Financial Accounting Principles: A Comprehensive Report

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Financial Accounting Principles
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Table of Contents
(a) Report.........................................................................................................................................3
(b) Client portfolios.........................................................................................................................6
Bibliography..................................................................................................................................21
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(a) Report
Introduction
As financial accounting is a compulsory activity for every business enterprise, this report will be
discussing and evaluating the purposes for which financial accounting is done within business
enterprises. At the same time, the report will be examining the uses of financial information of a
company to its range of stakeholders, not only the internal ones but also the external ones.
1. Define financial accounting and its purposes.
The specific accountancy division and branch, which holds the responsibility for keeping a
detailed track of the financial transactions of an enterprise is known as financial accounting and
sometimes as financial accountancy as well (Pratt, 2016). In this branch, there is a use of
standardised guidelines by means of which transactions of a business enterprise are taken into
records, summarised along with presenting them in the form of financial statements and reports,
for example, in the income statement or in the balance sheet.
There are varying purposes behind the use and application of financial accounting within
business enterprises. The following is a list of the chief reasons and purposes behind the use of
financial accounting -
 Maintenance of business records - Financial accounting assists in the recording of all
financial transactions pertaining to a company in a specific time span into the books of
accounts systematically as it is not possible for the management of a company to
remember and memorise all the transactions executed in it (Mullinova, 2016).
 Preparing financial statements - All the financial statements of a company, for example,
its income statement, its balance sheet, and such others can be prepared by the means of
financial accounting and the records that financial accounting helps companies in
keeping.
 Comparison of results - Financial accounting acts as facilitation to business enterprises
to compare and contrast its financial results of one specific accounting period with
another accounting period in the past years in an easy manner. The management of a
company is also able to conduct analysis of its systematic records of financial
transactions because of financial accounting.
 Valuation of business - Financial accounting assists in the valuation of a business. It
assists in the measurement of an entity’s value by utilising financial accounting
information.
 Meeting legal needs - It is the legal need of every company to prepare its financial
statements and present it to all its stakeholders showing its profits, losses, tax payments,
asset valuation, liabilities and shareholders’ equity (Barth, 2015). This legal need of
companies is met by means of financial accounting.
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2. Name two internal stakeholders AND four external stakeholders of a large business
organisation. For the internal and external stakeholders, you have identified above,
comment briefly on why each of them might be interested in the financial information of
the organisation.
In every company, there are a number of parties, whose presence can be seen not only inside a
company but also outside it, which have interest in the company and can be having an effect over
the company’s operations (Mitchell et al., 2015). Similarly, these parties can be affected by the
policies, objectives and actions of a company. These parties are known as the stakeholders of a
company and they are the main users and interest holders of financial information of the
company.
Large business organisations consist of a number of stakeholders and these stakeholders have
great interest in the financial information relating to the organisation. The company Associated
British Foods is a world famous international food manufacturing and retail company with a
number of stakeholders across the globe. The below is a discussion on the four chief external
stakeholders for Associated British Foods and their interest in its financial information -
 Suppliers - It is the credibility and the debt meeting capacity that the suppliers of a
company check and examine by means of obtaining the financial information of the
company. The wide range of suppliers of Associated British Foods examine the
company’s credibility from its financial information to decide if they are going to be
supplying materials to the company or not.
 Investors - It is through the means of financial information of companies that investors
within the marketplace evaluate their dividend payment capacity and the returns that they
can be accomplishing by investing into their shares (Andon et al., 2015). For example,
the investors in the marketplace evaluate Associated British Foods’ financial information
to evaluate if it is going to be a good option for investment.
 Rival entities - Rival entities hold interest in an entity’s financial information to examine
its performance and contrast it with their own performances to understand the financial
superiority and weaknesses. The rival entities of Associated British Foods also use
financial information and are interested in it so that they can evaluate the chances that
they possess in terms of forming strategic alliances or enter into any kind of merger or
ventures with it.
 Customers - The promotion, loyalty and faithfulness of a company’s customers are also
dependent over its financial information. For example, financial information of
Associated British Foods is utilised by its customers in order to examine the
dependability of them over the company.
The following is a discussion on the two chief internal stakeholders for Associated British Foods
and their interest in its financial information -
 Employees - The people working within an enterprise act as their chief stakeholders and
the financial information of the enterprise is utilised by them for examination of the
prospects that they have in terms of providing service to the enterprise in the forthcoming
time span. Based on financial information, they make their decisions on whether they will
be continuing with their existing job with a company or if they will be switching over to
another company from the Associated British Foods.
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 Shareholders - The shareholders of a business enterprise also acts as its stakeholder, as
these people use financial information to determine the decision that they took on
investing into the company has been correct or not (Crowther, 2018). In Associated
British Foods, the shareholders also analyse the capacity of the company to pay dividends
to them and if the financial position of the company is likely to be remaining stable in the
forthcoming years so that they can earn consistent dividends.
Conclusion
Therefore, one can draw an understanding from this report that financial accountancy is largely
advantageous for a company not only for legal adherence but also for various other purposes
such as the derivation of its true financial position. At the same time, the report helped in
evaluating the benefits of the financial information of a company to its six major stakeholders.
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(b) Client portfolios
Client 1
(i)
Below is the journal entries recorded within the books of accounts of the enterprise Alexandra
Study, who is a sole trader -
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In accordance to the journal entries that have been shown above, the below ledger folios have
been prepared -
Real ledgers
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Nominal Ledgers
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Personal ledgers
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(ii)
In the below section, the trial balance has been prepared within the books of accounts of the
enterprise Alexandra Study, depending upon the above journal entries and ledger folios -
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