Financial Accounting: Journal Entries and Financial Statements

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FINANCIAL ACCOUNTING
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Table of Contents
Introduction......................................................................................................................................3
LO 1.................................................................................................................................................4
LO 2...............................................................................................................................................15
LO 3...............................................................................................................................................19
LO 4...............................................................................................................................................21
Conclusion.....................................................................................................................................24
Bibliography..................................................................................................................................25
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Introduction
The term financial accounting is used by the organisations as a tool to record the financial
transactions properly. This is used in the daily operations of the business so that they can prepare
the books of accounts properly. The assignment will consist of the calculations of different
clients according to their requirement. These will help in the understanding of the financial items
that will benefit the clients how the process is done. The report will also consist of the details
about the stakeholders of the company. The completion of the assignment will give a clear
understanding about the journal entries, ledger accounts, trial balance, income statement, balance
sheet, bank reconciliation statement, control accounts and suspense accounts.
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LO 1
a.
Introduction
The information of finance is vital for any organisation to record in a proper way as these
provides the condition of finance for that entity. This also provides transparency to the people
and the employees of the organisation and the government as well. The information that will be
included in the financial statements needs to be correct and there cannot be any kind of
fraudulent activities done in the financial statements. This part of the report will consist of all the
details of financial accounting along with the rules, principles and conventions. This report will
also provide a view of the internal and external stakeholders of the organisations.
Question 1
The transactions of finance that are performed by the organisations on the daily basis needs to be
recorded in the books of accounts are known as financial accounting. This consists of three main
areas, which are income statement, cash flow statement and the standing of financial position.
The transactions are recorded according to the rules present in the accounting standards of the
country. The organisations need to follow proper conventions and principles within the
operations of the business.
Purpose of financial accounting
Standards of financial reporting should be set
There is a necessity for the organisations to have correct standards within the reporting of
finance. This is done by following a set of principles that are set by the accounting councils.
These principles set proper standards for the organisations so that there are no fraudulent
activities present and the work is free of errors (Christensen et al., 2016). The governing body of
the country needs to check the workings of the organisations to see whether they are following
the accounting standards set by the body.
Preparation of financial statements
The financial statements are necessary to be prepared by the entities so that they get a proper
view of the various statements. To get the exact result, original information is necessary for the
organisations to incorporate so that there are no issues and the workings are done properly.
Different methods of financial accounting are used in this process so that proper results are
achieved.
Principles of financial accounting
The principles of financial accounting are entered in the Generally Accepted Accounting
Principle (GAAP), which are necessary for the entities to follow (Zeff, 2016). These principles
will be presented below:
1. The concept of the business entity
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2. The concept of the continuing concern
3. The concept of time period
4. The principle of consistency
5. The principle of objectivity
6. The principle of materiality
7. The concept of monetary units
8. The principle of full disclosure
9. The principle of cost
10. The matching principle
The accounting conventions
The accounting conventions that are necessary to be followed by the organisations will be
explained below:
1. There needs to be consistency within the organisations in relation to the process that they
follow in recording the financial transactions
2. Only the correct information needs to be disclosed by the organisations in their financial
statements
3. All the items of accounting are necessary for the organisations to bring under materialism so
that any change in these materials affect in the decisions of the investors
4. The organisations need to follow conservatism, where they need to estimate the appropriate
profit and loss and to do so they cannot overestimate or underestimate the assets or liabilities of
the same
Question 2
Any types of organisations consist of stakeholders that are interested in their finance. The
increase in the finance makes them feel good, while the decrease in the finance makes them feel
bad. There are two types of stakeholders present within any organisation. These are internal
stakeholders and external stakeholders. The internal stakeholders comprise of the management
and employees of the entity, who the most affected people of the organisation. The external
stakeholders comprises of the creditors, government, shareholders and suppliers. The two types
of stakeholders will be explained below:
Internal Stakeholders
Employees
The employees are the internal stakeholders of the organisation. They are one of the most
affected parts when there is a rise or fall in the finance of the business. It is necessary for the
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employees to analyse the financial statements properly so that they can measure their future
progress in relation to the progress of the company (Morokane et al., 2016). The employees draw
salary from the organisation and it is the main reason for them to be interested in the financial
statements. If the accounts are transparent to the employees then they will start to trust the
administration. This will also lead to increase in the efforts of the employees. The employees
will always try to boost the performance of the organisation and this will only be done if there is
proper trust within the business.
Management
The management is the other internal stakeholder of the organisation. They are also the affected
people when there is a rise or fall in the finance of the business. There is a necessity for the
management to analyse the statements of finance correctly so that they get clear idea of the
progress of the entity (Venkatraman and Venkatraman, 2018). Profit is responsible for the
appraisal of the management. Thus, it is necessary for the management to analyse the financial
statements properly to check the rise or fall in the profits of the entity.
External Stakeholders
Suppliers
The suppliers are termed as the external stakeholders and have interest in the finance of the
organisation. The reason backing this is that the suppliers sell products or services to the entities
and in return, they get money (Nupap et al., 2016). They need to analyse the financial statements
to get a clear view of the growth that will predict the future supply. The suppliers look for the
administration with higher growth so that they can sell more to those organisations.
Shareholders
The shareholders are also termed as the external stakeholders. They have one of the highest
interests in the finance of the organisation. The shareholders invest their hard-earned money in
the organisations to earn profit. They need to analyse the financial statement to check whether
the investment in the organisations are feasible or not. The higher the growth in the organisation
the better will be the choice of the shareholders to invest their money (Sobhanallahi et al., 2016).
The shareholders calculate the profit earnings ratio from the financial statement and the other
ratios that are calculated are the current ratio to check the difference in the assets and the
liabilities, which are very important for the business.
Government
The government is also termed as the external stakeholder for any organisation. They collect
taxes from the organisations that act as revenue for the government. The government will want
the organisations to grow more in the market so that they can earn more taxes from the
companies and use that money to develop the nation (Clevenger et al., 2019). The finance of the
organisation also affects the gross domestic product of the country as well. The more wealthy
organisations become, the better it is for the country, as this will boost the GDP as well.
Creditors
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The creditors are also termed as one of the external stakeholders of the organisation. They lend
money to the organisations to earn profits and analyses the financial statements to check that the
organisation is able to pay the money back to the creditors or not (Shahbaz et al., 2018). They
check the debt ratio and the current ratio to get a clear picture of the strength of the organisation.
They do not lend to the organisations that do not have strong financial backups.
Conclusion
The report provided a clear description of financial accounting along with their principles and
conventions that are necessary for the establishments to follow. The report also consists of
details of the different types of internal and external stakeholders that are present for any kind of
organisation. These have provided the necessary details that are present in the financial
accounting for any establishment.
b.
Client 1
i.
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