Financial Accounting: Reconciliation and Control Accounts Analysis

This financial accounting assignment solution covers fundamental concepts such as double-entry bookkeeping, trial balances, and the preparation of financial statements (income statement, balance sheet, and cash flow statement). It explores the differences between financial reports and financial statements and explains accounting for sole traders, partnerships, and limited companies, including their final accounts. The solution addresses the reconciliation process, including tools and techniques for checking general ledger accounts, explaining variances, and the importance of accurate figures. It includes examples and case studies demonstrating bank reconciliation statements and control accounts, concluding with an overview of the purpose of suspense accounts and their differences from control accounts. This comprehensive document is designed to enhance understanding of financial accounting principles and practices.

FINANCIAL ACCOUNTING

TABLE OF CONTENTS
INTRODUTION .............................................................................................................................3
INFORMATION BOOKLET..........................................................................................................3
LO1..................................................................................................................................................3
Double entry book–keeping and trial balance and regulations....................................................3
Case Study 1................................................................................................................................4
Case Study 2................................................................................................................................4
Case Study 3................................................................................................................................5
Case Study 4................................................................................................................................5
Case Study 5................................................................................................................................8
Difference between the financial reports and financial statements. ...........................................9
LO2................................................................................................................................................10
Explanation of the accounts for sole trader, partnership and limited company and their
differences..................................................................................................................................10
Final accounts of sole trader, partnership and company............................................................11
LO3................................................................................................................................................14
Explanation of the reconciliation process and tools & techniques used for checking general
ledger accounts. Explanation on variances and importance of the correctly entered figures....14
Bank Reconciliation Statement..................................................................................................15
LO4................................................................................................................................................16
Explanation of the control accounts and their use in financial accounting................................16
Description of process for reconciling control accounts and need to reconcile the accounts....17
Explanation on purpose of suspense accounts and their difference from the control accounts.18
Control Account.........................................................................................................................19
CONCLUSION .............................................................................................................................20
REFERENCES..............................................................................................................................21

INTRODUTION
Financial accounting refers to process of preparing the financial statements which represents
the financial position and performance of the company. These financial information is useful for
both the internal management and stakeholders of the company such as creditors, investors,
suppliers and customers. Financial accounting is different from managerial accounting that
prepares financial records for the internal management of the company. Financial statements
prepared by the company are income statement, balance sheet and cash flow statements. They
are prepared by the company as per the applicable accounting standards. Present report will be
revealing about the concepts and methods of financial accounting. It will provide explanation on
double entry book keeping, financial reports and the financial statements. It will also provide
about the sole traders, partnership and limited company form of doing business. Report will
address the reconciliation process and techniques used for checking the balances of general
ledger and the use of control accounts in financial accounting. The concepts will be explained
with the help of examples and case studies. Study will enhance the understanding of financial
accounting concepts and techniques.
INFORMATION BOOKLET
LO1
Double entry book–keeping and trial balance and regulations.
Book keeping or double entry system
means that every transaction of the business
affects minimum two accounts. It is to be
recorded in at least two accounts.. It was
established for giving equal effects to the
debit and credit side of the balances. Double
entry requires the accounting equation to be
in balance i.e. assets = owner’s equity +
liabilities. This requires the balance in assets
side should be equal to the balance in
liabilities and equity side.
Trial balance is statement prepared in
double entry system containing the debits
and credit balances of all the ledger
accounts. Trial balance is prepared after
closing the ledger accounts for balancing the
debits and credit side of all the accounts of
business. Trial balance is prepared by the
business for ensuring that entries recorded
for the financial transactions in the ledger
accounts and are balanced at the end. The
debit and credit side of the trial balance
should be equal. In a double entry system
trial balance is used for the preparation of
financial statements. Balance of the accounts
in trial balance is transferred to the
3

respective financial statements which are
income statement and balance sheet
(Schroeder, Clark and Cathey, 2019).
Balance of income and expenses are
transferred in the profit or loss statement for
identifying the profitability and balances of
assets, liabilities and capital accounts are
transferred to the balance sheet for
representing the financial position of
company.
Transactions under double entry
system are governed by the accounting
standards issued by the accounting bodies.
Companies are required to comply with the
accounting standards and frameworks for
the preparation of financial statements.
Companies are required to comply with the
reporting frameworks for representing the
financial position and performance of firm
Case Study 1
Bank £3,000
To Capital £3,000
a.) Bank account is debited increasing the bank balance and capital account is credited
increasing the capital account in balance sheet.
b) Asset = Liabilities + Capital
3000 = 0 + 3000
Case Study 2
a).
Bank £40,000
To Capital £40,000
Van £600
To Bank £600
Inventory £2,000
To Cash £2,000
Drawings £600
To Cash £600
Purchases £500
4

To Accounts Receivable £500
b)
Assets = Liabilities + Capital
42500 = 3100 + 39600
Case Study 3
Debits Credits Assets Liability
c 600 Van
3000 Inventory
38400 Bank
d 40000 Assets
e 600 600 -600 -600
f 600 Van
3000 Inventory
39400 Capital
g 39400 0 Assets
Case Study 4
Task 1
Account Debit Credit
Bank £30,000
To Capital A/c £30,000
Van £600
To Bank £600
Purchases £2,000
To Bank £2,000
Drawings £60
To Bank £60
Purchases £700
5

To Cash £700
Cash £2,500
To Sales £2,500
Rent £400
To Cash £400
Total £36,260 £36,260
Task 2
Ledger accounts
Bank Sales
Capital 30000 Van 600 Cash 2500
Inventory 2000 bal c/d 2500
Rent 400
2500 2500
bal c/d 27000
30000 30000
Van
Cash Bank 600
Sales 2500 Drawings 60 bal c/d 600
Purchases 700
600 600
Bal c/d 1740
2500 2500
Rent
Bank 400
Purchases bal c/d
Cash 700
Bank 2000 bal c/d 2700 400 400
2700 2700
Task 3
Trial Balance
6

Debit Credit
Sales 2500
Purchases 2700
Rent 400
Van 600
Bank 27000
Cash 1740
Capital 30000
Drawings 60
Total 32500 32500
Task 4
Trial Balance
Debit Credit
Sales 47140
Purchases 26500
Receivables 7640
Payables 4320
Expenses 9430
Loan 5000
Plant and machinery 7300
Van at cost 2650
Drawings 7500
Rent 6450
Insurance 1560
Overdraft 2570
Capital 10000
Total 69030 69030
Reason of extracting trial balance.
Trial balance is extracted for ensuring that the entries made in the ledger account for
balanced properly. It lists the closing balance of all the ledger accounts for the preparation of
financial statements.
7

Case Study 5
Bank Rent
Capital 30000 Purchases 3000 Bank 1000
Sales 5000
Non Current
Assets 2400 bal c/d 1000
Sales 2000 Purchases 5300
Sales 3000 Rent 1000 1000 1000
Drawings 1000
bal c/d 9300 Capital
22000 22000 Bank 12000
bal c/d 12000
Purchases 12000
Bank 3000
Bank 5300 bal c/d 8300
Drawings
8300 8300 Bank 1000
bal c/d 1000
Sales 1000
Bank 5000
Bank 2000
Bank 3000
Non Current
Asset
bal c/d 10000 Bank 2400
bal c/d 2400
10000 10000
2400 2400
Trial Balance
Trial Balance
Debit Credit
Bank 9300
Sales 10000
Purchases 8300
Non Current Assets 2400
Drawings 1000
Rent 1000
8

Capital 12000
Total 22000 22000
Question : Purpose of book double entry ?
Double entry system requires that every transaction of the business entered in debit should
be equal to amounts entered in the credit.
Difference between the financial reports and financial statements.
Financial reports and financial
statements are terms often used
interchangeably but there is difference
between the two. It could be said that
financial statements are the financial reports
where financial reports could not be said
financial statements.
Financial Reports
Financial report provides
information for the distribution to public. It
is the report on monitory matters. In other
words, financial report covers the
transaction having financial effects. For
running business financial reports provide
important information relevant for decision
making to outside and inside users (No,
2018). These bank statements, report of aged
debtors. Some of the financial reports are
made only for the internal management for
framing effective corporate strategies and
some are for external users.
Financial Statements
Financial statements on the other are
the part of financial reports. Financial
statements have more increased usage as
compared with the other financial reports.
Financial statements refer to complete set of
general purpose financial statements or
special purpose financial statements.
Financial statements include income
statement, balance sheet and cash flow
statement. Income statements provide the
performance of company during the year,
balance sheet reflects the position and the
cash flow statement provide the flow of
money inside and outside the entity. These
financial statements are governed by the
accounting boards that require the
statements to be presented in the prescribed
format.
LO2
Explanation of the accounts for sole trader, partnership and limited company and their
differences.
9

Sole Trader
Sole trader is a form of business
where the owner is self employed and runs
the business as individual. In sole trader
business owner is solely responsible for the
debts and obligations of the business. Sole
trader has an unlimited liability over the
business. Sole trader is not required to
prepare accounts as per the required
accounting standards. They are not required
to comply with the regulations for
preparation of financial records. There is no
prescribed format for the sole trade to
prepare its accounts. Accounts of sole trader
are prepared as per the requirement of
owners. Sole trader enjoy the whole profits
unlike the partnership and limited company.
Partnership
Partnership refers to form of
business in which 2 or more people come
together for carrying out the business.
Partners pool resources in partnership for
starting the business. Partnership is formed
on oral or written agreements on mutual
agreements of the partners. Profit and losses
are shared in the partnership firm in the ratio
agreed between them in agreements.
Partnership firms are required to prepare
accounts as per the partnership act (Robson,
Young and Power, 2017). They are not
required to prepare the financial statement as
per the accounting standards for reporting to
the public. Liability of the partners is
unlimited in the unlimited partnership and
limited in the limited partnership firm to the
extent of their contribution in the business.
In a partnership business tax is charged on
the individual income of partners and not
over the partnership firms.
Limited Company
Limited company is the organisation
set up for running a business. Unlike the
sole trader and partnership finance of the
business are separate from the personal
finances. A company is a separate legal
entity different from its owners. Company is
required to comply with all the regulations.
Companies are required to prepare financial
statements as per the accounting standards
given by the accounting bodies. For
preparation of financial statements all the
reporting framework and governing
principles are followed by the management.
Accounts of companies are audited for
ensuring that statements are free from errors
and misstatements before they are issued to
the public. Liabilities of company do not
extend to personal assets of owners. Also the
corporation tax is charged over the profits of
company and not like sole trader and
partnership business.
10

Final accounts of sole trader, partnership and company
Sole Trader
Income Statement
Sales 47140
Cost of Goods sold 26500
Gross profits 20640
Expenses
Rent 6450
Insurance 1560
Other Expenses 9430
Net Profit 3200
Balance Sheet
Assets
Plant and machinery 7300
Van 2650
Receivables 7640
Total Assets 17590
Liabilities
Capital 10000
less : Drawings 7500
Add: Profit 3200 5700
Loan 5000
Overdraft 2570
Payables 4320
Total Liabilities 17590
Partnership
Income
Statement
Income
Sales 47140
Expenses
11

Cost of Goods sold 26500
Rent 6450
Insurance 1560
Other Expenses 9430
Net Profit 3200
Balance Sheet
Assets
Plant and machinery
Van 2650
Receivables 7640
Total Assets 17590
Liabilities and Partners Capital
Liabilities
Loan 5000
Overdraft 2570
Payables 4320
Total Liabilities 11890
Partner's Capital
x 3420
Y 2280 5700
Total Liabilities and Partner's Capital
Change in
partners
capital
x y
Proportion 3 2
Capital 6000 4000
Drawings -4500 -3000
Profits 1920 1280
Partner's Capital 3420 2280
Limited Company
12