BO8706 Financial Accounting Project: Ledger, Ratios, and Bank

This financial accounting project, likely for course BO8706, explores fundamental accounting principles. It begins with double-entry bookkeeping, creating ledgers and a trial balance. The project then constructs income statements and balance sheets, along with ratio analysis to assess a company's financial performance. Further, it addresses bank reconciliation statements, explaining discrepancies and rectification methods. Finally, the project covers suspense accounts, journal entries, debtors control accounts, and sales reconciliation to correct errors. The assignment provides a comprehensive overview of financial accounting concepts and their practical application in analyzing financial data and ensuring accuracy in record-keeping.

BO8706
FINANCIAL
ACCOUNTING

Table of Contents
INTRODUCTION:..........................................................................................................................3
Task 1.1............................................................................................................................................3
Task 1.2............................................................................................................................................4
Task 2.1............................................................................................................................................8
Task 2.2............................................................................................................................................9
Task 2.3..........................................................................................................................................10
Task 2.4..........................................................................................................................................10
Task 3.1..........................................................................................................................................12
Task 3.2..........................................................................................................................................12
Task 3.3..........................................................................................................................................13
Task 3.4..........................................................................................................................................13
Task 4.1..........................................................................................................................................14
Task 4.2..........................................................................................................................................14
Task 4.3..........................................................................................................................................14
Task 4.4..........................................................................................................................................15
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................18

INTRODUCTION:
In this project different accounting principles discussed; to know financial positions of the firm,
company requires to calculate income statement and balance sheet. There are many ratio’s which
helps investors understanding current performance of the company, these are capital gearing
ratios, gross profit margin, net profit margin, return on capital employeed and debtors turnover
ratio. Book keeping is the process of double entry in which one transaction effects multiple
transactions, these effects are shown through doing calculations for Catherine who is sole
proprietor. Different questions and problems done in this project report extract different
accounting concepts. Task 1 covers concept of double book keeping, ledger and trial balance.
Task 2 covers Income statement and financial positions showing statement and some ratios
which help investors or stakeholders know about various companies’ financial performance.
Task 3 covers bank reconciliation statement, why difference occurs and how to rectify it. At last
comes Task 4 which covers importance of suspense account in trial balance and how to rectify it
through proper journal entries; debtors control account and sales reconciliation helps in rectify
error due to wrong entries in sales ledger and debtor’s ledger.
Task 1.1
Trial balance: All two pass books know and believe that prove error by all contradictions.
Ledger: An accounting is a record or chart used to store accounting sections for activity reports
and salary statement exchanges. The journal section of the accounting list may include records
such as cash, receivables, profitability, stocks, creditor liabilities, accruals and stocks.
Trial balance as on 31st March, 2020:
Trial balance as on 31st March, 2020
S.No
. Particulars
L/
F Debit (£)
Credit
(£)
1 Premises 340000
2 Van 51250
3 Fixtures 8100
4 Inventory 63900
5 Receivables 4500
6 Cash at bank 62400
7 Cash in hand 5600

8 Payables 8750
9 Owner's Capital 527000
Total 535750 535750
So, the balancing figure which is owner’s capital shows the balance of £8750 pounds.
Task 1.2
I. Ledgers:
Storage cost a/c for the year ending 30th April, 2020
Particulars Debit (£) Particulars Credit (£)
To bank a/c 400 By balance c/d 400
400 400
Purchases a/c for the year ending 30th April, 2020
Particulars Debit (£) Particulars Credit (£)
To S. HOOD 1400
To D. MAIN 2000
To R. FOOT 1600
To D. Main 1800 By balance c/d 6800
6800 6800
Sales a/c for the year ending 30th April, 2020
Particulars Debit (£) Particulars Credit (£)
By T. Cole 1650
By F. Syme 2000
By J. Allen 900
By F. Lane 750
By T. Cole 650
To balance c/d 7250 By J. Allen 1300
7250 7250
Motor expenses a/c for the year ending 30th April, 2020
Particulars Debit (£) Particulars Credit (£)
To cash 470 By bal c/d 470
470 470

Drawings a/c for the year ending 30th April, 2020
Particulars Debit (£) Particulars Credit (£)
To Capital a/c 1500 By bal c/d 1500
1500 1500
Van a/c for the year ending 30th April, 2020
Particulars Debit (£) Particulars Credit (£)
To Balance b/d 51250
To Abdel Motors 28500 By Bal c/d 79750
79750 79750
Salaries a/c for the year ending 30th April, 2020
Particulars Debit (£) Particulars Credit (£)
To bank a/c 4800 By bal c/d 4800
4800 4800
Business rates a/c for the year ending 30th April, 2020
Particulars Debit (£) Particulars Credit (£)
To Bank 1320 By bal c/d 1320
1320 1320
Cash a/c for the year ending 30th April, 2020
Particulars Debit (£) Particulars Credit (£)
To Bal b/d 5600 By Motor expenses 470
By bal c/d 5130
5600 5600
Bank a/c for the year ending 30th April, 2020
Particulars Debit (£) Particulars Credit (£)
To Bal b/d 62400 By Storage expenses 400
To P. Mullen 1400 By S. Hood 2150
To F. Lane 3100 By J. Brown 4600
To F. Syme 2000 By R. Foot 1400
By Salaries 4800
By business rates 1320
By Abel Motors 28500
By balance c/d 25730
68900 68900
S. Hood a/c for the year ending 30th April, 2020
Particulars Debit (£) Particulars Credit (£)

To Bank 2150 By balance b/d 2150
To bal c/d 1400 By Purchases 1400
3550 3550
D. Main a/c for the year ending 30th April, 2020
Particulars Debit (£) Particulars Credit (£)
By purchases 2000
To balance c/d 3800 By Purchases 1800
3800 3800
R. Foot a/c for the year ending 30th April, 2020
Particulars Debit (£) Particulars Credit (£)
To bank 1400 By purchases 1600
To bal c/d 200
1600 1600
T. Cole a/c for the year ending 30th April, 2020
Particulars Debit (£) Particulars Credit (£)
To Sales 1650
To Sales 650 By bal c/d 2300
2300 2300
F. Syme a/c for the year ending 30th April, 2020
Particulars Debit (£) Particulars Credit (£)
To Sales 2000 By bank 2000
2000 2000
J. Allen a/c for the year ending 30th April, 2020
Particulars Debit (£) Particulars Credit (£)
To Sales 900
To Sales 1300 To Bal c/d 2200
2200 2200
F. Lane a/c for the year ending 30th April, 2020
Particulars Debit (£) Particulars Credit (£)
To Balance b/d 3100 By Bank 3100
To Sales 750 By bal c/d 750
3850 3850

P. Mullen a/c for the year ending 30th April, 2020
Particulars Debit (£) Particulars Credit (£)
To Balance b/d 1400 By Bank 1400
1400 1400
J. Brown a/c for the year ending 30th April, 2020
Particulars Debit (£) Particulars Credit (£)
To Bank 4600 By balance b/d 4600
4600 4600
Abdel Motors a/c for the year ending 30th April, 2020
Particulars Debit (£) Particulars Credit (£)
To Bank 28500 By Van 28500
28500 28500
II. Trial balance as on 30th April, 2020
Trial balance as on 30th April, 2020
S.No. Particulars L/F Debit (£) Credit (£)
1 Sales 7250
2 Purchases 6800
3 Premises 340000
4 Van 79750
5 Fixtures 8100
6 Inventory 63900
7 Receivables 5250
8 Cash at bank 25730
9 Cash in hand 5130
10 Payables 5400
11 Storage cost 400
12 Motor expenses 470
13 Drawings 1500
14 Salaries 4800
15 Business rates 1320
16 Owner's Capital 530500
Total 543150 543150
III. Analyzing Trial balance of 31st March, 2020 and 30th April, 2020
After analyzing both the trial balances following progression was found:

 Payables: It decreases by £3350 due to payment paid to creditors from 31st March
to 30th April.
 Receivables: It also decreases by £750, due to payment received from debtors.
 Cash at bank: Balance of bank is decreased to £36670 due to payment done to
suppliers.
 Cash in hand: This balance is also decreases by £470 due to payment of expenses
such as motor and salaries.
 Total balance: Trial balance as on 31st March, 2020 shows an amount of £535750
while on 30th April, 2020 it shows £543150; additional to this owner’s capital is
also increased with approx. £10000 pounds due to increase in Sales, Purchases
and Van amount.
Task 2.1
Financial Accounting Statement: These are the statements which shows report about current
status of the business through various statements such as Income statement (profit and loss
account), financial position statement (Balance sheet) and cash flow statement.
Comparison of different financial statements:
Bases Balance sheet Income statement Cash flow statements
Purpose It is prepared to know
financial positions of
the company, how
much assets company
has to dissolve its
liability.
It is prepared to get
total net earnings
during a year by a
company. These net
earnings then treated
as retained earnings
and added to owner’s
equity.
It is prepared to get the
current status of cash
movement.
Structure It contains two sides
viz. Assets and
Liabilities. Total
Assets should match
with Total equity and
liabilities.
It also contains two
sides which is income
and expenses, all the
incomes during a year
deducts from total
expenses to get net
earnings during a
year.
This statement consists
of three different types
of activities which cash
from operating,
financing and investing
activities.
Content This account is based
on going concern
concept. It consists
only those items
It is worked on
accrual accounting
principal. Only those
contents used which
This concept works on
real accounting
principal. Only cash
content included.

which do not end
until sold.
occurs during a year.
Task 2.2
Income statement of Italian Wine limited for the year ending 31st March, 2020:
Profit and loss a/c for the year ended 31st March, 2020
Particulars
L/
f
Debit
(£)
Credit
(£)
Sales revenue 198000
Opening Inventory 12000
Purchases 102000
Closing Inventory 14000
Gross profit 98000
Salaries and wages 5500
add accrued salary 2000
Administrative expenses 24500
Distribution expenses 14000
Dividends paid 1000
Depreciation:
Property 2% 6000
Motor Vehicles 10% 1080
Net profit before interest and
taxes 43920
less: tax 9000
Net profit before interest and
after tax 34920
Less: Interest@10% 1500
Net profit after interest and
tax 33420
Task 2.3
Financial position of Italian fine as on 31st March, 2020:
Financial position as on 31st March,2020

ASSETS £ £
Non Current Assets:
Property
30000
0
Less: Dep@2% 6000
Motor Vehicles 10800
Less: Dep@10% 1080
30372
0
Current Assets:
Trade receivables 24000
Bank and Cash 22500
Inventory 14000 60500
Total Assets
36422
0
EQUITY AND LIABILITIES
Equity :
Issued Share capital
10000
0
Revaluation Reserves(bal. Fig)
14130
0
Share Premium 50000
Retained earnings 33420
32472
0
Non-current Liabilites:
10% Redeemable loan 15000 15000
Current Liabilities:
Accrued salary 2000
Trade payables 21000
Accrued Interest@10% 1500 24500
Total Equity and liabilities
36422
0
Task 2.4
Calculations of various ratios:
a) Return on Capital employed:
b) Gross profit margin:
c) Net profit Margin:
d) Debtors turnover:

e) Gearing ratio:
Return on capital employed £ £
A
Earning before Interest and
Tax (EBIT) 43920
Total Assets 364220
Less: Current Liabilities 24500
B Capital Employed 339720
ROCE (A/B) × 100 13%
b
Gross Profit Margin £
A Gross Profit 98000
B Net Sales 198000
Gross Profit Margin (A/B) ×
100 49%
c
Net Profit Margin £
A
Net profit after interest and
tax 33420
B Net sales 198000
Net Profit margin(A/B) × 100 17%
d
Debtors Turnover Ratio £
A Net Credit Sales 198000
B Average accounts receivable: 24000
Debtors Turnover Ratio (A/B) 8.25
e
Gearing Ratio £ £
A Total Debts:
10% Loan 15000 15000
B Total Equity:
Issued share capital 100000
Share premium 50000 150000
Gearing Ratio (A/B) 0.1

Task 3.1
Bank Reconciliation Statement: It is a method of coordinating an equation in an item's
accounting record for a cash register for comparative data on a banking item. The goal of this
process is to highlight the contradictions between the two and to book the changes in the
appropriate accounting records.
Purpose: It is not necessary to implement BRS and there is no set date for preparation of
BRS. The BRS shall be established from time to time to ensure that bank-related exchanges
are properly recorded in the bank's share of the real cash book and with the bank in its books.
BRS helps identify errors in scheduling trades and in setting a specific bank balance on a pre-
set date.
Process of preparing BRS:
 As soon as it is ready, it is essential to have all the necessary documents and data at hand.
 Considering from regular errors, for example, Error in identifying with duplicate
corridors, not representing exchanges that would cause a difference equal to the amount
lost, Errors when you entered curves and points and transmission errors.
 Banks can also make mistakes: it is possible that a bank has presented a mix, in such a
scenario the best thing is to recommend a bank.
Stakeholders: Only owners and internal staff such as managerial accountant and junior
accountant would be interested in such a statement, to rectify any mismatch between
cashbook and passbook.
Task 3.2
Updated cash book of Texas Traders as on 31st March, 2020
Dat
e
Debit
£
Credit
£
1 Bal b/d 5000
2 Rent Mrs Miller 5000
5 Spenser Ltd. 2500
8 Interest on debentures 2500
9 Cash 1500

14
Capital introduced
Mr. white 5000
15 PC World purchase 6000
20 Insurance claim 15000 Electricity 1800
21 Repayment of loan 9200
22 Legal fees 4000
23 Cash 8000
28 North Wings Ltd. 5000
29 Salary:
Amber 2000
Oshun 2500
Baker 2800
30 Bal c/d 6200
42000 42000
Task 3.3
Bank Reconciliation Statement of Texas Traders as on
31st March, 2020
Particulars £ + £ -
Balance as per cash book 6200
Salary:
Amber (not deducted from bank) 2000
Baker (not deducted from bank) 2800
Gas 250
Bank Charges 100
Cheque not received (North Wings) 5000
Balance as per pass book 5650
1100
0
1100
0
Task 3.4
a) Deposit in transit: It is the money that was received from an organization and registered
in the organization's accounting framework. The shop has only been sent to the bank, but
it is not ready yet and presented on the ledger.

b) Outstanding cheque: These are those cheques which are deposit into the bank but need to
be processed and waiting for debit or credit by the bank.
c) Not Sufficient Funds check when applying the reconciliation process: These are bounce
cheques from debtor’s sides. Some times when company deposit cheque received from
the debtors, it get bounced due insufficient fund in parities account; in such case a heavy
penalty according to amount size is paid by debtors to the bank and a legal action can be
taken by company against such debtor.
Task 4.1
Debtor's control a/c as on 31st March, 2020
Debit £ Credit £
Sales 22400 Payment set off 8200
Total sales day book 114800
Cheque dishonured 6800 Bal c/f 135800
144000 144000
Task 4.2
Sales Reconciliation statement
Particulars £ + £ -
Balance as per sales ledger
14754
0
Excess amount posted in customer 9000
Wrong posting of delivery payment 260
Mismatch in sales day book 1600
Customer's account set off 8200
Cheque returned 6800
Balance as per debtor's control a/c
13580
0
15460
0
15460
0

Task 4.3
Trial Balance as on 31.3.2020
Particulars Dr £ Cr £
Capital 6000
Sales
2530
0
Salaries 3500
Purchases
1250
0
Discount received 250
Discount allowed 700
Computer (Office) 3000
Return Inwards 300
Rent and rates 900
Opening stock 4000
Bank Overdraft 1600
General expenses 1500
Fittings 2500
Provision for bad debts 200
Accumulated depreciation on fittings 250
Receivables 2500
Payables 1500
Suspense a/c (Bal. Figure) 3700
3510
0
3510
0
Task 4.4
Journal entries of rectification of errors:
Particulars Dr £ Cr £
Discount allowed a/c Dr.
To Suspense a/c
200
200
Receivables a/c Dr.
To Suspense a/c
1500
1500
Payables a/c Dr.
To Suspense a/c
1000
1000
Capital a/c Dr. 1000

To Suspense a/c 1000
Total 3700 3700
Suspense a/c for the year ending 31st March, 2020
Debit £ Credit £
Bal b/d 3700 Discount allowed 200
Receivalbles 1500
Payables 1000
Capital 1000
3700 3700
Updated trial balance after doing all rectification as on 31st March, 2020:
Trial Balance as on 31.3.2020
Particulars Dr £ Cr £
Capital 5000
Sales 25300
Salaries 3500
Purchases 12500
Discount received 250
Discount allowed 900
Computer (Office) 3000
Return Inwards 300
Rent and rates 900
Opening stock 4000
Bank Overdraft 1600
General expenses 1500
Fittings 2500
Provision for bad debts 200
Accumulated depreciation on fittings 250
Receivables 4000
Payables 500
33100 33100

CONCLUSION
So, from the above report it can be stated that double book keeping is necessary for every
organizations to avoid error situations in the financial statement and trial balance. Company
should hire experts and use latest software’s to safe it itself from wastage of time in doing
rectification and identification of errors. Rectification and identification of errors is manageable
at small unit firms but talking about big firms having thousands of transactions in a day, it is not
possible to rectify errors of such a large data. ERP software’s are available in the market which is
useful for both expert of accounting and for new comers.

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