Financial Accounting Principles Report: Financial Statements

This report provides a comprehensive overview of financial accounting principles, starting with an introduction to financial accounting and its importance for organizations. It includes a report to a Line Manager outlining accounting regulations and terminologies, emphasizing the significance of financial statements like balance sheets, income statements, and cash flow statements for stakeholders. The report delves into the legal frameworks governing financial accounting, such as those provided by the FRC, IASB, and IFRS, and discusses key accounting rules like the monetary unit assumption, full disclosure principle, and going concern principle. It then presents journal entries, ledger accounts, and trial balances for different clients, along with profit and loss statements and statements of financial position. The report also covers concepts of accounting like consistency and prudence, and explains depreciation methods. Furthermore, the report includes bank statement preparation, cash book presentation, reconciliation processes, and control accounts, offering a detailed analysis of various accounting aspects to provide a holistic understanding of financial accounting.

Financial Accounting
Principles

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
A. Generating report regarding accounting regulations for firm to the Line manager...........1
CLIENT 1........................................................................................................................................4
1. Journal entries for company...............................................................................................4
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2. Preparation of ledger accounts from above journal entries................................................7
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3. Trial balance of company................................................................................................17
M1. Purchase and sale transactions to segregate trial balance.............................................18
D1. Producing trial balance with reference to accounting concepts....................................18
CLIENT 2......................................................................................................................................18
A Profit and Loss statement for the company......................................................................18
B. Statement of financial position for Peter Piper company................................................19
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CLIENT 3......................................................................................................................................22
A. Income statement for Raintree Ltd..................................................................................22

B. Statement of financial position of company....................................................................23
C. Concepts of accounting....................................................................................................24
D. Presenting and measuring depreciation in the business and various methods of charging
deprecation...........................................................................................................................25
M2. P&L, balance sheet and cash flow statements..............................................................25
D2. Producing final accounts of company...........................................................................25
CLIENT 4......................................................................................................................................25
A. Preparation of bank statement.........................................................................................25
B. Various causes of recording bank statements..................................................................25
C. Presentation of cash books...............................................................................................25
M3. Reconciliation process and related terms......................................................................26
D3. Preparation of BRS........................................................................................................26
CLIENT 5......................................................................................................................................26
A Producing sales and purchase ledger account for Henderson organisation......................26
B. Defining control account.................................................................................................27
CLIENT 6......................................................................................................................................27
A Suspense account and highlighting main features...........................................................27
B. Trial balance...................................................................................................................28
C. Journal entries..................................................................................................................28
D. Distinguishing clearing and suspense account................................................................29
M4. Kinds of accounts..........................................................................................................29
D4 Accounting methods for company..................................................................................29
CONCLUSION..............................................................................................................................29
REFERENCES..............................................................................................................................30

INTRODUCTION
Financial accounting is important for organisation so that every record may be
maintained by it quite effectively. The present report deals with different organisations with
relation to preparation of financial statements. This provides useful information to users of such
information as well as management to take better decisions.
A. Generating report regarding accounting regulations for firm to the Line manager
To: Line Manager
From: Junior accountant
Subject: Accounting terms and regulations required to be followed by organisation.
Respected Sir,
Accounting concepts and terminologies play vital role in organisation so that financial
statements may be prepared more accurately. The financial statements include balance sheet,
income statement and cash flow statement which provides much needed financial information
to users of it. Accounting professionals are benefited by such concepts and principles which is
used to prepare financial statements having relevant information to users of accounting
information. Internal as well as external stakeholders' are benefited by such information as they
are able to take better and effective decisions quite effectually. The financial statements are
prepared with such accounting concepts and as such, accurate information is provided to
stakeholders to take enhanced decisions with much ease. In relevance to this, budgeting and
forecasting are another essential tools for organisation.
1. Financial accounting
Financial accounting is preparing, summarizing and reporting financial transactions
which prevails in the business. This accounting is much important to users of accounting
information to assess liquidity, profitability and efficiency of company in effectual way. It is
also called historical accounting because it takes financial data of past years and draw out
financial statements quite effectively. The taxation authorities and government mandatory
require that financial accounts should be prepared by companies so that fairness of financial
statements may be reflected to users of accounting information to take better decisions with
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much ease. Financial accounting is a branch of accounting which deals with recording of
business transactions that take place every day and by maintaining such records in books of
accounts. This whole process is then summarized to prepare financial statements which exhibits
true financial position of company quite effectively. The company's management is also
benefited by such information as it comes to know financial health of organisation and if any
weakness exist, then better and effective decisions are taken to remove it in the best possible
way. Several financial statements are then utilised by stakeholders' be it external or internal so
that they may take timely and better decisions. In addition to this, investors and creditors are
also benefited by such information and they make out whether to provide funds to company or
not.
Illustration 1: Kinds of financial statements
Source: (Zeff, 2016)
The above diagram shows different kinds of financial statements which is quite relevant
to stakeholders which are prepared by firm to exhibit true information of the company so that
stakeholders may be able to take better and effective decisions. The financial information
exhibited by financial statements are also used for tax payment liability as it provides reliable
and accurate information to taxation authorities.
2. Financial accounting rules and regulations
The financial accounting is quite important to carry out and at the same time requires
following legal frameworks governed by professional bodies. This is important as manipulation
in accounting records may lead to false information to users of such information. Thus, it is
essential that company prepares accurate financial statements so that various stakeholders may
rely upon it. As such, to remove defects accounting regulations are to be followed by
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accountants so that reliable information may be produced quite effectively. UK's corporate
reporting and governance regulator has given FRC guidelines which are to be followed by
organisations. The legal frameworks provided by professional bodies are described below:
FRC (Financial Reporting Council): The body is entrusted to govern and regulate government
departments and organisations. It fosters investment in UK which is main objective of it. FRC is
formed by company limited by guarantee. It provides benefit to whole economy with much
ease.
IASB (International Accounting Standards Board): This board is entitled to provide guidelines
to accountants so that they may prepare accurate and error free financial statements to provide
financial information to users.
IFRS (International Financial Reporting Standards): This body provides legal framework within
which proper accounting records are to be maintained by following financial reporting
standards given by it.
3. Rules for accounting
1. Monetary unit assumption: The monetary unit assumption is related to currency used for
business transactions. The universally accepted currency is US dollar which remains stable and
as such, transactions may be made in the same currency.
2. Full disclosure principle: The principle states that each and every record must be maintained
by the business so that reliable information may be provided to such users. This reliability is
achieved by segregating financial statements into single statements and by auditing as well.
This will provide effective information to users and they can interpret the same. Financial
statements must be disclosed at the end of period.
3. Going concern Principle: This rule or principle conveys that financial statements are prepared
by organisation in the view that business will run for a long time. In simple words, this concept
assumes that organisation will continue for long time and will not get closed. By anticipating
such aspect, financial statements are prepared by the company.
4. Accounting concepts
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 Material disclosure:
The materiality concept states that only material items must be included in accounting
records so that might affect economic decisions and all those non-materials must be ignored
which does not affect decisions of users of accounting information. Tax rate need to be
disclosed which is expected to change in the future.
 Consistency: The consistency concept is another essential principle which states that
accounting polices need to be consistently followed by organisation so that reliable
information may be prepared in the best possible way. This means that same
depreciation method must be followed by organisation so that reliable information may
be obtained with much ease. This is also easier to compare with past year data of
organisation. Thus, for reliable financial information consistent accounting policies must
be followed.
CLIENT 1
1. Journal entries for company
The main objective of journal entries is to prepare summarized data set which provides
accurate financial statements prepared from such journal entries. The basic concept is that
financial records are maintained in chronological order as when they occur.
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2. Preparation of ledger accounts from above journal entries
The ledger accounts are prepared separately from above journal entries. The main
essence of ledger accounts are that management is benefited as it provides information about
revenue and expenses made in the period. This help to initiate control on costs so that profit may
be garnered.
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