Financial Accounting Report: Journal Entries, Ledgers, and Statements

This report delves into the core principles and practices of financial accounting. It begins by defining different types of business transactions, including cash, credit, internal, and external transactions, along with the contrasting systems of single and double-entry bookkeeping. The report then proceeds to illustrate the practical application of these concepts through journal entries, ledger accounts, and the creation of a trial balance. A key aspect of the report is the evaluation of the differences between financial reports and financial statements, highlighting their respective purposes and types. Further, the report examines fundamental accounting principles, such as economic entity assumptions, monetary unit assumptions, cost principles, and more. Finally, the report includes the preparation of a profitability statement, demonstrating the practical application of accounting knowledge to real-world financial scenarios.

Financial accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
Scenario 1.........................................................................................................................................3
Question 1...................................................................................................................................3
Question 2...................................................................................................................................4
Question 3...................................................................................................................................8
Question 4.................................................................................................................................10
Question 5.................................................................................................................................11
Scenario 2.......................................................................................................................................12
Question1..................................................................................................................................12
Question 2.................................................................................................................................13
Question 3.................................................................................................................................14
Question 4.................................................................................................................................15
Question 5.................................................................................................................................17
CONCLUSION..............................................................................................................................19
REFERENCES..............................................................................................................................20

INTRODUCTION
Financial accounting is that branch of accounting which records all the transaction of the
company which are financial in nature and post them in ledger in order to summarize them and
prepare the financial statements like profit and loss account and balance sheet (Schroeder, Clark
and Cathey, 2019). The current report will discuss the different stages of financial accounting
through which the financial transaction has to go. Like in the report first some transaction will be
recorded with the help of journal entries and then these will be posted in the ledger accounts and
trial balance will be made from it. Further the difference between the financial statement and
reports will be outlined and principles of accounting as well. After that with the help of the given
trial balance the profit and loss and balance sheet will be prepared. Further the bank
reconciliation statement will be prepared and in the end some journal entries for the rectification
of some errors will be done.
Scenario 1
Question 1.
Different types of business transaction
In accounting, there are mainly two types of business transaction which are discussed
below.
Cash transactions and credit transactions
A transaction in which cash is involved that is either it is paid or received at the time
when the transaction took place is called cash transaction. For example, goods purchased for $50
and paid the amount immediately (Weygandt, Kimmel and Kieso, 2019). In credit transaction,
the cash is received or paid in the future date after the transaction occurs. For instance, the goods
are purchased worth $2000 for which payment will be made after 2 weeks even though goods
have been possessed. It is considered as credit transaction as the payment has not been made in
cash immediately.
Internal and external transactions
Internal transaction are those transactions which does not involve exchange of values
among the parties but it can be measured in financial terms and have an impact over the financial
position of the business. For example, recording depreciation, realizing the loss caused because
by fire and so forth. External transactions are those transactions in which business exchanges
values with the outsiders (Birt and et.al, 2020). These are those transactions which are usually

performed by the businesses on daily basis. It includes transactions like purchased goods from
the suppliers, goods sold to customers, payment made for purchase of fixed assets, payment for
utility expenses salary payment etc. Normally, majority of the business transactions are external.
Single entry book keeping
It is the accounting system which is used for keeping track of the business finances.
There is only one entry is recorded per transaction and most of the entries are related to either
incoming or outgoing of funds (Andreica, 2016). The transactions are recorded in the cash book.
It records the transactions like taxable income, tax deductible expenses and cash.
Double entry book keeping
Under this system, every business transaction is recorded in minimum two accounts. It
requires that for all transactions, the debit and the credit amount equals. For example, if the
company sells a product then revenue account will increase and cash account also increases by
the same amount.
Trial balance and its importance
Trial balance is the sheet in which all the balances of the ledger are compiled into debit
and credit. It is prepared under double entry book keeping. It is prepared at a particular date.
Trial balance is important as it helps in checking the arithmetical accuracy which helps in
identifying whether all the transactions has been posted or not (Franklin, Graybeal and Cooper,
2018). It also provides assistance in preparing financial statements as balances of all the ledger
accounts are used. Trial balance is used in doing comparative analysis and preparing the audit
reports as well.
Question 2.
1. Journal entries
Date Particulars Debit Credit
01/06/20 Bank 65000
To Capital 65000
02/06/20 Purchases 8000
To Creditors 8000
07/06/20 Cash 4000

To Sales 4000
08/06/20 Creditors 4000
To Bank 4000
14/06/20 Insurance 75
To Bank 75
15/06/20 Debtors 12000
To Sales 12000
16/06/20 Purchases 10000
To Creditors 10000
18/06/20 Computer Equipment 3000
To Cash 3000
20/06/20 Rent 150
To Bank 150
21/06/20 Cash 10000
To Sales 10000
25/06/20 Petty Cash 100
To Bank 100
30/06/20 Stationary 30
To Petty Cash 30
2. LEDGER ACCOUNTS

Account Name Bank A/c No. 1
Date Particulars Amount Date Particulars Amount
01/06/20 To Capital 65000 08/06/20 Creditors 4000
14/06/20 Insurance 75
20/06/20 Rent 150
25/06/20 Petty Cash 100
30/06/20 Bal c/d 60675
65000 65000
Account Name Cash A/c No. 2
Date Particulars Amount Date Particulars Amount
07/06/20 To Sales 4000 18/06/20 Computer Equipment 3000
21/06/20 To Sales 10000
30/06/20 Bal c/d 11000
14000 14000
Account Name Petty Cash A/c No. 3
Date Particulars Amount Date Particulars Amount
25/06/20 To Bank 100 30/06/20 Stationary 30
30/06/20 Bal c/d 70
100 100
Account Name Purchases A/c No. 4
Date Particulars Amount Date Particulars Amount
02/06/20 To Creditors 8000

16/06/20 To Creditors 10000 30/06/20 Bal c/d 18000
18000 18000
Account Name Sales A/c No. 5
Date Particulars Amount Date Particulars Amount
07/06/20 Cash 4000
15/06/20 Debtors 12000
30/06/20 Bal c/d 26000 21/06/20 Cash 10000
26000 26000
Account Name Creditors A/c No. 6
Date Particulars Amount Date Particulars Amount
08/06/20 To Bank 4000 02/06/20 Purchases 8000
16/06/20 Purchases 10000
30/06/20 bal c/d 14000
18000 18000
Account Name Debtors A/c No. 7
Date Particulars Amount Date Particulars Amount
15/06/20 To Sales 12000
30/06/20 Bal c/d 12000
12000 12000

Account Name
Computer
Equipment A/c No. 8
Date Particulars Amount Date Particulars Amount
18/06/20 To Cash 3000
30/06/20 Bal c/d 3000
3000 3000
Account Name Rent A/c No. 9
Date Particulars Amount Date Particulars Amount
20/06/20 To Bank 150
30/06/20 Bal c/d 150
150 150
Account Name Stationary A/c No. 10
Date Particulars Amount Date Particulars Amount
30/06/20 To Petty Cash 30
30/06/20 Bal c/d 30
30 30
Account Name Insurance A/c No. 11
Date Particulars Amount Date Particulars Amount
14/06/20 To Bank 75
30/06/20 Bal c/d 75
75 75
Account Name Capital A/c No. 12

Account
Date Particulars Amount Date Particulars Amount
01/06/20 Bank 65000
30/06/20 Bal c/d 65000
65000 65000
3.The trial balance
Trial Balance
Ac no Particulars Debit Credit
1 Bank 60675
2 Cash 11000
3 Petty Cash 70
4 Purchases 18000
5 Sales 26000
6 Creditors 14000
7 Debtors 12000
8 Computer Equipment 3000
9 Rent 150
10 Stationary 30
11 Insurance 75
12 Capital Account 65000
Total 105000 105000
Question 3.
Evaluating the difference between financial report and financial statement
Financial reporting mainly comprises of records which is useful in tracking the business
funds (Abernathy and et.al., 2019). It is one of the prominent measure which helps in managing
the fuds within the business. These financial reports are useful in carrying out business valuation,

predicting the future cash flows and also carrying out investment planning. Financial reports has
been used which helps in providing information to the managemnt for better decision making.
On the contrary, financial statements are considered to be as the product of financial reports.
Financial statements are considered to be more formal (Financial Reporting Vs. Financial
Statements, 2017). Financial statements of the company has been used because it hellps in
communicating the financial health of the organization to outside entities. Financial statements
are perpared for the every accounting period.
PARTICULARS FINANCIAL REPORT FINANCIAL STATEMENT
Meaning Financila report is considered
to be as the large collective
document which is useful in
summarizing the financial
income nad expenditure over
the set period.
Financial statements are
considered to be as the short
documents which helps in
examining the overall finnacila
health of the company for a
particular period.
Purpose One of the key significant
purpose of the financial
reporting is to give the
management in- depth
complete analysis of the
business performance (Ali,
Razzaque, and Ahmed, 2018).
One of the key purpose of the
financial statements is to
effectively provide finacial
position and changes within
the particular period for better
decision making.
Types There are various types of
financial reports which
includes financial notes,
governmnet records, external
statements, quaterly and
annual records.
There are various types of
financial statements which
includes balance sheet, cash
flow statement, income
statements and shareholder's
equity statements.
Preperation Financial report is used by the Financial statements of the
company are prepared on the

regular basis at an equal
intervals.
Financila reports play one of the key significant role in which helps in transmitting key
relevant information outise and inside of the company. It helps in providing the complete net
worth of the company by examining the expenses and spending. Financial statements are
prepared effectively for the specific accounting period (Agustiningsih, Murni and Putri, 2017).
This way it helps the management in properly taking decision by effectively managing the funds
of the company. It is useful in managing the dund flows and cash flows of the company.
Question 4.
Examining key fundamental principles of accounting
Accounting principles are considered to be as the guidelines and rules with which the
company must comply at the tiem of reporting financial data. It is crucial because it helps in
establishing consistency in order to view the financial reports and financial statements in an
accurate and efficient manner.
1. Economic entity assumptions
The business is considered to be as a seperate legal entity and all the necessary trasactions of the
business are seperate from that of the owner of the business.
2. Monetary unit assumptions
The company must usually focus on recording all the financial transactions within the same
currency. All the transactions and economic events must be effectively recorded within the
accounts of the business which can be easily measured and expressed in the monetary value of
the specific currency.
3. Cost Principle
This is one of the significant principle which helps one to initially record liability and asset of the
company at the original acquisition cost (Abernathy and et.al., 2019). This principle of
acciunting is useful in recording the transactions.
4. Full disclousre principle
All the relevant set of information which is crucial for the shareholder's of the company must be
disclosed within the notes accompanying financial statements.
5. Going concern principle

This is a relevant accounting principle which tends to assume that, company will continue to
carry out the operations of the business for a relatively long period of time (Karaawy and Baaj,
2018). It states that, company will not liquidate in a foreseeable future.
6. Matching principles
This is a relevant accounting principle which states that, the company must comply with the
accrual basis of accounting. However, the matching principle tends to demonstrate that, the
expenses and revenues of the company must significantly match for the specific period.
7. Revenue recognition principle
This principle tends to demonstrate that, the revenues of the company are recognized within the
profita and loss statement in the specific period when the revenues have been earned and realized
(Zeff, 2016).
8. Materiality
This principle demonstartes that, the organization might violate the principles of accounting so
that the financial statements are not misleading. The management of the company must
significantly focus on miantianing professional accounting practices which is considered to be
very crucial for the significant growth of the organization.
9. Conservatism
This is one of the key signifiacnt principle which is useful in recognizing the liabilities and
expenses when there seems to be unceratiny related with the outcomes (Rutherford, 2016). On
contrary, the revenues and assets of the company are recognized when they are received,
Question 5.
Profitability statement of carol andrew
for the year ended 2017
Particulars Amount Amount Amount
Sales 124000
(125000-1000)
COGS 82000
Opening stock 9500
Purchases 73500
(75000-1500)