Financial Accounting Assignment: Sole Trader to Limited Company

This financial accounting assignment solution begins with an introduction to financial accounting, defining its purpose and highlighting its role in reporting a firm's financial results to external stakeholders. The main body of the assignment addresses several tasks including defining financial accounting and identifying stakeholders, preparing financial statements for different clients, explaining accounting concepts like consistency and prudence, and describing depreciation methods. It also critically evaluates the differences between financial statements prepared by sole traders and limited companies. Furthermore, the solution covers bank reconciliation statements, the imprest system for petty cash, and control accounts, alongside journal entries with necessary corrections. The assignment provides a comprehensive overview of financial accounting principles and their practical application in various business scenarios, concluding with references for further study.

Financial
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INTRODUCTION...........................................................................................................................2
MAIN BODY..................................................................................................................................2
TASK 1............................................................................................................................................2
Define financial accounting and its purpose................................................................................2
Define two internal or four external stakeholders of a large business.........................................3
TASK 2............................................................................................................................................4
Client 1.............................................................................................................................................5
Client 2.............................................................................................................................................9
Prepare the Statement of Profit and Loss of Amber Ltd.............................................................9
Statement of financial Position of Amber Ltd...........................................................................10
Explain the following accounting concepts...............................................................................11
Describe the purpose of depreciation and two widely used method to calculate depreciation. 11
Critically evaluate the difference between the financial statements prepared by the Sole Trader
and the Limited Companies.......................................................................................................12
Client 3...........................................................................................................................................13
Purpose of preparing reconciliation statement..........................................................................13
List and explain some of the areas which may cause your record to vary from the bank records
...................................................................................................................................................13
Explain the term “imprest” as used in a petty cash System.......................................................13
Update John Ltd.’s cash book for September 2019 and prepare a bank reconciliation statement
as at 30 September 2019............................................................................................................14
Client 4...........................................................................................................................................14
Prepare and balance, in the books of Ovi, for June 2020..........................................................14
Explain the term ‘control Account’...........................................................................................15
Client 5...........................................................................................................................................16
Explain term ‘suspense account’ and what are the main features of suspense accounts...........16
Prepare trial balance..................................................................................................................16
Pass the journal entries with necessary correction....................................................................17
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................19
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INTRODUCTION
Financial accounting is a specialist accounting division that maintains records of a
firm's financial records. Using structured rules, all the transactions are reported, summarised and
statement of comprehensive income or a financial report, such as a statement of income or a
balance sheet (Baker and Burlaud, 2015). Companies are filing financial analysis on a regular
schedule. Statements are known to be external since they are made to individuals from outside
business, with main beneficiaries being owners / holders, and maybe even some lenders. It is
essential to remember that the object of financial accounting would not be to disclose the value
of a business. Instead, it is meant to provide ample knowledge for others to determine the worth
of a business on their own. This assessment covers several topics such as financial accounting
and its purpose along with some internal or external stakeholders. In addition, it includes the
financial records and prepares final account to identify financial position of the company.
MAIN BODY
TASK 1
Define financial accounting and its purpose
Financial accounting:
Financial accounting is the method of analysing financial reports that businesses use to
explain their financial results and status to external stakeholders, including investors, creditors,
suppliers and consumers. This is among the most critical differences in management accounting,
which, on the other hand, includes preparing comprehensive reports and predictions for
managers within the business. Most of the corporations prepare financial statement that they
provide to shareholders as well as to the investment public. There have been four specific
financial reports used throughout the business world to display the firm's financial position, such
as cash flow statement, balance sheet, income statement and retention statement of earnings.
Purpose of financial accounting:
Use of financial accounting has several purposes and it helps the organization to perform
their operational performance. In absolute terms, the main purpose of financial accounting is just
to analyse the final accounts of the company specifically for a particular time, otherwise known
as financial statements. The three main financial reports are the statement of sales, the balance
sheet and the statement of cash flows.
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The financial reports serve a variety of functions. They provide valuable information to the
investors and creditors that can help to boost investor interest. The financial reports are used
controlled by the organization to monitor both the company's present and future activities. The
financial reports will contain information for all forms of investors in order to prepare an
analysis using patterns, indicators and industry analyses. Some of the purposes are as follow:
 Record financial transactions: Main purpose of financial accounts is to keep systematic
record of every transections and it should be in monetary terms.
 Identify financial position: By preparing balance sheet which helps the internal as well
as external people to evaluate overall financial position of the company. Almost every
person looks into the balance sheet before making any financial decisions.
 Identify the profitability situation: With the help of income statement, organization
able to evaluate the profitability of the company. This is the best way to identify that
company is performing well or able to achieve their business goals & objectives.
 Helps in decision making process: With the help of financial accounting and several
accounting reports, management able to make effective decisions after evaluating every
aspect of business operations.
Define two internal or four external stakeholders of a large business
Internal stakeholders:
 Employees: These are the key internal stakeholders. Employees have substantial
monetary and personal commitments in the company and play a determining role in the
policy, strategies and operations of the organisation (Bischof, Laux and Leuz, 2019).
Well-run companies take into consideration employee views, concerns and beliefs in
defining the company's strategy, vision and purpose. Because of this, employees are
interest in financial information of the business.
 Managers: They play a vital role in shaping the organisation's plan and have a clear
voice in the decision-making process. Managers are also responsible for the decisions
taken and serve as a point of communication between the shareholders, the board of
directors and the company itself. In order to make effective or efficient decision,
managers need financial information of the organization.
External stakeholders:
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 Governments: Government tax companies and thus have a heavy interest in their
performance. Governments may, in reality, be considered to be the main stakeholders,
taking into account the price mechanism involved. Governments also have legislative
control to ensure that accounting processes, ethical standards and legal issues are treated
professionally by industry bodies.
 Suppliers: These external stakeholders are interested in financial information in order to
ensure that their payments of materials are collected on a due date. To ensure the
sustainability of its customers. Awareness of other goods and their distributors to the
company. Compare their transactions with current and other firms. Seeking other
competitive vendors and their commitment to the organization. Find ways to supply
more.
 Customers: To have understanding of the cost structure of the goods manufactured by
the company (Dal Maso And et.al, 2018). To maintain the continuity of the company.
Knowing the profitability of the company, since profitability is a shedding light on the
unlikely growth of goods, innovations, and best customer support and low price
associated consequences. Knowing about the CSR activities carried out by the company.
Because of this, customers are interested in financial information of the business.
 Local community: These people are interested in company’s financial information in
order to be mindful of the significant contribution of the company to society. Knowing
the opportunity to collaborate with the company. Knowing the contribution of CSR to the
region and to be aware of their behaviour, this may be influenced by the interest of nature
and the nation.
TASK 2
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Client 1
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Client 2
Prepare the Statement of Profit and Loss of Amber Ltd
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Working Notes:
Statement of financial Position of Amber Ltd
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Working Notes:
Explain the following accounting concepts
Consistency: In accounting, the consistency convention is based on the idea that the very
same accounting rules should be applicable to the preparation of financial statements for a
variety of time periods. This allows management to make meaningful results about the operation
of the consideration over a longer period.
Prudency: Under the prudent approach, do not overrate the amount of profit received or
underestimate the number of expenditure incurred (Drew and Dollery, 2015). In addition, one
must be conservative in documenting the sum of resources and not underestimate obligations.
The outcome should be prudent financial reports.
Describe the purpose of depreciation and two widely used method to calculate depreciation
Depreciation is the monetary value of asset declines over period because of wear, tear or
unsustainability. This decline is calculated by different depreciation method. Accounting predicts
a reduction in price using details on the asset's useful life.
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