Financial Accounting Principles: A Comprehensive Report

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Financial Accounting Principles
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Table of Contents
Introduction:.............................................................................................................................3
A.................................................................................................................................................4
1..............................................................................................................................................4
2..............................................................................................................................................5
B.................................................................................................................................................6
Client 1...................................................................................................................................6
Client 2.................................................................................................................................23
Client 3.................................................................................................................................26
Client 4.................................................................................................................................27
Client 5.................................................................................................................................28
Conclusion:.............................................................................................................................30
References:..............................................................................................................................31
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Introduction:
The assignment is prepared to draft a report where, as an accountant, his knowledge about
principles, rules, and conventions relating to accountancy should be described. For this
purpose, a variety of accounting principles, conventions, standards, and bookkeeping
methods are used in the report. Journal entries, ledgers, trial balance, bank reconciliation
statement, rectification entries, suspense account, profit and loss account and balance sheet
prepared in this assignment. The concepts of accounting and the methods of depreciation also
explain in the report. Hence, the assignment covers a variety of accounting rules, principles,
and their use while preparing the financial statement.
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A.
Introduction:
This report is prepared to learn the meaning and purpose of financial accounting in an
organization. The role and importance of financial accounting in a business enterprise have
been discussed in the report. It also contains an understanding of the term, "Stakeholders".
The two types of stakeholders namely, internal stakeholders and external stakeholders are
also explained. Each type of stakeholder is described with some examples or can say persons
who are included in the list of that particular stakeholder for better understanding of the
concept. Hence, the report is concerned with financial accounting and the users of financial
accounting information.
Body of the Report:
1.
Financial Accounting is a combination of two important terms of the business world that is
finance and accounting. Accounting means recording of transactions or exchanges which
took place between the persons on a daily or periodic basis in a business environment.
Finance term is associated with economic or monetary concern. Hence, financial accounting
means the systematic recording of all the economic and monetary transaction of a business
enterprise to form reports which provide financial information to the users of those
reports.Financial accounting is the method of accounting in which recording of all the
transaction related to finance or monetary transactions of the business are recorded in a
systematically understandable manner (Kieso, et. al., 2016). Financial accounting is done for
providing financial reporting to the users of the information.
Financial accounting holds an important place in business organizations. It not only provides
financial information to the members and employees of the company but also servers for
other purposes. Some of the basic purposes for the preparation of financial accounting
statements are discussed below:
 Financial accounting provides relevant information which helps the management
informing strategies and planning for the company.
 It provides detail about the company's financial position to the potential investors in
the market which helps them in deciding their investment decisions with the
company.
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 The purpose of financial accounting is to provide its users the relevant information
about the financial conditions of the company which help them in making their
decisions.
 Financial accounting helps the company to compare its business with the other
businesses in the market.
 It also helps the company in comparing its own performance over a period of time.
 Financial accounting also serves for fulfilling the requirements of the law and statutes
applicable to the company.
2.
A stakeholder is a wide term which includes all the person who is the users of financial
statements of the company. It includes those people who are directly or indirectly interested
in the working and financial position of the company. People like shareholders, debenture
holders, tax authorities, creditors, investors, banks, financial institutions, government,
consumers, etc. together form the stakeholders of the company.Stakeholders are the people
who are interested in the finishing data of a company because they are having their monetary
interest in the company (Mitchell, et. al., 2015).
Stakeholders can be internal or external depending upon their relationship with the
company. If the person is directly related to the organization or is actually a part of the
organization then it is called internal stakeholder of the company whereas if the person is
having an interest in the company but it not directly related or can say is not the part of the
company structure then such person is termed as external stakeholders of the Enterprise.
 Internal means the persons who are actually working in the organization or forms the
part of the structure of the organization.Internal stakeholders are the persons who are
working with the business of the company and has a potential interest in the business
of the entity.These people have an interest in the company as they are part of internal
management or working team of the Enterprise. It includes people like shareholders,
members, the board of directors, managers, employees, etc. These people together
form the internal stakeholder of the company. They are interested in the company's
financial position and financial information because their personal growth is directly
associated with the growth of the firm.
 Board of directors: Board of directors is the top management of the company. They
form strategies and take business decisions on behalf of the entity. They derive their
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source of income from the salaries paid to them from the profits of the company.The
BOD of a company needs financial information of the enterprise in order to make
their investment and financial decisions for increasing the wealth of their
association.As understood the company's growth is directly related to the directors
own income growth and it shows the efficiency of the director's decision-making
capabilities.
 Employees: Employees are the people working in an organization for achieving a
common organizational goal of increasing profits and wealth of the business. These
people also derive their personal income from the profits of the company. Employees
are concerned with the financial position and status of the company as they the strong
financial position of a company contributes to the job security of the
employees.Employees are one of the internal stakeholders of business interested in the
data of the company because they need the information in order to determine their job
security and their future growth with the business of the firm (Abidin, 2015).
 External stakeholders are the person who is not involved in the business of the
company but who are affected by the position of the company. External means
outsiders, hence, the people in this category of the stakeholders are outsiders to the
organizational structure of the business. But they possess an interest in the company
which is why they are defined as the stakeholders of the company. They are not the
internal or part of the organization's working structure but the position, profits or
losses, and other operational activities of the company affect their interest with the
company.
 Consumers: Consumers or customers are the public which buys the products or
receives the services provided by the entity in the market. The financial reports of the
enterprise depict the profitability and market response of the company. It also shows
corporate social responsibilities undertaken by the entity. It explains the
manufacturing process of the product and thus suggests the selection of product or
services from the available alternatives in the market.Consumers need a company's
information in order to make the choice out of available Companies in the market.
 Suppliers: Suppliers are those business dealers of the company from which company
buys their material for production. These people are always concerned with the period
of business transactions with an entity. The reports of the company's information help
them to determine the going concern of the company and hence the security of their
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business clients.Suppliers are interested in the company's information as they want to
ensure their future business transactions with the company.
 Tax Authorities: Tax authorities are the part of government which charges taxes on
the profits of the businesses operating in the market. These entities are interested in
the reports of an enterprise to ensure the proper collection of the taxes and detection
of any tax evasion made by the associations.Tax authorities use the company data to
determine the accuracy of taxes paid by the company
 Creditors: The people who have provided financial help to the company are known as
creditors of the business. The company owes a particular sum of money to these
people. And they are highly interested in the reports of the company to ensure the
proper working of the company in order to get assurance for their money back by the
enterprise.The statements and reports of the association confirm them about the
regular receipt of interest amounts and provide security for the amount advanced to
the entity.Creditors are interested in company’s positional information to ensure the
security of their debts with the association.
Conclusion:
The report has helped the users in understanding the meaning of financial accounting, its use,
and importance in the business enterprises and also the purpose of the formation of financial
accounting reports. The other segment of the report consists of the description of the
stakeholders of the company. The meaning of stakeholders, persons forming the part of
stakeholders, and the types of stakeholders have been discussed. The two types of
stakeholders which are internal stakeholders and external stakeholders have been explained
along with the examples. The examples of stakeholders are discussed and their reasons for
the interest in the company's information is also explained. Thus, by reading this report one
can have an understanding of financial accounting and the users or stakeholders of the
enterprise.
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B.
Client 1
(i)
Journal entry
Date Particular
L
F Amount Amount
Jan-
19
1 Storage Expenses A/c dr. 450
To Bank A/c 450
(Being amount paid by cheque)
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2 Purchases A/c dr. 6080
To S. Hood's A/c 1450
To D. Main's A/c 2060
To W. Tone's A/c 960
To R. Foot's A/c 1610
(Being goods purchased on credit)
3 J. Wilson's A/c Dr. 1200
T. Cole's A/c dr. 1650
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F. Syme's A/c dr. 2100
J. Allen's A/c dr. 1020
P. White's A/c Dr. 2520
F. Lane's A/c dr. 980
To Sales A/c dr. 9470
(Being goods sold on credit)
4 Motor Expenses A/c dr. 470
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To Cash A/c 470
(Being expense paid in cash)
7 Capital A/c dr. 1500
To Drawings A/c 1500
(Being cash withdraw for personal use)
9 T. Cole's A/c dr. 680
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J. Fox's A/c 1310
To Sales A/c 1990
(Being goods sold on credit)
11 Sales Return A/c dr. 680
To J. Wilson's A/c 270
To F. Syme's A/c 410
(Being goods returned and received)
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