Financial Accounting Principles Report

This report delves into the principles of financial accounting, discussing its importance in business finance. It covers regulations, accounting rules, and various tasks assigned by clients, providing a comprehensive overview of financial accounting practices. The report also includes practical examples and calculations related to financial statements, ensuring a thorough understanding of the subject.

Financial Accounting
Principles

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................4
1. Meaning of financial accounting............................................................................................4
2. Regulations in relation to financial accounting.......................................................................5
3. Accounting rules and principles..............................................................................................5
4. Conventions and Concepts of consistency and material disclosure........................................6
TASK 2............................................................................................................................................7
Client 1........................................................................................................................................7
Client 2......................................................................................................................................13
Client 3......................................................................................................................................14
Client 4......................................................................................................................................16
Client 5......................................................................................................................................18
Client 6......................................................................................................................................19
CONCLUSION..............................................................................................................................20
REFERENCES..............................................................................................................................21

INTRODUCTION
Finance is the most important aspect for any business as without it no business can be
conducted in an effective and efficient manner. The information in relation to finance is required
to be recorded in appropriate manner and for thethat purpose of this accounting will be required
and this method of accounting of financial information is known as financial accounting (Baker
and Haslem, 2015). For the purpose of accounting there are certain rules and regulations that
have been prescribed and are required to be followed by every person engaged in the accounting
business. Such rules and regulations are known as accounting principles. In this report of DNS
associates which is an accounting firm based in Harrow, England various aspects of financial
accounting principles will be discussed which will include regulation that have been formed in
relation to financial accounting, various principles of accounting, certain concepts and
conventions. A part from it there are various tasks that have been assigned by the clients and they
will also be solved and on that basis financial statements and other records as required by the
client will be prepared and presented in the below given report.
TASK 1
1. Meaning of financial accounting
Finance and accounting both are the main terms that are involved in any business as
without finance business cannot be operated and also it helps to measure the economic
performance of the company. There are various operation that are performed in any business and
due to it there is a regular flow of cash that takes place in any company and it is required that
cash flow that is taking place should be regularly monitored and controlled. Therefore in order to
achieve all this it is needed that financial data in relation to the company should be collected.
After the collection of datathat it will be needed that it should be summarised as than only it will
be possible for DNS Associated to present all the data in forms of reports (Beaumont, 2015).
Various reports will be prepared with the use of that data such as statement of income, balance
sheet and the statement showing cash flows of the organisation and this whole process of
collection and preparation of reports will be called as financial accounting. These reports will
not only be useful to the management but they will also be provided to investors, suppliers, and
various other authorities who will also be benefited with the use of the reportsthem. This aspect
of providing the information to the outside world is the major reason which separates the

financial accounting from management accounting as in case of management accounting
information is produced only for the use of managementinternal use of business and no one
elsewill not be provided for the external use. Due to the reason that they will be used by many
people there are various rules that are required to be followed and such rulesthey are known as
generally accepted accounting principles or can also be called as accounting standards. The
responsibility of preparation of these principles lies on the financial accounting standards board
which is an organisation situated in US.
2. Regulations in relation to financial accounting.
Financial accounting is very important and it is need that it should be done in the most
appropriate manner. For this purpose company will be required to follow certain directions and
those directions which are followed in relation to financial accounting are known as regulations.
Some of them which are The regulations related to financial accounting will include following.
Accounting standards Board : It is the organisation which is supervised by financial reporting
council. The main purpose for which it was formed are that it is responsiblefor its establishment
was for the formation of the principles that are needed in order to provide the guidance to the
accounting standards. Apart from this it is also required so that it can formulate the plans by
following which all the issues that arise in relation to financial accounting and corporate can be
resolved and it also has the power for the formation of new accounting standards or if not new
than it can change the existing accounting standards according to the need and requirement
(Francis and et. al., 2015). This was done so that quality of the accounting standards can be
increased and as new problems keep on arising so it will be possible that newrevised standards to
deal with new those problems can be issued on timely basis. In order to meet with the
international standards the board keeps itself always connected with the international accounting
standards board due to which it possess all the knowledge about all the those changes that are
taking place in the international foreign market.
Statement of principles : This is the statement that is prepared andwhich it contains all those
principles that have been used in the process of setting standards. The principles that are
mentioned in the statement are developed on a regular basis so that they can meet with the
changes that take place in accounting system. In the statement there are various aspects on which
focus is given and it explains the views of the standard setter in relation to the activities that are
required to be mentioned in the financial statements, certain aspects which are needed to be

highlighted in respect of those activities (Goh and et. al., 2015). The manner in which all the
information in relation to finance should be presented in the financial statements is also included
in the statement.
3. Accounting rules and principles.
In the process of accounting there are certain rules that are required to be followed and
those rules they are known as accounting principles. There are various rules and principles that
are present and are required to be followed.
There are basically three rules in relation to accounting which are to be followed and they are :
1. All the expenses that have been incurred should be debited and all the incomes that have
been earned are required to be credited.
2. All the assets that are available with the business are to be debited and all the liabilities of
the company are needed to be credited.
3. All the receivers who receives any amount from the company are required to be debited
and anyone who gives any amount to the company should be credited.
A part from the rules them there are various accounting principles that have been set and are
required to be followed. Some of them are described below :
1. Revenue Principle : revenue is that amount that is earned by any business and that can
only be possible when any goods or services are provided by the company and it will
receive any sum in return of it (Henderson and et. al., 2015). But according to revenuethis
principle it is stated that income will be recorded when there is transfer of legal
ownership in respect of that product and mere receiving of money is not enough.
2. Matching Principle : this principle states that all the expenses that are made in order to
earn the income are required to be considered and when the income idthat amount is to be
recorded than the expenses in relation to it should also be matched and will be recorded.
3. Cost principle : according to this principle it should be noted that all the amounts that are
entered should be based on historical cost. It means that the original cost that was incured
in order to obtain any asset or any other thing will be recorded and not the market value
that is prevailing currently in the market.
4. Going concern principle : in this principle it is stated that it is always taken as an
assumption that business will go on and will continue for a long period of time and all the
work will be performed by keeping this in mind. If there exists certain circumstances

according to which it is to be believed that business will not be able to survive for long
than in such that case it will be duty of the accountant that proper disclosure in this
respect should be made.
4. Conventions and Concepts of consistency and material disclosure.
In accounting there are many concepts and conventions that are followed and two of them
that are related to consistency and material disclosure are described below :
 Concept of consistency : according to this concept it should be noted that the valuation
method that is followed by the company should always be same for all the years. The
main purpose of this concept is that by following the same policies it will be possible for
users of the accounts to compare the data in relation to different years in an easy and
more relevant manner (Hoyle, Schaefer and Doupnik, 2015). It will be duty of the
company that if any change occurs than it should be reported and also the deviation that
will occur due to it or can say that impact that the change will have should also be
explained.
 Convention of material disclosure : this convention states that every company should
always keep give importance to the disclosure of all the material information. It means
that all the information data that is important is required to be disclosed by the company.
Material information means information which is of advantage to investors, owners and
creditors and disclosure shall be made of that information.
TASK 2
Client 1
Calculation of owner's capital as at 1st May 2016
Particulars Amount
Assets :
Van 51250
Premises 340000
Fixtures 8100
Receivables 4500

Inventory 63900
Cash in hand 5600
Cash at bank 62400
A Total assets 535750
Liabilities :
Payables 6750
B Total liabilities 6750
C Owner's capital (A - B) 529000
(I) Book of prime entry
Journal of Alex for May 2016
Date Particulars Amount (Dr.) Amount (Cr.)
1st May 2016 Storage expenses A/c Dr.
To Bank A/c
400
400
2nd May 2016 Purchases A/c Dr.
To W. Tone
To R. Foot
To S. Hood
To D. Main
6080
960
1610
1450
2060
3rd May 2016 F. lane A/c Dr.
P. White A/c Dr.
J. Allen A/c Dr.
F. Syme A/c Dr.
T. Cole A/c Dr.
J.WilsonA/c Dr.
To Sales
770
2420
910
2080
1640
1120
8940
4th may 2016 Motor expenses A/c Dr. 470

To Cash 470
7th may 2016 Drawings A/c Dr.
To cash
1500
1500
9th may 2016 T. Cole A/c Dr.
J. Fox A/c Dr.
To Sales
680
1310
1990
11th may 2016 Sales A/c Dr.
To J. Wilson
To F. Syme
680
270
410
14th may 2016 Van A/c Dr.
To Abel motors Ltd.
28500
28500
16th may 2016 Bank A/c Dr.
To F. Lane
To P. Mullen
To F. Syme
To J. Wilson
7020
3100
1400
1670
850
Discount Given A/c Dr.
To Receivables
511
511
19th may 2016 R. Foot A/c Dr.
To purchases
50
50
22nd may 2016 Purchases A/c Dr.
To W. Wright
To L. Mole
3740
1910
1830
24th may 2016 Payables A/c Dr.
To Discount Received
976
976
J. Brown A/c Dr.
S. Hood A/c Dr.
R. Foot A/c Dr.
4600
3600
1400

To Bank 9600
27th may 2016 Salary A/c Dr.
To Bank
4800
4800
30th may 2016 Business Rates A/c Dr.
To Bank
1320
1320
31st may 2016 Abel Motors Ltd. A/c Dr.
To Bank
20500
20500
(II) Double Entry Recording
Ledger Accounts of Alex for may 2016
Sales A/c
Particulars Amount (Dr.) Particulars Amount (Cr.)
To receivable
By Balance c/d
680
10250
By receivable
By receivable
8940
1990
Total 10930 Total 10930
Purchases A/c
Particulars Amount (Dr.) Particulars Amount (Cr.)
To payables
To payables
6080
3740
By payables
By Balance c/d
50
9770
Total 9820 Total 9820
Cash A/c
Particulars Amount (Dr.) Particulars Amount (Cr.)
To Balance b/d 5600 By Drawings
By Motor expenses
1500
470

By Balance c/d 3630
Total 5600 Total 5600
Bank A/c
Particulars Amount (Dr.) Particulars Amount (Cr.)
To Balance b/d
To receivables
62400
7020
By payables
By Storage expenses
By business rates
By salary
By Abel motors Ltd.
By Balance c/d
9600
400
1320
4800
20500
32800
Total 69420 Total 69420
Storage Expenses A/c
Particulars Amount (Dr.) Particulars Amount (Cr.)
To Bank 400 By Balance c/d 400
Total 400 Total 400
Motor Expenses A/c
Particulars Amount (Dr.) Particulars Amount (Cr.)
To Cash 470 By Balance c/d 470
Total 470 Total 470
Receivables A/c
Particulars Amount (Dr.) Particulars Amount (Cr.)
To Balance b/d
To sales
4500
8940
By bank
By Sales
7020
680

To sales 1990 By Discount Given
By Balance c/d
511
7219
Total 15430 Total 15430
Payables A/c
Particulars Amount (Dr.) Particulars Amount (Cr.)
To purchases
To Bank
To discount received
By Balance c/d
50
9600
976
5944
By balance b/d
By Purchases
By Purchases
6750
3740
6080
Total 16570 Total 16570
Van A/c
Particulars Amount (Dr.) Particulars Amount (Cr.)
To Balance b/d
To Abel motors Ltd.
51250
28500
By Balance c/d 79750
Total 79750 Total 79750
Drawings A/c
Particulars Amount (Dr.) Particulars Amount (Cr.)
To cash 1500 By Balance c/d 1500
Total 1500 Total 1500
Abel motors Ltd. A/c
Particulars Amount (Dr.) Particulars Amount (Cr.)
To Bank 20500 By VAN 28500

By Balance c/d 8000
Total 28500 Total 28500
Discount Received A/c
Particulars Amount (Dr.) Particulars Amount (Cr.)
By Balance c/d 976 By payables 976
Total 976 Total 976
Discount Given A/c
Particulars Amount (Dr.) Particulars Amount (Cr.)
To debtors 511 By Balance c/d 511
Total 511 Total 511
Business rates A/c
Particulars Amount (Dr.) Particulars Amount (Cr.)
To Bank 1320 By Balance c/d 1320
Total 1320 Total 1320
Salary A/c
Particulars Amount (Dr.) Particulars Amount (Cr.)
To bank 4800 By Balance c/d 4800
Total 4800 Total 4800
(III) Trial balance of Alex for May 2016