Financial Accounting Homework: Stakeholders and Statements

This financial accounting assignment solution covers various aspects of financial accounting, including the definition and purpose of financial accounting, internal and external stakeholders, and the preparation of financial statements. The assignment delves into journal entries and ledgers for different clients, demonstrating the application of accounting concepts such as consistency and prudence. It also explains depreciation methods (straight-line and reducing balance), differences between sole traders and limited companies' financial statements, bank reconciliation statements, control accounts, and suspense accounts. The solution provides detailed examples and calculations to illustrate these concepts, making it a comprehensive resource for understanding financial accounting principles and practices. The assignment also provides a practical understanding of how financial accounting is applied in real-world scenarios, such as in the context of a financial marketing consultancy company.

FINANCIAL
ACCOUNTING

Table of Contents
INTRODUCTION ..........................................................................................................................3
MAIN BODY...................................................................................................................................3
Part (a)..........................................................................................................................................3
Part (b).........................................................................................................................................6
CONCLUSION..............................................................................................................................25
REFRENCES.................................................................................................................................26

INTRODUCTION
Financial accounting is a kind of accounting system which is associated with the
preparation of different kind of financial statements by using financial information (Nikolaou
and Evangelinos, 2012). In other words, this accounting system is a an accounting that consists
collecting and analysing the financial transactions of the organisations. This accounting system is
useful for both to the internal and external stakeholders. In the project report, financial
accounting is defined as well as its purpose for internal and stakeholders are mentioned.
Additionally, different types of tasks are completed according to the given data about clients. In
the project report, Alpha financial marketing consultancy company is selected that is operated in
the field of providing the financial services such as tax advice, auditing etc.
MAIN BODY
Part (a)
1. Meaning of financial accounting and purpose.
Financial accounting- It is a kind of accounting system which is associated to the
management of financial information and transactions which are presented in the form of
financial statements (Hiebl, 2014). As well as these financial statements play a significant role in
the context of both to the internal and external parties. So basically, the financial statements are
very crucial for internal stakeholders in taking important decisions as well as external parties can
evaluate about the financial situation of company. The concept of financial accounting can be
understood by example of an organisation which prepares different kind of financial statements.
On the basis of these financial statements, they take their future policies and plans. Same as in
the aspect of external parties they analyse the financial condition of the companies and take
decisions regarding to the investment.
So overall financial accounting system plays an important role in the organisations. Apart
from it, this is mandatory for the companies to implement the GAAP (general accepted
accounting principles). Basically, in the absence of these accounting principles the financial
statements can not be considered accurate and reliable. So it is required by an accountant to
adopt these principles. The main purpose of financial accounting are mentioned as below:

 Provide accurate information- If financial statements are prepared by use of accounting
principles then companies can get the accurate financial informations.
 Provide basis of decision-making- Apart from it, the financial accounting is also
beneficial in taking many important decisions. This is why because by financial
statements companies can derive needed information.
 Beneficial in making comparison- The financial accounting system is also useful in
making comparison of current financial information with the previous year's information.
Due to this companies can analyse the actual reason of deficits as well as can analyse
which year's activities was profitable or non profitable.
 Useful in making taxation decisions- The financial accounting system plays an important
role in taking the taxation decisions (Adler, 2013). Like on the basis of income of a
particular year organisation can evaluate about tax payment.
 Useful in making future plans and strategies- Additionally, the financial accounting
system is also useful in preparation of the future plans and policies. This is why because
on the basis of different kind of financial statements companies can make their plans
accordingly which can help in achieving the competitive advantages.
 Beneficial in attracting investors- Another purpose of the financial accounting system is
that it is useful in attracting the attention of customers towards the company. This is why
because investors invest in the companies on the basis of financial condition and it is
presented by the financial accounting system. So basically, financial accounting system is
beneficial for the organisations in getting more investment by the investors.
So these are the purpose of financial accounting system. These purpose defines that financial
accounting system has equal benefit for both to the internal and external stakeholders.
2. Internal and external stakeholders.
Stakeholders- The stakeholders are those who have their interest in the activities and
operations of any company (Lanen, Anderson and Maher, 2015). This is why because they want
to invest money in the companies for the purpose of earning return on the invested money.
Basically, the stakeholders are categorised into two parts which are such as: internal and external
stakeholders. Both the stakeholders are very important for the companies. Herein, different types
of internal and external stakeholders are mentioned below:

Internal stakeholder- The internal stakeholders are those stakeholders who are the
internal part of the organisation and participate into day to day activities. These stakeholders are
employees, board of director, managers etc. As well as these stakeholders are get effected due to
organisational policies and plans. The types of internal stakeholders are mentioned below:
 Employees- The employees are those who work for the companies on the basis of their
skills and capabilities (Kotas,2014). They are hired to perform any particular task or
activities and get salary or wages in return. The employees show their interest into the
financial position of the companies because they are the main source of raising the
financial conditions. If they will perform well then automatically financial position will
raise. So this is why they show their interest.
 Board of director- The board of director is a kind of group of person who prepares rules,
regulations which are required to be followed by other members. Eventually, for them the
financial information is very crucial because on the basis of it they make their plans and
policies. So that's why they show their interest in the financial information.
External stakeholders- The external stakeholders are those who do not participate in the day to
day activities of the company. They just invest their fund in the expectation of earning profits.
These stakeholders are such as customers, investors, suppliers etc. Some types of external
stakeholders are mentioned below:
 Government- The government is a kind of stakeholder who establish certain rules, laws
and regulations that are required to be followed by all the organisations. They show their
interest in the financial information of the companies because on the basis of it, they
determine the taxation. If company is earning good revenue then the tax rate will be high.
 Creditors- The creditors provide financial services to the companies on the basis of their
financial position. If financial condition is weak then they will not offer the financial
services. They might be interested in the financial condition of the company so that they
can provide fund on credit accordingly.
 Investors- The investors are the group of person or individual who expand their money in
the shares of companies with an expectation of earning higher return. This return depends
on the financial position of the company. If financial condition is good then investors will

invest. So they show their interest in the financial position of the company to check the
share value.
 Suppliers- The suppliers are those who sell raw material, goods and other required things
to the companies on the credit or cash (Deegan, 2013). If they sell these materials on the
credit then they evaluate the financila posituion of the company. So the suppliers are
interested in the financial position of the organisations so that they can provide the
material on credit.
Part (b)
Client 1.
(a) Journal Entries and Ledgers in the book of Alexandra Study

Client 2.

(c) Accounting concepts:
Consistency:
Accounting Concepts “Consistency” concludes that once an organisation adopt a
accounting method , constantly follow it principle in future period (Chhabra and Pattanayak,

2014). In Accounting concepts consistency principle states that same accounting method should
be followed by a business entity in preparing for financial statement which was used in previous
year. It enables a comparison of financial position of two different period. If management wants
to do change in accounting method, they can. There is a scope for improvement in the principle
but changes must me defined in the disclosers of the organisation.
Prudency:
This principle of accounting asserts that an business entity should not be overestimates its
income, profits together with it must not underrate its liabilities, losses. Prudency is very
elementary method of accounting which provides more reliable data that are reported in
financial statement of a company. As per the Prudency concepts financial statement are based on
International Accounting Standards (IAS’s) and Generally Accepted Accounting Principles
(GAAP) so financial conclusion are more realistic or true and fare.
(d)
Depreciation :
It is described as decline in the value of an asset class over a period of time due to
particular naturally damage in property. This method of accounting is used to allocating the cost
of assets over useful life of assets.
The purpose behind the depreciation is the charging to expenditure a portion of an
tangible asset which related to income generation by that assets. It may give a clear data on the
Net realisable value or current market value of assets. Depreciation is used for tax purposes too.
If depreciation is charged on the assets as indirect expenses, It may reduces the tax liabilities of
the real owner of that property.
Method of depreciation :
Straight line method :
In this method the cost of assets is write off on yearly basis of the useful life of assets.
there is equal amount charged throughout life of an assets.

Amount of Depreciation = (Cost of Asset – Net Residual Value) / Useful Life
It is widely used method but totally depends on the nature of assets and industry. Straight line
method is more appropriate for fixed assets which generates a more steadfast benefits such as
Furniture.
Reducing balance Method :
It is a method of depreciation in which fix rate of depreciation is allocating on opening
book value of assets. The annul depreciation is decreases every year.
This method is used for fixed assets which depreciate more in the early years as
efficiency of the fixed asset is higher in the early year. Thus, reducing balance method used for
assets such as motor vehicle and computers.
(e) Difference between the financial statements prepared by the Sole Trader and the Limited
Companies:
Basis Sole traders Limited companies
Format They do not follow any format for
financial statements.
They apply a particular format as per
the IFRS.
Developer Under this, sole trader makes
financial reports.
In this, accountant produce the financial
reports.
Type of capital In this, one capital account is
prepared.
While, they prepares different types of
capital accounts for company's
stakeholders.
Importance It is not necessary to prepare the
financial statements.
For them, financial statements are very
crucial for decision-making.
Client 3.
(a) Motive of preparing Bank Reconciliation statement: The statement is prepared with a view to
check the correctness and accuracy of the amount enterned in cash book. This provide a clarity
about which amount to be changed in according to transaction. The main reason for preparing it
is to detect frauds and errors in cash and bank book in order to mitigate them.

(b) Prime reasons which can contribute to difference in cash book and bank statement. Some of
them are provided below:
 Absence of vigilance and awareness about bank charges.
 Any amount as a deposit which is middle of a transaction can make difference.
(c) Imprest- A cash account which is used by organizations for the purpose of making payment
on daily basis is called imprest (.Epstein, Buhovac and Yuthas, 2015).

(d) Bank-reconciliation Statement as at 30 September 2018:
Client 4.

(a) Sales ledger control account and purchase ledger control account:
(b) Control account- When the amount of account balance of all single ledgers is noted in general
ledger, it is called as control account. This ultimate goal of this account is to ascertain the
amount of ledgers in order to determine any difference.
Client 5.
(a) Suspense account- This account is used to record amounts having no origin to trace. In other
words, suspicious amounts entered in this be it income or expense. The amount pertaining to tiral
balance is taken. It has some characteristics which are as follows:
 This account can work as memorandum account.
 All the errors present in trial balance can be detected from suspense account.

(b) Trail Balance by using a control account as balancing Figure:
(c) Correction through journal entries:

CONCLUSION
As per the above project report it can be concluded that financial accounting system
plays an important for the companies because this consists different types of financial
statements. These financial statements are very crucial the internal and external stakeholders.
Additionally, the financial accounting includes assumptions like consistency assumption,
prudence assumption etc. As well as , companies should follow all the concepts, rules and
regulations for preparing the financial statements.

REFRENCES
Books and journals:
Nikolaou, I. and Evangelinos, K., 2012. Financial and non-financial environmental information:
significant factors for corporate environmental performance measuring. International
Journal of Managerial and Financial Accounting. 4(1). pp.61-77.
Hiebl, M .R., 2014. Upper echelons theory in management accounting and control research.
Journal of Management Control. 24(3). pp.223-240.
Adler, R., 2013. Management Accounting. Routledge.
Lanen, W., Anderson, S. and Maher, M., 2013. Fundamentals of cost accounting. McGraw-Hill
Education.
Kotas, R., 2014. Management accounting for hotels and restaurants. Routledge.
Deegan, C., 2013. The accountant will have a central role in saving the planet… really? A
reflection on ‘green accounting and green eyeshades twenty years later’. Critical
Perspectives on Accounting. 24(6).
pp.448-458.
Chhabra, K. S. and Pattanayak, J. K., 2014. Financial accounting practices among small
enterprises: Issues and challenges. IUP Journal of Accounting Research & Audit
Practices. 13(3). p.37.
Epstein, M. J., Buhovac, A .R. and Yuthas, K., 2015. Managing social, environmental and
financial performance simultaneously. Long range planning. 48(1). pp.35-45.