Financial Accounting Report: Accounting Principles and Practices

This report provides a comprehensive overview of financial accounting principles and practices through the analysis of several case studies. It begins with an introduction to financial accounting, its regulations, and key accounting rules and concepts, including consistency and materiality. The report then delves into six client scenarios, each demonstrating practical applications of accounting techniques. Client 1 focuses on journal entries, ledger accounts, and trial balance preparation. Client 2 involves preparing profitability statements and statements of financial position. Client 3 covers profitability statements, balance sheets, and the concepts of prudence, consistency, and depreciation methods. Client 4 explains bank reconciliation statements, their causes, and preparation. Client 5 addresses sales and purchase ledger control accounts. Finally, Client 6 describes suspense accounts and their use in trial balance adjustments. The report concludes with a summary of the key findings and a list of references.

Financial Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................4
1. Financial accounting................................................................................................................4
2. Regulations relating financial accounting...............................................................................5
3. Accounting rules and principles..............................................................................................5
4. The conventions and the concepts relating to consistency and material.................................6
CLIENT 1........................................................................................................................................7
a. Doing entries in the journal of Alex Study’s...........................................................................7
b. Presenting ledger accounts in relation to the transactions of Alex..........................................8
c. Preparation of trial balance....................................................................................................16
CLIENT 2......................................................................................................................................17
a. Preparing profitability statement............................................................................................17
b. Statement of financial position..............................................................................................18
CLIENT 3......................................................................................................................................19
a. Preparing profitability statement of Raintree Ltd..................................................................19
b. Drafting balance sheet of Raintree Ltd..................................................................................20
c. Defining prudence and consistency concept of accounting...................................................20
d. Evaluating depreciation methods...........................................................................................21
CLIENT 4......................................................................................................................................22
a. Explaining the purpose of preparing bank reconciliation statement in the context of Kendal
Ltd..............................................................................................................................................22
b. Listing and explaining causes due to which cash records vary from bank accounts.............23
c..................................................................................................................................................23
1. Preparing a bank reconciliation statement.............................................................................23
2. Drafting updated cash book of Kendal Ltd for December 2017..........................................23
3. Presenting bank reconciliation statement as at 31st December 2017....................................24

CLIENT 5......................................................................................................................................25
a..................................................................................................................................................25
1. Sales ledger control account..................................................................................................25
2. Purchase ledger control account............................................................................................26
b. Describing control account....................................................................................................26
CLIENT 6......................................................................................................................................26
a. Describing suspense account and its main features...............................................................26
b. Drafting trial balance by using control account as a balancing figure..................................27
c. Preparing Journal entries for showing necessary corrections and clearing suspense account
...................................................................................................................................................28
d. Differentiating clearing and suspense account......................................................................29
CONCLUSION..............................................................................................................................29
REFERENCES..............................................................................................................................30

INTRODUCTION
Financial accounting field of finance lays high level of emphasis on preparing and
presenting annual reports at the end of accounting year. With the motive to assess business
performance and providing stakeholders with suitable information for decision making
companies undertake financial accounting practices. The present report is based on different case
scenario which in turn provides deeper insight about accounting conventions and principles.
Besides this, report will shed light on the manner in which journal, edger and trial balance helps
in preparing financial statements. Further, it also depicts how bank reconciliation statement helps
in matching records of cash and pass book. In this, concept related to depreciation, suspense and
control account will also be described.
1. Financial accounting
It is a specialise branch of accounting it keeps the company financial records by using
standardised guidelines. All the transactions are recorded, summarized and presented in a
financial statement. Financial accounting represent only just one sector and it provide financial
information to the company. The financial statements consider as external because it is given to
the shareholders, and primary recipients they outsider of the company. Financial accounting
main purpose is to provide enough information which is related to financial statements. Financial
accounting is governed by local and international accounting standards. Financial accounting is
not limited to recording, classifying and summarizing the information which is related to
business transactions (Jannard, 2017). This accounting generates three financial statements
which gives the required information these are balance sheet, income statements and cash flow
statements.
For investors, they look the business history for taking a decision to investing in a
company. So the financial accounting should be relevant, reliable, comparable and it should be
consistent. Accounting information to be useful for the user for decision making purpose so it
must be relevant. End users need most recent data to make a decision in favour. If the company
does not produce reliable financial data , so the investor are unable to gain accurate data. The
financial statement must be comparable, if the data should be comparable the investors are able
to make judgement (Schroeder, Clark and Cathey, 2016). Financial accounting is very useful for
a company report so its easy to understand and comparable and credible.

2. Regulations relating financial accounting
The international accounting standard board (IASB) stated that the main objective of
financial accounting is to give or provide the financial information to their existing and
potential investors and other creditors in making decision regarding to investment in the
company. Financial accounting is the process of identifying , measuring and to communicating .
International financial reporting standards (IFRS) it is issued bye IASB and it becomes more
widely spread . In regulatory frame work for the preparation of financial statement is necessary
there are some reasons, these are: the needs of the users of financial statements are meet with
basic needed information (Macve, 2015). All the information which is provided to outsider is
relevant and comparable which in turn helps in increasing users confidence as well as regulating
the behaviour of the company. Financial statements allow the organisation to communicate the
information about their performance. Financial reports provide summarized information about
organisation transactions for external investors.
The Companies Act 2006 is the main frame which the companies and accountant have to
follow. Accounting standards are authoritative statements detailing how particular type of
transaction should be recorded in financial statements and accordingly with accounting standards
will normally give the necessary or fair view of the report. The main and initial purpose of
creating accounting standards was to define proper accounting practice with in a legal framework
in this guideline give by accounting standard.
3. Accounting rules and principles
A number of accounting principles have been developed for usages these are:
Accrual principle: this is the concept of accounting that should be recorded in the accounting
periods when the actually occur. This is important for the construction of financial statements
that show the actually happened in accounting period.
 Consistency principle: This concept stated that once a company can adopt an accounting
principle every time they should use this concept. If they not to follow the principle that
means the business continuously jump between the different accounting treatments.
 Cost principle: in this concept business should only records its assets , liabilities and
equity at original purchase cost . This concept is less valid.
 Economic entity principles: This is the concepts in which the transaction of a business
should keep separately . The accountants keeps all the business transactions of a sole

proprietorship. For legal purpose sole proprietorship and its owner consider to be one
entity.
 Full disclosure principle: in this concept financial statements of a business all the
information Jan impact on reader understanding of those financial investments.
 Going concern principle: this concept is used by the business that would be justified in
deferring the recognition of some expenses like depreciation.
 Matching principle: in this concept when the company record revenue then they record
all the related expenses at the time (Basic accounting principles, 2018).
 Materiality principle: in this concept record all the transaction which is not doing so it Jan
change the decision making process .This is the quite difficult concept.
 Monetary unit principle: in this concept that a business should only record those
transaction which is done in unit of currency.
 Reliability concept: In this concept only those transaction should be recorded which is
proven or have an evidence.
 Revenue recognition Principle: in this concept it only recognize revenue when business
completed the earning process (Robson, Young and Power, 2017). Time period principle: in this concept a business should report the results of its operation.
It should be create a standard to set comparable periods.
4. The conventions and the concepts relating to consistency and material
The convention concept states that it requires transactions to be recorded at the price , and at time
and for assets to be valued at the original cost. If there is a possibility of loss so the account taken
into earliest.
Consistency is the transactions and valuation of methods that are treated year to year
similarly. The person who will evaluate the financial statements so it makes more meaningful
comparison of financial performance, in this all the practices should be unchanged from one
period to another (Narayanaswamy, 2017). Consistency doesn't mean inflexibility some time
internal policies should be changed. If changes become necessary the change and its effect
should be clear.
Materiality is an important convention, in this all the transaction should be recorded in
statements is appropriate and materialistic and it is useful for auditors. In this only those events
or items recorded which is significant for financial statements and insignificant things should be

avoided, otherwise accounting unnecessarily over burden. And it doesn't give the accurate results
to the investors.
CLIENT 1
a. Doing entries in the journal of Alex Study’s
Journal entries in the book of Alexandra for the month of January 2018 are enumerated
below:

b. Presenting ledger accounts in relation to the transactions of Alex
Ledgers pertaining to the month of January 2018 are as follows:
Real ledgers
PREMISES ACCOUNT
DATE
2017 DETAILS £ DATE
2017 DETAILS £
Jan-01 BALANCE B/d 340000 Jan-31 balance c/f 340000
340000 340000
Feb-01 BALANCE B/d 340000
MOTOR VAN ACCOUNT
DATE
2017 DETAILS £ DATE
2017 DETAILS £
Jan-01 BALANCE B/d 51250 Jan-18 balance c/f 79750
Jan-14 abel motors ltd 28500
79750 79750
Feb-01 BALANCE B/d 79750

FIXTURES AND FITTINGS ACCOUNT
DATE
2017 DETAILS £ DATE
2017 DETAILS £
Jan-01 BALANCE B/d 8100 Jan-31 balance c/f 8100
8100 8100
Feb-01 BALANCE B/d 8100
Nominal ledgers
SALES ACCOUNT
DATE
2017 DETAILS £ DATE
2017 DETAILS £
Jan-31 balance c/f 10930 Jan-31 sales day book 10930
10930 10930
Feb-01 balance b/d 10930
PURCHASES ACCOUNT
DATE
2017 DETAILS £ DATE
2017 DETAILS £
Jan-31 Purchases day book 9820 Jan-31 balance c/f 9820
9820 9820
Feb-01 balance b/d 9820
SALES RETURNS ACCOUNT
DATE
2017 DETAILS £ DATE
2017 DETAILS £
Jan-31 Sales returns day book 680 Jan-31 balance c/f 680
680 680
Feb-01 balance b/d 680
PURCHASES RETURNS ACCOUNT
DATE
2017 DETAILS £ DATE
2017 DETAILS £
Jan-31 balance c/f 50 Jan-31 purchases returns day book 50
50 50
Feb-01 balance b/d 50
STORAGE COSTS ACCOUNT

DATE
2017 DETAILS £ DATE
2017 DETAILS £
Jan-01 cash book 400 Jan-31 balance c/f 400
400 400
Feb-01 balance b/d 400
MOTOR EXPENSES ACCOUNT
DATE
2017 DETAILS £ DATE
2017 DETAILS £
Jan-04 cash book 470 Jan-31 balance c/f 470
470 470
Feb-01 balance b/d 470
DRAWINGS ACCOUNT
DATE
2017 DETAILS £ DATE
2017 DETAILS £
Jan-07 cash book 1500 Jan-31 balance c/f 1500
1500 1500
Feb-01 balance b/d 1500
DISCOUNT ALLOWED ACCOUNT
DATE
2017 DETAILS £ DATE
2017 DETAILS £
Jan-31 cash book 352 Jan-31 balance c/f 352
352 352
Feb-01 balance b/d 352
DISCOUNT RECEIVED ACCOUNT
DATE
2017 DETAILS £ DATE
2017 DETAILS £
Jan-31 balance c/f 960 Jan-31 cash book 960
960 960
Feb-01 balance b/d 960
SALARIES ACCOUNT
DATE
2017 DETAILS £ DATE
2017 DETAILS £
Jan-27 cash book 4800 Jan-31 balance c/f 4800
4800 4800
Feb-01 balance b/d 4800
BUSINESS RATES ACCOUNT

DATE
2017 DETAILS £ DATE
2017 DETAILS £
Jan-30 cash book 1320 Jan-31 balance c/f 1320
1320 1320
Feb-01 balance b/d 1320
CAPITAL ACCOUNT
DATE
2017 DETAILS £ DATE
2017 DETAILS £
Jan-31 balance c/f 529000 Jan-01 BALANCE B/d 529000
529000 529000
Feb-01 balance b/d 529000
Day Books
Purchase day book
DATE
2017 DETAILS £
Jan-02 s hood 1450
d main 2060
w tone 960
r foot 1610
Jan-22 L mole 1830
W wright 1910
DR PURCHASES A/C 9820
PURCHASES RETURNS DAY BOOK
DATE
2018 DETAILS £
Jan
Jan-19 r foot 50
CR PURCHASES
RETURNS A/C 50
Sales DAY BOOK
DATE
2018 DETAILS £
Jan-03 j wilson 1120

t cole 1640
f syme 2080
j allen 910
p white 2420
f lane 770
Jan-09 T cole 680
j fox 1310
CR SALES A/C 10930
Sales RETURNS DAY BOOK
DATE
2018 DETAILS £
Jan
Jan-11 j wilson 270
f syme 410
DR SALES RETURNS A/C 680
Cash book
Cash Book
DAT
E
2018
receipts
discoun
t
allowed
cas
h bank
DAT
E
2017
Payments
discoun
t
Receive
d
cas
h bank
Jan £ £ £ JAN £ £ £
Jan-
01
BALANCE
B/d
560
0
6240
0
Jan-
01 storage costs 400
Jan-
16 P mullen 70 1330 Jan-
04
motor
expenses 470
F lane 155 2945 Jan-
07 drawings 150
0
J wilson 43 807 Jan-
24 s hood 360 3240
F syme 84 1586 j brown 460 4140
r foot 140 1260
Jan-
27 Salaries 4800
Jan-
30 Business rates 1320
Jan-
31
Abel motors
ltd
2050
0
0 Jan-
31
BALANCE
C/f
363
0
3340
8