Financial Accounting Report: Analysis and Practical Applications

This report delves into the realm of financial accounting, elucidating its significance in business operations and management. It initiates with an introduction to financial accounting, its purpose, and its benefits for both governmental and private organizations in maintaining financial discipline. The report then navigates through the regulations governing financial accounting, emphasizing the role of IASB and IFRS. A detailed exploration of accounting rules and principles follows, encompassing debit/credit principles, economic entity assumptions, and principles like cost, full disclosure, going concern, matching, revenue recognition, accrual, consistency, time period, reliability, and monetary unit. Furthermore, the report examines conventions and concepts related to consistency and material disclosure. The practical application of accounting principles is demonstrated through journal entries and ledger postings for a specific client, illustrating real-world financial accounting practices. The report includes a comprehensive financial accounting analysis of client accounts, providing practical examples of journal entries, ledger postings, and financial statement preparation, which can be used for decision-making.

FINANCIAL ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
BUSINESS REPORT......................................................................................................................1
1. Financial accounting and its purpose......................................................................................1
2. Regulations related to financial accounting............................................................................1
3. Accounting rules and principles..............................................................................................2
4. Conventions and concepts relating to consistency and material disclosure............................3
CLIENT 1........................................................................................................................................3
CLIENT 2......................................................................................................................................12
CLIENT 3......................................................................................................................................15
CLIENT 4......................................................................................................................................17
CLIENT 5......................................................................................................................................18
CLIENT 6......................................................................................................................................19
CONCLUSION..............................................................................................................................20
REFERENCES .............................................................................................................................22

INTRODUCTION
Financial accounting is a part of financial management that assist managers and accounts
in terms of deal with financial challenges and issues. Financial accounting is beneficial for both
the government and private organisations to maintain financial discipline and control for
effective management and control (Agasisti and Catalano, 2013). Book-keeping and accounting
system for individuals and shareholders are defined in this report. Financial accounting and its
purpose is also defined with practical evaluation. Regulations and policies associated with
financial accounting are considered in this report. Accounting principles and rules that are
governed the presentation and prepare financial statements are included in this report.
Conventions and concepts related to consistency and material disclosure are covered in this
report. Preparation of financial accounts for sole traders are considered here.
BUSINESS REPORT
1. Financial accounting and its purpose
Financial accounting is an essential element for successful operation and management of
business. To manage and controlling of money related outcomes everywhere, a scale is used for
minimal intense assignment. It ought not to be easy to assess outcomes, regardless of whether
exchanges are posted precisely in their worry organize.
Financial analysis and accounting helps in organising the financial information and details
that are subjected to financial plans and decision making process. It is also crucial for
ascertaining the faith and trust of stakeholders of any organisation. There are types of financial
statements that are prepared to present the financial position and performance of business to
stakeholders as cash flow statement, Income statement, financial position statement and change
in accounting principles.
2. Regulations related to financial accounting
In each business association, an accountant is used to take after essential guidelines and
direction that are made by the worried organizations of board to record every last exchange in an
amended way. It provides a base to stay far from any sort of mix-ups that are useful for the most
part and it might also happen while recording in an agreement to look with such sort of issues,
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the majority of an organization is following basic principles and models. Besides, thought is
simply to wind up more significant to consider each choice at real predominance.
IASB: It is known as a universal body that is made up to control and administration for
recording of important records (Alver, Alver and Talpas, 2013). These are shaped so as to
manage basic guidelines in regard to get exact outcomes in upcoming duration. It gives
fundamental models to record the entire information in a legitimate way.
IFRS: It is essentially named as "Universal money related revealing standard" that is
viable arrangement of bookkeeping standard and that is made by an autonomous body called as
IASB (International bookkeeping standard board). It is related with quality administration of
accounting so every exchange is being recorded in an appropriate way.
3. Accounting rules and principles
There are various types of rules and principles that an organisation has to follow while preparing
financial statements.
Those are explained below briefly:
 Debit what comes in credit what goes out: This principle applied in the case of real
account. It is related to tangible things like assets and goods.
 Debit all expenses and losses credit all incomes and gains: This rule is related to
nominal account. When an expense happens, capital decreases with debit balance and
when an income is received it increases capital with credit balance.
 Debit the receiver credit the giver: This rule is implemented when the nature of account
is personal that is related to a person.
 Economic entity assumption: This principle is based on a concept when business and
owner have separate entities.
 Cost principle: This principle bound company to record all the assets, liabilities and
investments at cost in financial statements (Barth, 2015).
 Full discloser principle: This principle works on the concept of full and accurate
discloser of the information that all the information which is provided to the investor is
accurate.
 Going concern principle: This principle takes over that a company will move to exist
long adequate to carry out its objectives and allegiances and will not pay off in the
predictable future.
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 Matching principle: This principle is focused on a point as if a company is recording the
revenues then the company should record the expenses at the same time.
 Revenue recognition principle: This principle describes that record the revenue when
the business has considerably completed the earnings process.
 Accrual principle: A company should only record any expenses when it actually occurs.
 Consistency principle: It is based on the continuously use the same principle for a long
time in the business.
 Time period principle: The concept is based on the reporting all the results of business
operations over a standard time period.
 Reliability principle: The transaction and information recorded in the final accounts
should be reliable.
 Monetary unit principle: Company should always record such assets and liabilities that
have monetary value.
4. Conventions and concepts relating to consistency and material disclosure
Consistency Concepts: According to this specific concept, a finances related director
can accept that different business is having more steady in nature concerning different
benchmarks and standards. In understanding to various sort of guidelines, the bookkeeper
required to post exchanges ceaselessly into their organization with the goal that odds of getting
results can be more.
Material revelation: Accounting to this specific tradition which is utilized by the
administrator to record all exchange by utilizing lawful principles and direction as indicated by
the demand of the organization (Fourie and et. al., 2015).
Accrual concepts: This is considered as principal ideas that would give particular data to
the bookkeeper to continue recording of all use and procuring at the time it happens.
CLIENT 1
a) Book of Prime Entry
Journal entries in the books of Amstel D for July 2018
Date Particular Dr Cr
01/07/18 storage cost 800
to bank 800
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02/07/18 purchase a/c 7310
to accounts payable 7310
03/07/18 accounts receivable 10740
to sales 10740
04/07/18 expenses 1170
to cash 1170
07/07/18 Drawing a/c 2500
to cash 2500
09/07/18 accounts receivable 3390
to sales 3390
11/07/18 sales a/c 1780
to J Wilson 870
to F syme 910
14/07/18 van a/c 28500
To Abel motor ltd 28500
16/07/18 bank a/c 1330
sales discount 70
to P games a/c(5% discount) 1400
16/07/18 bank a/c 2945
sales discount 155
to F steel(5% discount) 3100
16/07/18 bank a/c 807
sales discount 43
to J Wilson (5% discount) 850
16/07/18 bank a/c 1586
sales discount 84
to F syme (5% discount) 1670
19/07/18 R foot 500
to purchase 500
20/07/18 purchase a/c 3740
to accounts payable 3740
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24/07/18 S Lyle a/c 3600
to purchase discount(10% discount rec) 360
to bank 3240
24/07/18 J brown 4600
to purchase discount(10% discount rec) 460
to bank 4140
24/07/18 R foot 1400
to purchase discount(10% discount rec) 140
to bank 1260
27/07/18 salary a/c 4800
to bank 4800
30/07/18 business rate a/c 1320
to bank 1320
31/07/18 Abel motor a/c 20500
to bank 20500
b) Ledger Posting
Storage cost
Date Particular Amount Date Particular Amount
01-05-16 To bank 800 01-05-17 By balance c/d 800
800 800
Sales a/c
Date Particular Amount Date Particular Amount
03-05-16 By J. Wilson 1520
By T. Cole 1940
By F. Syme 2980
By J. Allen 1110
By P. White 2420
By F. Lane 770
09-05-16 By T. Cole 1480
By J. Fox 1910
20-05-16 By L. mole 1830
01-05-17
To Balance
C/d 17870 by W. Wright 1910
17870 17870
Bank a/c
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Date Particular Amount Date Particular amount
16/07/18
31/07/18
To P Games a/c
To F Steel a/c
To J Wilson a/c
To F Syme a/c
To balance c/d
1330
2940
810
1590
29390
01/07/18
24/07/18
27/07/18
30/07/18
31/07/18
By storage cost a/c
By S Lyle a/c
By J Brown a/c
By R Foot a/c
By salaries a/c
By business rates a/c
By Abel motors a/c
800
3240
4140
1260
4800
1320
20500
36060 36060
Purchase a/c
Date Particular Amount Date Particular amount
02/07/18
20/07/18
To S Lyle a/c
To D Rain a/c
To W Sone a/c
To R Foot a/c
To L Mole a/c
To W Wright a/c
1850
2860
990
1610
1830
1910
30/07/18 By balance c/d 9440
9440 9440
Salaries a/c
Date Particular Amount Date Particular amount
27/07/1
8
To bank a/c 4800 31/07/18 By balance c/d 4800
4800 4800
Motor exp a/c
Date Particular Amount Date Particular amount
04/07/1 To cash a/c 1170 31/07/18 By balance c/d 1170
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8
1170 1170
Cash a/c
Date Particular Amount Date Particular amount
31/07/1
8
To balance c/d 3670 04/07/18
07/07/18
By motor expenses a/c
By drawing a/c
1170
2500
3670 3670
Business rates a/c
Date Particular Amount Date Particular amount
30/07/1
8
To bank a/c 1320 31/07/18 By balance c/d 1320
1320 1320
S Lyle a/c
Date Particular Amount Date Particular amount
24/07/18 To bank a/c
To discount a/c
3240
360
02/07/18
31/07/18
By purchase a/c
by balance c/d
1850
1750
3600 3600
Drawings a/c
Date Particular Amount Date Particular amount
07/07/1
8
To cash a/c 2500 30/07/18 By balance c/d 2500
2500 2500
W Sone a/c
Date Particular Amount Date Particular amount
31/07/18 To balance c/d 990 02/07/18 By purchase a/c 990
990 990
D Rain a/c
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Date Particular Amount Date Particular amount
31/07/18 To balance c/d 2860 02/07/18 By purchase a/c 2860
2860 2860
L Mole a/c
Date Particular Amount Date Particular amount
31/07/18 To balance c/d 1830 20/07/18 By purchase a/c 1830
1830 1830
R foot a/c
Date Particular Amount Date Particular amount
24/07/18
31/07/18
To bank a/c
To discount a/c
To balance c/d
1260
140
210
02/07/18 By purchase a/c 1610
1610 1610
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c) Trial balance
CLIENT 2
a) The Statement of profit or loss for Sierra Laurent for the year ended 31st July 2018
Income statement of Sierra Laurent for 31st July 2018
Particulars Details Amount
Sales 1750000
Less Cost of sales
opening inventory 40500
Purchase 1050800
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1091300
Closing stock -38640 -1052660
Gross profit 697340
Less Expenses
Wages and
salaries 144000
add outstanding 2220 146220
Motor expenses 68000
Administration
expenses 20000
Heating and
lighting 6200
Advertising
expenses 14800
less: Prepaid expenses -7470 7330
Depreciation
Premises 8000
Equipments 28000
Motor vehicles 6200 42200 -289950
Operating profit 407390
Working notes:
1. Depreciation
 Depreciation on premises = 2% on cost
=2% * 40000 = 8000 add to accumulated depreciation
 Depreciation on equipment = 10% * 280000 = 28000
 Depreciation on motor vehicle = 20% * (cost – accumulated depreciation)
= 20% * (45000-14000) = £6200
2. Adjustment of accrued Wages and salaries = 144000+2220 = 146220
3. Prepaid expenses administration expense = 14800 – 7470 = 7330
b) The Statement of Financial Position for Sierra Laurent as at 31st July 2018
Assets £ £ £
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Non-current assets cost
Accumulated
depreciation Carrying value
Free hold premises 400000 -48000 352000
equipment 280000 -118000 162000
Motor vehicle 45000 -20200 24800
Total assets 725000 -186200 538800
Current assets
Closing inventories 38640
Trade receivables 115200
Prepaid rent 7470
Cash 5200 166510
Total assets 705310
Equity and liabilities
Equity
Capital 275000
profit 407390
drawings -35000
Total equity 647390 647390
Current liabilities
outstanding salaries 2220
Bank overdraft 9900
others 45800
total current liabilities 57920 57920
Total equity and liabilities 705310
Working note:
Particulars Amount
Assets
Non-current assets 1887200
Current assets 166600
Total assets 2053800
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Equity and liabilities
Share capital 1200000
Security premium 450000
298800
Total equity 1948800
Current liabilities 105000
Total equity and liabilities 2053800
Working note 1.
1. Non-Current assets Land and building Plant and machinery
Cost 1585000 875000
Accumulated depreciation -325000 -54500
Depreciation off current year -29200 -164100
1230800 656400 1887200
Total non-current assets 1887200
2. Current assets
Closing inventories 38000
Receivables 125600
Prepaid rent 3000
Total current assets 166600
3. Current liabilities
Payables 54000
Outstanding salaries 2000
Tax 4000
Bank overdraft 45000
total current liabilities 105000
CLIENT 3
a) Statement of Profit and Loss of LMS Ltd., for the year ended 31st July 2018
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Particular Amount
Revenues
Sales 1200000
Less: Returns -11200 1188800
Cost of sales
Opening inventory 45800
Purchase 655400
Returns -7500
Closing stock -38000 -655700
Gross profit 533100
Less: Administration cost -90000
Distribution cost -235300
Operating profit 207800
Less: tax -4000
Profit after tax 203800
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b) Statement of financial Position of LMS Ltd., as at 31st July 2018
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d) Purpose of depreciation
It is known as decrease in an estimation of a benefits over the schedule on account of
wear and tear. Organizations deteriorate long haul resources for both accounting and in addition
assess reason (Hale, Hale and Held, 2012). The main role of utilizing devaluation is to coordinate
aggregate cost of a profitable advantages for the procuring from utilizing the estimation of
benefit. It is all the more difficult to check coordinate connection with profit; the advantages cost
is normally dispensed amid the year under which the benefits can be utilized. It is said to be the
lawful accounting systems that will help devalued to take care of expenses. There are different
sorts of deterioration. Some of them are:
Straight line technique: Under this, whole bookkeeping year will be considered for a
similar measure of a benefits (Hall, 2012).
Written down technique: In this approach, devaluation is charged at settled rate on
lessening balance strategy in consistently (Oulasvirta, 2014).
CLIENT 4
A) Purpose of Bank reconciliation statement
It is one of the specific reports that is being utilized to decide general examination of
bank alteration as indicated by the aggregate sum said into the organization accounts books and
also bank passbook (Bank reconciliation statement. 2017). The principle utilization of this record
is to adjust the sum according to the cash books. It will guarantee that every one of the mix-ups
or mistakes can be evacuate as quickly as time permits (Stice and Stice, 2013).
B) Areas which may cause the records to vary form bank
There are diverse territories that can be considered while getting ready articulation. It would be
specified as follows:
Expenses: keeping in mind the end goal to give certain sort of administrations to their
record holder in the interest of those administrations bank used to charge a few charges as
premium.
NFS Checks: It is a sort of circumstance, when bank deny to acknowledge the store
checks, on the grounds that the holder or business administering the check would not have
adequate measure of reserve in their record.
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Recording mistakes: It is all the more emerging from the bank that can required to put
the exchange into the announcement without checking the esteem effectively (Jacobs and
Cuganesan, 2014).
C) BRS
Bank Reconciliation Statement
Dr. Cr.
Balance as Cash Book 2140
Cheque paid to C Lyons but not Subtracted from
bank 870
Payment made by bank but not noted in cash book 1050
Cash received from sales but not recorded in Bank
Cash paid to C David but not deducted from Bank 1220
Cash paid to Seems but not recorded in Bank account 1160
Bank charges paid but not deducted from cash book 360
Balance as per Passbook 3980
Cash book
CLIENT 5
Sales record control accounting is a standout amongst other records that is considered as
exchange indebted individuals control account. It is essential piece of monetary record that
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would use by the bookkeeper while setting up the reports (Zeff, 2016). The reason for this
accounting is to demonstrate adjust of individual client account amid a specific period time. It
additionally used to look at twofold evaluation of the sums which is being show up in a specific
statement.
a) Sales ledger control account
It considered to be compelling rundown of exchange which is used to record in backup
record subtle elements. All the transactions are posted at the end of consistently that is
considered a detail exchange as per individual or organizations books. It is a twofold check
which would prompts more noteworthy precision of posted data (Johnson, 2013).
It is more typical record that is free of points of interest that yet have the right adjust for
the accounting proclamation. The related auxiliary record takes into account following generally
speaking exchange subtle elements inside the controlling records.
Dr Cr.
Detail amount Detail Amount
To balance b/f 22600 By general ledger
To general ledger bad debts 1120
sales 162350
Receipt from credit
customer 149610
discount allowed 1380
sales return 17320
set off 1330
By balance c/f 14190
184950 184950
b) Purchase ledger control accounts
Purchase records of organization buy and costs detail explanations, regardless of whether
chief had paid them or aggregate lefts sum (Klychova, Faskhutdinova and Sadrieva, 2014). The
majority of the individual exchanges that is presented on their provider's record are finished up
under this records.
Particulars Amount Particulars Amount
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To general ledger Balance b/f 19160
discount rec 1290 By general ledger
purchase return 11110 purchase 126500
Payment to supplier 110010
Refund received from
supplier 1400
set off 1330
To balance c/f 23320
147060 147060
CLIENT 6
a) Main features of suspense account
It is said to be one of the effective records which is utilized by the association to record
each thing as briefly before appropriate distribution or adjustment that should be possible in
essential records. It is utilized to make an appropriate portion of trail adjust or benefit and
misfortune explanations (Hall, 2012).
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