Financial Accounting Principles: A Detailed Client Portfolio Review

This report provides a detailed analysis of financial accounting principles, including definitions, regulations, and accounting rules such as the double-entry system and various accounting principles and conventions like consistency, materiality, and disclosure. It features a portfolio of six clients, showcasing practical applications of these principles through journal entries, ledger accounts, profit and loss statements, and balance sheets. The report also covers specific accounting concepts like prudence, consistency, and depreciation methods, along with bank reconciliation statements, control accounts, and the use of suspense accounts for managing temporary or doubtful transactions. This comprehensive overview aims to provide a clear understanding of financial accounting practices and their real-world implementation.

Financial Accounting Principles
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Contents
Written Report....................................................................................................................3
Definition of Financial Accounting..................................................................................3
Regulations relating to financial accounting..................................................................3
Accounting rules and principles.....................................................................................3
Conventions and concepts relating to consistency and material disclosure.................4
Materiality...................................................................................................................4
Disclosure...................................................................................................................4
Consistency................................................................................................................4
Portfolio of Clients..............................................................................................................6
Client 1...........................................................................................................................6
Client 2.........................................................................................................................16
Client 3.........................................................................................................................18
Client 4.........................................................................................................................21
Client 5.........................................................................................................................23
Client 6.........................................................................................................................25
References.......................................................................................................................27
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Written Report
Definition of Financial Accounting
Financial accounting is defined as the procedural framework which is used to record, summarise
and present the financial data in accordance with the standardized guidelines ion the form of
financial report to the stakeholders of the business or entity (Shah, 2013). It is the form of
accounting which deals with the monitoring and tracking of financial transactions of a business.
The purpose of financial accounting is to present the financial data in a uniform and organised
manner to the stakeholders of the company so that the stakeholders can access the required
information and make financial decisions with regards to their association with the company and
its business. . This financial data is included in the financial report in the form of financial
statements which include statement of financial position which describes the financial position of
the company at the reporting date, profit and loss statement which presents the financial
performance of the business during the period for which the statement is prepared and cash flow
statements which presents the details of cash inflow and cash outflow of the business. The
concept of double entry system of accounting is used in the financial accounting process which
determines the method and flow of recording the business transactions for preparation of books
of accounts and financial statements. In this way the financial accounting system provides the
guidance in proper and appropriate financial recording and financial reporting for the decision
making of internal as well as external users of an entity or a business.
Regulations relating to financial accounting
The general rules and regulations in relation to financial accounting include accounting
standards, generally accepted accounting principles (GAAP), International Financial Reporting
Standards (IFRS) etc. In UK, Financial Reporting Council (FRC) is the regulating authority for
governing the financial reporting by the entities. Other financial reporting regulatory bodies
include The Codes and Standards Committee, Accounting Council and Financial Reporting
Review Panel. The accounting standards were developed by the Accounting Standards Board
(ASB) which reports to the Codes and Standards Committee... These accounting standards apply
to the accounting process and preparation of financial statements. All the companies registered in
UK are required to follow the provisions of accounting standards and Companies Act and
guidelines and announcements from the above mentioned regulatory bodies
Accounting rules and principles
The accounting rules include the double entry system of accounting and book-keeping.
According to this rule, the business transactions are required to be posted with dual effect. The
debit side of the transaction shall be posted along with the recording of the credit side of the
transaction. This helps in the easy recording and interpretation of the financial data (Maheshwari,
2015). Thus, every business transaction shall affect two accounts at the same time. There are
various principles of accounting which are explained as follows:
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 Economic entity Assumption – It states that the business entity is separate from the owner
in economic terms.
 Monetary unit assumption – It states that the business transactions will be required to be
measured in monetary terms and denominations in currency value4.
 Time period assumption – It states that the financial accounting relates to a specific time
period or interval for which the transactions are recorded and financial reports are prepared.
 Cost principle – It states that the amounts are to be recorded in the financial statement at
their historical cost and therefore the assets are not adjusted for upward inflation.
 Matching Principle – This principle relates to the accrual system of accounting in which the
incomes and expenses are recorded for the period as and when they are earned or expended
irrespective of receipt and payment.
 Conservatism – this principle states that all the losses are to be disclosed but the disclosure
of incomes and gains shall be on the basis of their accrual or receipt
Conventions and concepts relating to consistency and material disclosure
The Accounting conventions or concepts are the guidelines which assists the accountants in
preparing and finalising the accounts of a business. There are four types of accounting
conventions which include disclosure, materiality, consistency and conservatism. The
conventions of materiality, disclosure and consistency are explained as follows:
Materiality
This concept relates to assigning the weightage or importance to the items of financial statements
or business and accounting events. According to this convention, the items and transactions
which have a significant impact on the financial positions and financial performance of the
business shall be taken into consideration and others shall be ignored. The recording of only
material transactions reduces the burden on the accounting process. However the judgement as to
the materiality of a transaction or an event depends upon the accounting estimates and policies
and there is no specific rule for deciding the materiality of the transaction (Ofori-Atta, et.al,
2017).
Disclosure
According to the concept of disclosure, all the material and relevant information about the
business or the entity shall be disclosed in the financial statements of the business. The
information which is material in the best interest of the stakeholders of the business is only
required to be disclosed in the financial report of the business. The disclosure is required for
effective interpretation of financial data by the users and preventing the users from misleading.
Consistency
Under this concept it is assumed that the business is carried on for long term and is a going
concern. Therefore the accounting is done for long term and the policies and practices which are
followed remain to continue throughout the accounting period and are carried forward to the next
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period also. The accounting policies remain same in all periods and the change in accounting
policies and estimates and the impact of such change on the financial statements are required to
be disclosed under the notes to financial statements.
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Portfolio of Clients
Client 1
i) Books of primary entry
Alexandra Study
Journal for the month of January 2018
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Owner’s capital calculation
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ii) Double entry accounts
Ledger Accounts for the month of January 2018
Purchases A/c
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Sales A/c
Cash A/c
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Bank A/c
Motor Expenses A/c
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Storage Expenses A/c
Receivables A/c
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Van A/c
Payables A/c
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