Financial Accounting: Principles, Regulations, and Client Cases

This assignment delves into the core principles of financial accounting, exploring its purpose, regulations (GAAP, IFRS, IASB), and fundamental concepts. It defines financial accounting as the process of recording, summarizing, and reporting financial transactions to external users, such as investors and creditors. The assignment details accounting rules and principles, including the economic entity, monetary unit, and going concern assumptions, emphasizing the importance of consistency and material disclosure. The document then applies these principles to analyze journal entries, ledgers, and financial statements for six different clients, including calculations and explanations related to purchases, sales, and various financial transactions. It covers topics like depreciation, bank reconciliation, control accounts, and suspense accounts, providing a comprehensive overview of financial accounting applications. The assignment also highlights the importance of full disclosure and consistent accounting practices for accurate financial reporting.

FINANCIAL ACCOUNTING PRINCIPLES

Table of Contents
INTRODUCTION...........................................................................................................................3
Main Body.......................................................................................................................................3
A. Defining financial Accounting and its purpose......................................................................3
B. Explaining the regulation relating to the financial accounting...............................................4
C. Describing accounting rules and principles............................................................................4
D. Explaining the conventions and concepts relating to consistency and material disclosure.. .5
CLIENT 1........................................................................................................................................6
CLIENT 2........................................................................................................................................8
CLIENT 3......................................................................................................................................10
C) Explaining concepts of consistency and prudence...............................................................13
D) Purpose of depreciation and methods of calculating depreciation.......................................13
CLIENT 4......................................................................................................................................14
Purpose of preparing bank reconciliation statement.................................................................14
Explaining areas which cause record vary with bank records..................................................14
Preparing accounts through cash flow statement......................................................................14
CLIENT 5......................................................................................................................................15
A). Preparing control accounts..................................................................................................15
B) Explaining need of preparation of control account..............................................................16
CLIENT 6......................................................................................................................................16
A) Meaning of suspense account and highlighting features.....................................................16

B. Drafting a trail balance.........................................................................................................17
C Trial balance suspense account.............................................................................................17
D) Differentiate between suspense and clearing account.........................................................18
CONCLUSION..............................................................................................................................18
REFERENCES..............................................................................................................................19

INTRODUCTION
Financial accounting is an important field for ant organisation. It helps in in recording and summarising the financial
transaction of a company that helps in preparing the financial statements and financial reporting of the company for the external users .
This statements are very helpful for the external users in order to make their decisions regarding the investment in the company. The
present report will help in understanding the financial accounting and the purpose of preparing it. The report will also discuss the
various regulations and standard related to the financial accounting. Further the report will include the accounting rules and principles.
The report will include the consistency and full disclosure principle of accounting. Furthermore, the report will include calculations of
the financial statement for the different clients.
Main Body
A. Defining financial Accounting and its purpose.
It is the process of tracking all the financial transaction of a company. With the help of a specialised guidelines, financial
accounting helps the transaction to be properly recorded, summarised and presented is well manner form of a report which are known
as financial statements or reports. Financial accounting focus on providing the information of the financial performance and the
business activities of the company to the external users of the company like shareholders, investors and other people outside the
business organisation (Edwards, 2013). Financial information of the company are summarised in the form of the financial statements,
which are balance sheet, income statements, profit and loss statements etc.
Financial statesman are being prepared on the routine schedules that is quarterly, half-yearly or annually. These statements are
important to external users of the business organisation that helps them to make decisions regarding investing in the company or not.
The financial reporting is also very helpful for the management also in order to make decisions and strategies for further growth and
development of the company.
The main purpose of the financial accounting are as follows:

 The main purpose of the financial accounting is to create information of the financial performance of the company in a form of
financial statements.
 The financial statement should be in a form that can be understand by the external users which helps them in making the
decisions regarding the investment purpose in company.
B. Explaining the regulation relating to the financial accounting.
Financial accounting is the preparation of financial statements by analysing, summarising and reporting all the financial data.
It helps the external users to understand the financial performance of the company.
Financial accounting is governed by by local as well as the international accounting standard for financial reporting. Following
are the regulations related to the financial accounting
GAAP: Generally Accepted Accounting Principles are the commonly followed accounting rules and standards for financial reporting
(Horngren and et.al., 2012). This regulation helps in ensuring that the financial reporting is transparent and consist of relevant
information of financial performance.
IFRS: International Financial Reporting Standard is a set of the standard that provide a frameworks to the companies the way to
prepare and disclose their financial statements. IFRS helps in providing the general guidance for the preparation of the financial
statements . It is important for the companies to adopt a global level standard that will help them to simply the procedures by allowing
a company to use one type of accounting all over thee world.
IASB: International Accounting Standard Board is the organisation that established the IFRS all over the world. This organisation is
consist of the 14 members from all over the world that helps in setting the accounting standard, preparing the accounting reports and
accounting educations.

C. Describing accounting rules and principles.
Accounting is the process of summarizing, organising and recording in a terms of money, transactions which helps in
understanding the business activities of the organisation (May, 2013). Accounting not just record the financial transactions of the
company but also helps in analysing and converting them in the manner that can be understandable to both company and to the
external users. It can be presented in the form of the financial information.
There are general rules and concepts which govern the field of accounting. The rules of accounting refereed to as basic
accounting principles and guidelines. The Financial Accounting Standard Board(FASB) are using the basic accounting standard and
guidelines as basis of the set of accounting rules and guidelines.
The basic rules of accounting as per the FASB , that if a company is distributed its financial statements to the public, it
required to follow the guidelines by GAAP (Henderson and et.al., 2015). It is an important regulation as it helps in regulate
accounting definitions, assumptions and ,method of accounting. Following are some accounting principles which are widely used in
accounting:
 Economy Entity assumptions
 Monetary unit Assumptions
 Time period assumptions
 Cost principles
 Full disclosure principles
 Going concern principles
 Matching principles (What are Accounting Principles | List of Top Accounting Principles , 2019).
 Revenue recognition

 Materiality
 Conservatism
D. Explaining the conventions and concepts relating to consistency and material disclosure.
Consistency:
It is the concept of the accounting principles which states that the company should follow the same accounting method for
over and over again. Consistency concept assumes that an accounting procedure or method once adopted should be applied
consistently in future also (Macve, 2015). If a company is using a method this year and changes subsequently to another method the
very next year it will be difficult for the users to compare the financial statements of different year.
The principles also implies that a business can change its method of accounting treatment but only when there are sound and
valid reasonable grounds. The company has to make sure that the reason for changing the method and the detail of treatment of the
new method should be be disclose in its annual financial reports and statements. This concept is important because of the need of
comparability of the financial statements by the external users.
Material Disclosure:
According to this conventions of the accounting principles, the company while preparing the income statement should disclose
each relevant information in the footnote of the statements. The information can be related to the function of its financial statements or
the business activity. This principles helps to ensure the stockholders and investors are not misguided with any aspects of the financial
report (Barth, 2015). The management of the company has to report all the information about the company's operations to creditors
and investors in their accounting reports.
The relevant information can be anything that could change the decisions of the outside users of the accounting reports
external user can analyse such information and interpret these financial statements to make informed and detailed decisions. Thus full

disclosure principle of accounting emphasizes that any piece of data that can change the decisions of the external users should be
included in the report.
CLIENT 1
Journal entries in the book of David Study’s for the month of January are as follows:
Date Particulars Debit Credit
1st Jan
2018
Storage expenses a/c Dr.
To bank a/c
800
800
2nd Jan
2018
Purchase a/c Dr.
To S. Hamid a/c
To D. Main a/c
To W. Tag a/c
To R. Foot a/c
7680
2450
2560
1060
1610
3 Jan
2018
J Wilson a/c Dr.
T. Cole a/c Dr.
F. Seema a/c Dr.
J. Allen a/c Dr.
P. White a/c Dr.
F. Lane a/c Dr.
To sales a/c
2020
1840
2380
990
2820
1170
11220
4 Jan
2018
Motor car expenses a/c Dr.
To cash a/c
670
670
7 Jan
2018
Drawing a/c Dr.
To cash a/c
2000
2000
9 Jan
2018
T. Cole a/c Dr.
J. Fox a/c Dr.
To sales a/c
1280
2310
3590
11 Jan
2018
Sales return a/c Dr.
To J. Wilson
To F. Seema a/c
680
370
310
16 Jan (a). Bank a/c Dr. 1520

2018 Discount allowed a/c Dr.
To P Mole
(b)
Bank a/c Dr.
Discount allowed a/c Dr.
To F. Lane
(c)
Bank a/c Dr.
Discount allowed a/c Dr.
To J. Wikson
(d)
Bank a/c Dr.
Discount allowed a/c Dr.
To F. Seema
80
3040
160
836
44
1397
74
1600
3200
880
1470
19 Jan
2018
R. Foot a/c Dr.
To purchase return a/c
110
110
22 Jan
2018
Purchase a/c Dr.
To L. Mole a/c
To W. Wright a/c
3140
1330
1810
24 Jan
2018
a.
S. Hamid a/c Dr.
To Bank a/c
To Discount receive a/c
b.
J. Brown a/c Dr.
To Bank a/c
To Discount receive a/c
c.
R. Foot a/c Dr.
To Bank a/c
To Discount receive a/c
2600
3300
1600
2340
260
2970
330
1440
160
27 Jan
2018
Salaries a/c Dr.
To bank a/c
14500
14500

30 Jan
2018
Business rates a/c Dr
To bank a/c
2220
2220
Ledgers
PURCHASES DAY BOOK PURCHASES RETURNS DAY BOOK
DATE
2017 DETAILS £ DATE
2017 DETAILS £
May-02 s hlmd 10150
CR EACH
INDIVIDUAL
A/C
May
d main 2560 May-19 r foot 110
DR EACH
INDIVIDUAL
A/C
w tag 1060 CR PURCHASES RETURNS A/C 110
r foot 1610
May-22 L mole 1330
W wright 1810
DR PURCHASES A/C 18410
sales DAY BOOK Sales RETURNS DAY BOOK
DATE 2017 DETAILS £ DATE
2017 DETAILS £
May-03 j wilson 2020
DR EACH
INDIVIDUAL
A/C
May
t cole 1840 May-11 j wilson 370
CR EACH
INDIVIDUAL
A/C
f syme 2380 f syme 310
j allen 990 DR SALES RETURNS A/C 680
p white 2820
f lane 1170

May-09 T cole 1280
j fox 2310
CR SALES A/C 14810
Cash Book
DATE
2017 receipts discount
allowed cash bank DATE
2017 Payments discount
Received cash bank
MAY £ £ £ MAY £ £ £
May-01 BALANCE B/d 10600 42400 May-01 storage costs 800
May-16 P mole 80 1600 May-04 motor expenses 670
F lane 160 3200 May-07 drawings 2000
J wilson 44 880 May-24 s hamid 260 2600
F seema 73.5 1470 j brown 330 3300
r foot 160 1600
May-27 Salaries 14500
May-30 Business rates 2220
0 May-31 BALANCE C/f 2930 24530
357.5 5600 49550 750 5600 49550
Jun-01 BALANCE B/d 392.5 3630 24530
S Hamid ACCOUNT
DATE 2017 DETAILS £ DATE 2017 DETAILS £
May-24 cash book 11585 May-01 BALANCE B/d 10150
May-24 discount RECEIVED 1015 May-02 Purchases day book 2450

12600 12600
closed
J BROWN ACCOUNT
DATE 2017 DETAILS £ DATE 2017 DETAILS £
May-24 cash book 8640 May-01 BALANCE B/d 9600
May-24 discount RECEIVED 960
9600 9600
closed
D MAIN ACCOUNT
DATE 2017 DETAILS £ DATE 2017 DETAILS £
May-31 balance c/f 2560 May-02 Purchases day book 2560
2560 2560
Jun-01 balance b/d 2560
W Tag ACCOUNT
DATE 2017 DETAILS £ DATE 2017 DETAILS £
May-31 balance c/f 1060 May-02 Purchases day book 1060
1060 1060
Jun-01 balance b/d 1060
R FOOT ACCOUNT
DATE 2017 DETAILS £ DATE 2017 DETAILS £
May-19 Purchases returns 110 May-02 Purchases day book 1610