Financial Accounting Homework: Scenarios, Principles, and Reports

This document presents a comprehensive solution to a financial accounting homework assignment. It begins with an overview of business transactions, single and double-entry bookkeeping, and the importance of a trial balance. The solution includes detailed journal entries, ledger accounts, and a trial balance for a given scenario. Furthermore, it differentiates between financial reports and statements, highlighting their respective users and importance. The assignment delves into key accounting principles such as accrual, conservatism, consistency, cost, economic entity, full disclosure, going concern, matching, and materiality. The solution also includes an analysis of financial statements and reports, providing insights into their preparation and usage. Finally, it covers the principles of accounting and their practical applications in financial reporting.

FINANCIAL ACCOUNTING

Table of Contents
SCENARIO 1...................................................................................................................................2
Question 1....................................................................................................................................2
Question 2....................................................................................................................................3
Question 3....................................................................................................................................7
Question 4....................................................................................................................................9
Question 5..................................................................................................................................11
Question 7..................................................................................................................................12
SCENARIO 2.................................................................................................................................13
Question 2..................................................................................................................................13
Question 3..................................................................................................................................14
REFERENCES................................................................................................................................1

SCENARIO 1
Question 1
Business transactions:
It refers to the transactions that occur between the company and the third party and which
is recorded under organization's accounting system. These transactions are measurable in
monetary terms.
Types:
There are numerous types of accounting transactions. These are:
 Purchasing goods and materials in which goods and materials are purchased by company
with respect to its business.
 Sales transactions are common form under which transactions related with sales are
recorded.
 Payment of wages and salaries.
 Purchase of non current assets.
 Accounting transactions related with payment of taxes.
 Movement of cash and related transactions.
 Raising of finance related transactions.
Single and double entry book keeping:
Single entry book keeping:
It is a cash oriented accounting. Under this form of book keeping single transaction for
the business transaction are recorded. Under this mode the income and expenses related with the
business are recorded in cash register. Here single entry for all the transactions are passed.
Double entry book keeping:
This concept is based on a principle that every transaction has equal and opposite effect
in at-least two different types of accounts. This is the current mode of recording transaction
(Beretta and Cencini, 2020). As per this system of book keeping the recording of transactions
starts with passing of journal entry which is followed by ledgers preparation. This will further be
carried out with the preparation of trial balance and financial statements.
Three important rules with respect to double entry bookkeeping:
Debit what comes in and credit what goes out.
Debit the receiver and credit the giver.

Debit all expenses and credit all income.
Trail balance:
It is a book keeping worksheet under which balance of all the ledger accounts are
compiled into debit and credit account column that will be equal (Gurskaya, Kuter and
Bagdasaryan, 2019). In simple words it is a statement under which the ledger balance are shown
and its matching of debit and credit shows that the mathematical calculation regarding the
recording of financial data are accurate and correct.
Importance:
Being a starting point of the preparation of financial statements, it acts as a statement that
will lead to have an identification of errors at the starting (Gheorghe, 2017). It will also lead to
the preparation of final accounts which shows that the transactions that are recorded in books of
accounts are identical with regard to their debit and credit balances. Thus, in short it will ensure
arithmetical accuracy, assisting final account preparation, rectification of errors, assisting
adjustments along with comparative analysis are some advantage with trail balance preparation.
Question 2
Journal entries:
Date Particular Debit Credit
01/06/16 Bank a/c Dr
To Owner's equity
£65000 £65,000
02/06/16 Goods a/c Dr
To Creditors a/c
£8000 £8000
07/06/16 Cash a/c Dr
To Sales
£4000 £4000
08/06/16 Creditors a/c Dr
To Bank a/c
£4000 £4000
14/06/16 Insurance policy a/c
Dr
£75 £75

To Bank a/c
15/06/16 Creditors a/c
To Sales a/c
£12000 £12000
16/06/16 Goods a/c Dr
To Creditors a/c
£10000 £10000
18/06/16 Computer equipment
a/c Dr
To Cash a/c
£3000 £3000
20/06/16 Rent a/c Dr
To Bank a/c
£150 £150
21/06/16 Cash a/c Dr
To Sales a/c
£10000 £10000
25/06/16 Petty Cash tin a/c Dr
To Bank a/c
£100 £100
30/06/16 Stationary a/c Dr
To Petty Cash tin a/c
£30 £30
Ledger accounts:
Bank account
Date Particular Amount Date Particular Amount
01/06/16 Owner equity £65000 08/06/16 Creditors a/c £4000
21/06/16 Sales £10000 14/06/16 Insurance
policy a/c
£75
20/06/16 Rent a/c £150
25/06/16 Petty Cash tin
a/c
£100

30/06/16 To bal c/d £70675
£75000 Total £75000
Cash account
Date Particular Amount Date Particular Amount
07/06/16 Sales £4000 02/06/16 Computer
equipment a/c
£3000
30/06/16 To bal b/d £1000
£4000 Total £4000
Goods account
Date Particular Amount Date Particular Amount
02/06/16 Creditors £8000 30/06/16 To bal c/d £18000
16/06/16 Creditors £10000
£18000 Total £18000
Creditors account
Date Particular Amount Date Particular Amount
08/06/16 Bank a/c £4000 02/06/16 Goods a/c £8000
15/06/16 Sales a/c £12000 16/06/16 Goods a/c £10000
30/06/16 To bal c/d £2000
£18000 Total £18000
Capital account

Date Particular Amount Date Particular Amount
30/06/16 To bal c/d £65000 01/06/16 Bank a/c £65000
£65000 Total £65000
Insurance policy account
Date Particular Amount Date Particular Amount
07/01/21 Bank £75 31/01/21 By bal c/d £75
Total £75 £75
Computer equipment account
Date Particular Amount Date Particular Amount
18/06/16 Cash £3000 30/6/2016 To bal c/d £3000
£3000 Total £3000
Rent account
Date Particular Amount Date Particular Amount
20/06/16 Bank £150 30/6/2016 To bal c/d £150
£150 Total £150
Petty cash tin account
Date Particular Amount Date Particular Amount
25/06/16 Bank £100 30/6/2016 Stationary
a/c £30
30/06/16 To bal c/d 70

£100 Total £100
Stationary account
Date Particular Amount Date Particular Amount
30/06/16 Petty cash tin £30 30/6/2016 To bal c/d £30
£30 Total £30
Sales account
Date Particular Amount Date Particular Amount
30/06/16 To bal c/d £26000 07/06/16 Cash a/c £4000
15/06/16 Creditors a/c £12000
21/06/16 Cash a/c £10000
£26000 Total £26000
Trail balance:
Trail Balance
Particular Amount (Dr) Amount (Cr)
Cash £1000
Bank £70675
Goods £18000
Creditors £2000
Capital £65000
Sales £26000
Rent £150
Insurance policy £75
Computer equipment £3000

Petty cash tin account £70
Stationary account £30
Total £93000 £93000
Question 3
Difference between financial report and statements:
Financial report is a wider term under which all the financial statements are covered. In
simple terms, financial report is an umbrella concept under which all financial statements are
covered. In simple terms all financial statements can be financial report but all reports are not
statements.
Financial report gather all financial statements including income statements, balance
sheet, cash flow statements and various other and ultimately financial information will be made
distributed among public.
Financial statements depicts the information about the financial position of the company
to external and concerned personnel. However, in case of financial reports details related with all
financial information is gathered and presented in the form of report which will be made
available for decision-making (Lokanan, Tran and Vuong, 2019). In short, financial statements
are the products of financial report.
Financial statements can be prepared at a specific period of time like at the end of
accounting period but in case of financial reports it can be displayed and presented on quarterly,
half-yearly and yearly too.
Similarly, in case of financial statements only monetary transaction and details will be
recorded. However, in case of financial report, every possible details related with the concerned
company and the business including both monetary and non-monetary details and information
are recorded.
Also, an important and major difference between financial statement and the reporting is
the purpose. This means that the statements can be used for analysing financial position at a
specific period, while in case of financial reporting it is being used for decision-making. This
means that with the analysis of the financial reports best decision with respect to company's

betterment can be taken. These decision may either be related with the investment or of
financing.
Examples of financial statements may include Balance sheet, Income statements, cash
flow statements.
Example of financial reports includes external statements, financial notes, quarterly and
annual records, government reports.
Users:
 Owners, Managers and Employees are the internal users.
 Suppliers, Banks, Investors, Customers are the all counted as external users.
Importance of financial reports:
The major importance of financial report is to have an analysis of the actual money a
business have, from which sources the money come and where it will go and invested. These
reports enable the business to have an idea of overall business and its financial capabilities
(Omoolorun and Abilogun, 2017). Likewise, it is most advantageous to management because it
enables them to take decision based on the company's financial health. Also, as financial reports
may include the financial statements too so it will be used to have an analysis of the company's
financial position. It will entitle the snapshot of company's financial health in terms of delivering
information of cash flows, operations and its performance. Likewise, financial reports are useful
for company's internal as well as external stakeholders. This means that with the use of the
financial reports internal stakeholders like concerned managers will take the decision with
respect to company and its business. Similarly, its study also assist the investors to take
investment decisions. Likewise, it is also to be noted that as the financial reports include the
financial statements so it will again raise importance in terms of enabling financial performance
and position.
Question 4
Principles of accounting:
Accounting principles are the rules that the organization follows while reporting financial
information. These are the guidelines which are need to be kept and considered while recording
transactions.
Accounting principles:

Accrual principle:
As per this principle accounting transactions will be recorded when they actually occur
rather than on the time when the payment and due will be received (Aqeel, Aws and Nawfal,
2020). This is the fundamental principle which assist that the financial statement shows the
details of all the transactions in an accounting period. This principle also assist the preparation of
financial statement in the respected accounting period. This means instead of delayed time and
lengthy process this principle suggest the recording of transaction within the respected
accounting period.
Conservatism principle:
This principle suggest that the expenses and liabilities are need to be recorded when they
have occurred. However, revenue and assets will be recorded only when there is surety related
with its occurrence. In short this principle focus on recording losses and expenses on early basis
rather than income. The concept related with this principle is that there may be delay in the
occurrence of revenue and profits, however expenses and liabilities occurred at the actual time.
Thus, recording of expenses at the actual time will predict a true image of company's financial
position.
Consistency principle:
As per this principle once a method of accounting and recording will be adopted then it
will needed to be carried out consistently (Shaw, 2021). This continuity will be carried out until
new and better principle will come across. This means that there will be no shuffling and shifting
of methods again and again.
Cost principle:
As per this principle the assets, liabilities and equity investments need to be recorded on
its original purchased cost. However, this principle is less valid because the host of accounting
standards shows that the assets and liabilities need to be recorded at face value.
Economic entity principle:
As per this principle the transactions of business and the owners will be recorded
separately. This principle prevent intermingling of business and its owner's transactions. This
will also safeguard the facing of difficulties when the accounts of the business will be audited.
Full disclosure principle:

According to this principle, every relevant information related with the financial
statements need to be disclosed fully (Comandaru and et.al., 2020). This means that the
information that is required for understanding financial statements need to be disclosed fully.
This principle is based on the fact that the reader of the financial statements can understood them
fully and adequately.
Going concern principle:
This principle shows that the business will run continuously (Kumar, 2020). This means
that the business will continue for unforeseeable future. Various changes in terms of coming and
going of stakeholders and owners will occur but the business will be continue for long period.
Matching principle:
As per this principle recording of revenue will be match with the same recording of
expenses. This means that the revenue will be justified with relevant expenses (Basic accounting
principles, 2021). This is based on accrual concept in which transactions will be recorded on
actual occurrence. Cash basis is not applicable as per this principle.
Materiality principle:
All the material information must be recorded. This means that the material and
important information will need to be recorded (Bardford, 2020). This principle also states that
all transactions must be recorded in accounting records so that the most relevant decision will be
taken by the reader with respect to concerned business.
Monetary unit principle:
As per this principle only those transactions will be recorded which has monetary value
and can be determined in monetary terms. Thus, as per this principle it would be easy to record
the purchase of fixed asset rather then recording the value that it deliver towards the company.
Reliability principle:
Only those informations that can be proven and reliable are the part of recording. This
means that reliable and relevant information will need to be recorded (Guliyev and
Hajiyev,2020). This is the basis of auditing. The best example of this principle is the recording of
expenses based on invoice related with the sale or purchase of products and goods to or from
supplier .
Revenue recognition principle: