Financial Accounting Principles: A Comprehensive Report

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Financial Accounting Principles
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Table of Contents
(a) Report.........................................................................................................................................3
(b) Client portfolios.........................................................................................................................6
Bibliography..................................................................................................................................24
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(a) Report
Introduction
An integral part of every enterprise no matter of what size they are is financial accounting, also
known as financial accountancy. The role and imperativeness of financial accounting in
enterprise also lies when it comes to presentation of relevant financial information to
stakeholders. With this report, an in-depth evaluation is going to be conducted on what financial
accounting is while considering what its purposes are. It would also involve a discussion of a
number of stakeholders being interested in financial information and the way in which each of
them hold their interest in financial information.
1. Define financial accounting and its purposes.
There are a number of ways in which financial accounting is defined by different people. In the
words of Phillips et al. (2015), financial accounting is a branch in accountancy dealing with
summarising, reporting, recording and analysis of financial transactions associated within a
corporation. On the other hand, Parson et al. (2015) mentioned that financial accounting is a
procedure that enterprises utilise for the keeping of a detailed track of the financial transactions
in enterprises that is done via application of a set of specified standardised guidelines. It is
through the assistance of financial accountancy that enterprises are enabled to develop and
present all their stakeholders with their financial reports along with financial statements,
including the balance sheet, the cash flow statement, and the statement of changes in equity and
lastly, the income statement. Since the financial statements and reports presented by enterprises
are utilised externally by a number of people and groups, there are a set of common rules that are
followed for their preparation and presentation. These rules are known as accountancy standards
and the principles commonly used are the GAAP, also called the “Generally Accepted
Accounting Principles” (Shroff, 2017).
Purposes for which financial accounting is performed and conducted within enterprises are
considerable in number (Gupta, 2016). In the following section, the purposes for which
enterprise use and perform financial accounting have been evaluated and discussed in detail -
 Ensuring the systematic recording of an enterprise’s financial transactions - As human
memory is short, it is necessary that a systematic recording is kept related to financial
transactions, which occurred in the past years. Hence, one significant purpose of financial
accounting is the maintenance of permanent and systematic accounting records.
 Revealing of the financial position of an enterprise - Another purpose for financial
accounting is the revealing of the soundness in an enterprise’s financial position, which is
done with the means of creation and presentation of its balance sheet (Ellwood and
Newberry, 2015).
 Ascertainment of the results of an enterprise’s operations - Earning of profits is one of
the major objectives of every business enterprise, which is the outcome of its operations.
It is the purpose of financial accounting to ascertain the outcomes of an enterprise’s
operations related to earning of profits and losses through income statement preparation.
 Reporting of the past performances of an enterprise while considering its future
prospects - An enterprise’s shareholders always want the ascertainment of the growth and
security in their investment value (Henderson et al., 2015). Thus, financial accounting
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seeks in reporting to the shareholders regarding the past performances of the enterprises
along with assuming its future prospects.
 Meeting the legal requirements and obligations of an enterprise - According to
Narayanaswamy (2017), it is a legal obligation for all enterprises to conduct financial
accounting and report their financial performance. As a result, another primary purpose
for the attainment of which financial accounting is performed in enterprises is for the
meeting of the legal requirements that it has related to reporting its financial situation and
performance.
 Providing substantial and relevant information to the stakeholders of an enterprise -
The stakeholders of an enterprise usually look forward to the results of its financial
accounting. Thus, financial accounting is also performed in enterprises for the serving of
the purpose of providing relevant information to the stakeholders and satisfying their
needs associated with financial information.
2. Name two internal stakeholders AND four external stakeholders of a large business
organisation. For the internal and external stakeholders, you have identified above,
comment briefly on why each of them might be interested in the financial information of
the organisation.
The activities, the operations, the financial information and various other aspects of an enterprise
are viewed and evaluated by varying group of people and individuals as well. These people are
known are stakeholders. In the words of Jones et al. (2017), one can describe a stakeholder to be
an entity, a group, an institution or any person having interest within the failure and success of
the entity or its ventures and projects and they are not only internally present in an enterprise but
also externally present. The stakeholders of an enterprise are interested with the financial
information about it for varying purposes, the most significant among them being decision-
making (Garcia‐Sanchez and Noguera‐Gamez, 2017).
A significant player not only in the UK marketplace but also on a worldwide basis is the
AstraZeneca Plc. There are a large number of stakeholders in AstraZeneca Plc, not only in its
internal environment but also within in its external environment. Within the points, which have
been discussed and analysed below, AstraZeneca Plc’s internal stakeholders have been discussed
along with stating why they are interested in the entity’s financial information -
 Owners and shareholders - The shareholders are owners of an enterprise as well and
they are quite interested in financial information of the enterprise in which they hold
shares (Clark et al., 2015). When it is about limited enterprises such as the AstraZeneca
Plc, shareholders are seen to be having interested in financial information, as these sorts
of information assist them in ascertaining the stability of the enterprise and the chances
that they have in terms of earning considerable amount of dividends. In case of privately
owned enterprises and sole traders, owners are interested in financial information since it
assists them in conducting the analysis of how their drawings lead to having an effect
over the financial situation under which it is prevailing. It also facilitates them in
evaluating the amount of income the enterprise is generating while ensuring their
financial stableness and making the essential decisions (Crowther, 2018).
 Employees - It is the financial information of an enterprise that assists its employees and
staff members to understand the prospects that the enterprise has in the forthcoming
periods while serving as the basis for decision-making on continuing their jobs in the
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enterprise (Andon et al., 2015). For example, staff members use the financial information
for considering if the financial performance of AstraZeneca Plc is good or not and then
decide whether they would continue their service in the enterprise or look for job
changes.
On the other hand, the points analysed below, discuss on AstraZeneca Plc’s external stakeholders
while evaluating why they are interested in the entity’s financial information -
 Suppliers - It is the credibility and the debt repayment capacity of an enterprise that
suppliers evaluate and consider through the accomplishment of financial information
available regarding the enterprise. For example, AstraZeneca Plc’s suppliers supply raw
materials and other inputs to the enterprise on credit only when they see and ascertain the
liquidity and payments cycle of the enterprise through its financial information.
 Investors - AstraZeneca Plc’s investors also hold substantial amount of interest within its
financial information. This is because the investors existent in the market always consider
making investments into an enterprise that has had a stable performance in the past years
and can be forecasted to have good financial stableness and performance in the upcoming
years. However, for ascertaining so, financial information is required being interested,
which is the reason behind investors’ interest within financial information of an entity.
 Rival enterprises - Through considering AstraZeneca Plc’s external stakeholders, it can
be seen that the entity’s rivals also have interest within its financial information. Rival
enterprises are interested in financial information since financial information facilitates
them in contrasting their own efficiency and financial soundness with that of the
enterprise whose financial information that they have obtained while evaluating the
chances of mergers and joint ventures with it (Vracheva et al., 2016).
 Customers - AstraZeneca Plc’s customers are largely interested in its financial
information. Financial information has an effect over the loyalty, the promotions, the
faithfulness and the behaviour of the customers of any enterprise (Wang and Sengupta,
2016). It is so because through evaluating the performance of an entity from its available
financial information, customers judge and decide on the dependability that they can have
on the enterprise.
Conclusion
Thus, the report’s findings assist in the determination of the effectualness of financial accounting
within organisational through finding out the primary purposes of financial accounting within
them. At the same time, the study assisted in verifying the primary stakeholders of an entity
holding interest in financial information of companies while finding out why they hold their
interest in financial information.
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(b) Client portfolios
Client 1
(i)
In the below section, all the journal entries along with the ledger accounts associated with the
organisation Alexandra Study have been provided -
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(ii)
Serial No. Details Debit column Credit column
I. Nominal ledgers
(1) Salaries Account £ 4,800.00
(2) Storage Cost Account £ 450.00
(3) Sales Account £ 11,440.00
(4) Purchase Return Account £ 50.00
(5) Rates Account £ 1,320.00
(6) Purchases Account £ 9,820.00
(7) Motor Expenses Account £ 470.00
(8) Sales Return Account £ 680.00
(9) Fox Account £ 1,310.00
(10) Allen Account £ 1,020.00
(11) White Account £ 2,520.00
(12) Mullen Account £ 3,000.00
(13) Cole Account £ 2,330.00
(14) Cash (remaining in hand) £ 13,630.00
(15) Wilson Account £ 80.00
(16) Lane Account £ 3,980.00
(17) Cash (available at bank) £ 59,250.00
(18) Hood Account £ 10,000.00
(19) Main Account £ 2,060.00
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