Financial Accounting: Final Accounts and Bank Reconciliation

This report delves into the core principles of financial accounting, exploring the processes of recording, summarizing, and reporting business transactions to generate financial statements. It details the preparation of final accounts, including income statements, balance sheets, and cash flow statements, and their significance for external stakeholders such as investors and creditors. The report includes examples of profit and loss accounts, statements of financial position, and bank reconciliation statements, explaining their components and purposes. It also highlights the differences between income statements and statements of financial position in terms of timing, items reported, and their use for management and lenders. Furthermore, the report discusses the importance of control accounts and suspense accounts, including their reconciliation procedures, providing a comprehensive overview of financial accounting practices and their role in presenting an accurate view of an organization's financial performance.

Financial
Accounting

Table of Contents

INTRODUCTION
Financial accounting is a specific branch of accounting where involve the procedure of
recording, summarizing and reporting the transactions and get result through business activities
in certain period of time (Baker and Burlaud, 2015). On the basis of these transactions prepare of
financial statements where consist of income statement, balance sheet and cash flow statement.
These statements are presenting in front of outsider to present actual performance of the business
such as investor, suppliers, creditors and customers. It is different from the management
accounting because in this accounting reports are presented to internal management to take
decision regarding to business. Financial accounting mainly uses to providing useful information
to external users. In this report consist of preparing of the final accounts from the trial balance
where adjust amount of depreciation & prepayments. Along with develop final accounts and
compare with the differences between income statements and statement of financial position.
Additionally, create bank reconciliation example and provide the procedure of this to define the
general accounts and balance sheets.
MAIN BODY
Question 1
Profit & loss account
Particular Amount Particulars Amount
To Opening inventory 190000 By Sales 1301500
To Purchase 960000
By Closing
Inventory 120000
To Wages 330000 By Gross Loss 58500
1480000 1480000
To Gross Loss 58500 By Net loss 388000
To Sundry Expenses 165000
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Less: Prepaid Rent 35000 161500
To Depreciation 70000
To Heat and light 92000
Add: O/s Gas payment 7500 99500
Outstanding wages 30000
388000 388000
Financial statement of the Greg Palmer
For the year ended 31st April 2019
Liabilities Amount Assets Amount
Equity & Capital Fixed Assets
Capital 960500
Furniture and
fittings 350000
Less: Drawings 105000 Less: Depreciation 70000 280000
Less: Net loss 388000 9112000
Non Current
liabilities Current assets
Band overdraft 50000 Inventory 120000
O/s Gas Payments 7500 Trade Receivables 120000
O/s Wages 30000 Prepaid Rent 35000
555000 555000
Question 2
Statement of Profit & loss account for Kenny Paton
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For the year ending 31st August 2019
Particulars Amount
Sales Revenue 2068000
less: Cost of sales 1062000
Gross Profit 1006000
Less: Distribution Costs 367000
Less: Administration Costs 287000 654000
Outstanding interest 14274
Outstanding Dividend 152000
Depreciation:
On plant & machinery 119700
On office equipment 26400 146100
Profit before tax 39626
Less: Tax 30000
Profit after tax 9626
Statement of financial position of Kenny Paton
For the year ending 31st August 2019
Liabilities Amount Assets Amount
Equity Non current assets
Ordinary share capital 1520000 Tangible assets
Net Profit 9626 Premises 1345000
Property & plant 798000
Non Current liabilities Less: Depreciation 119700 678300
5 Year 13% loan 549000 Office Equipment 176000
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Dividend 152000 Less: Depreciation 26400 149600
O/s interest 14274
Current liabilities Current assets
Trade payable 640000 Trade receivables 619000
Tax 30000 Bank 45000
Stock 78000
Total equity &
liabilities 2914900 Total Assets 2914900
Working Notes:
1. Cost of Sales
Particulars Amount
Opening inventory 86000
Purchases 1054000
Less: Closing inventory 78000
Total 1062000
2. Depreciation
Particulars Amount Amount
Cost 798000 176000
Less: Depreciation 119700 26400
Total 678300 149600
3. Dividend
10% on the share capital: 1520000*10%
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= 152000
Question 3
Financial statement and profit & loss account are important portion of the final account
that develop by the accountant to present the actual position of the organisation. The main
purpose of these financial statements to supplying a absolute evaluation through financial
execution of the business entity. In the context of the business reporting it is necessary by related
rules according the statue. Eventually, statement of the financial position are reportable through
organisations on the yearly base (Ball, 2013). To conduct inner analysis required to prepare final
accounts which is determined the organisation position on quarterly and half yearly basis. There
are defined the difference between the income statements and statement of financial position: Timing: To analysis the position of the organisation required to know actual total assets
as well as liabilities on a particular date and financial position statement produced
through various company. It helps to analysis the position of all the assets & liabilities in
order to defined monetary value in certain period of time. To conduct assessment of net
gains and profit for accounting period of profit & loss of income statement is applied by
the business entities. Items reported: The significant items shown in the balance sheet like current assets, non
current assets and in the liability section presents equity & liabilities and current
liabilities. According to sub heading classified of the items and calculate both side if both
side same so all the transactions are recorded appropriately. In the income statements
from the revenues less cost of sales then less all the expenses and add all the income after
that get the amount of the net profit/loss. The particular amount carried forward in the
balance sheet and shows in capital section (Chhabra and Pattanayak, 2014). Used for management: The managerial personnel apply to know the accurate data and
facts to figure out the report as per the financial position statements. On the basis of
financial statement company knows the actual position to take long term fiscal and
economic decision regarding to organisations. To conduct day to day business activities
and for short term decision require to analysis of short term goals on the basis of income
statement of business that determined by the managers.
 Uses for lenders and creditors: The balance sheet developed for the lenders as well as
creditors to present the structure, leverage, funding and solvency position of the business
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entity that is utilised by the creditors to analysis the different credit approaches and given
period of the company. While income statements are utilised by the lenders to determine
the appropriate profitability as well as level of sales to understand the business position to
repay the debt in the stipulated time period.
Purpose: Both are different due to different purposes because the main purpose of the
income statement to shows which sources company gain profits and where spend money that
consist in expenses. Through this statement know the actual profit that helps to know actual
position of the internal and outer management.
The purpose of the statement of financial position to presents financial position of the
organisation and calculate the total assets & liabilities. These are helping to analysis of actual
position of the business (Iatridis and Dimitras, 2013).
Question 4
Bank Reconciliation Statement: It is a document where recoded all the bank amounts
and match with the cash balance of the organisation from company's balance sheet to the
corresponding amount on its bank statement. The particular statement defined as the summary of
the business activity and the banking that reconcile of the entity's bank account. In this statement
consist of the withdrawals, deposits and other activity the influencing of a bank account in
certain period of time. This statement is helpful for the financial internal control tool that utilised
to thwart fraud.
Process of Bank Reconciliation statement: There is some steps of bank reconciliation
as follows:
 During the first step, equate the starting account number with both the banking section of
the cash book and the bank statement that vary due to unproductive or disenfranchised
checks from the previous budget (Martin and Roychowdhury, 2015).
 After that in the bank statement compare of credit side with debit side of the bank
column of cash book and debit side of the bank statement with the credit side of the bank
column in the cash book. There is marking tick when items shows in the both records.
 Then evaluation the entries in the cash book and pass book to find out the missed entries
that are not recorded into the bank column of the cash book. For this require to prepare a
list of those entries and record all the entries that mossed by the accountant on the entries
in the cash book.
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 Correct it when any mistakes or fault find out in the cash book.
 Computed all the corrected and revised balance from the cash book, bank's column.
 After updated cash book balance start to produce of the bank reconciliation statement.
 There are add all the the un-presented cheques (When cheque issued by the business
entity to its creditors or suppliers but not presented for payment) ad subtract all the un
credited cheques like cheques paid into the bank but not yet collected that known as
income.
 After that apply all the important adjustments regarding the bank errors. In respect of
bank reconciliation statement starts with the debit balance according to bank column of
the cash book. After that add all the amounts that mistakenly credited by the bank and
less the amount that attributable by the bank. It is repeated for the bank-reconciliation
when start from the credit balance.
 As a result in the end figure must be equal to the balance as per the ban statement (Patro
and Gupta, 2012).
Updated cash book
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Bank Reconciliation statement
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Check general accounts and balance sheets: Most of the organisation to analysis record
of bank prepare bank reconciliation statement with the help of recorded transactions of ledger,
balance sheets and different accounting book of the business firm. The observation and monitor
activities is operated through distinguish between the amounts that are recorded by the
accountant in the books of subsidiary books and financial position of the business with the
numbers in the statement that generated through the bank. When identify any differences so
conduct proper consideration has to be there. When there is not identifying any differences so it
can be concluded in the reconciled bank statement.
Bank reconciliation is essential area of the accounting and companies prepare it to know
transactions of cash book as well as bank statement that are match or not. If there is recognising
any differences so there must happen any mistakes in both account balances. Through
reconciliation supports the exact problem that created in between general account as well as
balance sheet. These differences are related with the some cheques that outstanding and issued
but not presented. During to reconciliation the accountant must think about the o/s cheques and
add back these deposited cheques. According to size of the organisation, there are many cheques
that has been bot deposited so is not processed in the bank account.
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Question 5
Control Account: It is a type of general ledger account that consist of summary of
different items and show their amount in this account. The control account mostly utilised by the
organisations to keep detail information of the accounts payable as well as accounts receivable to
contain large volume of transactions. The balance of the control account match with the related
subsidiary ledger account. If any case the balance does not match so chances increase of wrong
journal entry has done into control account that was not recorded into ledger (Raiborn and
Sivitanides, 2015).
Reconciliation of Control account: The reconciliation of the control require to assure
about the transactions of the sales and purchase ledger appropriate with the accurate entries in
the control accounts. After the equalization of control account and other account total will be
same otherwise any entry recorded wrong. The function of this account is relation to inner
accounting process. The control accounts mainly knows as two specific account such as purchase
ledger control account and sales ledger control account.
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