Financial Accounting Principles Report: Client Analysis and Accounting

This comprehensive report delves into the core principles of financial accounting, exploring its purpose, relevant regulations, and the Generally Accepted Accounting Principles (GAAP) that govern financial statement preparation. The report examines accounting rules, conventions, and concepts such as consistency and material disclosure. It includes detailed analyses of various client scenarios, encompassing journal entries, ledger accounts, trial balances, profit and loss statements, balance sheets, bank reconciliation statements, and control accounts. The report also addresses key accounting concepts like the dual aspect concept, cost principle, and matching concept, providing a thorough understanding of financial accounting practices. Furthermore, it discusses the importance of accounting conventions, particularly consistency and material disclosure, and their impact on financial reporting. The report offers practical examples and explanations, making it a valuable resource for students studying financial accounting.

Financial Accounting
Principles

Table of Contents
INTRODUCTION...........................................................................................................................1
BUSINESS REPORT......................................................................................................................1
1. Financial accounting and it's purpose......................................................................................1
2. Explain regulations related to Financial accounting................................................................2
3. Describe accounting rules and principles................................................................................3
4. Explain conventions and it's concept consistency & material disclosure................................4
CLIENT 1........................................................................................................................................4
(a) Preparation of Journal Entries in books of David Study........................................................4
(b) Ledger Accounts of David Study's financial statements........................................................7
(c) Trial balance of David Study as on 31st January 2018........................................................14
CLIENT 2 .....................................................................................................................................16
(a) Statement of profit and loss account....................................................................................16
(b) Statement of financial position of Peter Hampau as at 31st July 2018................................16
CLIENT 3......................................................................................................................................18
(a) Profit and loss account of Bowling Limited.........................................................................18
(b) Balance sheet of Bowling Limited.......................................................................................18
....................................................................................................................................................19
(c) Accounting concepts of Consistency and Prudency.............................................................19
(d) Purpose of depreciation and its methods..............................................................................20
CLIENT 4......................................................................................................................................21
(A) Bank Reconciliation Statement...........................................................................................21
(B) Prepare Durrell Ltd's updated cash book for December 2017.............................................21

(C) Bank Reconciliation Statement as on 31st December 2017................................................22
CLIENT 5......................................................................................................................................22
(a) Books of Henderson.............................................................................................................22
(b) Control account and its need................................................................................................23
CLIENT 6......................................................................................................................................24
(a) Suspense account..................................................................................................................24
(b) Trial Balance........................................................................................................................25
(c) Trial balance have credit balance of £ 330 as suspense account..........................................25
(d) Difference between Clearing and Suspense account............................................................26
CONCLUSION..............................................................................................................................26
REFERENCES .............................................................................................................................28
Books & Journals...........................................................................................................................28

INTRODUCTION
Financial accounting principle provide some rules and regulations to the organisation
which help them to make financial statements. These standard and guidelines should be follow
by the every business. Generally accepted accounting principle (GAAP) provide general
guidelines for the company that is helpful at the time of preparing financial accounts such as
balance sheet or profit and loss accounts. As a junior accountant it is very important to use these
standard that provide accurate information to prepare statements. Further report is about financial
accounting, it's purpose and regulation (Agasisti and Catalano, 2013). Along with this, they also
discussed about accounting principle, conventions, it's concept such as consistency or material
disclosure. It is also included that double entry book keeping system, trial balance and final
accounts in respect of sole proprietor, limited company or partnership. Rest of the topic is about
bank reconciliation statement, it's process, suspense account with the relevant example and it
also include the sales and purchase control account. These statement help the accountant take
necessary decision and it provide the help to achieve business objectives and goals.
BUSINESS REPORT
1. Financial accounting and it's purpose
Financial accounting: It is a process of recording business transactions, summarised and
analyse these data provide a accurate information to the organisation. Financial accounting is the
specialised branch of accounting which help the organisation to create income statement and
financial position. This accounting system follow the some guidelines which provide them
proper guidelines. It is also prepared for further use such as decision making process, record data
for future budget and for analysing. It is prepared for it's users such as shareholders and
stakeholders of the company. Accounting system helps the organisation to record it's daily
activities that further helpful in manager's decision making process (Akenbor and Ibanichuka,
2012). There are various purpose of financial accounting such as:
 Identify the performance of the company through it's financial activities.
 It is helpful for the identification of true position of business in respect of income
statement and balance sheet.
 It provide helps to the manager to take decision on the basis of financial information.
 Helpful for the analysis of accounting fundamentals.
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 Financial accounting provide these information to it's users such as creditors, suppliers,
investors, employees, government and other institutes who are interested in the business
accounts.
 It provide information regarding profit and loss of the business that further help the
manager to take decision on behalf of the organisation (Akisik, 2013).
2. Explain regulations related to Financial accounting
This accounting system has various regulation which is follow by the organisation for
effective work. It help the manager to identify the company's true position in respect of profit
and loss of the business. So manager can analyse these information and take effective decision
for the organisation. Business adopt these regulation and prepare company's accounts according
to guidelines. That is beneficial for the investors which help them to take decision to invest in
this company or not. There are some regulations which is followed by the organisation:
 Financial accounting is the proper system that follow some guidelines, rule, standards and
procedure according to GAAP principle. Organisations adopt Generally Accepted
Accounting Principle (GAAP) which help them to prepare their accounts in appropriate
way (Sunder, 2015). GAAP includes various principle which is follow by the business
such as regularity, sincerity, constancy, non- compensation, continuity etc.
 Organisations also follow the International Financial Reporting System (IFRS) for
financial accounting. It provide a proper framework which define that how public
company discover their financial statements. IFRS give basic guidelines for recording
their accounts rather than fix any rules for specific activity.
 Treatment of an each transaction such Debit or Credit provide accurate balance of the
company's income and expenses. With the help of this rule accountant can record each
activity in appropriate way which further help in building financial statements (Baker and
Burlaud, 2015).
 According to Company's Act, organisation need to prepare their annual report and it is
presented in every general meeting of the entity. This report is also publish for the public
so they can analyse the financial position of the business.
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3. Describe accounting rules and principles
At the time of recoding company's accounts, accountant need to follow some rules and
related principle which help the company to prepare financial statement. There are some rules
such as:
Debit what comes in, Credit what goes out: - This principle is used in case of real accounts
and it involves the assets such as building, land, machinery etc. If company purchase any assets
that increase the debit balance of the account. Similarly, if company sale their goods than in
decrease the account balance of that particular item (Budding, Grossi and Tagesson, eds., 2014).
Than it comes in the credit side of the accounts. For example: - Company purchase £20,000
machinery so the balance debited by the £20,000. Same as sale of goods worth £10,000, so the
stock balance will be credited by £10,000.
Debit the receiver, Credit the giver: - This rule is applicable in case of personal accounts. This
account include any person, organisation or legal entity they all are consider as a person in the
eyes of law. If company receive something from another party, so company going to be debited
and other party is going to be credited because company is the receiver and party is the giver. For
example: - John receive £500 from Wilson, so debit the John account balance and credit the
Wilson's account.
Debit all the expenses and loss, Credit all the profits and gain: - It is applicable for the
nominal accounts. Company debited all the expenses and losses which occur through business
activities. Credit all the incomes which is generated by the various activities. For example: -
Maintenance expenses of £150 will be debited because it a expense for the company. Same as,
profit on sale of fixed assets £2500 is credited because it is a profit for the company.
Principles:
 Dual aspect concept: - According to this concept every transaction have dual aspect
means two effects. For every single transaction company need to open two accounts and
one have debit effect and another one have credit effect on their balance. This concept is
inspired by the accounting equation, that is assets equal to the liabilities and equity shares
of the company (Caplan, Dutta and Marcinko, 2012). This concept reduce the problem of
financial accounts which occur due to use of single entry system.
 Cost principle: - This principle is the part of GAAP that record the value of assets at the
time of purchasing price and it also known by the historical cost concept. This principle
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required the value of assets, equity and liability that going to be recorded in the financial
report.
 Matching concept: - This accounting principle match the expenses with the business
revenue in the same financial period (Ernstberger, Stich and Vogler, 2012). It is most
important concept of accounting that provide accurate information regarding company's
profit and loss.
4. Explain conventions and it's concept consistency & material disclosure
Conventions: - It involve some guidelines which help the organisation to use this
principle that is applicable on practical work area. Convention provide help to the manager or
accountant to solve the issues that create at the time of preparing financial statement. There are
four main convention that is going to practice in accounting such as Consistency, materiality,
disclosure and conservatism.
Convention in Material disclosure: - In this concept, disclose the accounting information that
is prepared with the honesty. According to companies Act, discover the company's information
which include balance sheet, income statements and cash flow. It is mandatory to show some
facts related to the accounts. Disclose material information between it's shareholders that make
people aware about company's information. It is further helpful for the investment decision and
show material fact in the financial report (Dennis, 2013).
Convention in Consistency: - According to this concept, organisation follow the same method
in the whole financial period or in single accounting cycle. Company consist on single
accounting method and follow same standards for calculating profit and loss for the business.
Organisation always compare their results from last year, so they can analyse the growth of
business. That's why it is important for the company to follow same standard and rules in the
whole accounting period. Because use of different accounting methods or standards can provide
the different result. For example: - WDV method of depreciation provide different profit or loss
same as SLM provide different in the same period. Because of this reason organisation build
consistency in the method for whole financial period (Tsalavoutas, André and Evans, 2012).
CLIENT 1
(a) Preparation of Journal Entries in books of David Study
JOURNAL ENTRY FOR CALCULATION OF CAPITAL
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Date Account Name Debit (£) Credit (£)
01/01/18 Premises A/c Dr. 440000
Motor Van A/c Dr. 45250
Fixtures A/c Dr. 10100
Inventory A/c Dr. 40900
P Mole A/c Dr. 2200
F Lane A/c Dr. 2100
Cash at Bank A/c Dr. 42400
Cash in Hand A/c Dr. 10600
To S Hamid A/c Cr. 10150
To J. Brown A/c Cr. 9600
To Capital A/c (Balancing Amount) 573800
(Being balancing amount is termed as owner's
capital)
Therefore, Capital of David Study's at 1st
January is of £ 573800
JOURNAL ENTRY
Date Account Name Debit (£) Credit (£)
01/01/18 Storage Cost A/c Dr. 800
To Bank A/c Cr. 800
(Being storage cost paid by cheque)
02/01/18 Purchases A/c Dr. 7780
To S Hamid A/c Cr. 2450
To D Main A/c Cr. 2560
To W Tag A/c Cr. 1060
To R Foot A/c Cr. 1710
(Being goods purchases on credit from different
sellers)
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03/01/18 J Wilson A/c Dr. 2020
T Cole A/c Dr. 1840
F Seema A/c Dr. 2380
J Allen A/c Dr. 990
P White A/c Dr. 2820
F Lane A/c Dr. 1170
To Sales A/c Cr. 11220
(Being sales are made on credit basis to different
buyers)
04/01/18 Motor Expenses A/c Dr. 670
To Cash A/c Cr. 670
(Being cash is paid for motor expenses)
07/01/18 Drawings A/c Dr. 2000
To Cash A/c Cr. 2000
(Being amount is withdrawn by owner for personal
purpose)
09/01/18 T Cole A/c Dr. 1280
J Fox A/c Dr. 2310
To Sales A/c Cr. 3590
(Being sales are made on credit basis to various
consumers)
11/01/18 Sale Return A/c Dr. 680
To J Wilson A/c Cr. 370
To F. Seema A/c Cr. 310
(Being sales return are received from two parties)
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16/01/18 Bank A/c Dr. 7150
Discount Allowed A/c Dr. 461
To P Mole A/c Cr. 1710
To F Lane A/c Cr. 3364
To J Wilson A/c Cr. 963
To F Seema A/c Cr. 1574
(Being Payment received from debtors and discount @
5% is allowed to them)
19/01/18 R. Foot A/c Dr. 110
To Purchases Return A/c Cr. 110
(Being goods purchased on credit are returned to
creditor)
22/01/18 Purchases A/c Dr. 3140
To L Mole A/c Cr. 1330
To W. Wright A/c Cr. 1810
(Being purchase is made on credit basis)
24/01/18 S Hamid A/c Dr. 3860
J Brown A/c Dr. 4260
R Foot A/c Dr. 1750
To Discount Received A/c Cr. 7500
To Bank A/c Cr. 2370
(Being amount due to creditors are paid after receiving
discount @ 10%)
27/01/18 Salaries A/c Dr. 14500
To Bank A/c Cr. 14500
(Being payment of salary of is made through bank)
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30/01/18 Business Rates A/c Dr. 2220
To Bank A/c Cr. 2220
(Being expense of business rates are made through
cheque)
(b) Ledger Accounts of David Study's financial statements
CASH A/c
Date Particulars Amount (£) Date Particulars
Amount
(£)
01/01/18
To Opening Balance
A/c 10600 04/01/18
By Motor Expenses
A/c 670
07/01/18 By Capital A/c 2000
31/01/18
By Closing Balance
C/d 7930
Total 10600 Total 10600
BANK A/C
Date Particulars Amount (£) Date Particulars
Amount
(£)
01/01/18 To Opening Balance A/c 42400 01/01/18 By Storage cost A/c 800
16/01/18 To F Lane A/c 3200 24/01/18 By R Foot A/c 1600
To P Mole A/c 1600 By J Brown A/c 3300
To J Wilson A/c 880 By S Hamid A/c 2600
To F Seema A/c 1470 27/01/18 By Salaries A/c 14500
30/01/18 By Business Rates A/c 2220
31/01/18
By Closing Balance
C/d 24530
Total 49550 Total 49550
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STORAGE COST A/c
Date Particulars Amount
(£)
Date Particulars Amount
(£)
01/07/18 To Bank A/c 800 31/07/18 By Profit & Loss A/c 800
Total 800 Total 800
PURCHASE A/c
Date Particulars Amount
(£)
Date Particulars Amount
02/01/18 To S Hamid A/c 2450 31/01/18 By Trading A/c 10920
To W Tag A/c 1060
To D Main A/c 2560
To R Foot A/c 1710
22/01/18 To W Wright A/c 1810
To L Mole A/c 1330
Total 10920 Total 10820
SALES A/c
Date Particulars Amount
(£)
Date Particulars Amount
(£)
31/01/18 To Trading A/c 14810 03/01/18 By P White A/c 2820
By T Cole A/c 1840
By F Seema A/c 2380
By J Allen A/c 990
By J Wilson A/c 2020
By F Lane A/c 1170
09/01/18 By J fox A/c 2310
By T Cole A/c 1280
Total 14810 Total 14810
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