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.
1

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
2

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:
3

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
4

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)
5

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
6

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
7

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
8

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
9

P White A/C
Date Particulars Amount Date Particulars Amount
03/01/18 To Sales A/C 2820 31/01/18 By Closing Balance
C/D
2820
Total 2820 Total 2820
P Mole A/C
Date Particulars Amount Date Particulars Amount
01/01/18 To Opening Balance
(B/f)
2200 16/01/18 By Bank A/C 1600
By Discount Allowed
A/C
110
31/01/18 By Closing Balance
C/D
490
Total 2200 Total 2200
Capital A/C
Date Particulars Amount Date Particulars Amount
07/01/18 To Cash A/C 2000 01/01/18 By Opening Balance
B/F
573800
31/01/18 To Closing Balance
C/D
571800
Total 573800 Total 573800
J Fox A/C
Date Particulars Amount Date Particulars Amount
09/01/18 To Sales A/C 2310 31/01/18 By Closing Balance
C/D
2310
Total 2310 Total 2310
10

Motor Van A/C
Date Particulars Amount Date Particulars Amount
01/01/18 To Opening Balance
(B/f)
45250 31/01/18 By Closing Balance
C/D
45250
Total 45250 Total 45250
Discount Allowed A/C
Date Particulars Amount Date Particulars Amount
16/01/18 To P Mole A/C 110 31/01/18 By Trading And P&L
A/C
461
To F Steel A/C 164
To J Wilson A/C 83
To F Seema A/C 104
Total 461 Total 461
Discount Received A/C
Date Particulars Amount Date Particulars Amount
31/01/18 To Trading And P&L
A/C
2370 24/01/18 By S Hamid A/C 1260
By J Brown A/C 960
By R Foot A/C 150
Total 2370 Total 2370
Salaries A/C
Date Particulars Amount Date Particulars Amount
27/01/18 To Bank A/C 14500 31/01/18 By Trading And P&L
A/C
14500
Total 14500 Total 14500
11

Motor Expenses A/C
Date Particulars Amount Date Particulars Amount
04/01/18 To Cash A/C 670 31/01/18 By Trading And P&L
A/C
670
Total 670 Total 670
Purchases A/C
Date Particulars Amoun
t
Date Particulars Amount
02/01/18 To S Hamid A/C 2450 31/01/1
8
By Trading And P&L
A/C
10820
To D Main A/C 2560
To W Tag A/C 1060
To R Foot A/C 1610
22/01/18 To L Mole A/C 1330
To W Wright A/C 1810
Total 10820 Total 10820
Bank A/C
Date Particulars Amoun
t
Date Particulars Amount
01/01/18 To Opening Balance
(B/f)
42400 01/01/1
8
By Storage Cost A/C
Dr.
800
16/01/18 To P Mole A/C 1600 24/01/1
8
By S Hamid A/C 2600
To F Lane A/C 3200 By J Brown A/C 3300
To J Wilson A/C 880 By R Foot A/C 1600
To F Seema A/C 1470 27/01/1 By Salaries A/C 14500
12

8
30/01/1
8
By Business Rates A/C 2220
31/01/1
8
By Closing Balance C/D 24530
Total 49550 Total 49550
D Main A/C
Date Particulars Amoun
t
Date Particulars Amount
31/01/18 To Closing Balance
A/C
2560 02/01/1
8
By Purchases A/C 2560
Total 2560 Total 2560
By Purchases Return A/C
Date Particulars Amoun
t
Date Particulars Amount
31/01/18 To Trading And P&L
A/C
110 19/01/1
8
By R Foot A/C 110
R Foot A/C
Date Particulars Amoun
t
Date Particulars Amount
19/01/18 To Purchase Return
A/C
110 02/01/1
8
By Purchases A/C 1610
24/01/18 To Discount Received
A/C
150 31/01/1
8
By Closing Balance C/D 250
To Bank A/C 1600
Total 1860 Total 1860
T Cole A/C
13

Date Particulars Amoun
t
Date Particulars Amount
03/01/18 To Sales A/C 1840 31/01/1
8
By Closing Balance C/D 3120
09/01/18 To Sales A/C 1280
Total 3120 Total 3120
J Allen A/C
Date Particulars Amoun
t
Date Particulars Amount
03/01/18 To Sales A/C 990 31/01/1
8
By Closing Balance C/D 990
Total 990 Total 990
F Lane A/C
Date Particulars Amoun
t
Date Particulars Amount
01/01/18 To Opening Balance
(B/f)
2100 16/01/1
8
By Bank A/C 3200
03/01/18 To Sales A/C 1170 By Discount Allowed
A/C
164
31/01/18 To Closing Balance
C/D
94
Total 3364 Total 3364
Cash A/C
Date Particulars Amoun
t
Date Particulars Amount
01/01/18 To Opening Balance
(B/f)
10600 04/01/1
8
By Motor Expenses A/C 670
14

07/01/1
8
By Capital A/C 2000
31/01/1
8
By Closing Balance C/D 7930
Total 10600 Total 10600
Sales Return A/C
Date Particulars Amoun
t
Date Particulars Amount
11/01/18 To J Wilson A/C 370 31/01/1
8
By Trading And P&L
A/C
680
To F Seema A/C 310
Total 680 Total 680
L Mole A/C
Date Particulars Amoun
t
Date Particulars Amount
31/01/18 To Closing Balance
C/D
1330 22/01/1
8
By Purchases A/C 1330
Total 1330 Total 1330
W Wright A/C
Date Particulars Amoun
t
Date Particulars Amount
31/01/18 To Closing Balance
C/D
1810 22/01/1
8
By Purchases A/C 1810
Total 1810 Total 1810
J Brown A/C
Date Particulars Amoun Date Particulars Amount
15

t
24/01/18 To Discount Received
A/C
960 01/01/1
8
By Opening Balance B/F 9600
To Bank A/C 3300 31/01/1
8
By Closing Balance C/D
31/01/18 To Closing Balance
C/D
5340
Total 9600 Total 9600
Business Rates A/C
Date Particulars Amoun
t
Date Particulars Amount
30/01/18 To Bank A/C 2220 31/01/1
8
By Trading And P&L
A/C
2220
Total 2220 Total 2220
3. Trial Balance as on 31st January 2018
Particular Debit Credit
Purchases 10820 -
Bank 24530 -
D Main - 2560
Purchases Return - 110
R Foot 250 -
T Cole 3120 -
J Allen 990 -
F Lane - 94
Cash 7930 -
Sales Return 680 -
16

L Mole - 1330
W Wright - 1810
J Brown - 5340
Business Rates 2220 -
Storage cost 800 -
Sales - 14810
S Hamid - 8740
W Tag - 1060
J Wilson 687 -
F Seema 496 -
P White 2820 -
P Mole 490 -
Capital - 571800
J fox 2310 -
Motor Van 45250 -
Discount Allowed 461 -
Discount Received - 2370
Salaries 14500 -
Motor Expenses 670 -
Premises 440000 -
Fixtures 10100 -
inventory 40900 -
Total 610024 610024
17

CLIENT 2
A. Statement of profit and loss for Peter Hampau for year ended 31st July 2018
Particular Amount Particular Amount
To Opening stock 4500 By Sales 120000
To Purchase 70000
To Wages and salaries:
16500
Add: Outstanding wages & salaries
1520
18020
To Gross Profit 70120 By Closing stock 42640
Total 162640 Total 162640
To Depreciation: By Gross Profit Carried
forward
70120
Freehold property
560
Equipment
1900
Motor vehicle
360
2820
To Motor expense 4580
To Admin expense 1650
To Heating and lighting expense 550
To Advertisement Expense: 1030
To Net Profit 59490
Total 232760 Total 232760
18

Working Note:
By taking prepaid expenses of advertisement amount 4470 into consideration the
expenses for year ended 31st July 2018 it will become the negative – 3440 so additional
information of problem is being ignored.
B. Statement of financial position for Peter Hampau for year ended on 31st July 2018.
Capital Amount (in £) Asset Amount (in £)
Capital Account: Fixed Asset:
Opening Balance
24380
Freehold Premises:
Cost 28000
Add:Net Profit As Per
Statement Of
Profit & Loss
59490
Less:Accumulated
Depreciation
5010
22990
Less:Drawing
2800
81070 Equipment : Cost
19000
Less:Accumulated
Depreciation
8700
10300
Current Liabilities: Motor Vehicles: Cost
3000
Bank Overdraft 1000 Less:Accumulated
Depreciation
1560
1440
Payable 5600
Outstanding Wages
And Salaries
1520
Current Asset:
19

Inventory 42640
Receivable 11520
Cash In Hand 300
Total 89190 Total 89190
CLIENT 3
A. Profit and loss account
Consolidated Income Statement of Peter Hampau for the year ended July 31,2018
EUR
Sales 107000
Other income -
Total Revenue 107000
Cost of system sales 32000
Change in inventory 1000
Return inwards 2000
Total cost of sales 35,000
Gross profit on sales 72,000
Distribution cost 30000
Administrative costs 30000
Operating income 12,000
Interest income -
Interest expense -
20

Income before income taxes 12000
B. Balance Sheet
Consolidated Balance Sheet of Peter Hampau for the year ended July 31, 2018
Assets
Land 10000
Building 50000
Less: Accumulated
Depreciation
7000
Depreciation For The
Year
1000 42000
Plant And Machinery 65000
Less: Depreciation 15000
Depreciation For The
Year
10000 40000
Total Non-Current Assets 92,000
Inventories 18000
Current Tax Assets
Derivative Financial
Instruments
Prepaid Rent 3000
Accounts Receivable 24000
Total Current Assets 45,000
21

Total Assets 1,37,000
Equity And Liabilities
Share Capital 50000
Share Premium 20000
Retained Earnings Including
Current Year Profit
34000
Equity 104000
Current And Other Tax
Liabilities
4000
Accrued Salaries 2000
Bank Overdraft 13000
Accounts Payable 14000
Total Current Liabilities 33,000
Total Equity And Liabilities 1,37,000
C. Consistency and Prudence concepts
Consistency:
This accounting concept is mainly focuses on the follow the same accounting policy
which is being using from last few years in order to maintain books of accounts. This helps in
maintaining accounts in adequate manner.
Prudence:
This concept states that one should not record the revenues in the books until it is certain
and realised. Whereas, business tend to record expenses and liabilities at once, as long as they
are probable (Tassadaq and Malik, 2015).
22

D. Depreciation and its methods
Depreciation is non cash item which has purpose to be charged on fixed assets as their
value decreases over the period of time. So it helps business to ascertain the present monetary
value of assets. The different methods are discussed as below:
Straight line method:
Under this method, a fixed rate of depreciation is charged every year on the fixed assets
value. The amount of assets becomes nil in this method. If company wants to sell the assets at its
book value than in this circumstance company can adopt the straight line method.
Formula: Cost of Assets – residual value / useful life of assets
Written down value method:
The written down value is value of an assets after accounting for depreciation or
amortisation. Under this method the amount of assets never becomes nil. To know the actual
market value of assets the company uses this method.
CLIENT 4
A. Purpose of BRS to CEO of Durrell
It is a statement which is utilised for comparing records of bank and business and helps to
see the difference between two sets of record of cash transactions. This enable the accountant to
know difference between balance in bank statement and balance in accounting records. The
reasons behind variation in bank and personal records are mistake, payments in process, frauds
etc.
Bank reconciliation statement at 1st December 2017
Particulars Amount
Bank Balance as per pass book 17478
Less: Suspense due to wrong carry forward 987
Actual balance as per cash book after reconciliation 16491
B. Prepare Durrell Ltd's updated cash book for December 2017
23

Updated Cash Book for December Month
Particulars Amount Particulars Amount
Balance B/d 16491 Alexander 857
Suspense A/c 987 Bank Charges 47
Able 962 Burgess 221
Baker 1103 Barry 511
Direct deposit by
customer
176 Cook 97
Charlie 2312 Payment 120
Delta 419 Hay 343
Instrument No. 785 106 Rent 260
Echo 327 Instrument No. 780 426
Cash Sales 529 Instrument No. 781 737
Fred 119 Instrument No. 310923 297
Instrument No. 787 260 Standing order rates 137
Balance c/f 19738
Total 23791 Total 23791
24