Financial Accounting Principles Report - Regulations and Rules

This report provides a comprehensive overview of financial accounting principles, emphasizing their importance in preparing accurate financial statements. It delves into financial accounting regulations, including GAAP and IFRS, and explores various accounting rules such as debit and credit applications. The report discusses key principles like the dual aspect concept, cost principle, and matching principle. Furthermore, it covers conventions such as consistency and material disclosure, illustrating their significance in financial reporting. Additionally, the report includes practical examples, such as journal entries, and account analyses for various transactions, including capital, sales, purchases, discounts, and expenses. Finally, the report touches on topics such as trial balance and partnership accounting, providing a well-rounded understanding of financial accounting practices.

Financial Accounting
Principles

INTRODUCTION
Financial accounting principles are helpful for an organisation because it provides help to
prepare financial statements correctly. Financial accounting is the process of recording,
summarizing and reporting the transactions of business over a period of time. It contains
accounting rules and principles which are needed to be follow while reporting financial data. For
a junior accountant it is essential to prepare financial reports by following the guidelines of
accounting principles so that true and fair information and data can be provided to corporation.
As a result, company can take effective decisions which help to accomplish its objectives. The
main aim of this report is ensure firm to follow the rules and principles of accountancy. This
report covers following topics such as: financial accounting regulations and its purposes,
accounting rules and its principles, concepts relating to consistency and material disclosure,
double entry book- keeping system, trial balance, partnership. Apart from this report also discuss
about bank reconciliation.
BUSINESS REPORT
1. Financial accounting
Financial accounting helps the company to prepare financial statements as per the rules
and regulations of accounting.It helps to classify, analyse, summarize and record financial
transactions of corporations (Schwaiger, 2015). Accountant is responsible to follow the rules and
policies of financial accounting so that relevant and accurate information can be analysed. There
are various purposes of its which are as follows:
 To provide true and fair picture of financial transactions of organisation.
 To analyse and understand the fundamentals of financial accounting (DRURY, 2013).
 Financial accounting provides help to know the financial health of organisation which
help the external parties (investors, creditors) to take effective investment decisions.
 Management of company can know the profits and losses of its business during current
financial year as a result manager can make future plans and strategies for future growth.
2. Regulations relating to financial accounting
Financial accounting has various regulations which are needed to be follow by an
accountant of organisation so that true and fair information can be produce and analyse. As a
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result, company can know its financial wealth and on the basis of it investors and creditors take
investment decisions. Regulations relating to financial accounting are described below:
 In financial accounting rules, standards and procedures of Generally Accepted
Accounting Principles can be follow by an organisation so that financial statements can
be prepare appropriate (Callen, 2015). There are various principles of GAAP which are
needed to be follow such as: principle of regularity, consistency, precedence, periodicity
etc.
 Regulations related to IFRS should follow by accountant of organisation because it
focuses that how a particular type of transactions.
 Regulations related to financial accounting such as debit and credit and their treatment in
accounting can be follow by the accountant of corporation so that relevant information
and data can be reported in financial statements (Alver and Talpas, 2013).
 As per the companies act it is mandatory to publish the books of accounts in front of
general public so that they can know the financial position of corporation.
3. Rules & principles
Rules of accounting can be follow by an accountant while preparing the financial
statements and these are as follows:
Debit the receiver, credit the giver: Specific rule can be helpful in personal accounts.
Examples of personal account are debtors, banks, creditors, capital account etc. When an
individual give something to corporation it becomes an inflow so person should be credit in
books of accounts. As well as a persons receive something from the organisation than amount
must be debit on name of person (Hale and Held, 2012).
Debit all expenses, credit all incomes : It is applied when there is something related
with nominal account. As capital of corporation is considered as its liability. Thus it has a default
credit balance. When all incomes are credited than it increases the capital & by debiting
expenditures, it decreases the capital. It helps organisation to stay in balance (Banerjee, 2012).
Debit what comes in, credit what goes out: It is useful in the case of real accounts. This
includes machineries, buildings etc. For example, an individual purchase furniture of $ 20000 in
cash, in that case furniture account would be debit by $ 20000 and cash account would be credit
by $ 20000.
Principles:
2

Dual aspect concept: Dual aspect concept refers that companies are liable to record their
transaction in double on both debit and credit side of books. Single entry system records only
one aspect of the transaction which leads to recording of irrelevant information in books of
accounts. Therefore, to avoid this problem dual aspect principle assure that every transaction
needs to be recorded on both debit and credit side of accounts (Collier, 2015).
Cost principle: This principles assists that amounts of assets should be recorded at their
acquiring cost. It can be said that businesses are obliged to record an asset on their balance sheet
for the amount paid for the assets (Barth, 2015).
Matching principle: According to this principle, all expenses of business should be
matched with the revenues which are generated in same accounting period (Sanada, 2012).
4. Conventions & concepts
Conventions are based upon various rules of accounting. This is not legally binding
practices rather, it is a generally accepted convention based upon customs & it provides help to
accountant to resolve practical issues which can occurs while the preparation of financial
statements of organisation. There are following conventions of accounting which are described
as below:
Convention of consistency: In accounts it is necessary to similitude outcome of distinct
years so organisation can know the growth of business in each year. So it is essential to follow
accounting principles and rules for related transactions which are precede consistently.
Reliability of financial statements can lost due to the continuous changes which are analysed in
accounting treatment. For example, if an organisation has follow cost method for inventory
evaluation & for depreciation of fixed assets it follows written down method so it is necessary
for the company that it should follow these methods consistently and continuously. As a result,
comparison can be easy (Bebbington and Larrinaga, 2014)
Convention of material disclosure: As per this convention it is essential to disclose all
significant information so that accounts can prepare in that manner which provide appropriate
information to the persons. It is essential for an organisation to provide all information in
financial statements so that investors, creditors and owners can know the information related to
material. It helps them to take investment decisions (Edwards, 2013).
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CLIENT 1
(a) Journal Entry related to David Study
Date Particulars Debit Credit
01/01/
18
Premises Account Debit 440000
Motor Van Account Debit 45250
fixtures Account Debit 10100
Inventory Account Debit . 40900
P Mole Account Debit 2200
F Lane Account Debit 2100
Bank Account Debit 42400
Cash Account Debit 10600
To S Hamid Account 10150
To J. Brown Account 9600
To Capital Account Balancing Figure) 573800
(Being Owner's Capital is calculated )
Therefore, David Study's Capital at 1st January = £
573800
Date Particulars Debit Credit
01/01/
18
Storage cost Account Debit 800
To bank Account 800
(Being storage cost is paid)
02/01/
18
Purchases Account Debit 7680
To S Hamid Account 2450
4

To D Main Account 2560
To W Tag Account 1060
5

6

7

8

W Tag Account
Date Particulars Amount Date Particulars Amount
31/01/
18
To Closing Balance
C/d
1060 02/01/1
8
By purchases A/c 1060
Total 1060 Total 1060
J Wilson Account
Date Particulars Amount Date Particulars Amount
03/01/
18
To Sales A/c 2020 11/01/1
8
By S/R A/c 370
16/01/1
8
By Bank A/c 880
By Discount Allowed
A/c
83
31/01/1
8
By Closing Balance c/d 687
Total 2020 Total 2020
F Seema Account
Date Particulars Amount Date Particulars Amount
03/01/
18
To Sales A/c 2380 11/01/1
8
By Sales Return A/c 310
16/01/1
8
By Bank A/c 1470
By Discount Allowed
A/c
104
31/01/1
8
By Closing Balance c/d 496
Total 2380 Total 2380
9

P White Account
Date Particulars Amount Date Particulars Amount
03/01/
18
To Sales A/c 2820 31/01/1
8
By Closing Balance c/d 2820
Total 2820 Total 2820
P Mole A/c
Date Particulars Amount Date Particulars Amount
01/01/
18
To Opening Balance
(B/f)
2200 16/01/1
8
By Bank A/c 1600
By Discount Allowed
A/c
110
31/01/1
8
By Closing Balance c/d 490
Total 2200 Total 2200
Capital Account
Date Particulars Amount Date Particulars Amount
07/01/
18
To Cash Account 2000 01/01/1
8
By Opening Balance b/f 573800
31/01/
18
To Closing Balance
C/d
571800
Total 573800 Total 573800
J fox Account
Date Particulars Amount Date Particulars Amount
09/01/
18
To Sales Account 2310 31/01/1
8
By Closing Balance c/d 2310
Total 2310 Total 2310
10

Motor Van Account
Date Particulars Amount Date Particulars Amount
01/01/
18
To Opening Balance
(B/f)
45250 31/01/1
8
By Closing Balance c/d 45250
Total 45250 Total 45250
Discount Allowed Account
Date Particulars Amount Date Particulars Amount
16/01/
18
To P Mole Account 110 31/01/1
8
By Trading and P&L
Account
461
To F Steel Account 164
To J Wilson Account 83
To F Seema Account 104
Total 461 Total 461
Discount Received A/c
Date Particulars Amount Date Particulars Amount
31/01/
18
To Trading and P&L
Account
2370 24/01/1
8
By S Hamid Account 1260
By J Brown Account 960
By R Foot Account 150
Total 2370 Total 2370
Salaries A/c
Date Particulars Amount Date Particulars Amount
27/01/
18
To Bank Account 14500 31/01/1
8
By Trading and P&L
Account
14500
Total 14500 Total 14500
11

Motor Expenses Account
Date Particulars Amount Date Particulars Amount
04/01/
18
To Cash Account 670 31/01/1
8
By Trading and P&L
Account
670
Total 670 Total 670
Purchases Account
Date Particulars Amoun
t
Date Particulars Amount
02/01/
18
To S Hamid Account 2450 31/01/1
8
By Trading and P&L
Account
10820
To D Main Account 2560
To W Tag Account 1060
To R Foot Account 1610
22/01/
18
To L Mole Account 1330
To W Wright Account 1810
Total 10820 Total 10820
Bank Account
Date Particulars Amoun
t
Date Particulars Amount
01/01/
18
To Opening Balance
(B/f)
42400 01/01/1
8
By Storage cost Account 800
16/01/
18
To P Mole Account 1600 24/01/1
8
By S Hamid Account 2600
To F Lane Account 3200 By J Brown Account 3300
To J Wilson Account 880 By R Foot Account 1600
12

To F Seema Account 1470 27/01/1
8
By Salaries Account 14500
30/01/1
8
By Business Rates
Account
2220
31/01/1
8
By Closing Balance C/d 24530
Total 49550 Total 49550
D Main Account
Date Particulars Amoun
t
Date Particulars Amount
31/01/
18
To Closing Balance
Account
2560 02/01/1
8
By purchases Account 2560
Total 2560 Total 2560
By Purchases Return Account
Date Particulars Amoun
t
Date Particulars Amount
31/01/
18
To Trading and P&L
Account
110 19/01/1
8
By R foot Account 110
R Foot Account
Date Particulars Amoun
t
Date Particulars Amount
19/01/
18
To P/R Account 110 02/01/1
8
By purchases Account 1610
24/01/
18
To Discount Received
A/c
150 31/01/1
8
By Closing Balance C/d 250
To Bank Account 1600
Total 1860 Total 1860
13

T Cole Account
Date Particulars Amoun
t
Date Particulars Amount
03/01/
18
To Sales Account 1840 31/01/1
8
By Closing Balance C/d 3120
09/01/
18
To Sales Account 1280
Total 3120 Total 3120
J Allen Account
Date Particulars Amoun
t
Date Particulars Amount
03/01/
18
To Sales Account 990 31/01/1
8
By Closing Balance C/d 990
Total 990 Total 990
F Lane Account
Date Particulars Amoun
t
Date Particulars Amount
01/01/
18
To Opening Balance
(B/f)
2100 16/01/1
8
By Bank Account 3200
03/01/
18
To Sales Account 1170 By Discount Allowed
A/c
164
31/01/
18
To Closing Balance
C/d
94
Total 3364 Total 3364
Cash Account
Date Particulars Amoun Date Particulars Amount
14

t
01/01/
18
To Opening Balance
(B/f)
10600 04/01/1
8
By Motor Expenses
Account
670
07/01/1
8
By Capital Account 2000
31/01/1
8
By Closing Balance C/d 7930
Total 10600 Total 10600
Sales Return Account
Date Particulars Amoun
t
Date Particulars Amount
11/01/
18
To J Wilson Account 370 31/01/1
8
By Trading and P&L
Account
680
To F Seema Account 310
Total 680 Total 680
L Mole Account
Date Particulars Amoun
t
Date Particulars Amount
31/01/
18
To Closing Balance
C/d
1330 22/01/1
8
By Purchases Account 1330
Total 1330 Total 1330
W Wright Account
Date Particulars Amoun
t
Date Particulars Amount
31/01/
18
To Closing Balance
C/d
1810 22/01/1
8
By Purchases A/c 1810
Total 1810 Total 1810
15

J Brown Account
Date Particulars Amoun
t
Date Particulars Amount
24/01/
18
To Discount Received
Account
960 01/01/1
8
By Opening Balance b/f 9600
To Bank A/c 3300 31/01/1
8
By Closing Balance C/d
31/01/
18
To Closing Balance
C/d
5340
Total 9600 Total 9600
Business Rates Account
Date Particulars Amoun
t
Date Particulars Amount
30/01/
18
To Bank Account 2220 31/01/1
8
By Trading and
P&LAccount
2220
Total 2220 Total 2220
(c) Trial Balance as at 31st January, 2018
Trial Balance for the month of July
Particulars Debit Credit
Purchases 10820 -
Bank 24530 -
D Main - 2560
Purchases Return - 110
R Foot 250 -
T Cole 3120 -
J Allen 990 -
F Lane - 94
Cash 7930 -
16

Sales Return 680 -
L Mole - 1330
W Wright - 1810
J Brown - 5340
Business Rates 2220 -
Storage cost 800 -
Sales - 14810
S Hamid - 8740
W Tag - 1060
J Wilson 687 -
F Seema 496 -
P White 2820 -
P Mole 490 -
Capital - 571800
J fox 2310 -
Motor Van 45250 -
Discount Allowed 461 -
Discount Received - 2370
Salaries 14500 -
Motor Expenses 670 -
Premises 440000 -
Fixtures 10100 -
inventory 40900 -
Total 610024 610024
CLIENT 2
(a) P&L for Peter Hampau for the year ended 31st July 2018
Particulars Amount
(in £)
Particulars Amount
(in £)
To Opening stock 4500 By Sales 120000
17

To Purchase 70000
To Wages and salaries:
16500
Add: Outstanding wages & salaries
1520
18020
To Gross Profit 70120 By Closing stock 42640
Total 162640 Total 162640
To Depreciation: By Gross Profit Carried
forward
70120
Freehold property
560
Equipment
1900
Motor vehicle
360
2820
To Motor expense 4580
To Admin expense 1650
To Heating and lighting expense 550
To Advertisement Expense: 1030
To Net Profit 59490
Total 232760 Total 232760
WORKING NOTE: If we take prepaid expenses of advertisement amounting to £4,470 as
given in the question, then advertisement expenses for the year ended 31st July, 2018 will
become negative that is - £3,440, so the additional information given in the problem is ignored.
(b) Financial position for Peter Hampau as at ended 31st July 2018
Capital Amount
(in £)
Asset Amount
(in £)
Capital Account: Fixed Asset:
18

Opening Balance
24380
Freehold Premises: cost
28000
Add: Net Profit as per statement of
profit & loss
59490
Less:Accumulated
Depreciation
5010
22990
Less: Drawing
2800
81070 Equipment : cost
19000
Less:Accumulated
Depreciation
8700
10300
Current Liabilities: Motor Vehicles: cost
3000
Bank overdraft 1000 Less:Accumulated
Depreciation
1560
1440
Payable 5600
Outstanding wages and salaries 1520
Current Assets:
Inventory 42640
Receivable 11520
Cash in hand 300
Total 89190 Total 89190
CLIENT 3
(a) Profit and loss account of Bowling Limited
Consolidated Income Statement
EUR
Sales 107000
Other income -
Total Revenue 107000
19

Cost of system sales 32000
Change in inventory 1000
Return inwards 2000
Total cost of sales 35,000
Gross profit on sales 72,000
Distribution cost 30000
Administrative costs 30000
Operating income 12,000
Interest income -
Interest expense -
Income before income taxes 12000
(b) Balance Sheet of Bowling Limited
Consolidated Balance Sheets
Assets Amount in EUR
Land 10000
Building 50000
Less: Accumulated Depreciation 7000
Depreciation for the year 1000 42000
Plant & machinery 65000
Less: Depreciation 15000
Depreciation for the year 10000 40000
Total non-current assets 92,000
Inventories 18000
Current tax assets
Derivative financial instruments
20

Prepaid Rent 3000
Accounts receivable 24000
Total current assets 45,000
Total assets 1,37,000
Equity and liabilities
Share capital 50000
Share premium 20000
Retained Earning including current year profit 34000
Equity 104000
Current and other tax liabilities 4000
Accrued salaries 2000
Bank Overdraft 13000
Accounts payable 14000
Total current liabilities 33,000
Total equity and liabilities 1,37,000
(c) Accounts concepts such as consistency and prudency
Accounts has various concepts which help to make the financial statements appropriate
so that relevant information and data can be analysed. There are various accounting concepts
such as:
Consistency: This accounting concept is mainly focuses on the follow the same
accounting policy which is being using from last few years in order to maintain books of
accounts. This helps in maintaining accounts in adequate manner. (DRURY, 2013).
Prudence: Prudence concept states that an organisation will only record those
transactions which are actually occurred. They will not overestimate or underestimates them
(Cohen, 2015).
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(d) Depreciation and its methods
Depreciation has purpose to be applied on assets because their values are reducing over
the period of time due to the wear and tear. So it helps to ascertain the monetary value of an
assets at present time period. There are various methods of it such as:
Straight line method: Straight line method involves simple allocation of an even rate of
depreciation every year over the life of asset. Formula:
Annual depreciation expenses= [Cost of assets- residual value]/ useful life of asset
Written down value method: As per this method WDV is the value of an asset after
accounting for depreciation. It can be calculated by subtracting assembled depreciation form the
original value of assets and it shows the present value of assets (Marilena and Corina, 2012).
Client 4
(i) Purpose of BRS
BRS at 1st December 2017
Particulars Amount
Bank Balance as per pass book 17478
Less: Suspense due to wrong carry forward 987
Actual balance as per cash book after reconciliation 16491
(ii) Prepare Durrell Ltd's updated cash book for December 2017
Particulars Amount Particulars Amount
Balance B/d 16491 Alexander 857
Suspense A/c 987 Bank Charges 47
Able 962 Burgess 221
22

Baker 1103 Barry 511
Direct deposit by
customer
176 Cook 97
Charlie 2312 Payment 120
Delta 419 Hay 343
Instrument No. 785 106 Rent 260
Echo 327 Instrument No. 780 426
Cash Sales 529 Instrument No. 781 737
Fred 119 Instrument No. 310923 297
Instrument No. 787 260 Standing order rates 137
Balance c/f 19738
Total 23791 Total 23791
(iii) BRS as at 31"t December 2017
BRS
Particulars Amount
Bank Balance as per pass
book
19738
Add: Items having effects of higher balance in cash book
Cheque deposited but not yet cleared 120
Bank charges not recorded in cash book 47
Payment by bank not recorded in cash book
Instrument No.780 426
 Instrument No.781 737
 Instrument No.310923 297
Adjustment for standing order rates 137
23

Less: Items having effects of lower balance in cash book
Cheque issued but not yet presented for payment
Instrument No. 785 106
Instrument No.787 260 366
Direct deposit by customer 176
Bank balance as per cash book (Should be) 20960
Less: Opening Balance difference
(17478-16491)
987
Actual balance as per cash book after reconciliation 19973
CLIENT 5
In the books of Henderson for January, 2018
(a) Books of Henderson
(i) Purchase Ledger Control A/c
Purchase Ledger Control A/c
Particulars Amount
(£)
Particulars Amount
(£)
Discount Received 550 Balance b/d 10160
P/R 2110 Credit Purchase 106500
Bank/ Cash (Payment to
suppliers)
111010 Bank/ Cash (Refund from supplier) 400
Set-off (Transfer from sales
ledger)
540
Balance c/d 2850
Total 117060 Total 117060
Balance b/d 2850
(ii) Sales Ledger Control A/c
Sales Ledger Control A/c
24

Particulars Amount
(£)
Particulars Amount
(£)
Balance b/d 9600 Sales Return 5320
Credit Sales 142350 Bad Debts 1200
Discount Allowed 960
Bank/ Cash (Receipt from credit
customers)
150610
Balance c/d 6680 Set-off (Transfer to purchase ledger) 540
Total 158630 Total 158630
Balance b/d 6680
(b) Control Account
It is a summary account in the general ledger. In this account, entries are made once at
the ending of the each accounting period based on the periodical total of the transactions in
relation to subsidiary ledgers and books. It is very useful for the business organisation. Need for
preparing this specific account for the Henderson are describe below:
 Control account provide the summary of all the transactions recorded in various
subsidiary ledgers and very useful for the management.
 Division of accounting work among ledger keepers are possible.
 It facilitates the preparation of profit & loss account and balance sheet quickly.
 It provides internal check leading to accuracy of records.
 It also provides basis for reconciliation of cost and financial statements.
CLIENT 6
(a) Suspense Account
Under this account amounts are recorded for very short period of time in general ledger
because correct account was not determined at the time when transaction was recorded in the
books. An amount is removed from suspense account and transferred to relevant account after
determination of the account (Oulasvirta, 2016).
Example:
Received a partial payment of $100 from a customer. Credit $100 to suspense account by
opening a suspense account and debiting cash account with $100. After receiving full payment
25

from customer, suspense account will be debited with $100 and accounts receivable will be
credited with $100. This will close the suspense account and the payment is moved to the correct
account.
Main features of suspense account:- Helps in preparation of Trail Balance: When debit side and credit side of trail balance is
not in agreement, then suspense account is created with the difference amount on the
shorter side of trail balance. Helps in locating the errors: Errors committed in past can be find by the accountant with
the help of suspense account (Zeff, 2016). Helps in judging the nature of errors: The balance of suspense account is helpful the
accountant in locating the wrongness because the debit or credit balance will help the
accountant in determining the possible head of account which have the errors.
(Nothhelfer, 2017). Helps in rectifying one-sided errors entirely: After detecting the errors, the amount is
transferred to the respective account from the suspense account. There will be automatic
closer of suspense account, when the one sided errors are completely rectified (Kouki,
2015).
 Helps in preparation of Final Accounts: In preparation of final account, trail balance is
the basic input source. The amount of disagreement of total of trail balance between debit
and credit side will be presented by suspense account on the shorter side of trial balance
and then final accounts are prepared and therefore, this disagreement will hamper the
preparation of final accounts (Alver and Talpas, 2013).
(b) Drafting of Trail Balance:
Particulars Debit(in £) Credit (in £)
Purchase Account 700
Sales Account 1100
Rent Paid 250
Cash in bank 840
Travel expense 160
26