Financial Accounting Principles Report: Cartex Accounting, London

This report, prepared by a Jr. Accountant at Cartex Accounting, provides a comprehensive overview of financial accounting principles. It begins with an introduction to financial accounting, its purposes, and the importance of adhering to established rules and guidelines. The report then delves into the roles of internal and external stakeholders in a large business organization, highlighting their interests in financial information. Practical applications are demonstrated through the preparation of financial statements for various clients, including sole traders and limited companies, along with explanations of accounting concepts, depreciation methods, and bank reconciliation statements. Furthermore, the report covers the preparation of sales and purchase ledger control accounts and the use of suspense accounts in financial statement preparation, concluding with journal entries. The report underscores the significance of financial accounting in maintaining accuracy, measuring performance, and meeting legal and stakeholder requirements.

Financial Accounting
Principles

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
A Report To The Line Manager ......................................................................................................1
1. Financial accounting and its purposes.....................................................................................1
2. Explaining Internal and External stakeholders of a large business organisation....................3
Client 1.............................................................................................................................................5
Preparation of financial statements of the Alexandra.................................................................5
Client 2...........................................................................................................................................13
A) Preparation of profit and loss statement ..............................................................................13
B) Preparation of statement of financial position.....................................................................14
C) Explaining the accounting concepts.....................................................................................15
D) Describing purpose of depreciation in formulation of accounting statements and methods
of depreciation...........................................................................................................................16
E) Critical evaluation of difference between financial statements prepared by the sole traders
and limited companies..............................................................................................................17
Client 3...........................................................................................................................................18
A) Purpose of preparing the bank reconciliation statements....................................................18
B) explaining the areas that may cause the variation in the companies records with the bank
records.......................................................................................................................................19
C) Explaining the term “imprest” in the context of petty cash system.....................................19
D) Preparation of bank reconciliation statements for Burcu Ltd..............................................19
Client 4...........................................................................................................................................20
A) Preparation of sales ledger control account and purchase ledger control account .............20
B) Need of preparing control accounts.....................................................................................21
Client 5...........................................................................................................................................21
A) Explaining the term suspense accounts and its features......................................................21
B) Preparing trial balance with the help of control ledger accounts.........................................22
C) Showing journal entries of the company..............................................................................23
CONCLUSION..............................................................................................................................23
REFERENCES..............................................................................................................................24

INTRODUCTION
Financial accounting principles refers to those rules that are need to be followed by each
of the business organisation while preparing their books of accounts and recording their financial
data in the books. They can also be defined as the guidelines to taken into account while
preparing financial reports of the company. Cartex Accounting firm is a business organisation of
London that provides professional accounting services to its clients. The firm also provides tax
advisory services to its customers. The present study shows a report of Jr Accountant of Cartex
Accounting to its line manager. The reports provide details about various rules, principles of
accountancy, purpose of financial accounting and its various users. Including internal and
external stakeholders. Further, the study also shows various calculations relating to preparation
of financial statements of sole traders, company and partnership firm, and calculations as to
prepare the bank reconciliation statement along with its purposes. In addition, it also shows
preparation of sales ledger and purchase ledger control accounts preparation of financial
statements with the help of suspense account.
A Report To The Line Manager
Cartex Accounting
To,
The line manager.
From,
Jr. Accountant
Subject: A report providing information about financial accounting, its purposes and usage.
1. Financial accounting and its purposes
Financial accounting
“Financial accounting can be defines as a branch of accounting that helps the business in
providing professional and specialised services to the organisation in order to maintain a
standard in the books of accounts of the company” (Financial Accounting .2019) .
Preparation of financial accounting is based on some basic principles, rules and
guidelines, that helps the professionals in recording the financial data in the books and
preparation of various financial reports of the company.
In other words, it can be evaluated that “financial accounting is a process that includes,

evaluation, recording and summarisation of the financial data for the purpose of providing all
the material data of the company at a single place.”
Purpose of financial accounting
The process of financial accounting is performed by the business organisation due to
various purposes. Some main purposes of financial accounting are as under:
 Decision making: The main purpose of recording the financial informations is to
provide all the material informations to the mangers of Cartex Accounting. These
informations can help them in able to analyse the actual condition of the business and
taking sound decisions for it as to enhance its efficiency of working and profitability as
well.
 Informing to external users: Another main purpose of the financial accounting is to
provide all the relevant informations to the external users of the Cartex accounting
(Henderson and et.al., 2015). External users includes tax authorities of Government,
customers, creditors, etc.
 Providing informations about the liquidity: The Cartex accounting prepares the
balance sheet as to provide the information about the liquidity state of the firm. This
information is needed by the investors as to take decision about the amount to be
invested by them in the company.
 Maintenance of standard in books: Further, the books of accounts are prepared as per
the financial accounting and record the transactions as per the set guidelines and rules,
for the purpose of maintaining a standard in the books of accounts of the company.
 Meeting the requirement of law: Another main purpose of the financial accounting is
to meet all the legal requirements by the Cartex accounting (Collison and et.al., 2016).
As all the guidelines and rules have been made as per the legal system of the country,
these enables the company in complying with all the laws made by government for
preparation of books.
 Maintenance of accuracy: If the Cartex Accounting firm prepares all of its financial
statements as per the financial accounting system, it would also be enable to maintain
the accuracy in the books due to follow up of various guidelines, rules and standards. In
this regard, the financial accounting also have a purpose of maintenance of accuracy in
the books of accounts of a business.

 Measurement of the achievement: Another major purpose of the financial accounting
is to measure the all the achievement of the business in numeric terms. Without financial
accounting, Cartex Accounting firm can not measure its success and achievement of its
financial goals and objectives.
 Measurement of efficiency: If the Cartex accounting maintains its records using
financial accounting, its managers could be able to analyse the efficiency of the firm
easily (Osadchy and Akhmetshin, 2015). With the help of evaluating various financial
reports, managers can effectively evaluate the actual efficiency of the company and
taking effective decisions for it as well.
In this regard, it can be evaluated that the financial accounting system is important for
each business for maintaining a standard in the book keeping system of the company. Further, it
also helps the business in meeting numerous purposes.
2. Explaining Internal and External stakeholders of a large business organisation
Stakeholders
Stakeholders can be defined as the individual or group of individuals that may or may
not invest their funds in the business, but have some interest in the company. The stakeholders
need to get informations about all those financial informations about the company that may
affect their interest in the business organisation.
In a large business organisation, the stakeholders can be divided into categories, i.e.
internal stakeholders and external stakeholders of the company.
Internal stakeholder
Internal stakeholders are those individuals or group of individuals that provides their
own services to the company. Further, performance of the business organisation have a huge
effect over their interest in the company (Starik and et.al., 2017). For example, employees,
shareholders, managers, owner, board of directors, etc.
 Managers: Managers are those individuals who performs the activity of managing
various activities of the business organisation. Managers analyses the actual
performance of the business organisation and develop the appropriate strategies and
plans for the company for purpose of enhancing its capabilities. Managers needs all the
relevant informations of the company for analysing its performance. For the purpose of
analysing the financial performance of the company and taking their decisions in this

regard, the managers need the financial reports as to gain informations about the
financial activities of the company. Therefore, managers have interest in the financial
informations of the company.
 Shareholders: In a large organisation like companies, the shareholders are the actual
owners of the company. Shareholders are those individuals that invests their funds in the
company, which is used by it as a part of equity for running its normal course of
business activities and expanding its business as well (Boesso, Favotto and Michelon,
2015). Shareholders also needs the financial reports of the company as to analyse the
financial capacity and profitability of the company. Profitability of the company affects
the amount of dividend of the shareholders. Therefore, for the purpose of taking
decisions for maintaining, enhancing or reducing their shareholding in the company,
shareholders needs to analyse the financial reports of the company. In this regard, they
also have interest in the financial informations of the company.
External stakeholders
External shareholders can defined as those individuals that does not provide their
services to the company, and also are not the part of management of the business organisation,
but the financial performance of the company indirectly affects the interest of these
stakeholders. For example, Investors, creditors, suppliers, customers, Government authorities,
competitors, etc.
 Investors: Investors are one of the major external stakeholders of a business
organisation. They invest their funds in the business for the purpose of providing
financial help to the company and enabling it to run its normal course of business
activities smoothly. They need to determine the financial performance of the firm for
the purpose of analysing the capacity of the company in paying their interest and the risk
involved in making investment in the company as well.
In this way, the investors are interested in the financial informations of the business
organisation. Further, financial performance of the business directly effects their decision of
making investment in the company.
 Creditors: In a business organisation, creditors can be defined as those individuals or
firm or any other business, from which a company has purchased goods, raw materials,
assets or any other thing on credit for the purpose of using it in the business operations

(Diouf and Boiral, 2017).
Creditors also have interest in the financial performance of a business as the creditworthiness of
the organisation affects their decision of providing their goods or services on credit of the
company.
 Auditors: Auditors are the professionals that examines the financial reports of the
company. They ensure the compliance of all guidelines, rules and standards of
preparation of financial statements of the company. Reports prepared by them showing
all the details about their examination are being relied by the suppliers, investors and
other individuals in their decision making process.
Auditors needs all the financial reports for the purpose of performing all the activities of
auditing procedures efficiently and developing the examination reports with accuracy. In this
regard, auditors also have interest in the financial reports of the business.
 Government authorities: Government authorities also have vital interest in the books
of a business organisation. Government have interest in the financial informations of the
company for the purpose of determining tax liability of the firm (Del Giudice,
Manganelli and De Paola, 2016). Further, they also need the information for ensuring
the compliance of all the laws by the company and ensuring the disclosure of all the
material informations of the company.
In this regard, it can be analysed that there are numerous stakeholders of a large business
organisation. Each stakeholder has directly or indirectly interest in various financial
informations of the firm.
Client 1
Preparation of financial statements of the Alexandra
Journal entries in the books of Alexandra for January are as follows
Date Particulars Debit Credit
1st jan 2019 Storage expense a/c dr 450
To bank a/c
2nd jan 2019 Purchase a/c dr 6080
To s. hood a/c 1450

To d main a/c 2060
To w tone a/c 960
To r foot a/c 1610
3rd jan 2019 J wilson a/c dr 1200
T . Cole a/c dr 1650
F. Syme a/c dr 2100
J . Allen a/c dr 1020
P. white a/c dr f. Lane a/c dr 2520
F. lane a/c dr 980
To sales a/c 9470
4th jan 2019 Motor expenses a/c dr 470
To cash a/c 470
7th jan 2019 Drawing a/c dr 1500
To cash a/c 1500
9th jan 2019 T. cole a/c dr 680
J. Fox a/c dr 1310
To sales a/c 1990
11th jan 2019 Sales return a/c dr 680
To j. wilson 270
F.syme 410
16th jan 2019 Cash a/c dr 7020
To p. Mullen a/c 1400
To f. Lane a/c 3100
To j. Wilson 850
To f. Shyme 1670

19th jan 2019 R. foot a/c dr 50
To purchase return a/c 50
22st 2019 Purchase a/c dr 3740
To l.mole a/c 1830
To w. Wright 1910
24th jan 2019 S. Hood a/c dr 3600
J. Brown a/c dr 4600
R. Foot a/c dr 1400
To bank a/c 9600
27th jan 2019 Salary a/c dr 4800
To bank a/c 4800
30th jan 2019 Business rates a/c dr 1320
To bank a/c 1320
Purchase Day book
DATE DETAILS £
02-Jan-19 S Hood 1,450
D Main 2,060
W Tone 960
R Foot 1,610
22-Jan-19 L Mole 1,830
W Wright 1,910
DR purchases a/c in NL 9,820
Purchase return Day Book

DATE DETAILS £
19-Jan-19 R Foot 50
Cr Purchases Returns a/c 50
Sales day Book
DATE DETAILS £
03-Jan-19 J Wilson 1,200
T Cole 1,650
F Syme 2,100
J Allen 1,020
P white 2,520
F lane 980
09-Jan-19 T Cole 680
J Fox 1,310
CR Sales a/c in NL 11,460
Sales return Day Book
DATE DETAILS £
11-Jan-19J Wilson 270
F Syme 410
DR Sales Returns a/c in NL 680
Cash Book
date receipts cash bank date Payments cash bank
2019 £ £ 2019 £ £
01-Jan balance b/d 15,600 68,400 01-Jan Storage cost 450
16-Jan P Mullen 1,400 04-Jan Motor Expenses 470

F lane 3,100 07-Jan Drawings 1,500
J wilson 850 24-Jan S Hood 3,600
F Syme 1,670 J Brown 4,600
R Foot 1,400
27-Jan Salaries 4,800
30-Jan Business Rates 1,320
31-Jan Balance c/f 13,630 59,250
15,600 75,420 15,600 75,420
01-Feb Balance B/d 13,630 59,250
PREMISES ACCOUNT
DATE DETAILS £ DATE DETAILS £
01-Jan-19 balance b/d 240,000 31-Jan-
19 Balance c/f 240,000
240,000 240,000
01-Feb-19 balance b/d 240,000
MOTOR VAN ACCOUNT
DATE DETAILS £ DATE DETAILS £
01-Jan-19 balance b/d 51,250 31-Jan-
19 Balance c/f 51,250
51,250 51,250
01-Feb-19 balance b/d 51,250
FIXTURES ACCOUNT
DATE DETAILS £ DATE DETAILS £
01-Jan-19 balance b/d 8,100 31-Jan-
19 Balance c/f 8,100

8,100 8,100
01-Feb-19 balance b/d 8,100

Client 2
A) Preparation of profit and loss statement
B) Preparation of statement of financial position

C) Explaining the accounting concepts
Accounting concepts
Accounting concepts are those assumptions and principles that are needed to be followed
by each business organisation while recording their financial activities and preparing their
financial statements as well (Qian and et.al., 2016). There are many accounting concepts that are

needed to be applied by the businesses like, Separate legal entity concept, money measurement
concept, going concern concept, consistency, prudence concept, etc.
 Consistency concept: There are numerous methods and techniques that can be applied
by the business for preparing various financial statements and calculating various major
financial informations. Each method or technique may provide different result to the
business. The consistency concept makes the company to apply same methods and
techniques over the year. So that a consistency in preparation of financial informations
can be maintained by the company. Further, application of this concept helps the
company in preparation of financial information comparable.
 Prudence concept: Conservatism concept is another name of prudence. This concept
says that the revenues of the company should be recorded only after getting reasonable
probability of their realisation. On the other hand, the expenses and liabilities should be
recorded at the time of occurring.
In this regard, this concept helps the company in maintaining the accountability in the financial
statements of the company (Liapis and Kantianis, 2015). It also leads in elimination of
underestimation of overestimation of the profitability of the business organisation.
D) Describing purpose of depreciation in formulation of accounting statements and methods of
depreciation
Depreciation
Depreciation refers to a process of allocating cost to various tangible assets of business
over its useful life. It helps the business in making the value of assets equal to its scrap value till
the end of its useful life.
Purpose of depreciation:
Key purposes of the depreciation in formulation of accounting statements are as under:
 It helps a business in enhancing its productivity in the maintaining cost records.
 It leads in compliance of matching concept by matching the cost of assets with the
revenues earned by it through allocation of depreciation (Libby, 2017).
 It helps the business in recording actual value of the assets in the balance sheet.
 With the help of charging depreciation, company can retain funds out of profits and for
the purpose of replacing the assets at the end of its useful life.

In this regard, charging depreciation helps the business formulating financial
informations and preparing the financial statements with more accurate informations.
Methods of depreciation
Depreciation can be charged by the company by using various methods (Sunarya,
Nurhaeni and Haris, 2017). Each method may provide different result for determining the
amount to be charged over the assets. Therefore, company should carefully evaluate the method
before choosing it. Some methods of depreciation are as under:
 Straight line method: It is the method of charging depreciation at same value in each
year on the assets. The value of depreciation is determined by dividing the useful life of
the assets in the total value of assets. This method can be applied on those assets on
which the value of production or other business operations does not depend.
 Unit of production method: Unit of production method refers to charging the
depreciation upto the amount of value of the machinery used by business. In this method
the company charges the depreciation over each unit produced by the business. Unit of
production method can be used by the business at the time of assembling the cost for the
production lines.
E) Critical evaluation of difference between financial statements prepared by the sole traders and
limited companies
Each business needs to prepare the financial statements for recording each financial
activities performed by it (Ahmed, 2016). But, due to some legal obligations and difference in
the rules and guidelines applicable on different types of business structure, a huge difference
arises in the financial statements prepared by different organisation.
The difference between financial statements of sole trader and limited companies are as
under:
Basis Sole traders Limited companies
Capital account In the financial statement of
the sole trader, only owners'
equity account.
The capital account of the
limited company includes
share capital, capital reserve,
shareholders' fund, and other
reserve capital.

Application of HMRC Sole trader need not to comply
with HMRC while preparing
financial statements.
This provision is applicable on
the limited companies.
Therefore, they need to take
into account each rule and
guidelines mentioned in the
HMRC while preparing the
financial statements
(Difference Of Financial
Statement between Sole
Proprietorship And Limited
Company. 2019).
Tax Sole trader need to include the
tax to be paid on the profit
earned by the business.
It need to include various taxes
like, corporation tax, annual
tax returns, tax on the payment
of dividend to the
shareholders, etc.
Auditing Financial reports of sole
traders need not to be audited.
The directors need to conduct
audit of each financial reports
prepared by the company.
Client 3
A) Purpose of preparing the bank reconciliation statements.
Bank reconciliation statements
It is the statement, which is prepared by the business for comparing the bank records with
the company's records in order to detect the difference and making both records equal.
Purpose of bank reconciliation statements
The Burcu Ltd. Needs to prepare the bank reconciliation statement due to following
reasons:
 It helps in eliminating the variation between the bank statement and books of the
business.

 It helps in detecting all those transactions related to bank that are not known to the
company.
 It may help the Burcu Ltd. In having effective control over the cash and cash equivalent
resources.
 Is the Burcu ltd. Prepared this statement on monthly basis, it would result in having
effective monitor over cash flows of organisation.
In this regard, the Burcu Ltd. Should prepare the bank reconciliation statement on the
monthly basis.
B) explaining the areas that may cause the variation in the companies records with the bank
records
The key causes of the variation in companies' records and bank records are as under:
 Bank services charged by it but did not record by company (Agyei-Mensah, 2016).
 Cheque bounced but not known to the company.
 Any cheque recorded by company but not yet presented in bank.
 Cheque of any client dishonoured but not known to the business.
C) Explaining the term “imprest” in the context of petty cash system
Imprest system
Imprest is a system of maintaining petty cash in which a constant amount of cash is
maintained by the business in the petty cash account. In case, the amount is used by the business,
the equal amount of cash is again added to the petty cash account as to maintain it constant over
the time.
D) Preparation of bank reconciliation statements for Burcu Ltd.

Client 4
A) Preparation of sales ledger control account and purchase ledger control account

B) Need of preparing control accounts
Control account
Control account is a type of account which contains the summary of all ledger accounts
of the company. In this order, the control account can also be termed as the summary account. In
general, the control accounts are maintained by the business for its purchase and sales ledger.
Need of preparation of control account:
Hilly needs to prepare the control accounts for the following purposes:
 It helps in keeping the general ledger accounts of the company free from several details.
 It can lead in gaining the details of several accounts at single place (Ofori-Atta, Bruce-
Twum and Appiah-Gyamerah, 2017).
 Preparation of control accounts is important to be maintained by large business
organisations.
Client 5
A) Explaining the term suspense accounts and its features
Suspense accounts
The suspense accounts is a ledger accounts prepared to be prepared by a business in case
its trail balance does not match and further, the reason behind the variation can not be
determined by the company as well.
Features of suspense accounts
The major features of the suspense accounts are as under:
 It is a part of financial reports.

 Suspense accounts are the temporary account prepared by the business at the time of
preparing financial statements (Cunningham and Ainsworth, 2018) .
 All those accounts that have uncertainties, are being recorded in the suspense accounts by
the business organisation.'
 Preparation of this account is important for the purpose of preparing the financial
statement without in material errors.
B) Preparing trial balance with the help of control ledger accounts

C) Showing journal entries of the company
CONCLUSION
From the above study, it can be concluded that, the financial statements are needed to be
prepared by each business as to prepare the financial statements free from material errors and
maintaining standard in the books. Financial statements are useful for numerous stakeholders.
Further, there are numerous accounting concepts that are needed to be complied with while
preparing the books of accounts. Bank reconciliation statement helps the business in elimination
of the variation in bank records and company;s records. Further, the study has also concluded
that preparation of control ledger accounts helps the company in maintaining the general ledger
accounts free from the details of transactions. In case the trial balance of company does not
match, the business can prepare the suspense accounts as a temporary account.

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