Financial Accounting Report: Business Transactions and Analysis

This report presents a comprehensive analysis of financial accounting principles and practices. It begins by examining different types of business transactions, double-entry bookkeeping, and the importance of a trial balance. The report includes journal entries, ledger accounts, and a trial balance to illustrate these concepts. It then differentiates between financial statements and financial reports, highlighting their purposes and users. Furthermore, it explores fundamental accounting principles like accrual, going concern, consistency, matching, materiality, revenue recognition, and conservatism. The report also includes a profitability statement and a balance sheet. In the second scenario, the report evaluates the bank reconciliation system, control accounts, and suspense accounts, explaining their roles in financial management and the reasons for their use. The report also includes examples of journal entries and ledger accounts for these scenarios. The report concludes with a discussion on the significance of these accounting practices in providing a clear understanding of a company's financial position.

Financial accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
Question 1. Types of business transactions, book keeping and importance of trial balance......3
Question 2...................................................................................................................................4
Question 3: Examining the difference between financial statement and financial report...........8
Question 4: Different fundamental principles of accounting......................................................9
Question 5.................................................................................................................................11
SCENARIO 2.................................................................................................................................13
Question 1: Evaluation on the bank reconciliation system and why is it necessary.................13
Question 2: Control accounts and its role in financial management.........................................13
Question 3: Suspense account and reason for drafting it..........................................................14
Question 4:................................................................................................................................15
Question 5.................................................................................................................................17
CONCLUSION..............................................................................................................................20
REFERENCES..............................................................................................................................22

INTRODUCTION
Financial accounting is a specialized branch related with the accounting which is useful
in keeping complete track associated with the key financial statements of the company. Financial
statements are set up in standard guidelines which can be analysed, summarized and useful in
representing the key financial statements (Kimmel, Weygandt and Kieso, 2018). This study
highlights on various different types of transactions and examine the difference between
financial statements. It is useful in examining the different fundamental principles associated
with accounting. This study also develops profit and loss account. Moreover, the study also
applies management accounting techniques in order to respond to the key financial problems.
SCENARIO 1
Question 1. Types of business transactions, book keeping and importance of trial balance.
Different types of business transactions
Business transactions is considered to be as an activity which is measured in the
monetary value and also tends to affect the operations and financial position of the company.
There are various types of financial transactions which mainly includes: Sales transaction: It is the transactions where the property is significantly transferred
from the buyer to seller in exchange for the money or credit (Kimmel, Weygandt and
Kieso, 2018). Sales transactions has been recorded within the journal on behalf of the
seller as debit to cash. Purchase transaction: Such transactions are carried out by the business to obtain the
goods and services. Purchases which has been made in the cash leads to credit in cash
account and debit in inventory account. Receipts: The business tends to get paid which is carried out at the time of delivering of
the goods and services to the other party or business. Payments: This is where the business tends to receive money for the specific goods and
services.
Single entry and double entry book keeping
Single entry bookkeeping is a significant accounting system which is useful in effectively
keeping track about the finance of the business (Schroeder, Clark and Cathey, 2019). Only single
entry is made for each transactions. Entries in turn has been recorded as a positive or a negative
amount.

Double entry book keeping is a significant system associated with the book keeping
where each entry tends to require opposite and corresponding entry to the different account.
Within the double entry book keeping there seems to have 2 equal and the corresponding sides
which are referred to as credit side and a debit side.
Trial balance and its importance
Trial balance is considered to be as the list of general ledger accounts which has been
contained within the ledge of business (Warren and Jones, 2018). Within the trail balance all the
ledgers for the accounting period has been compiled all together within debit and credit account
columns in order to make it equal. The trail balance is prepared at the end of accounting period.
The key importance of the trail balance is that, all the entries has been made within the general
ledge of the organization in order to keep it properly balanced. The debit side and credit side of
the trail balance must match. It helps in rectifying errors and preparation of the financial
statements by checking arithmetical accuracy.
Question 2
1. Journal entry
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
LEDGER ACCOUNTS
Dr. Bank A/c Cr.
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
Dr. Petty Cash Cr.
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
Dr. Cash Cr.
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
Dr. Purchases Cr.
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
Dr. Sales A/c Cr.
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
Dr.
Creditors
A/c Cr.
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
Dr. Debtors A/c Cr.
Date Particulars Amount Date Particulars Amount
15/06/20 To Sales 12000
30/06/20 Bal c/d 12000
12000 12000
Dr.
Computer
Equipment
A/c Cr.
Date Particulars Amount Date Particulars Amount
18/06/20 To Cash 3000
30/06/20 Bal c/d 3000
3000 3000
Dr. Rent A/c Cr.
Date Particulars Amount Date Particulars Amount
20/06/20 To Bank 150
30/06/20 Bal c/d 150

150 150
3. Trial balance
Question 3: Examining the difference between financial statement and financial report.
PARTICULARS FINANCIAL
STATEMENTS
FINANCIAL REPORTS
Definition These statements are
considered to be as the more
formal kind of structure which
helps in providing clear picture
about the overall health of the
business (Weygandt, Kimmel
and Kieso, 2019). It is useful
It is a collective set of
information which is useful in
summarizing the financial
earnings and spending’s. It is
useful in keeping track of the
business funds in order to
manage the money with high

in examining the income and
expenditure of the company.
degree of precision.
Types Profit and loss statements,
balance sheet, cash flow
statements and shareholder's
equity statement.
External statements,
government reports, financial
notes and quarterly and annual
records.
Purpose The key purpose of the
financial report is to provide
key significant information
related with the financial
position of the company and
take necessary decision.
The key purpose of the
financial report is that, it is
useful in giving in- depth
analysis on the performance of
the business.
Users Company management,
investment analyst, customers,
lenders, competitors,
employees, government,
investors, advisors, local
community, owner,
shareholders, etc. are
considered to be the key users
of the financial statements.
Government, agencies,
owners, investors take a look
at the financial reports of the
company are considered to be
the key users of the financial
reports.
Question 4: Different fundamental principles of accounting
There are number of accounting principles based on which modern accounting is done.
Some of the fundamental accounting principles are stated below.
Accrual principle: Under this concept, the financial transaction is recorded in the books
when the in the period when they are actually occurred rather than when the cash flow takes
place (Bradford, 2020). It helps in accurate construction of the financial statements as it depicts
what has actually happened in the accounting period.

Going concern principle: This concept is based on the assumption that the business will
run for the unforeseeable future and there is no intention to cease out its operation or shut down.
In case the financial situation of the entity is not good and believes that the company may not eb
able to continue its business then a disclosure is required to be made of the same in the financial
report. It allows the company to defer some of its expenses such as prepaid expenses for the
future period.
Consistency principle: As per this concept, the accounting practice once adopted should be
continued to be used until there is requirement by the statutory or the usage of other practice will
lead to better presentation of the financial statement (Ostapiuk, Goncharenko and Lukianets,
2018). By not following this principle would mean that the company is switching between
different accounting practices or methods for treating its transactions which would have a long
term negative effect on its financial results.
Matching principle: In this principle, when the revenue is recognised then the expenses in
relation to it is also recognised at the same time. For example, inventory is charged to the cost of
goods sold when the revenue from the sale of that inventory is recorded. It is used in the accrual
basis of accounting.
Materiality: As per this principle, the accountant is required to disclose each and every
information which is material for the business organization. It is completely based on the
personal judgement in respect to whether an amount is material or immaterial (Kiz, 2020). In
terms of materiality, the for a small business, the amount of $5000 would mean a lot as
compared to the large MNC for which it is nothing. Because of the materiality concept the
amounts are shown in the financial statements are rounded up to the nearest dollar or thousands
or millions which completely upon the size of the organization.
Revenue Recognition Principle: Under this principle, the revenue derived from the sales is
recognised as and when the product is sold or service is provided irrespective of the fact whether
cash has been received or not in actual in that period. For instance, the XYZ company has
provided the service of $1000, therefore, the company should record it when the work is done
not when the client makes the payment.
Conservatism: In this, it states the business to not anticipate a profit but provide for all
possible losses. In case a situation arises, where two alternatives are available for the purpose of
reporting an item, this principle directs the business to select that alternative which provides less

net income or lower asset amount. This leads to anticipating the loss and also potential losses are
reported in the financial statement but not the potential gain which is because of the uncertain
future events.
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)
-Closing stock -1000
GP 42000
interest received 1000
Rent received 4850
Less: Unearned rent -490 4360 5360
Operating Expenses
Wages & Salaries 13200
Rent and Rates 1500
add: O/s business rates 340 1840
Postage 900
Depreciation on motor van 5000
Insurance 7500
Less: prepaid insurance 411 7089
Bad debts 1200
less: 650 550 28579
NP 18781