HNBS 310 Financial Accounting Report: Scenario Analysis

This comprehensive financial accounting report, created for the HNBS 310 course, delves into various aspects of financial accounting through two distinct scenarios. The first scenario explores the analysis of business transactions, encompassing internal and external transactions, single and double-entry bookkeeping systems, and the importance of the trial balance. It includes practical applications such as journal entries, ledger accounts, trial balance, and the preparation of financial statements for a hypothetical business. Additionally, the report provides a comparative analysis of financial reports and financial statements, along with an examination of fundamental accounting principles like the cost principle, going concern principle, full disclosure principle, revenue recognition principle, and matching principle. The second scenario focuses on the bank reconciliation process, the use of control accounts, and suspense accounts. The report concludes with a practical application of these concepts through the analysis of business scenarios, providing a well-rounded understanding of financial accounting principles and practices.

HNBS 310 Financial
Accounting
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Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................3
SCENARIO 1..................................................................................................................................3
Question 1: Analyse types of business transaction......................................................................3
Question 2: Business of Kate.......................................................................................................5
Question 3: Comparative analysis.............................................................................................11
Question 4: Fundamental principles of accounting...................................................................12
Question 5: Business of Carol Andrew.....................................................................................13
SCENARIO 2................................................................................................................................15
Question 1: Bank reconciliation................................................................................................15
Question 2: Control accounts.....................................................................................................16
Question 3: Suspense account...................................................................................................17
Question 4: Business of Mr. Akram..........................................................................................18
Question 5: Business of Milky..................................................................................................20
CONCLUSION..............................................................................................................................21
REFERENCES..............................................................................................................................22
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INTRODUCTION
Financial accounting is a procedure of developing and analysing the financial statements of
a business organisation. This process of accounting is a skilful set of multiple functions that
includes vouching of transaction, recording to vouchers in journal books, classifying all the
transitions in appropriate ledgers, development of final accounts and then finally analysing those
final accounts (Phillips, Libby and Libby, 2011). The main aim of this report is to develop an
understanding about various processes of financial accounting. In order to fulfil this aim, the
present report is categorised into two financing scenarios.
The first scenario will include development of journal entries leger accounts, trial balance
and final accounts along with the theoretical descriptive of types of business transactions and the
principles that are used in financial accounting. In the second scenario of this report, bank
reconciliation statement will be developed along with control and suspense account. These
practical statements will be developed along with their theoretical descriptions.
SCENARIO 1
Question 1: Analyse types of business transaction
Various types of business transaction
A business transaction is the basic unit while undertaking a business; such transaction is
an event of exchange of services, goods or money of business with certain parties. There are
various types of business transaction which are categorised on different criterions. These criteria
of categorising business transactions include institutional relationship, exchange of cash,
visibility and objective. Here, the criteria of institutional relationship are used according to which
there are widely two types of business relationships that are internal and external (Porter and
Norton, 2012).
Internal transactions – These transactions are the events which are conducted between
business and internal stakeholders of the organisation such as drawings, depreciation, salaries to
employees and more. Drawing is a transaction when the owner of an organisations draws money
from the business for personal use. Depreciation is a kind of transaction when organisation
charges depreciation on their own assets to deplete the value of an asset. Lastly, salary or wage is
a transaction in which organisation pays money to their employees who are the internal
stakeholders against their contribution in the firm.
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External stakeholders – These transactions are the exchange of goods, services or money
between organisation to external stakeholders; such transactions include sale, purchase,
borrowing and more. The transaction of sale is done between business and the customers in
exchange money or credit. The transaction of purchase is done between business and suppliers in
exchange of cash or credit where business procures raw material from suppliers. The transaction
of borrowing is done between business and financial institutions where business borrows money
in order to grow their organisational functions in exchange of interest (Porter, 2019).
Defining single entry and double entry book keeping
Book keeping system is the procedure of recording all the business transactions, there are
two types of techniques of maintain book keeping which single entry and double entry.
The single entry book keeping system includes two column ledger which all the business
transactions are recorded individually without any reference of different ledger accounts due to
which it is only appropriate for small business having less number of transactions.
Double entry book keeping system is complex system which includes three column
ledger in which every transaction has an impact on two accounts and is recorded into debit and
credit columns. This system is appropriate for all types of organisations. In order to better
understand these system, the example of format of such systems is represented below:
Single entry book keeping
Transaction description Amount
Purchase 100 books from ABC suppliers 500
Double entry book keeping
Particulars Debit Credit
Purchases account Dr. 500
To ABC suppliers Ltd. account 500
Explaining trial balance and its importance
Trail balance is a financial statement which is mandatory to be developed by a business
as it acts as base for the development of final statements. The trial balance is a summary of all
the ledger account balances in which both the sides of trial balance which is debit and credit
must be equal (Schroeder, Clark and Cathey, 2019). There are various points which can represent
the importance of trial balance stated below:
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 Trial balance is developed for every year and includes balances of all the accounts due to
which it plays an important role in comparative analysis as an organisation can easily
compare their yearly financial position.
 Trial balance holds a significant position when it comes to audit as trial balance helps
auditors to locate every disperancy to its original account and ultimately assist in giving a
true and fair judgement for a business.
 Another importance of trail balance is that it helps in checking arithmetic accuracy. As
trial balance is developed using double entry book keeping system, it has become easier
to check whether the financial reports of an organisation are appropriately developed or
not by ensuring both sides of the trail balance are equal.
Question 2: Business of Kate
Journal entries
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Ledger accounts
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Trial balance
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Question 3: Comparative analysis
Basis of difference Financial report Financial statement
Definition and
meaning
A financial report is a report of a
business organisation that
includes monetary information
regarding the operations of the
organisation.
These type of reports are prepared
by an organisation at a regular
interval such as once in a quarter
or once in a year.
A financial statement is a formal
document of a business
organisation which includes
information about the operational
financial position of an
organisation.
These type of statements are
developed at the end of every
financial years and are regarded as
formal financial evidence of an
organisation (Thornton, 2018).
Why these reports are
needed
Financial reports are prepared by
an organisation in order to
communicate the information
regarding the company to the
public. Financial reports are the
combination of financial
statements which are published
by an organisation and required
by the organisation to make
effective decisions.
Financial statements are of various
types and each of them are
prepared with their own purpose.
The income statement is needed to
identify the profit earned by the
organisation so that investors and
shareholders can decide that
whether an organisation is worth
investing or not.
The statement of financial position
is prepared to identify the level of
liquidity of an organisation. By
which creditors and suppliers
decide whether they should
provide credit to the organisation
not.
Who are the different
users
Users of financial reports variates
according to the nature of
On the other hand, all the financial
statements of an organisation are
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