Returns inwards 3000
Returns outwards 1500
Gross Profit 21500
64000 64000
COGS (Depreciation on building) 8000 By gross profit 21500
Depreciation on plant & machinery 12000 Prepaid rent 3000
Admin cost (Depreciation on
building) 6000 By loss 76500
Distribution cost (Depreciation on
building) 6000
Salaries account 2000
Admin cost 30000
Distribution cost 35000
Corporation tax 2000
101000 101000
b) Statement of financial position of Munteanu Ltd. as at 31st December 2018
Financial position of Munteanu Ltd.
Liabilities
Amoun
t Assets
Amoun
t
Share capital 40000 Land and Building 20000
Share premium 20000 Plant and Machinery 28000
Retained Earnings 22000 Trade Receivables 26000
Trade Payables 22000 Finance Costs 1500
Bank O/D 18000 Corporation tax 2000
Net Loss -76500 Depreciation on plant & machinery -12000
COGS (Depreciation on
building) 8000 Admin cost (Depreciation on building) -6000
Distribution cost (Depreciation on
building) -6000
53500 53500
c) Consistency and Prudence
As per the consistency principle of accounting, when there is an adoption of the accounting
principle or methodology then the organisation has to continue to follow it in a consistent way in
the future accounting periods. There will be an amendment only when there is a new version in
anyway improving the reported financial outcomes (Bragg, 2019). When such a change is to be
made then complete documentation has to be made regarding its impacts and the notes which

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accompany the financial statements. The consistency principle has to be followed in order tour
sure that outcomes reported from period to period can be compared.
As per the prudence concept of accounting, the organisation has to make sure that there is no
over estimation of the amount of revenues recognised or any underestimation of the expenditures
amount. The organisations have to be conservative in recording the amounts of assets and there
should be no underestimation of liabilities also (Bragg, 2019a). Prudence is the way of just
recording revenue transaction or assets when there is a security and recording of expenditure on
liability when there is a possibility.
d) Depreciation
The depreciation as a purpose of reducing the income of the accounting period as it decreases the
book value of the asset and follows the matching principle. The idea of depreciation is to show
the impact of the value of Business and entity as the accumulated depreciation for every asset
will show decrease in the book value on balance sheet. Usually the cost is located as depreciation
expenditure amongst the phases in which the asset is anticipated to be utilised. There are two
common ways of calculating depreciation. These are straight line method and diminishing value
method and units of production method (Stunguriene & Christauskas, 2014). The straight line
method is utilised when the organisation has equal amount of assets cost being charged for every
accounting period. It is also used for the organisation of the historical cost for mass Salvage
value and the useful life of the Asset. The other methods of units of production depreciation
method there in an equal amount of Expenditure is allotted to every you have produced or
services given by the asset. This kind of method is usually used for the assets which are utilise
into production line.
e) Financial statement by sole trader vs. Limited company
 The sole proprietorship has only solitary item in the financial statement under the head of
owners equity and this is the owners equity account have a virgin case of limited company,
the shareholders fund = share capital + retained earning + other Revenue and capital reserves.
 In the sole proprietorship that tax is given on the earnings of the sole proprietor but in the
limited company, the tax is import tax because it is a different legal entity.
 in sole proprietorship the financial report are not put through any accounting standards are
generally acceptable accounting principles and the owner has the choice of deciding if
financial statements are to be prepared or not. In case the preparation has to be there than the
type of financial statements to be utilised are also decided by the sole proprietor. The limited
companies have to abide by correct accounting Concepts, statutes, regulations, principles and
regulatory structure (Starting a sole proprietorship in Ohio, 2016).
 the financial statements and reports are not subjected to any audits in sole proprietorship
however in case of limited companies the financial reports have to be audited therefore there
has to be falling of the strict accounting principles, rules and regulatory frameworks.