Financial Accounting Project: Analyzing Business Performance

This assignment provides a comprehensive overview of financial accounting principles and practices. It begins with a definition of financial accounting and its objectives, emphasizing the importance of annual accounts in reflecting business performance and financial health. The report delves into accounting regulations, differentiating between sole traders, partnerships, unlimited and limited companies, and the two systems for financial reporting control. Key accounting rules and principles, including the economic entity assumption, monetary unit assumption, cost principles, and revenue recognition, are discussed. Furthermore, the assignment explores accounting conventions, such as disclosure, materiality, consistency, and conservation. The practical aspect of the assignment involves the creation of prime entry books and ledger accounts, demonstrating the application of accounting principles through various transactions and account preparations, including storage, bank, purchase, sales, and other relevant accounts.

FINANCIAL ACCOUNTING
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INTRODUCTION
Financial accounting is a process which is used to record, analyze, summarize and reporting
multitude of business transaction which result in operation of the business in the financial period
of time. The main objective behind making annual accounts is to reflect the results of monetary
activities so as to measure their operational results and financial health as well. The present
project reports aims at analyzing the rules and conventions that are followed during preparation
of annual accounts. Moreover, various statements will be prepared so as to reflect the result of
daily business activities. In this report, journal, ledger, trial balance, bank reconciliation
statements, suspense account and many other accounts will be constructed for finding out the
performance of the business unit.
1 Define financial accounting
Financial Accounting refers to the information which is used to maintain the business
data and financial transition. It's a process which is used to record, analyze, summarize and
reporting multitude of business transaction which result in operation of the business in the
financial period of time. Mostly, the report comprises of the financial statement which further
include the database about the balance, statement related to cash-flow and income which are
used by the organization to maintain the the operating performance for specific period of time.
Organization issues the financial report on certain period of time. This are regarded as the
external statement as they are related to those people which are not related to the organization.
Financial accounting purpose Is to provide necessary information regarding the organization to
others so that they can assess the valuable positive information about the organization.
Accounting principles are used as the series of financial accounting. Mostly the financial
accounting is dependent on the rules and regulatory as well as the requirement of the reporting of
business faces. As it include the external financial database which are utilized by the other person
in various ways so it has some common rules mentioned as accounting standards and are mostly
described as Accounting principles (GAAP).
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LO 2
2.1 Regulation relating to financial accounting
According to the International Accounting Standards Board the main objective of the
financial reporting is to provide the basic financial related information which are used for the
collection of the information related to finance and reporting the entity which are necessary to
the external existing and potential investors, creditors for making the necessary decision related
to the resources to the table. The decision-making can be based on the purchasing, selling equity
and related to debt instrument, settling and providing loans and credits in various forms.
The necessity and need of the accounting regulation is to provide the medium through
which various characteristically medium of the organization venture are mentioned for the
examination.
1. SOLE Trader: Business owned by the single person. They are small in size and are
informal operated. Further about the Sole trader is mentioned below:
 They participate actively in the management and in business running. The statement of
the sole trader related to the profit and loss as well as the financial position produced at
the specific period of time which they are already being aware. LO 4
 These business are not recognized as separate legal database as they have unlimited
liability.
 They are mainly responsible for the tax on the business profit and it is mentioned as
drawing.
2. Partnerships: this business are divided among the group of people. They may be extended
up to 20 partners. They are involved in the day to day information and they don't enjoy
the liability.
3. Unlimited companies: In unlimited companies they have limited number of the
liabilities. They have the profit of not providing the court order in order to return its
capital to its members. This has become more common in many organizational groups to
have group structure of the unlimited company.
4. Limited companies: In terms of the liability the limited companies have limited funds
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which are being invested in the organizational development. There may be chances of
having fraud and reckless trading which is the matter being discussed by the court. The
main profit of the limited business is that they have personal wealth of the owners is
protected to a greater extent. But there is great disadvantage as when the organization has
gone for liquidation, then the creditors don't provide the personal wealth to owner of the
organization. Further the resources are limited in regards with the assets and wealth of the
organization.
There are two system which provide the rules for the operator report control in its financial
reports. The first is Uniform System of Accounts and Second is accounting separation. The first
one is related how the operators are to keep and report there financial record for the regulatory
purpose and second on is related to the operator operation on the information related to the
financial.
LO 3
3.1 Accounting rules and principles
“Generally accepted accounting principles” decides the basic rule of the accounting.
These are:
 Basic accounting guidelines and principles
 Complete detailed rules and standards issued by the FSAB and its predecessor the
Accounting Principles Boards.
 Industrial practices which are generally accepted.
There are 10 basic accounting principles mentioned below:
1. Economic entity assumption which are being separated from the organization owner's
personal transaction.
2. Monetary Unit Assumption which means that the transaction can be expressed in U.S.
Dollar.
3. Time period assumption
4. Cost principles.
5. Full Disclosure Principle which includes complete information provided to the investors
and lender by utilizing the financial statements.
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6. Going along Principle which allows the organization to defer some expenses related to
prepaid for further future accounting time.
7. Matching principle are required for the accounting basic information.
8. Revenue recognition Principle
9. Materialist
10. Conservation which is needed by the accountant to break a tie.
LO 4
4.1 Conventions and concepts relating to consistency and material disclosure.
It is related to the tradition and custom which provides the necessary information to
accountant while preparing the accountant statements. Following are important accounting
conventions:
 Convention of disclosure which includes the material information must be clearly
mention to the accounting statement
 Convention of materiality which is related to the relative importance of the item. The
main things must be included and unnecessary things must be neglected.
 Convention of consistency is described as the accounting practices must remain
unchanged during change in period from one to another.
 Convention of Conversation includes the uncertainties and risk which are included in the
business transaction. The losses must be considered first and profit must be taken after its
doesn't materialize.
CLIENT 1
1. Prime Entry Books
Date Particulars L.F Debit Credit
May 1, 2016
Storage a/c
Dr. 400
To Bank a/c 400
(Storage expense paid by cheque)
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May 2, 2016
Purchase a/c
Dr. 6080
To S. Hood a/c 1450
To D. Main a/c 2060
To W. Tone a/c 960
To R. Foot a/c 1610
May 3, 2016
J. Wilson a/c
Dr. 1120
T. Cole a/c
Dr. 1640
F. Syme a/c
Dr. 2080
J. Allen a/c
Dr. 910
P. White a/c Dr. 2420
F. Lane a/c
Dr. 770
To Sales a/c 8940
May 4, 2016 Motor expense a/c Dr. 470
To cash a/c 470
May 7, 2016
Drawing a/c
Dr. 1500
To cash a/c 1500
May 9, 2016
T. Cole a/c
Dr. 680
J. Fox a/c
Dr. 1310
To Sales a/c 1990
May 11, 2016 Sales return a/c Dr. 680
To J. Wilson a/c 270
To F. Syme a/c 410
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May 14, 2016
Van a/c
Dr. 28500
To Abel Motors Ltd a/c 28500
May 16, 2016
Cash a/c
Dr. 6669
Discount allowed a/c Dr. 351
To P. Mullen a/c 1400
To F. Lane a/c 3100
To J. Wilson a/c 850
To F. Syme a/c 1670
May 19, 2016 R. Foot A/c Dr. 50
To Purchase return (P/R) a/c 50
May 22, 2016
Purchase a/c
Dr. 3740
To L.Mole a/c 1830
To W. Wright a/c 1910
May 24, 2016 S. Hood a/c Dr. 3600
J. Brown a/c Dr. 4600
R. Foot a/c Dr. 1400
To cash a/c 8640
To discount received a/c 960
May 27, 2016
Salary a/c
Dr. 4800
To bank a/c 4800
May 30, 2016 Rates a/c Dr. 1320
To bank a/c 1320
May 31, 2016 Abel Motors a/c Dr. 28500
To Bank a/c 20500
To Discount received a/c 8000
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Total
10359
0 103590
2. Ledger Account
Storage a/c
Date Particulars Amount Date Particulars Amount
May 1,
2016 To bank a/c 400 May 1, 2016 By balance c/d 400
400 400
Bank a/c
Date Particulars Amount Date Particulars Amount
1st May 2016 To balance b/d 62400 May 1, 2016 By storage a/c 400
27-May-16 By salary a/c 4800
30-May-16 By rates a/c 1320
31st May By balance c/d 55880
62400 62400
S. Hood a/c
To cash a/c 3240 1st May 16 BY balance b/d 2150
To Discount received
a/c 360 By Purchase a/c 1450
3600 3600
D. Main a/c
31-May-16
To balance
c/d 2060 May 2, 2016
By Purchase
a/c 2060
2060 2060
W. Tone a/c
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Date particulars Amount Date particulars Amount
31-May-16 To balance c/d 960
May 2,
2016
By Purchase
a/c 960
960 960
R. Foot
a/c
May 19,
2016 To Purchase return a/c 50
May 2,
2016
By Purchase
a/c 1610
May 24,
2016 To cash a/c 1260
May 24,
2016
To Discount received
a/c 140
31-May-16 To balance c/d 160
1610 1610
Purchase return a/c
Date particulars Amount Date particulars
Amoun
t
31-May-
16
To balance
c/d 50
May 19,
2016
BY R. Foot
a/c 50
50 50
J. Brown a/c
May 24,
2016 To cash a/c 4140
1st
May
By Balance
b/d
460
0
May 24,
2016
To Discount received
a/c 460
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4600
Discount received
a/c
31-May-
16
To balance
c/d 8960 May 24, 2016 BY S. Hood a/c 360
May 24, 2016 By J. Brown a/c 460
May 24, 2016 By R. Foot a/c 140
31-May-16
By Abel Motors
ltd 8000
8960 8960
Abel Motors
Ltd
Date Particulars Amount Date
Particular
s
Amoun
t
May 31,
2016 To bank a/c 20500
May 31,
2016
BY Van
a/c 28500
+G67
To discount
received 8000
28500 28500
Rates a/c
Date Particulars Amount Date Particulars Amount
May 30,
2016 To bank a/c 1320
31st May
2016
By balance
c/d 1320
1320 1320
Purchase
a/c
Date Particulars Amount Date Particulars Amoun
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