Financial Accounting Report: Analysis of Transactions and Statements

This report provides a comprehensive overview of financial accounting, encompassing key concepts, principles, and practical applications. It begins with an introduction to financial accounting and its significance in the business environment. The report delves into bookkeeping systems, including journal entries and the application of trial balances. It then proceeds to the preparation of final accounts, such as the profit and loss account, balance sheet, and cash flow statement, considering the specific requirements for sole traders, partnerships, and limited companies. The report further explores the bank reconciliation process, covering deposits in transit, checks, and insufficient funds, and the reconciliation of control accounts. Throughout the report, the application of accounting principles, conventions, and ethical considerations are discussed, providing a well-rounded understanding of financial accounting practices. The report also includes journal entries and their explanations and relevant accounting principles and practices, making it a valuable resource for students and professionals alike. This assignment is contributed by a student to be published on the website Desklib. Desklib is a platform which provides all the necessary AI based study tools for students.

Financial Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
BUSINESS REPORT......................................................................................................................1
TASK 1............................................................................................................................................4
P1 Apply book keeping system...................................................................................................4
P2 Use of trial balance................................................................................................................7
M1 Analysation of sales and purchase transaction.....................................................................8
D1 Recording structure of transaction accurately.......................................................................8
TASK 2............................................................................................................................................8
P3 Preparation of Final accounts from trial balance...................................................................8
P4 Final accounts subject to sole traders, partnerships or limited companies............................9
M2 Analysation of profit and loss account, balance sheet and cash flow statement................11
D2 Calculation for constructing final accounts.........................................................................11
TASK 3..........................................................................................................................................11
P5 Application of bank reconciliation process..........................................................................11
M3 Reconciliation process subject to deposits in transit, cheques and insufficient funds........12
D3 Bank reconciliation statement.............................................................................................12
TASK 4..........................................................................................................................................13
P6 Process to reconcile control accounts..................................................................................13
M4 Different type of accounts and there consolidation............................................................14
D4 Application of appropriate method.....................................................................................14
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Structure of business and has been altered as per the changing environment of business.
Same as per the accounting procedures and concept get moulded with the dynamic environment
of business (Francis and et. al., 2013). Multinational organisations adopt advanced tools and
method of financial to keep the financial and accounting reports in adequate manner. Financial
accounting is a branch which help to retain these accounts in designed formats and structures.
To achieve core competence and efficiency in financial management concepts and methods are
used. Financial accounting helps accountants and managers to prepare financial reports to
identify the financial strength of company. Accurate financial reports are helpful to financial
institutions, accountants, investors, shareholders and stakeholders of an organisation.
BUSINESS REPORT
Financial Accounting
Financial accounting is system used to record and present the financial position of
organisation. These system contains various rules, standards, concepts, principles. Financial
accounting helps to bifurcate the transaction as per their nature and type. Below are some basic
accounting formats are defined which are used to record the transaction and help in financial
reporting.
Cash flow statement
This statement is prepared to record cash and monetary transaction to analyse net inflow
and outflow of cash in the organisation. Three major activities are considered in this statement.
Cash inflow from operating activities, financing activities and investing activities. Daily
expenses and income which are happened on regular basis considered in operating expenses,
office expenses, payment of salaries, collections from debtors, payment to creditors are common
transactions which are happen on regular basis (Edwards and et. al., 2013). Issue of share capital,
redemption of debentures, interest on investments are the transactions considered in financing
activity and the transactions remain associated with sale of machinery, purchase of building,
installation of new plan and machinery are considered in investing activity.
Income statement
Basically two type of income and expenditure are found in normal business such as
revenue nature and capital nature. All the revenue nature income and expenditure are considered
in profit and loss accounts. Expenditures and income like operating expenses, electricity, daily
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expenses, office and administration expenses, interest on investments, discount received,
dividend received are the type of revenue nature. Capital nature of expenditures contains the
transactions and events like purchase of new plant and machinery, acquisition of new building
and land, purchase of new fixtures and furnitures. Maintenance and repair cost is considered as
revenue nature of expenditure and records in income statement.
Financial position statement
This statement remain useful to managers, auditors and accountants of company. It shows
the payment coverage and financial strength of organisation. All the assets are measures in
respect of liabilities. It provides figures related to finance requirement for upcoming years.
Majorly this statement is useful to stakeholder, brokers, bankers and financiers to analyse the
financial position of company.
Regulations related to financial accounting
Financial Reporting Council (FRC) regulatory authority in the UK which operates all the
rule and regulations subject to financial reporting and management (Horngren and et. al., 2012).
This provides a sources, methods, principles and rules subject to framing and preparing financial
statements for corporates and governance. This is one of the authority organised and managed by
chairman appointed by Bank of England.
The Accounting Standard Board (ASB) provides accounting rules to frame the accounts.
It helps to record different type of transactions in a managed structure. Rules remain focused
around treatment of deferred revenue expenditures and contingency reserves.
IASB is of the regulatory which issues guidelines, policies and standards subject to
financial accounting and accounting disclosure. IFRS which is known as International Financial
Reporting Standards are the rules issues by IASB. GAAP (Generally Accepted Accounting
Principle) are followed at international level. Global organisation which operates business
operations in various countries adopt the principles and standards of ISA and GAAP.
Accounting rules and principles
Below are some rule and principles defined subject to keep accounting records and
financial accounting
Accounting rules
Boundary rules – These rules indicates towards the existence and future stability of a
company. As per these structure of a business is bifurcated as per the vision and mission
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statement of company. Basically these rules defines the legal structure and compliance structure
of company. Guidelines are made in respect of preparing financial accounts with prudence and
materiality. Principles are made for specific pervasive boundaries in respect of behaviour.
Measurement rules- These rules are made to determine the value of assets and liabilities
of company. Value and price of assets are recognise at their historical coat rather then there
preset value. Securities, value of goods and services, insurance, valuation of land and building,
promises, patent value are the factors which are required to evaluate properly.
Ethical rules – to define the main objective and motive of an organisation these rules are
adopted by organisations. As per these rules objectives must be clearly defined in exurban and
prospectus of company. It helps investees and stakeholders to analyse the objective of
organisation. It also beneficial fro managers of organisation to understand the role and
dimensions.
Accounting Principles
Cost- Basically there are two methods used to record the value of assets in books such as
historical cost and net realisable cost. Historical cost indicates towards the cost which was
incurred in the beginning of year (Warren and et. al., 2018). Another rule which is considered in
cost principle is net realisable value. Assets are records in books after deducting depreciation and
as per net realisable value.
Full disclosure- This is one of the principle which tells about fair and clean
representation of accounting policies and financial rules using by organisation. In final reporting
it is important for a company to describe the rules and policies of company that which
accounting standards and rules are followed by company.
Going concern- This rule says that organisation is established to operate the business
operations and functions forever. These rules remain specified subject to long term objectives
and sustainability.
Matching principles- The balance of expenditures is m measured in respect of incomes
generated by an organisation. This principle also define the concept of matching the balance of
assets and liabilities in balance sheet.
Revenue recognition- this principle provides a path to accountants that how when the
income and expenditures must be considered in financial accounts and books.
Conventions and concepts relation to consistency and material disclosure
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Convention consistency
It is estimated that the policies and rules which are adopted by organisation should be
consistent for a specific duration and time. It is required to observe and analyse the consistency
of methods and principles (May, 2013.). It must be analysed whether organisation would remain
consistent with the rules and standards in future. Consistency of accounting policies and methods
helps accountants to prepare the reports in simple way. Variations in accounting and financial
procedures increase complexity and reduce the credibility of organisation in market. It not only
affect the decision making process but also affect the reliability of financial and accounting
records. This is the reason organisation should analyse the effectiveness of method before
implement in operations.
Convention of materiality
As per American Accounting Association materiality is defined as a reason behind
business activities. Objectives must be cleared in prospectus and report that helps investors and
financiers to understand the nature of business. It affect the decisions and strategies which are
made around investors. Importance of events and transactions should be described clearly in
accounts. Materiality depends on amount of risk and nature of business (Skogstad and et. al.,
2011). It implies that the economic nature of an event or item contains specific treatment.
Information should be subject to the point, no any kind of irrelevant informations should be
considered as per this convention.
TASK 1
P1 Apply book keeping system
Journal entries
Date Particular Debit Credit
01/05/16 Storage cost A/c............... Dr
To Bank A/c......................CR
(Being paid made through cheque)
400
400
02/05/16 Purchase A/c ….....................Dr
To Creditor(S. Hood, D. Main, W. Tone and R.
foot).........................Cr
6080 1450+2060
+960+1610
= 6080
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(Good purchase on credit)
03/05/16 T. Cole A/c...............................Dr
J. Allen A/c................................Dr
F. lane A/c.................................Dr
J. Wilson A/c.............................Dr
F. Syme A/c................................Dr
P. white A/c................................Dr
To Sales A/c.............................Cr
(Being goods sale to the creditors)
1640
910
770
1120
2080
2420
8940
04/05/16 Motor A/c.......................................DR
To cash A/c........................Cr
(Being expenses made in cash)
470
470
07/05/16 Drawings A/c.........................................Dr
To cash A/c.............................................Cr
(Being cash use for personal purpose)
1500
1500
09/05/16 J. Fox A/c.....................................Dr
T. Cole A/c...................................Dr
To Sales A/c...................................Cr
(Good sold on credit)
1310
680
1990
11/05/16 Sales return A/c.........................Dr
To F. Syme A/c........................Cr
To J. Wilson A/c.......................Cr
(Being goods return to creditors)
680
410
270
14/05/16 Van A/c.............................Dr
To Able motor Ltd A/c..................Cr
(Good brought on credit)
28500
28500
16/05/16 Bank A/c.............................Dr
To F. Lane A/c.............................Cr
To P. Mullen A/c.........................Cr
6670
2945
1330
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To J. Wilson A/c..........................Cr
To F. Syme A/c.............................Cr
(Being discount is allowed to the creditors)
Discount allowed A/c..............Dr
To J. Wilson.............................. Cr
F. Syne.,,................................Cr
F. Lane...................................Cr
P. Mullen.................................Cr
(Being discount allowed to the creditors)
352
808
1587
44
84
155
70
19/05/16 R. Foot A/c.............................Dr
To Purchase Return A/c............................Cr
(Goods return to R. foot)
50
50
22/05/16 Purchase A/c.................................Dr
To W. Wright.................................Cr
L. Mole......................................Cr
(Being good brought on credit)
3740
1910
1830
24/05/16 J. Brown A/c.....................................Dr
S. Hood A/c.......................................Dr
R. Foot A/c........................................Dr
To Bank A/c.....................................Cr
(Being Discount allowed at 10%)
R. Foot A/c...................................Dr
S. Hood A/c..................................Dr
J. Brown A/c.................................Dr
To Discount receive A/c................Cr
(Discount received and payment made)
4140
3240
1260
140
360
460
8640
960
27/05/16 Salary A/c.....................Dr
To Bank A/c..................Cr
(Being Salary made through cheque)
4800
4800
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30/05/16 Business Rate A/c..........................Dr
To bank A/c...................................Cr
(Rate paid through cheques)
1320
1320
31/05/16 Able motors A/c......................Dr
To Bank A/c.........................Cr
(Motor expenses paid through cheque)
20500
20500
Ledger posting
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8

9

10

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P2 Use of trial balance
Trail Balance in the books of Alexandra fro the 01 may 2017 (Figures in £)
Particulars Debit Balance
Credit
Balance
W. Wright Nil 1910
W. Tone Nil 960
Van account a/c 51250 Nil
T. Cole 2320 Nil
Suspense a/c Nil 2300
Storage cost 400 Nil
Sales Return 680 Nil
Sales a/c Nil 14670
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Salaries 4800 Nil
S. Hood Nil 2150
R. Foot Nil 1560
Purchase Return Nil 50
Purchase a/c 9820 Nil
Premises a/c 340000 Nil
P. White 2420 Nil
P. Mullen 1400 Nil
Owner's Capital Nil 520500
Motor expenses 470 Nil
L. Mole Nil 1830
J. Fox 1310 Nil
J. Brown Nil 4600
J. Allen 910 Nil
Inventory a/c 63900 Nil
Fixtures a/c 8100 Nil
F. Lane 3100 Nil
Drawing account 1500 Nil
Discount
Received Nil 960
Discount
Allowed 352 Nil
D. Main Nil 2060
Cash in hand 5600 Nil
Cash at bank 62400 Nil
Business rates 1320 Nil
Abel motors a/c Nil 8500
562052 562052
M1 Analysation of sales and purchase transaction
Sales and purchase are the common transactions which are found in normal business
type. Goods and services in which an organisation deals are considered in purchase and sales.
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There are septate books of sales and purchase are maintained by organisation (Narayanaswamy,
2017). These books contains the details of creditors and debtors.
D1 Recording structure of transaction accurately
Structure defines the format of keeping the records and information in sequential form.
Guidelines and formats provided by GAAP and IAS are considered to records the transaction
properly (Kieso and et. al., 2015). Accounting formats and structure provides a path to record
various type of nature and information in sections.
TASK 2
P3 Preparation of Final accounts from trial balance
Client 2
(a) Profit and loss statement for Peter piper
Profit and loss statement of Peter Piper for the year ended 31st December 2017
Particulars Amount Particulars Amount
To Opening stock 82200 By sales a/c 1215000
To wages and salaries (177500+1220) 178720
To Purchase a/c 778800
To Gross Profit 276920 By closing Stock 101640
1316640 1316640
To motor expenses 87400 By Net Profit 276920
To Heating and lighting 4950
To Depreciation
on freehold primes 4650
on equipments 7500
on Vehicle 2800 14950
To Advertisement expenses 4810
To administration expenses 17650
To net profit 147160
276920 276920
(b) Financial Position Statements
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Particulars
Amount (figures
in £)
Current assets
Inventory 101640
Prepaid advertisement expense 8470
Trade receivables 106960
Cash in hand 2440
Total current assets 219510
Free Hold Premises 270000
Equipments 172500
Vehicle 28000
Total non current assets 470500
Total assets 690010
Liabilities and equities:
Current liabilities
Trade payable 76910
Bank overdraft 11290
Out standing salary 1220
Accumulated
depreciation(42150+105000+16800) 163950
Total current liabilities 253370
Capital 332120
Add: profit 147160
Less :- drawings (42640) 436640
Total equities and liabilities 690010
P4 Final accounts subject to sole traders, partnerships or limited companies
Client 3
a) Profit and loss statement of Raintree Ltd. For the year ended 30th September 2017
Particulars Amount Particulars Amount (Figures in £)
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To Opening stock 17000 By sales a/c 105000
To Purchase a/c 32000
To Gross Profit 74000 By closing Stock 18000
123000 123000
To Distribution cost 19000 By Net Profit 74000
To Depreciation 15000
To Corporate Charges 4000
To administration expenses 30000
To net profit 6000
74000 74000
(b) Statement of financial statement of Braintree Ltd.
Particulars
Amount
(Figures in
£)
Current Assets
Inventory 18000
Trade receivables 24000
Prepaid warehouse rent 3000
Bank -15000
Total current assets 30000
Non Current Assets
Land and building 60000
Plant and equipment 65000
Total non current assets 125000
Total assets 155000
Liabilities and equities:
Current liabilities
Trade payables 14000
Outstanding administration cost 2000
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Provision for tax 37000
Corporate Tax 4000
Total liabilities 57000
Equity
Share capital @ £1 each 50000
Share premium 20000
Retained earnings 22000
Profit 6000
Total equity 98000
Total equities and liabilities 155000
(c) Accounting concepts
Consistency - this concept defines the property of accounting policies and standards in
long term perspective. According to this concept accounting policies and procedures should be
remain consistent for subsequent years and duration and should not be changed in short term
duration. In above given scenario it is seen that organisation use dimensioning method of
depreciation on machinery and Raintree LTD. should follow this method of accounting for
further.
Prudence – this is concepts speak about the materiality and relevance of information n
financial accounts. As per this concepts accounting policies, standards, procedures should be
clearly defined in final reports. Figures and numbers should be relevant with the transactions and
events. Irrelevant informations and transactions keep aside from the main part.
(d) purpose of depreciation and various methods of calculating depreciation
Deprivation is known as deduction and decrease of value of machinery due to regular use
and natural tear and wear. It is questioned for various authors in respect of depreciation, some of
the authors understand this as an investment and some authors consider this as an expenditure.
Methods which are used to calculate depreciation.
Straight line method- amount of depreciation remain same and consistent for subsequent
year in this method.
Written down or dimensioning method – there is a specific percentage is given to
calculate the depreciation. Amount of depreciation decrease in subsequent years. Value of assets
will not become zero during the life cycle of assets.
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M2 Analysation of profit and loss account, balance sheet and cash flow statement
Profit and loss statements are prepared to analyse the net profit and loss of organisation.
All the expenses and incomes of revenue nature are considered while making income statements.
Cash flow statement, income statement and financial position statement are the main sources
used in financial reporting (Liao and et. al., 2014).
D2 Calculation for constructing final accounts
Final accounts are prepared in the end of year with the help of general ledgers, books of
various accounts and trial balance. Cost records, operating and administrative accounts are
considered in final accounts (P Simnett and et. al., 2011). Various type of cost and realisation
methods are used to calculate the amount of profit and help to communicate with finalisation of
accounting process.
TASK 3
P5 Application of bank reconciliation process
(a) Purpose of preparing of bank statement
Provide required sources and information regarding the difference of bank pas book and
cash book is the main purpose of preparing reconciliation statements. It helps to audit the
transaction and find out the difference between the major differences.
(b) Areas which may cause bank records and statements
Outstanding cheques, deposits in transits, uncleared payments and cheques, direct
payments to creditors, interest credited and bank charges, record the amounts wrongly are the
main reasons cause the difference.
(c) Reconciliation statement
Client 4
Bank Reconciliation Statement As on 1december December 2017
Date Particulars Details Amount
31/12/17 Bank Balance as per cash book (Dr. Balance) 19973
01/12/17 Add: opening balancing figure 987
02/12/17 Add: deposits 176
06/12/17 Add: Difference between balance of 783 9
17/12/17 Add: payment to Cook 97
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29/12/17 Add: Deduction of rent 260 1529
Total 21502
02/12/17 Less: 780 426
02/12/17 Less:781 737
05/12/17 Less: bank charges 47
10/12/17 Less: standing orders 137
11/12/17 Less: 310923 297
24/12/17 Less: difference of cash deposit (sales) 1
30/12/17 Less:Payment received from Fred 119 1764
Balance as per passbook (Cr. Balance) 19738
Cash book of Kendal Ltd. (Bank only)
Date particular amount Date particular amount
01/12/17
To balance b/d(Balancing
figure) 20208 02/12/17 By 780 426
01/12/17 To balance adjustment 987 02/12/17 By 781 737
02/12/17 To Deposits 176 05/12/17 By bank charges 47
06/12/17 To difference of balance 9 10/12/17 By standing orders 137
17/12/17 To cook 97 11/12/17 By 310923 297
29/12/17 To rent 260 24/12/17 By cash deposit 1
30/12/17 By Fred a/c 119
By balance c/d 19973
21737 21737
M3 Reconciliation process subject to deposits in transit, cheques and insufficient funds
Reconciliation statement are made to check the balance of cash book and bank passbook.
There are some transaction which affect the balance of cash book and bank passbook. Deposits
in transit and issuing the cheques even the funds are not available in banks. These create the
differences in total balances (Vyas, 2011). Reconciliation statements are made to identify the
reasons regarding difference and helps accountants to prepare final accounts.
D3 Bank reconciliation statement
These are the statement which correlate the bank pass book and cash book. There are
various transaction remain escaped from recording them in books of accounts (Objectives of
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Financial Accounting, 2017). It is one of the book keeping system which is retain by
organisation and analysed in the end of every month with the bank statements and passbook
balances.
TASK 4
P6 Process to reconcile control accounts
Client 5
Sales ledger control account and purchase ledger control account
Particulars Amount Particulars Amount
To balance b/d (Debit
balance) 12600
To credit sales 152350 By Sales return 7320
By Receipts from debtors 141610
By opening balance 12600
By Discount allowed 380
By Bed debts written off 120
By Transfer to purchase ledger 330
By balance c/d (Debit balance) 2590
164950 164950
Purchase ledger accountant
Particular Amount Particular Amount
To general ledger control a/c
By opening balance on (Cr.
balance) 9160
Purchase return 1110 Credit purchase 116500
Payment to creditors 101010
Discount Received 290
To transfer from sales ledger 330
To balance c/d 22920
125660 125660
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Client 6
Trial balance (£)
Particular Debit amount Credit amount
Travel Expenses 160
Suspense a/c 110
Sales 1100
Rent paid 250
Receivables 320
Purchase 700
Payables 350
Cash at bank 840
Capital 710
Total 2270 2270
(c) suspense account
Suspense account
Particulars Amount Particulars Amount
To White's personal account 750 By balance b/d 330
By John's personal account 420
750 750
M4 Different type of accounts and there consolidation
There two type of major accounts are need to reconcile as bank reconciliation and general
ledger to sub ledger reconciliation. Bank statements are analysed with the general ledger
accounts of company (Arvidsson, 2011.). Accounts payables, fixed assets and prepaid expenses
accounts are the type of accounts which are considered in general ledger accounts.
D4 Application of appropriate method
Manual bank reconciliation, CSV file import and bank feed services are the methods
which are used to reconcile the statement. As per dynamic environment of business,
reconciliation methods also get improved (Wang, 2014). Various software and programs have
been developed as per requirement of business.
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