Financial Accounting 1: Financial Reporting and Accounting Principles

This financial accounting report delves into key concepts such as business transactions, encompassing sales, purchases, receipts, and payments, and their recording using single and double-entry bookkeeping methods. It explores the significance of the trial balance in verifying arithmetic accuracy ...Read More

Financial Accounting
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Contents
INTRODUCTION...........................................................................................................................3
SCENARIO 1..................................................................................................................................3
Question 1....................................................................................................................................3
Question 2....................................................................................................................................5
Question 3. Difference between financial report and statement................................................11
Question 4. Description of the fundamental principles of accounting......................................13
Question 5..................................................................................................................................14
SCENARIO 2................................................................................................................................16
Question 1. Description about bank reconciliation....................................................................16
Question 2. Description about control accounts........................................................................17
Question 4..................................................................................................................................17
Question 5..................................................................................................................................18
REFERENCES..............................................................................................................................20
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INTRODUCTION
Financial accounting is a unique part of accounting that monitors a person's budget swaps.
Using standard rules, exchanges are recorded, resumed and included in a cash report or a balance
sheet report, such as a paycheck or cash register.
Organizations publish tax summaries on a standard calendar. Notifications are considered
external because they are issued to people outside the organization, with the essential
beneficiaries being the owners / investors, just like specialized loan experts. In the event that the
company's shares are not traded on an open market, at least its balance sheet reports (and other
balance sheet reports) will be widely disseminated and the data could become optional
beneficiaries, such as, for example, contenders, messengers, employees, work associations and
business analysts.
It is essential to note that the purpose of financial accounting is not to report an agency
estimate. Or perhaps, his motivation is to provide others with enough data to justify a group
estimate for themselves. (Suryanto and Ridwansyah, 2016).
This study is divided into two categories, each of which has specific problems. To complete
the main partition, some questions should be asked, similar to the type of exchanges, including a
one-section framework, as well as the double configuration of accounting corridor, first -justice
just as widely. The second part of this section aims to create the diary extract sections as for each
exchange, the tables and a trial balance. The difference between the tax summary and the balance
sheet report, the required accounting standards and the salary call are also key elements of this
dimension. Area 2 focuses on designing banking negotiation relationships, diary sections, several
control accounts, debit charts and a number of different dimensions.
SCENARIO 1
Question 1
Business transction: In the accounting sector, a business transaction implies a sort of trend that
modifies the estimate of the benefits, liabilities or value of an association owner. These types of
exchanges are two-category exchanges that involve a buyer and a seller and usually involve
money here and there. Currency exchanges in the accounts are recorded in the accounting journal
in sequence.
Types of business transaction
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There are four main types of currency exchange that take place in a company. These four types
of budget exchanges are business, purchasing, revenue and allowances. How about pausing for a
moment to find out all:
 Sales are transactions in which ownership is transferred from the buyer to the seller for
cash or credit. Market exchanges are recorded in the accounting diary for the seller as an
expense of cash or available documents and as a strong representative for the business
account.
 Purchases are the transactions which are needed by a company to obtain the products or
administrations that are expected to fulfil the goals of the society. Purchases made with
real money include a charge on the stock register and a good cash rep. If the purchase is
made with a credit account, the debit department would now be in the share register and
the credit transfer would be to the debt register.
 Receipts are trade related to the transportation of products or administrations to another
company. The exchange of receipts is recorded in the seller's diary as cash expenditure
and as a strong representative for creditors.
 Payments are transactions that relate to a company that receives cash for a reasonable
amount of money or administration. They are recorded in the company's accounting diary
giving a deserving representative and an allowance for the debtor's liabilities.
Single entry and double entry book keeping
In single entry accounting, revenues and expenses for exchanges are recorded in a sales
schedule, but the structure of the two-pointed corridor begins with a diary, followed by records,
initial actions, last tax reports.
Date Description Transaction value Balance
XX-XX-XXXX £ 0000.00 £ 0000.00
Most organizations, even most private companies, use a two-pronged division to describe their
accounting requirements. Two features of double entry accounting are that each record has two
sections and each exchange has two records. Two corridors are created for each exchange: cost
in one table and credit in another. Double-entry accounting method works on basis of the
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accounting formula, for eg, Assets = Liabilities + Owner's capital (Robson,, Young and Power,
2017). Framework of the Double Entry keeping records is seen as follows:
Date Description L.F Debit Credit
XX-XX-XXXX £ 0000.00
£ 0000.00
Trial balance and its importance
The trial balance of a company is a summary of the closing balance of the accounting
statements on a given date and is the first step towards preparing tax reports. It is usually
prepared near the end of an accounting period to facilitate the preparation of the financial
statements. Changes in the setting of margin records are in debit and credit adjustments. The
utility and business records are presented on the debit balance side of the test, while the liability,
capital and revenue accounts are presented on the credit side. If all accounting shares are
effectively recorded and all postage changes are extracted with accuracy, the totality of the debit
changes occurring in the original balance sheet must be equal to the total of the credit changes.
Importance of trial balance:
 Verification of arithmetic precision: It means that the test balance is used to determine the
actual quantity recorded in the right half of the current record while transferring the
figures from various registers such as books to buy, trade books, cash books and so on.
The starting balance sheet along with the standard ledger accounts is also useful for
examining the accuracy of the books for special purposes.
 Assistance in preparing the balance sheets: Profit and loss account, balance sheet and
cash flow statement towards the end of each year should help accounting. The
equivalents of all the record accounts used to obtain ready-made tax summaries are now
available in the first parity and subsequently simplify the planning and analysis of the
balance sheet reports.
 Assistance with correction errors: The total start-up equity cost must be equal to the
equity credit accumulation. This examines the accuracy of the record numbers. In the
event that this does not happen, the accounting officer will recover it and correct it.
Accountants therefore feel relieved when coordinating start-up cost balances and
collections (Narayanaswamy, 2017).
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Format of trial balance
Account name Debit (£000) Credit (£000)
Question 2
This contains effective presentation of all journal entries, ledgers accounts and trial balance.
Journal entries in relation to each transaction
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Ledger accounts
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Trail balance
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Question 3. Difference between financial report and statement
The financial report is understood as documents containing data about currency exchange
within content. The primary purpose behind this relationship is to invest all monetary activities
of a partnership to determine its impact on authoritative work. There is really no set time limit
for the willingness of this relationship. However, the tax summaries are not exactly the same as
the balance sheet report as described above. Because the financial statement makes it compulsory
for all societies to prepare for the realization of the benefits and misfortunes of the invested
people. The other testimony that is clearly stated by both is, i.e. all tax reports are reported, but
not all cash reports are a summary of the balance of the material (Mullinova, 2016). The
difference between them is represented below, with the help of many focuses;
Origin of variance Financial report Financial statement
Content This includes all financial
exchanges (related to cash)
denominated by an association.
This only includes all these
exchanges as data required by the
decision-making authority.
Governance The entire method of identification Here, the reporting system is
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is by financial reports
administered by the IASB. These
are known as the International
Accounting Standards Board.
governed by standards created by
the IASB.
Scope The extension here of each balance
sheet report is broad compared to a
tax summary. It will be classified
on 2 bases: firstly, all balance
sheet exchanges are subject to
such and, in addition to all the tax
summaries of the relationships
element, despite the absence of
reports relating to different budget
sums and budgets (Muda, 2016).
The size of item budget summaries
with all correlation accounts is
limited by currency reports. Despite
the fact that a limited exchange is
scheduled in the same way.
Examples There are a number of scenarios
that could even be interpreted as
defining monetary relationships,
including bank transactions,
accounting applications, horrible
bond relationships, bond audit
reports, and so on.
There are no issues with the
financial statements. Suppose this is
of 4 types, for example the
disclosure of the salary, the cash
register, the naming of the income
and the naming of the owner's
value.
Requirement Corporate officials need these
reports because they provide data
that justify what a spending and
buying association has done
because they can create a
productive financial plan for the
company. for the future. The scope
of use of these reports is more
obvious than others because it
provides all the company data.
Financial statements are used by
associations and only for specific
purposes. These are clearly
monitored by the association's
partners in terms of development
promise in terms of cash, status,
and access to cash assets and the
company's market position.
Furthermore, these ratios are
routinely used by external
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Furthermore, these managers have
been used in the development of
the financial strategy which
enables them to provide a large
percentage of the benefits taking
into account the reduction in total
consumption.
speculators as regards the dynamics
of financialisation in the company
or not.
Users The difference is not. of customers
who are generally used in such
relationships are corporate
management staff, discrete board
members and several customers of
the agency's tax briefs, as they are
also part of the cash reports of the
material.
Among customers, people who use
tax summaries extensively include
investors, suppliers, lending
experts, banks, customers, open
companies, experts, consumer
lenders and many more.
Question 4: Description of the fundamental principles of accounting
Fundamentals principles of accounting:
Accounting principles help to monitor the world of accounting according to general principles
and rules. GAAP is committed to normalizing and checking the definitions, suspicions and
strategies used in accounting. There are several standards, but perhaps the most specific include
an revenue recognition rule, a coordination rule, a relevance rule, and a regularity rule. A defined
goal of the standard accounting standards is to allow couriers to view an organization's financial
summary of finances with the accuracy of the data presented in the report ready, predictive and
the like.
Following are the basic fundamental principles of Accounting:
Monetary Unit
Accounting requires that all the features be recorded in a single tax unit. It cannot represent
goods as the framework of the business. So hiring the quality of goods and objects is turned into
a problem because it is abstract. However, accounting has proposed rules for regulating the
same.
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Going Concern
A company is said to have a unique presence. When modelled, disintegration is the best way to
end it. It doesn't kick buckets like people do. Therefore, the accountants adopt the current
commercial rule. This guide shows that the company will continue to do the same thing until the
end of the next accounting period and there is no real data. Due to their ongoing transaction
status, associations can operate using a loan, represent the account receipts and payments they
should receive or pay later, and reduce payment in anticipation of the device. can be used for a
long time.
Principle of Conservatism
Accountants should definitely be moderate. They must seek the best and be prepared for the most
terrible. This is reflected in the standards they made for their call. One of the fundamental tenets
of accounting is the rule of conservatism. According to this rule, in case of doubts about the level
of inflows and expected wavelengths, the society must demonstrate the lowest possible revenue
and the highest costs.
Cost Principle
The cost guidelines are firmly identified with the state of conservation. Cost-level sponsors that
agencies should list everything on budget summaries at cost. Resources such as land and
buildings, gold and so on are generally appreciated. However, conservatives will not let this
gratitude think about the agency's tax reports until it is resolved.
Question 5
It involves analysis of the statement of income and loss together with the financial
statements.
Profit and Loss Account
Particulars
Amount
£
Amount
£
Sales
£125,00
0
Less: Sales return £1,000
£124,00
0
Less: COGS
Opening stock £9,500
Purchases £75,000
Less: Returns £1,500
Less: Closing stock £1,000 £82,000
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Gross Profit £42,000
Add: Operating incomes
Interest received £1,000
Rent received £4,850 £5,850
Less: Operating expenses
Depreciation £5,000
Bad debts (1200 - 650) £550
Insurance (7500 - 411) £7,089
Postage £900
Rent and rates (1500 + 340) £1,840
Wages and Salaries £13,200 £28,579
Net profit £19,271
Balance Sheet
Assets Amount £ Amount £
Current assets
Bank £10,594
Cash £340
Debtors (12500 - 1200) £11,300
Provision for bad debts (934-
650) £284
Prepaid insurance £411
Stock £1,000 £23,929
Fixed assets
Motor Van = 25000
Less: Depreciation = 5000 £20,000
Less: Accumulated
depreciation £4,868
Loan given £100,000 £115,132
Total Assets £139,061
Equity and liabilities
Equity
Capital £120,800
Less: Drawings £5,150
Retained earnings £18,681 £134,331
Liabilities
Creditors £3,900
O/s Business rates £340
Advance rent received £490 £4,730
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Total equity and liabilities £139,061
SCENARIO 2
Question 1. Description about bank reconciliation
Bank reconciliation is the procedure that enables the organization to adjust its cash ratios to
the level of assurance obtained from a bank reconciliation. This includes coordinating both
records with a person's cash account and the budget equivalents provided by the legislator for
similar material talking about the two purchases.
This is fundamental when starting from a society as it will help to find the difference
between two separate tables. It allows the group to identify differences and adjust all reading
material and calculate the number.
All of the subtleties contained in the tax report are provided by the budget and include
compliance with any expenses and have a significant impact on an association's ledger. There are
some explanations as to why the relationship between the two tables did not exactly fit into the
need for the bank to carry residue despite the hole. The centralization and management of the
mill factors behind the Bank's negotiation structure involves unpaid checks, NSFs and currency
exchanges. It is based on the fact that the entire collection believed in the package is not readily
visible in the general record as it will take years and the amount is variable within two books
(Narayanaswamy, 2017).
There are several clarifications as to why the BRS agreement, for example unpaid
monitoring, is important. In this situation, having acquired control of the exchange, the up-and-
comer performs the recognition step before also diving into the register. This is the clarification
that following the separation that each book makes and that they should use the BRS method to
face an election in which a false step occurs and what must be put in place expressed in amounts
for the treatments. On the other hand, the clarification for the partition as a whole is the NFS
itself which represents an arbitrary number. There have been some cases where the refund is
received from the request for money and that is kept in thoughts regardless of respect and the
amount is not saved in compensation if someone else needs more equality in thinking. In this
situation, the beneficiary party creates a corridor to speak in the bank, but there is no initial
instalment in the bank. This is the clarification of why it is easy to recognize the change in the
two books together. The same goes for the change with BRS support (No, 2018).
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The organization of BRS is therefore important in terms of eliminating any distinction in
the volume of both books, as well as ensuring that the best archives do not appear to be confused
in any capacity. Similarly, it allows association administration to make the right decisions since
they can more effectively execute corporate commissions.
Question 2: Description about control accounts
The control account table General Ledger (GL) is a summary that balances in the support tables.
A general record can contain hundreds (once a large number of) records and sub accounts.
Attempting to integrate these elements into the general record can be impractical, so a control
account is used. The checking account is also a useful reconciliation tool between point-to-point
contracts and information purchases and long-term collections presented on the GL.
The general ledger can contain many ledgers from utility and risk ledgers to wage and
company books. Incrementally terminated, each type of table can have a number of small tables
called auxiliary tables. At the possibility that not all records are remembered for the general
record, it would be overwhelming, sloppy and difficult to use. That's why audit accounts are used
to gather information from many related records.
The general ledger account that sells the ancillary ledgers is said to check the shares
registered in the ledger. As a result, we see it as a control chart. This is fine despite the fact that
the support tables are not validly mentioned in the GL. They are taken and passed to the
checking account which thus appears in the GL. Similar to those rows, the control table guides
what appears in the GL and what tax reports describe.
The role of control accounts in financial management:
The main role of the checking account is to ensure the accuracy of the help record by defining
and reassessing the individual register and the exchanges before publication with the help table
or main account. For example, the transaction log and the lender's record checking account add
up the exchanges entered with the individual records in the table and all differences or errors are
changed to that before the same item in the main menu.
Question 3
Suspense account:
A suspense account is a record that is used intermittently or at any time to issue suspicious
sections and irregularities pending the investigation and their unconfirmed objectives. It may
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appear that it was a clearing pit that was registered with invalid numbers. The displayed table
may not exist or may be deleted / confirmed.
A suspense account contains sections that contain vulnerabilities or errors. For example, if
a person in the shop lists an incorrect registration number, the money is kept on leave until the
error is resolved. For another scenario, a customer can issue a refund, at least for not being able
to figure out which receipt means paying with these funds.
Despite the vulnerabilities mentioned, impairment records are obtained once the increase is
resolved, so anything the funds believe is active. include them promptly with the allowed tables
by sending them correctly. At that point, the record should reach zero in dollars. Despite the
absence of valid documents for the administration of the publication method, some associations
try to achieve this as a rule of thumb or quarterly.
Reasons for drafting suspense accounts:
There are two fundamental reasons why tension records might be made:
 On the extraction of a preliminary equalization the charges are not equivalent to the
credits and the thing that matters is put to a tension record.
 At the point when a clerk performing twofold passage isn't sure where to post one side of
a section he may charge or credit a tension record and leave the section there until its
definitive goal is explained.
Suspense account is a temporary account which is maintained for transactions for which debit or
credit side is not found instantly. Later when proper debit or credit is found suspense account is
closed to that account.
In any case, review that things in a strain record address unallocated aggregates. In this
manner, having a pressure record presented on the monetary synopses with an adjustment is
generally observed oppositely and can incapacitate the declaration to outside budgetary experts.
Along these lines, effort should be made to clear expectation accounts close to the completion of
each financial period.
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Suspense account are cleared by keeping an eye on each individual trade in the record. The
objective for keeping an eye on things is to move the trade to the fitting record at the most
punctual chance.
Trades will be progressively difficult to clear as time goes on, especially if there is
irrelevant documentation with respect to why the trade was from the outset situated in the record.
Consequently, the hour of things should be followed and constrained.
Suspense accounts are in like manner saw as a control danger. As an essential under
Sarbanes-Oxley (SOX), these records must be dismembered by sort of thing, developing class,
and business protection in order to grasp what is still in the record. This information ought to be
given to commentators irregularly as well.
The explanation behind the anticipation account readiness is to keep exchanges without
irregular division. Open a pressure table when you have to utilize one. Close the table in the
wake of moving the segment to the privilege endless record.
For the journal proportions of the weakening table, open a desire account in your general
record. Apply whatever you are alluding to. The game plan of the segments of the debenture
records will be a credit or commission. Additionally, enter a comparable sum with inverse area
in another table.
At the point when you get the information you need, change your record zone ahead of
time and make a stage in interminable enrolment. This finishes the pressure table and shows the
trade on the right table.
Question 4
Updated bank reconciliation and cash book as on 28th February 2010
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Question 5
Journal entries
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Suspense account
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