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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