Financial Accounting Report: Comparing Financial Accounting Concepts

This report delves into the core concepts of financial accounting, differentiating between sole traders and limited companies and their respective financial statement preparation. It examines the income statement and balance sheet, providing examples and working notes for both. The report explores the differences between the income statement and financial statements, outlining their distinct purposes, content, and users. It also includes a detailed explanation of bank reconciliation statements, highlighting their significance in identifying and resolving discrepancies between cash book and bank passbook entries. The report covers topics such as final accounts of sole properties and financial reports of a limited company and also includes evaluation of financial condition of the company, the process of statement of bank-reconciliation, detail discussion of control account and suspense account to reconcile the business records.

Financial Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...............................................................................................................................3
Question - 01................................................................................................................................3
Question - 02...............................................................................................................................5
Question - 03................................................................................................................................7
Question - 04 ...............................................................................................................................9
Question - 05 .............................................................................................................................12
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Financial accounting is main field of accounting that is described as collecting, recording,
summering, evaluating the financial information in order to prepare the final statement of an
organisation (Nilsson and Stockenstrand, 2015). It is described as that keep the track record of a
business financial transaction in the company by using the guideline and accounting standard. It
involves the creation of the financial statement and reporting by using the business activities to
make available to internal as well as external stakeholder. Firm prepares the financial statements
to analysis the operational activities of the business that happened during the year. This report
includes the income statement and balance sheet with associated working notes by using the
following financial information provided by the company. It is also includes evaluation of
financial condition of the company, the process of statement of bank-reconciliation, detail
discussion of control account and suspense account to reconcile the business records. This
analytical report includes the statement of final account of sole properties and financial reports of
a limited company.
MAIN BODY
Question - 01
Sole traders- It is also called sole proprietors. The word sole business trader refers to
especially the individual who run the business without taking help of another person (Wang,
2014). The owner of the business prepares the final account by using the financial information
that happened during the year. The real owner of the business is called sole properties in the
business Properties of the particular business created the financial statement of a year by using
the activities related to business. Final account of a entity consist of profit and loss account and
final statement. Final statement can be made by helping the primary data such as journal entries,
ledger or posting and trial balances. The financial statement that are prepared by sole trader is
consist of:
 Income statement
 Balance sheet

Financial statement- Financial statement are the fundamental books of accounts that are prepared
by the business owner in order to evaluate the business operation and activities at any of the
entity. These are the financial reports that are presented by the management of a company to
owners to show the financial position in the market (Zeff, 2016). financial sheet of the business
represent the business position in the market. A general object behind the financial statement is
know the performance and actual status of the business. These financial statement are prepared
in once in a year after making basic accounting transaction.
Types of financial statements: Basically, These statement includes two types of account that are
mentioned below:
 Balance sheet- It is a list of business items that includes the assets and obligation of a
particular company. It shows the fiscal condition of an entity. It is statement that includes
business's possession, liabilities, capital, short term liabilities and fix assets of a specific
business. Balance sheet of a business is based on the equation is as Assets is equals to
liabilities plus equity capital. Balance sheet is essential part of the consolidated final
statement that represent the business position to its internal stakeholders and management
 Income statement- It is refers to statement of trading account and profit and loss account.
It is basically core financial statement of a particular business that presents the profit or
loss in the business firm (Pinnuck, 2012). It may defined as net revenue generated and
total expenditure made during the year. It stipulates how a sales volume is transformed
into net profit or net sales. Income statement includes the basic business transaction such
as recording, posting, balance of all data related to operational activities of the firm.
Final statement are prepared of Greg palmer as per information of trial balance.
Income statement of Greg Palmer are as follows:
Income Statement for the year ended 31st April 2019
Particulars Amount Particulars Amount
To Opening stock 160000 By Sales revenue 1400000
To Purchase 840000 By Closing stock 100000
To Wages 440000
Add:Outstanding wages 20000 460000
To Gross Profit 40000
1500000 1500000

To Heats and Lights 80000 By G. P. 40000
Add: Outstanding gas
expenses 8000 72000
To other Expenditure 170000
Less: Paid Rent 44000 126000
To Diminution on
fixture and fittings 96000
To Net Profit -254000
Total 40000 Total 40000
Final statement of Greg Palmer are as follows:
Balance Sheet as on 31st April,2019
Liabilities Assets
Capital 960000 Fixtures and Fittings 480000
Less: Drawings 110000 Less: Depreciation 96000 384000
N. loss -254000 596000
Trade Receivables 160000
Bank Overdraft 80000 Closing stock 100000
Owed Wages 20000 Prepaid Rent 44000
Owed Gas expenses 8000 Other Assets 16000
Total 704000 Total 704000
Question - 02
Limited companies- It is defined as a private organisation where the owners are obligated
to the extent of money that they have invested in. In the Limited company, the liability of the
company's members are restricted to the their investment. The preparation of final statement of
the company includes set of books of accounts and the fundamental statement that are created by
the management in order to know the financial condition of the business. Limited company

provides the dividend to its shareholders as per their investment. Company follow the rules and
regulation of company act and standard to maintain the books of accounts. The financial account
of the limited company includes trading and profit and loss account with balance sheet. With the
help of the vouchers, business transaction records related to business records it is easy to prepare
the financial statement of the business (Gheorghe, 2012). All the financial statement and
accounts are prepared by the accountant of the business. Here, the limited companies maintain
the following accounts in the firm:
 Trading account
 profit and loss account
 Balance sheet
 Cash flow statement
 P&L appropriation account
Final statement of the Paton Kennedy Ltd by using the information from trial balance of
the company as follows:
Particulars
Sales volume 2064000
less: Cost of goods sales (W.Note 1) 1186000
Gross profit 878000
less: Distribution costs 336000
less: Administration costs 272000
Profit before tax 270000
less: Tax 20000
Profit after tax 250000
Statement of profit & loss account for Kenny Paton as at 31st
August, 2019
Amount

ASSETS
Non current assets
Tangible assets:
Premises 1232000
plant & equipment and office equipment (W.Note 2) 816000
Current assets
Trade receivables 608000
Bank 32000
Inventory 78000
Total assets 2766000
EQUITY & LIABILITIES
Equity
Share capital 1328000
Reserves (W.N. 4) 117200
Non current liabilities
5 year 13% loan 528000
Dividend (W.N. 3) 132800
Current liabilities
Trade payables 640000
Tax 20000
Total equity & liabilities 2766000
Statement of financial position for Kenny Paton as at 31st August,
2019
Amount
Working notes for the above income and financial statement:
1) Cost of goods sales:
Particulars Amount
Opening stock 96000
Purchases 1024000

Less: closing stock 78000
Depreciation: plant & equipment 115200
Office equipment 28800
Sum 1186000
2) plant & equipment and office equipment:
Items Plant &
equipment
Office
equipment
Cost 768000 192000
Less: dep. 115200 28800
Sum 652800 163200
3) Dividend:
10% of Share capital = 1328000 x 10%
= 132800
4) Reserves:
Profit less dividend = 250000 - 132800
= 117200
Question - 03
Differences between income statement and financial statement:
Income statement is defined as core financial statement that indicates the profit and loss
of the company. It is financial reporting process that provides the detail regarding the business
operating activities. It shows the sales volume generated by the firm, direct and indirect
expenditure, gain and loss during the financial year. It indicates how the sales revenue are
transformed into net profit or loss. The primary purpose of this statement to represent the
business situation to investor whether it have profit or loss in a financial year. Whereas financial
statement are the accounts and reports that are prepared to present the financial condition in
front of management and user so management can make the final decision regarding the
formulation and implementation of the business strategies and investors can make decision

whether they wants to invest money in it or not (Gray, Coenenberg and Gordon, 2013). It
represent the financial performance of the particular firm over the certain time of period.
In order to comparison both the statement, Income statement shows the profitability of a
business organisation where financial statement represent the overall performance of the
company or financial aspect related to assets and liabilities. It also shows the financial position
and stability of the company in the market. The main distinguish between them financial sheet
represent overall business activities and aspects to the management and internal stakeholders
while income sheet shows sales and purchase data with the profitability. The comparison and
contrasting between the income statement and financial statement are made as follows:
Time period: For evaluation of the business position of assess and liabilities that is made
after considering business transaction of the current year on the particular date. Statement of
financial position are prepared after reviewing the transaction of the income statement. Income
statement is laying on the monthly basis, half yearly and yearly basis but the statement of
financial position are constructed on the particular date. It provides a overlook on the assets and
liabilities and owners capital at the time of reporting the financial statement.
Use for management: Management of a business firm uses the data from the financial
statement in order to compare the business position with previous year. By considering all the
data and facts from the statement they formulate the business strategies and implement it to see
the advanced result in the future. While income statement of the companies shows the profit and
loss that occur from conducted the business operations. Management of the firm makes the
decision regarding the short run by measuring the income statement (Gupta, 2016).
Content: In the financial statement, the item that are reported to business prospective are
assets, liabilities, equity capital, investment, long term loan at the particular period of time. In the
asset side, it is concluded in the statement of financial position of a firm such as fix assets,
investment and current assets. In the liabilities side, it contents equity share capital, retained
earnings, non current liabilities and current liabilities. But income statement have different items
in comparison to the financial statement that are as sales revenue, purchase, direct and indirect
expenses, opening and closing stock, profit or loss made during the year.
Users of statement: Basically the user of the financial statement of the condition of the
business are internal as well as external stakeholder of the company. fiscal statement represent
the information regarding monetary fund pattern, liquidity position, financial leverage. All these

detail are help to make the financial decision regarding the future. User of the financial statement
are supplier, investor, government, creditors etc. They all are external user of data related to
financial statement. They make detail analysis of the company's data and invest accordingly
(Ball, 2013). Data of Income statement are useful to management in order to prepare the
financial statement and make a comparative analysis of the sales revenue and profit of the
business.
Question - 04
Bank reconciliation statement
Bank reconciliation sheet is process that refers to variances between cash book bank's
column and bank pass book entries on a particular date. It shows the differences between balance
of the cash book and banks entries. All these variances hurdles are solved by preparing the bank-
reconciliation statement. The main purpose of the making the bank-reconciliation statement is to
ascertained difference that creates issue in determined the closing cash books and match the
balances of both cash and pass book entries (Bryer, 2013). It recognize the error in transactions
balance that are related to bank, error of omission, hidden charges related to bank. To
rectification of the bank transaction it is necessaries to prepare this sheet.
Process of bank reconciliation- To make a this statement, It is required to follow some step
which are as follows:
 Determining the variances between cash account and bank account's statement- In the
process of the bank reconciliation, The first process is ascertain the differences between
cash transaction with bank details and differences amount entry should be made in this
statement.
 Find out the cash entries records that are not present in the discloser of bank account- The
further process is to find out the cash transaction that are not available in the bank
statement. These transaction are really helpful in making the Bank reconciliation
statement.
 Making the adjustment with those transaction that are not present in the cash ledger- In
order to making the bank transaction with the help of books of books of account. The
items are such as bank charges, interest on deposited money, interest on overhead.
 Formation of bank-reconciliation statement by adjusting those transaction that makes the
difference – By considering all the above mention points, In the formulation of the this

detailed sheet the bank transaction must be included in the cash book which are presented
in the bank accounts (Chiang, Nouri and Samanta, 2014). To make the entries that are not
presented in the cash books or that makes the changes in bank and cash book, It is
required to make adjustment by differences amount.
For the better understanding the concepts of bank statement is taken for the report :
Bank Reconciliation Statement
Transaction that makes the fluctuation between cash account and bank statement :
 Bank charges- Bank charges that are related to bank that entered in the pass book but not
in the books of cash accounts. Bank charges are not informed to the user by
communication system but the user may know related to these charges by update the
transaction in the passbook. It may become the reason of differentiation. In the above
example business firm is not included the sum of the bank charges in the cash book £

36. so in preparing the bank-reconciliation statement it is included (Hope, Thomas and
Vyas, 2013).
 Interest on deposited money - Bank provides the interest on the capital that is deposited
with bank. It may causes the difference between cash and pass book of accounts. It is
reflected in the records of the bank pass book but not in the books of accounts.
 Interest on overhead – bank charges the interest on the withdrawal of the excess money
out of deposited in the bank. When business owner is required the urgent money they can
withdraw from bank and bank charges the specific interest on it. This interest makes the
difference between bank and cash book transaction.
 Outstanding cheques that is in the process of banking system such as cheque truncation
system become the reason.
 Uncleared cheques due to insufficient amount in the bank may be reason.
 A situation where cheques issued by the debtors of the business firm but deposited in the
bank to clear it makes the reason of difference between cash sheet and bank statement:.
It verify the general business accounts and the balance sheet items. Bank reconciliation statement
is prepared to compare the bank account records and general business transaction that are based
on cash account. It match the general item and bank statement of a business to ascertain the true
cash balance in the business. These variation may happens due to outstanding cheques and
deposit that are in process in the bank. It is find out the error that is made by management to
record the transaction. Once all the transaction are reconcile in the cash book, general ledger and
balance sheet should match.
All the transaction that makes the difference in the bank sheet and cash transaction of a
firm can be reconcile by making the this statement and record the transaction by difference
amount by considering both statement. It will help in match the cash and bank transaction by
considering all the data related to bank pass book. For example amount of interest on overhead is
not included in the cash book of a firm but entered in the bank pass book, the bank reconcile
sheet allows the changes of account and match the balance of both account by making a entry
related to interest on overhead in the cash book. So it help in the match the balance to reconciled.