Financial Accounting: Principles, Stakeholders, and Statements

This report delves into the core principles of financial accounting, presenting a detailed exploration of its purpose and application. The report begins by defining financial accounting and its significance, followed by an examination of both internal and external stakeholders within a large business organization, highlighting their specific interests in financial information. The main body of the report includes practical examples of double-entry bookkeeping, trial balance, statement of profit and loss, and statement of financial position. It further elaborates on key accounting concepts such as consistency and prudence, along with a discussion on depreciation methods and their role in accounting. The report also addresses bank reconciliation statements, including their purpose and the factors that may cause discrepancies between bank and company records. Furthermore, it covers sales and purchase ledger control accounts, suspense accounts, and journal entries. Overall, the report provides a comprehensive analysis of financial accounting, supported by practical examples and real-world scenarios.

FINANCIAL ACCOUNTING
PRINCIPLES

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1. Defining financial accounting and its purpose........................................................................1
2. Naming two internal and four external stakeholders of large business organisation and
reason behind their interest in financial information of entity....................................................3
CLIENT 1........................................................................................................................................5
1. Completing double entry recording within the relevant ledger..............................................5
2. Trail balance at 31st January 2019........................................................................................13
CLIENT 2......................................................................................................................................14
(A.) Statement of profit and loss of Munteanu Ltd...................................................................14
(B.) Statement of financial position of Munteanu Ltd..............................................................14
(C.) Explaining the following accounting concepts..................................................................15
(D.) Describing the purpose of depreciation in formulating accounting concept with its two
widely used methods.................................................................................................................16
(E.) Critically evaluating difference between financial statements prepared by sole trader and
the limited companies...............................................................................................................17
CLIENT 3......................................................................................................................................17
(a.) Explaining the purpose of bank reconciliation statement with reason of performing
statements on monthly basis......................................................................................................17
(b.) Listing some areas which may cause record vary from the bank records..........................18
(c.) Explaining the term 'imprest' which used in petty cash system..........................................18
(d.) Bank reconciliation statement as at 30 September 2018....................................................18
CLIENT 4......................................................................................................................................20
(a.) preparation of sales and purchase ledger control account..................................................20
(b.) Explaining need for preparing control account and the term control account....................20
CLIENT 5......................................................................................................................................21
(a.) Describing the term suspense account with its main features............................................21
(b.) Trial balance from the figures............................................................................................22
(c.) Preparation of journal entries with suspense account.........................................................22

CONCLUSION..............................................................................................................................23
REFERENCES.............................................................................................................................24

INTRODUCTION
Financial accounting principles are the rules and guidelines which must be followed by
entity while reporting financial data in entities books of accounts. It is the specialised branch of
accounting which generally keeps track on financial transactions of the entity (Peterson,
Schmardebeck and Wilks, 2015). For the present report, selected small accountancy firm is
Howlader & Co. which is a group of chartered accountants that provides services as both tax
advisers and CA. In this report, explanation will be provided on financial accounting and its
purpose with two internal and four external stakeholders of organisation. Further, study will be
discussed on the interest of each stakeholder’s in the financial information of the entity.
Moreover, this report will also provide explanation related to methods of depreciation and need
of bank reconciliation statements.
MAIN BODY
To,
The Line manager
Howlader & Co,
Date: 16 march 2019
This is to inform you that for smooth running of business, here are some accounting rules and
regulations which our company is aware about it.
1. Defining financial accounting and its purpose
Financial accounting is a special branch of accounting which mainly helps entity to keep
track of accounting transactions of the entity. It is the field of accounting which mainly
concerned with the summary, analysis and reporting of financial transactions. This is an area of
accounting which focuses on providing information related to internal and external business
affairs to its users, stakeholders and creditors. Financial statements are issued by entity on their
routine schedule and such statements are given to people outside the company so that they are
able to take decision regarding investing their money on capital of the firm.
In other words, financial accounting is also known as field of accounting which treat money as
a means of measuring entity's economic performance rather than measuring as the factor of
production. It is also considered as process under which complete monitoring and control of
money takes place in order to analyse the amount of money which flow in and out from
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organisation in the context of assets and liabilities. Thus, it can be said that financial accounting
is the process which keeps on track the cash flow of entity in order to run business with the long
term perspective.
However, it is a fact that financial accounting is mainly termed as the language of business
which main function is to serve communication. Thus, in order to protect the interest of the
shareholders, financial accounting is governed by both local and international accounting
standards. Through such accounting, Howlader & Co. will able to disclose its financial
capabilities and its performance in business market to the general public and to its stakeholders.
Its main purpose are as follows-
Main purpose of financial accounting is to provide the information which is important in
terms of decision making process of the entity. It is important to analyse that purpose of
financial accounting is not to report the business transaction. Rather, its goal is to provide
enough information to users and customers so that they will able to assess the value and
capability of company for themselves.
Its role is to prepare effective financial reports which will provide information regarding
the performance of the firms to its internal and external stakeholders such as investors,
creditors, manager and customer as well. It is a process through which company's revenue,
receivables, incomes and expenses are generally collected, measured and reported in the books
of accounts. Thus, it can be said that its purpose is to collect information regarding business
results, its financial capabilities and cash flow of organisation.
The other additional purpose of the financial accounting is as follows-
Credit decision: financial statements used by the lender for analysing entire set of
business information in order to determine whether the money which they have invested in
company will need to be extended or to be restricted. Thus, through this information, entities
will able to attract more support from the creditors.
Investment decision: financial statements are provided to investor so that they will use
such information in order to decide whether to invest on entity's business capital or at price per
share (The purpose of financial statements, 2018). Such information will analyse by them to
decide capability of the firm to provide adequate return.
Taxation decision: purpose of financial accounting is to serve the financial statements to
government or tax authorities so that they will able to charge tax on business by analysing
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company's assets and income.
Union bargaining decision: other purpose of financial accounting is to serve
information of business transaction to unions on which they can base their bargaining position
by analysing ability of the company to pay benefits to employees.
2. Naming two internal and four external stakeholders of large business organisation and reason
behind their interest in financial information of entity
Generally, stakeholders in every organisation plays an important role whether in terms
of decision making process or in terms of investment. These are the group of people which may
or may not be affected by the business actions. Thus, basic definition of stakeholder state that
those group of people without which support a business cease to get exist. There are two types
of stakeholder which include internal and external. Employees, managers and owners are the
group of internal stakeholders and suppliers, government, customers and shareholders are the
groups external stakeholders.
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Illustration 1: internal and external stakeholders
(source: Identifying and managing internal and external stakeholder interests,
2017)

The interest of each stakeholder behind the financial information of the entity is as follows-
Customers: These are the major important group of stakeholders for any type of
organisation whether it is small or large. In fact, it is said that business exist only to serve its
customers. Customers are known to be an actual stakeholder for enterprise and mainly impacted
by the service quality and its value. They are interested in company's financial information in
order to analyse the financial capability of the firm to serve them for the long term perspective.
They are generally interested in knowing the financial strength of the entity.
Employees: These are the group of stakeholders which has direct interest in entity's
financial information. Reason behind such interest is that they earn to provide support to
themselves and other too. They are interested towards profitability and stability in order to
analyse the ability of the company for paying their salaries and benefits (Interested parties of
financial statements, 2019). They are also interested to analyse their career development
opportunity in such enterprise.
Management: these are the group of stakeholders which has the deep interest in entities
financial as well in performance information. For small businesses are known as owners and are
hired professional to whom all the responsibility of the business operations are given.
Therefore, their interest in financial information of entity is for analysing the amount of
supplies which company purchased, cash inflows and outflow in the entity and profit which
earn last year so that sound economic decision will get developed for further business
operations of the entity.
Suppliers: they are the group of stakeholder which generally sells goods and services to
business and mainly rely only for the revenue generation with current business operations of
entity. They are the group which directly involved in companies’ operations (Mio, 2016). They
are interested in financial information in order to analyse the ability to pay obligation when it
becomes due. In simple terms, they are interested in liquidity position of the company and its
ability for paying short term obligations.
Government: they are also considered as major stakeholder group of business as
government collect taxes from both company and from its employees. This group is generally
interested in company's financial information for the purpose of taxations and regulatory
purpose. Government charge tax on the basis in entity's business operations result so that tax
will get charged on them. They are also interested in analysing amount of money which paid by
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taxpayer is correct or not.
Shareholders: These are the group of stakeholders which owns share in business with
the motive of getting return on capital. In general sense they are the real owners and has deep
interest in financial information of the entity. They want financial information in order to
analyse the way entity is utilizing their money which invested and ascertaining the profitability
and capability of the enterprise.
Thus, these are the two internal and four external stakeholders of the large business and
their interest towards financial information of the company. In simple terms, all these group are
interested in order to analyse the capability and strength of firm in business market.
From-
Junior Accountant
CLIENT 1
1. Completing double entry recording within the relevant ledger
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6

7

Sales Ledger
8

Cash Book
9