Introduction to Financial Accounting: Wave's Financials and VAT

This report provides a comprehensive analysis of financial accounting principles as applied to Wave, a small sole trader company. It begins by presenting the accounting records and financial statements, including journal entries, ledger accounts, and a trial balance. The report then explains the prudence and accrual (matching) concepts, crucial elements in financial reporting. Furthermore, it details how Value Added Tax (VAT) would be recorded in Wave's accounting records and reports. The analysis covers various financial transactions, including purchases, expenses, sales (both cash and credit), returns, and capital contributions, demonstrating a practical application of accounting principles. The report highlights the importance of financial management for internal control and policy making, emphasizing the significance of accurate financial reporting for business success. Finally, the report includes a profit and loss account and a balance sheet, providing a complete overview of Wave's financial position. This detailed exploration of accounting practices is a valuable resource for students seeking to understand financial statement preparation and analysis.

INTRODUCTION
TO FINANCIAL
ACCOUNTING

Contents
INTRODUCTION......................................................................................................................3
MAIN BODY.............................................................................................................................3
1. Accounting records & financial statements for WAVE....................................................3
2. Explain the Prudence and accrual (matching) Concept...................................................16
3. Explain how VAT would be recorded in Wave accounting records and reports............17
CONCLUSION........................................................................................................................18
REFERENCES ........................................................................................................................19

INTRODUCTION
In present business era, financial and management reporting in corporate circles are both
necessary for every company to succeed. This can assist management of internal to handle
accounts and assist executives in policy making to improve an overall company performance
(Alver, Alver and Talpas, 2013). Financial management is important for organizations that
can help maintain and preserve a consistent database of financial transactions through
industries. Management prepares annual reports as per the guidelines and in particular to
format, interpret and make any conclusion to improve of increase the profit margin.
Reporting including balance sheet, profitability statement as well as trading P&L accounts.
Wave has indeed been chosen in this article which is a small sole trader company. This
article reports many single investor trades, recognizing the principle of prudence and
matching. Besides this value-added tax significance and its contributions to the Wave
accounts and reports have been chosen.
MAIN BODY
1. Accounting records & financial statements for WAVE
S. No. Particulars Debit Credit
1 Purchase a/c 30000
To Alex Ronald a/c 30000
2 Purchase a/c 10000
To Adam a/c 10000
3 Purchase a/c 25000
To Michael a/c 25000
4 Purchase a/c 32000
To William a/c 32000

5 Purchase a/c 40000
To Nick a/c 40000
3 Expenses paid in cash
S. No. Particulars Debit Credit
1 Rent
To Cash a/c
5000
5000
2 Salary a/c
To Cash a/c
50000
50000
3 Electricity expenses a/c
To Cash a/c
3000
3000
At least 2 Return Outwards
S. No. Particulars Debit Credit
1 Michael a/c
To Purchase Return a/c
5000
5000
2 William a/c
To Purchase Return a/c
15000
15000
At least 2 payments to trade payables
S. No. Particulars Debit Credit
1 Alex Ronald a/c 30000
To Cash a/c 30000
2 Adam a/c 10000
To Cash a/c 10000
At least 5 sales on credit and 3 sales for cash

S. No. Particulars Debit Credit
1 Mr Otis a/c 15000
To Sales a/c 15000
2 Mr Jack a/c 35000
To Sales a/c 35000
3 Mr Joe a/c 50000
To Sales a/c 50000
4 Mr Sean a/c 10000
To Sales a/c 10000
5 Mr Kawin a/c 25000
To Sales a/c 25000
S. No. Particulars Debit Credit
1 Cash a/c 50000
To Sales a/c 50000
2 Cash a/c 35000
To Sales a/c 35000
3 Cash a/c 45000
To Sales a/c 45000

At least 2 return inward
S. No. Particulars Debit Credit
1 Sales Return a/c
To Mr Kawin a/c
8000
8000
2 Sales Return a/c
To Mr Joe a/c
15000
15000
At least 2 receipts from trade receivables
S. No. Particulars Debit Credit
1 Cash a/c
To Bills Receivables a/c
15000
15000
2 Cash a/c
To Bills Receivables a/c
10000
10000
A discount received and allowed
S. No. Particulars Debit Credit
1 Cash a/c 30000
Discount Allowed a/c 5000
To Jack a/c 35000
2 Michael a/c 32000
To Discount Received a/c 4000
To Cash a/c 28000
£3000 cash spent on electricity and £5000 spent on rent
S. No. Particulars Debit Credit
1 Electricity a/c 3000

To Cash a/c 3000
2 Rent a/c
To Cash a/c
5000
5000
A receipt of £45,000 capital provided by the owner.
S. No. Particulars Debit Credit
1 Cash a/c
To Capital a/c
45000
45000
The Repayment of £20,000 of its loans.
S. No. Particulars Debit Credit
1 Loan a/c
To Bank a/c
10000
10000
Wages accrued of £4,000
S. No. Particulars Debit Credit
1 Wages a/c
To Wages Payable a/c
6000
6000
S. No. Particulars Debit Credit
1 Depreciation a/c 45000
To Accumulated Depreciation a/c 45000
S. No. Particulars Debit Credit

1 Bad Debts a/c 3500
To Allowance for doubtful debts a/c 3500
S. No. Particulars Debit Credit
Bank A/c 30000
To Equipment A/c (22000 - 4000) 18000
To Profit on sale of Equipemnt 12000
Ledger Accounts –
Purchase Account
Date Particular Dr Date Particulars Cr
1/12/2019 To Balance b/d 125500
1/12/2019 To Alex Ronald a/c 30000 31/12/20
19 By balance c/d 262500
2/12/2019 To Adam a/c 10000
3/12/2019 To Michael a/c 25000
4/12/2019 To William a/c 32000
5/12/2019 To Nick a/c 40000
262500 262500
Sales Account

Date Particular Dr Date Particulars Cr
31/12/2019 To Balance c/d 540390 1/12/201
9 By Balance b/d 280390
1/12/200
2 By Otis a/c 15000
2/12/200
2 By Jack a/c 35000
3/12/200
2 By Joe a/c 50000
4/12/200
2 By Sean a/c 10000
5/12/200
2 By Kawin a/c 25000
6/12/200
2 By Cash a/c 50000
7/12/200
2 By Cash a/c 35000
8/12/200
2 By Cash a/c 40000
540390 540390
Cash a/c
Date Particular Dr Date Particulars Cr
1/12/2019 To Balance B/d 0
To Sales a/c 50000 By Rent a/c 5000
To Sales a/c 35000 By Electricity a/c 3000

To Sales a/c 45000 By Salaries a/c 50000
To Mr Otis a/c 15000 By Alex Ronald 30000
To Mr Sean a/c 10000 By Adam a/c 10000
To Jack a/c 30000 By Michael a/c 28000
To Capital a/c 45000
By balance c/d 104000
230000 230000
Return Outwards a/c
Date Particular Dr Date Particulars Cr
2018 To Balance c/d 20000 2018 By Michael 5000
By William 15000
20000 20000
Return Inwards a/c
Date Particular Dr Date Particulars Cr
To Balance B/d 6200
To Mr Kawin a/c 8000 By Balance c/d 29200

To Mr Joe a/c 15000
29200 29200
Rent expense Account
Date Description Dr Date Description Cr
Balance b/d 36,400
Rent paid (CB) 10,000 Balance C/d 46,400
_____ _____
46,400 46,400
Salary a/c
Date Particular Dr Date Particulars Cr
Salaries Paid 50000 Balance c/d 50000
Electricity a/c
Date Particular Dr Date Particulars Cr
Balance b/d 12280 By balance c/d 18280
Electricity Paid 6000

Discount Allowed a/c
Date Particular Dr Date Particulars Cr
To Sophie a/c 30000 By balance c/d 30000
Discount
Received
a/c
Date Particular Dr Date Particulars Cr
To balance c/d 40000 By Jennifer a/c 40000
Capital a/c
Date Particular Dr Date Particulars Cr
To Drawing 45000
By Balance B/d
(Capital less
Drawing)
131000
To balance c/d 86000
86000 131000
Depreciation a/c
Date Particular Dr Date Particulars Cr