Financial Accounting Principles: CFS Case Study and Analysis Report

This assignment provides a comprehensive overview of financial accounting principles, using Corporate Financial Solutions (CFS), London as a case study. It covers key concepts such as financial accounting's purpose, regulations (IFRS and IAS), and fundamental rules. The assignment delves into practical applications, including journal entries, ledger accounts, trial balances, and the preparation of profit and loss statements, balance sheets, and bank reconciliation statements for various clients. It also explores accounting concepts like business entity, dual aspect, money measurement, cost, going concern, and matching principles. Conventions such as consistency and material disclosure are explained, alongside depreciation methods. The report concludes with an analysis of suspense accounts and their role in drafting trial balances. This assignment demonstrates a strong understanding of financial accounting principles and their practical application in a business context.

Financial Accounting
Principles

Table of Contents
INTRODUCTION...........................................................................................................................1
1. Financial accounting and its purpose.......................................................................................1
2. Financial accounting regulations:-...........................................................................................2
3. Accounting rules and principles...............................................................................................2
4. Conventions and concepts related to consistency and material disclosure..............................4
CLIENT 1........................................................................................................................................4
1. Journal entry in books of David Study....................................................................................4
2. Ledger Account........................................................................................................................7
3. Trial Balance as on 31st January 2018..................................................................................13
CLIENT 2......................................................................................................................................14
A. Statement of profit and loss for Peter Hampau for year ended 31st July 2018.....................14
B. Statement of financial position for Peter Hampau for year ended on 31st July 2018...........15
CLIENT 3......................................................................................................................................16
A. Profit and loss account..........................................................................................................16
B. Balance Sheet........................................................................................................................17
C. Consistency and Prudence concepts......................................................................................18
D. Depreciation and its methods................................................................................................18
CLIENT 4......................................................................................................................................19
A. Purpose of BRS to CEO of Durrell.......................................................................................19
B. Prepare Durrell Ltd's updated cash book for December 2017..............................................19
C. Bank Reconciliation Statement.............................................................................................20
CLIENT 5......................................................................................................................................20
A. Ledger control accounts........................................................................................................20
B. Control account.....................................................................................................................21
CLIENT 6......................................................................................................................................21
A. Suspense Account.................................................................................................................21
B. Drafting of Trial Balance......................................................................................................22
C. Journal entry for suspense account........................................................................................22
D. Difference between suspense a/c and clearing a/c................................................................23

CONCLUSION..............................................................................................................................23
REFERENCES..............................................................................................................................24

INTRODUCTION
Financial accounting principle assist an organisation to prepare their financial statements
in an adequate manner so that management can use these statements for making better decisions.
Financial accounting is the process of recording, summarizing and reporting the entries and
transactions in final accounts like Income statement and Balance sheet. These statements are
prepared on the basis of pre set standards which are followed by every organisation. With the
help of these statements of accounts one can come to know regarding the actual position and
performance of company in front of its stakeholders.
The main aim of this report is to ensure firm follows the rules and principles of
accountancy. To better understand this concept, Corporate Financial Solutions (CFS), London is
being selected for this present report. The financial accounting, its purposes, rules and principles
and regulations related to financial accounting is being discussed in this report. Apart from this,
there are various concepts such as conventions, consistency and material disclosure concept is
also explained in this project. Beside this, trial balance, sole trader, Bank Reconciliation
statements are prepared in this report.
1. Financial accounting and its purpose
Financial accounting: - It is a process of preparing financial statements that are helpful
in identifying financial performance and position of companies. These statements are useful for
internal as well as for external analysis. Outside parties such as investors, supplier, creditor or
customers. It is a specialized branch of accounting which continuously keep eyes on company’s
transactions and with the help of these transaction company tend to prepare financial report such
as income statement, balance sheet or cash flow statement.
Purpose of financial accounting: -
 Main purpose of financial accounting is to provide accurate information that play a
major role in decision making.
 Prepare financial report would show financial position of Corporate Financial
Solution that tend to provide information to external users such as creditors, potential
investors, suppliers and tax authorities.
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2. Financial accounting regulations:-
 International Financial Reporting Standard (IFRS):- IFRS contain some rules
and principles which is helpful in making financial reports like income statements,
balance sheet and cash flow statements. These reports follow the IFRS principle and
record transaction according to this. IFRS issued by IASB (International Accounting
Standard Board) it provide clear guidelines to accountant, how they maintain it's
accounts and prepare according to this regulation. If Corporate Financial Solution
follow IFRS principle, so company as well as investors get the benefits. Investors
invest in this company because of the transparency and the cost of investment is also
very low (Collins, Pasewark and Riley, 2012).
 International Accounting Standers (IAS):- It is older accounting standard, which is
replaced by International Financial Reporting Standers (IFRS), and it is issued by
International Accounting Standard Board (IASB). It is globally comparable standard
and it promote accountability, efficiency and transparency in the world.
3. Accounting rules and principles
Accounting has different rules and principles which needs to be followed by the firms in
order to prepare the financial statements in adequate manner. These are discussed as below:
Debit The Receiver, Credit The Giver:
The rule is used for personal accounts like debtors, Banks, creditors and capital account
etc. As when company receives from organisation which becomes an inflow for the company
therefore the person needs to be credited in books of account.
Debit What Comes In, Credit What Goes Out
This rule is applied in the case of real accounts. The real account includes machineries,
land and buildings etc. These assets have their debit balance by default. Therefore, when debit
what comes in which means there is an addition to the existing balance. Similarly, is case with,
credit what goes out which means reducing the account balance when a tangible asset goes out of
the organisation (DRURY, 2013).
Debit All Expenses And Losses, Credit All Incomes And Gains
This rule is applied when there is something related with nominal account. As capital of
the company is considered as its liability. Thus it has a default credit balance. When all incomes
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and gains are credited than it increases the capital and by debiting expenses and losses it
decreases the capital. It helps organisation to stay in balance.
Corporate Financial Solution is following all the rules which are related to the accounting
and helps in preparing final accounts effectively and efficiently.
Principles:
Principles are the set of standards which defines the way of preparing financial
statements in appropriate manner. There are various principles which are as follows:
Business entity concept:
The business entity concept states that business and its owners are the separate from each
other. It means the Corporate Financial Solutions has different identification on the basis of the
transaction which are carried out in their own name. According to this concept Company can sue
or be sued and it can also open its bank account. (Edwards, 2013).
Dual aspect concept:
Dual aspect concept refers that companies are liable to record their transaction on both
debit and credit side of books. Single entry system records only one aspect of the transaction
which leads to recording of irrelevant information in books of accounts. Therefore, to avoid this
problem dual aspect principle assure that every transaction needs to be recorded on both debit
and credit side of accounts (Lobo and Zhao, 2013).
Money measurement concept:
The money measurement concept is based on the money value. This concept states that
only those transaction needs to be recorded in the books of accounts which are measured in terms
of money. Therefore, Corporate Financial Solution follows this concept and record only those
transaction which can be valued in monetary term.
Cost principle:
This principle states that amounts of assets should be recorded at their acquiring cost. It
can be said that businesses are obliged to record an asset on their balance sheet for the amount
paid for the assets.
Going concern concept:
In this principle, it is assumed that the business will continue for long time as an entity.
As this is also not concerned regarding member of business as due to separate entity concept.
Matching principle:
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According to this principle, all expenses of business should be matched with the revenues
which are generated in same accounting period.
4. Conventions and concepts related to consistency and material disclosure
The conventions are guidelines which arises from the practical applications of principles
of accounting. These are following conventions of accounting which are described as below:
Consistency convention:
The consistency convention states that organisations should follow the same kind of
methods for the similar transactions which are done every year. For example, Corporate
Financial Solutions uses the market price method for stock valuation so according to this
convention organisation is obliged to use same method for over the years. Similarly, if it follows
the straight line depreciation method for depreciating its fixed assets than company needs to use
the same method for over the period of time (Maskell, Baggaley and Grasso, 2016).
Material disclosure convention:
This convention of material disclosure states that company should disclose each and
every information in the books of accounts. It is essential for business to give and disclose all the
financial information to the investors, creditors and owner for better decision making.
CLIENT 1
1. Journal entry in books of David Study
Date Particular 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
Bank A/C Dr. 42400
Cash A/C Dr. 10600
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To S Hamid A/c 10150
To J. Brown A/c 9600
To Capital A/c (Balancing Figure) 573800
(Being owner capital invested in
business)
01/01/01 Storage cost A/c Dr. 800
To bank a/c
(Being storage cost is paid)
800
02/01/18 Purchase A/c Dr. 7680
To S Hamid A/c 2450
To D Main A/c 2560
To W Tag A/c 1060
To R Foot A/c 1610
(Being goods purchase on credit from
parties)
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 11220
(Being goods sold on credit to various
parties)
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04/01/18 Motor Expenses A/c Dr. 670
To Cash A/c 670
(Being motor expense is paid)
07/01/18 Capital A/c Dr. 2000
To Cash A/c 2000
(Being cash withdrawal by owner
himself)
09/01/18 T Cole A/c Dr. 1280
J fox A/c Dr. 2310
To Sales A/c
(Being goods purchase on credit with
various parties)
11/01/18 Sale Return A/c Dr. 680
To J Wilson A/c 370
To F Seema A/c 310
(Being goods is returned back by the
parties
16/01/18 Bank A/c Dr. 7150
Discount Allowed A/c Dr. 461
To P Mole A/c 1710
To F Lane A/c 3364
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To J Wilson A/c 963
To F Seema A/c 1574
(Being Payment received from parties
after allowing discount @ 5%)
19/01/18 R Foot A/c Dr. 110
To Purchases Return A/c 110
(Being Goods is returned to creditor)
22/01/18 Purchases A/c Dr. 3140
To L Mole A/c 1330
To W Wright A/c 1810
(Being goods purchased on credit)
24/01/18 S Hamid A/c Dr. 3860
J Brown A/c Dr. 4260
R Foot A/c Dr. 1750
To Bank A/c 7500
To Discount Recieved A/c 2370
(Being payment is made to creditors
after receiving discount @ 10%)
27/01/18 Salaries A/c Dr. 14500
To Bank A/c 14500
(Being salaries are paid through
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cheque)
30/01/18 Business Rates A/c Dr. 2220
To Bank A/c 2220
(Being business rates are paid through
cheque)
2. Ledger Account
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
Sales A/C
Date Particulars Amount Date Particulars Amount
31/01/18 To Trading And P&L
A/C
14810 03/01/18 By J Wilson A/C 2020
By T Cole A/C 1840
By F Seema A/C 2380
By J Allen A/C 990
By P White A/C 2820
By F Lane A/C 1170
09/01/18 By T Cole A/C 1280
By J Fox A/C 2310
Total 14810 Total 14810
S Hamid A/C
Date Particulars Amount Date Particulars Amount
24/01/18 To Discount Received 1260 01/01/18 By Opening Balance 10150
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A/C (B/f)
To Bank A/C 2600 02/01/18 By Purchases A/C 2450
31/01/18 To Closing Balance
C/D
8740
Total 12600 Total 12600
W Tag A/C
Date Particulars Amount Date Particulars Amount
31/01/18 To Closing Balance
C/D
1060 02/01/18 By Purchases A/C 1060
Total 1060 Total 1060
J Wilson A/C
Date Particulars Amount Date Particulars Amount
03/01/18 To Sales A/C 2020 11/01/18 By Sales Return A/C 370
16/01/18 By Bank A/C 880
By Discount Allowed
A/C
83
31/01/18 By Closing Balance
C/D
687
Total 2020 Total 2020
F Seema A/C
Date Particulars Amount Date Particulars Amount
03/01/18 To Sales A/C 2380 11/01/18 By Sales Return A/C 310
16/01/18 By Bank A/C 1470
By Discount Allowed
A/C
104
31/01/18 By Closing Balance
C/D
496
Total 2380 Total 2380
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