Financial Accounting: Principles, Conventions, and Stakeholders

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Financial Accounting
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Table of Contents
Part A- Report..................................................................................................................................3
Introduction..................................................................................................................................3
Purpose of Financial accounting..................................................................................................3
Conventions of Accounting.........................................................................................................4
Stakeholders and their requirements............................................................................................4
Conclusion...................................................................................................................................5
Part B- Recording of Portfolio.........................................................................................................6
Client 1.........................................................................................................................................6
Client 2.......................................................................................................................................18
Client 3.......................................................................................................................................22
Client 4.......................................................................................................................................23
Client 5.......................................................................................................................................24
References......................................................................................................................................26
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Part A- Report
Introduction
Following report is prepared for the management of the organization to help them understand
the knowledge about the accountancy principles and the regulations relating to the
accounting which is to be applied by the organization for the recording of the entries in the
books of the organization and preparing the statements showing financial records for the
same. Financial reporting and accounting is considered as the reporting of the business
transactions such that the reporting provides an honest and correct of the organization.
Financial accounting is one of the areas of management accounting which focuses on
managing the finance and recording of accounting transactions for an organization. Financial
accounting focuses on proper recording, summarizing and presenting of financial data of the
organization so that it fulfills the needs of the stakeholders (Parson, et. al., 2015). Financial
statements prepared under financial accounting are of utmost importance for the organization
as it provides the details of the organization and the achievement of goals of the organization.
Also, it helps in satisfying the needs of all the persons associated with the organization.
Financial accounting provides the organization with following details and statements:
 Statement of the Balance sheet: This provides information about the assets and
obligations of the organization also providing information of capital employed by the
shareholders into the organization
 Statement of Financial Performance: This statement provides with details relating to
the income and expense incurred and earned by the organization during the period
thus showing the overall profit/loss for the organization for the relevant period.
 Statement of Cash Flows: This statement provides with the details relating to the
overall cash inflows and outflows of the organization which helps in analyzing the
cash availability of the organization for the given period and helps in cash
management.
 Statement of changes in equity: It refers to the statement which states the difference
in the equity holding or increases and decreases in the holding of the equity portion of
the company.
Purpose of Financial accounting
Following are some of the purposes of financial accounting:
 It helps in providing the information related to finance for the management thus
helping in decision making for the organization.
 Financial accounting helps in catering to the needs of all the stakeholders of the
organization including shareholders, creditors, financial institutions, etc.
 Financial accounting facilitates in the preparation of reports which shows the exact
position of the organization and details about whether the organization is incurring
profit or loss (Andon, et. al., 2015).
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 Financial accounting helps in analyzing the expenses and obligations of the
organization thus helping in taking decisions for the management.
Conventions of Accounting
Various conventions are used in accounting and these are to be followed by the organization
for its proper functioning. Some of them are as follows:
 Disclosure Convention: Given convention states that the organization should
disclose all the significant information and prepare the relevant accounts with
honesty and integrity. It also states that all the material information should be
reported in the financial statements prepared (Hermanson, et. al., 2016).
 Consistency Convention: This states that the company should follow the same
method of accounting and techniques unless there is a valid reason for changing the
policy or reason as accepted.
 Conservatism Convention: This convention states that the company should follow a
conservative approach where it should account for all the losses and expenses but
account for the profit only if it is certain to happen.
 Materiality Convention: This states that no material item should be left out to be
disclosed in the statements of finance which might affect the decision making of the
organization. Also, it should be noted that the organization can avoid immaterial
items details to be disclosed in the financial statements as it would make the financial
statement confusing.
Stakeholders and their requirements
It is to be noted that financial information is relevant for all the stakeholders of the
organization. Stakeholders of the organization are those who directly or indirectly are in
relation to the organization. Stakeholders are generally bifurcated into two parts namely
internal stakeholders and external stakeholders (Nicolescu, 2018). The following information
is provided about the stakeholders and the uses of financial statements for the stakeholders:
Internal Stakeholders
 Managers: Managers or management are considered as the internal stakeholders of
the organization and require the statements of finance prepared by the organization.
Statements of finance are used by the managers to manage company affairs as it
assesses the financial statements and takes decisions based on the same. Also based
on financial decisions, various processes are implemented in the organization which
helps in achieving the goals.
 Employees: These are the persons who are involved in the working of the
organization and helps in the achievement of the goals for the organization. Financial
statements are used by the employees to gain details about whether the objectives are
achieved or not. Also, it helps in analyzing the efficiency of the employees towards
working. It should be noted that the remuneration and bonus are dependent upon the
financial performance of the company thus financial statements help the employees to
gain the details of the same as it is dependent on the financial statements.
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External Stakeholders
 Financial Institutions: These institutions provide finance to the organization
whenever required relating to expansion, working capital, etc. Financial institutions
are the stakeholders of the company and financial statements are required to be used
by the financial institutions to know the exact position of the organization. It should
be noted that financial institutions grant loans based on the credibility of the
organization or liquidity position of the organization (Nicolescu, 2018). This position
can be determined by analyzing the financial statements of the organization.
 Shareholders: Shareholders are the owners of the organization as the money of the
shareholders are invested in the organization. Also, it should be noted that as the
owners of the organization the shareholders should know the workings of the
organization and its financial position. Also as the stakeholders of the company
shareholders expect the return on the investment made which could be computed
using financial statements thus the same are required by the shareholders of the
organization.
 Suppliers & Creditors: These are the people who are engaged in supplying of raw
material and other services to the organization. Also, creditors are people to whom
the organization has to give money. Both the stakeholders are interested in keeping
the track of position of finance for the organization as if the organization is incurring
loss then the payment to the parties might not be made. Thus it is important to give
access to financial statements to the suppliers and creditors of the organization.
 Government authorities & other regulatory bodies: These bodies make rules and
regulations about the compliances to be made by the particular organization. It should
be noted that these governing bodies keep track of the compliance requirements of the
organization. It should be noted that these organizations require financial statements
to keep a check on the compliance and regulatory requirements of the organization as
financial statements follow a full disclosure concept which specifies the compliance
and non-compliance of the several rules made by the regulatory bodies and other
government authorities. Also, the applicable framework and guidelines have been
depicted by the regulatory bodies which are to be followed by the organization in
preparation of financial statements. These stakeholders also keep track of such
compliance by overviewing the financial statements.
Conclusion
Thus to conclude it can be said that accountancy is an important aspect in every industry and it
helps in properly recording transactions and preparing financial statements. Financial
accountancy follows various principles and conventions which helps the organization to follow
the appropriate framework and helps in achieving sustainable success for the organization. Also,
this report has focused on the areas where financial statements are helpful and the stakeholders
which use such financial statements. This reports the types of stakeholders and the usage of
financial statements for such stakeholders.
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Part B- Recording of Portfolio
Client 1
i. Books of accounts
Opening Trial balance
Journal entries
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ii. Ledger Accounts & Trial Balance as at 31st Jan 2019 for Alexandra Study
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