Financial Accounting Report: Stakeholders and Transactions

This financial accounting report examines the core concepts of financial accounting, including its purpose, the preparation of financial statements, and the importance of these statements for decision-making. The report identifies and differentiates between internal and external stakeholders, detailing their respective interests and influence on a business. It then delves into business transactions, explaining the double-entry system, manual and electronic accounting methods, and the use of debit and credit in recording transactions. The report also includes a trial balance analysis and a Profit and Loss (P&L) account for Munteanu Limited, providing a practical application of accounting principles. Finally, the report discusses key accounting conventions such as consistency and full disclosure, which are essential for ensuring the reliability and transparency of financial reporting. This report is contributed by a student and is available on Desklib, a platform offering AI-based study tools for students.

Financial Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Part (A).........................................................................................................................................1
Part (B).........................................................................................................................................4
CONCLUSION..............................................................................................................................21
REFERENCES..............................................................................................................................22

INTRODUCTION
Financial accounting is process of collecting, distributing and allocating the information to
management department for better financial and strategic decision. It is a field of accounting that
is associated with analysing, collecting, evaluating the business activities in order to represent
the company's financial statements. It keeps track the firm's transaction by using the industrial
standards. The business operations are recorded in summarized way and presented the financial
report in form of income statement and balance sheet to the management of an organisation.
These reporting system in the business are really helpful in order to know the financial condition
of an organisation. For the better understanding the concepts of financial accounting, a company
Brooks city consultancy is selected to prepare this report of financial accounting. The particular
firm is providing the services related to the recording, summarising and preparing the financial
statement of an organisation and measure the business efficiency by preparing some elementary
reports. It is also included the various accounts like suspense account, bank-reconciliation
statements to present the true and fare reports to the business.
MAIN BODY
Part (A)
1. Meaning and purpose of financial accounting.
Financial accounting
Financial accounting is systematic mechanism of recording the business translation and
preparing the financial reports to the business organisation (Nilsson and Stockenstrand, 2015). It
is specific branch of accounting that keep the track on the business transaction in order to prepare
the annual reports. These reports shows the financial position of the business so that investors
can make investment by knowing the business stands. These report may includes some financial
statement such as general business transaction, statement related to cash flow, fund flow, balance
sheet. Financial accounting are truly different from management accounting.
Basically the financial accounting are prepared by considering the business standards and
principles. Accounting standard such as International financial reporting standards(IFRS),
International accounting standard (IAS), generally accepted accounting principle (GAAP) are
really helpful in the business to prepare the final statements true and fare.
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Some of the purpose of financial statements are discussed as follows :
 Formulation of financial statements- This is the primary function of the financial system
to make the final reports by using the general transaction of the business. These reports
are includes income statements and balance sheet (Wang, 2014). It is also help in taking
the business decision in the future by considering the business reports in the business.
 It helps in configuration the record of commercial enterprise transaction in a organized
way. Financial statements are the real evident of the business that shows the liquidity
position as well as cash flow of the business. It provides a surety to the individual who
provides the goods and services on credit basis so firm can have enough money to repay
their liability at any period of time. It summarise and analyse the financial dealings of the firm. It also help in plan the future
business strategies by using the past data. So management can be able to convert the
financial information into valuable inputs. Assistive in decision making- Apart from preceding benefits, the financial accounting is
also useful for making effective business decision. As a firm has better financial status so
management can make the decision regarding the further expand of the business. So these
kind of the healthy situation of the business are helping to grow in future.
 Beneficial in comparing the business trends- This is also a benefit of financial accounting
to comparing the business trends in the business with industrial standard or another
related company. By these financial reports company can compare the past profit and
sales with the current year. So that companies can make required changes in the strategies
plans and standard.
All the preceding points are the important purpose of financial accounting as it is obligatory
accounting method for a firm.
2. Internal and external stakeholders.
Stakeholder- The stakeholders can be affected by the business organisation's activities,
action, rules and regulation. These are the individual that has a interest in the firm and the
activity of the business affected to these persons (Zeff, 2016). The main motive of the
stakeholder is to analysis the company's structure to earn more profit by investing in the share of
particular company. Basically, There are two kind of stakeholders that are as follows:
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 External stakeholder.
 Internal stakeholder.
Detail Description of these stakeholders is mentioned under:
 External stakeholders- External stakeholder are the group or persons outside of a business
but they can be affected by the business activities. They doesn't belongs to company but
direct impacted or influenced by financial performance of the company. These are the
person who is not involved in the operating business activities but they track the business
report to understand the firm's scenario (Gheorghe, 2012). In the persons or individual of
stakeholder includes customer, creditors, supplier, government etc. The main purpose of
all these stakeholders is ordinary that is to gain return on the investment by analysing the
various aspect of the business organisation like financial position, market share. Here,
some of the external shareholder are discussed below:
 Investors- These are the persons that invest their money in the particular equity of the
company by deep analysing the price of the share and the performance of the company in
global market. The main motive of the stakeholders is to yield more return out of the
capitalised money. That is only the reason to have a look on the company's financial data
so they can make the decision on it if they wants to invest in it or not. For this purpose
they show their interest in the financial information of companies so that they can take
decision about whether they should invest or not. In the absence of these detail of
financial information, it would be difficult to make the investment decision.
 Government- In the external stakeholder of a company, government rules and regulation
play a important role. Government of any nation analysis the company performance and
imposed the tax rate as per its profit and sales limit. They set up several rules to
corporates that needs to be followed as per their requirement. Government purpose to
implement the augmented tax structure to maximize the tax revenue.
 Suppliers- Suppliers are the external stakeholder of a particular firm. suppliers are those
people who supply raw material and production material to the firm. They make the
business transaction related to companies on credit and cash basis (Gray, Coenenberg and
Gordon, 2013). They only render the material supply when company's status is good in
the market. If financial status or reputation is not good in the market it would be difficult
to business to avail the goods on credit basis .
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 Creditors- creditors can be a person, bank and the supplier of the goods and services and
expect the payment of the goods at later time period. These are the business entity that
receives the payment on after the supplying the goods and services. They also shows the
their interest in the financial condition of the company to determines whether they
provides the supply or not.
Internal stakeholder- Internal stakeholder are the basically the particular person who are
employed within a organisation boundaries (Gupta,2016). They are affected by the organisation
performance for example customers, management, worker of a firm that are discussed below in
wide meaning:
 Employees- Employees are the person who execute the business operations and activities
in consideration of salary and wages. financial status of a company totally depends on the
actual performance of these employees. These stakeholder show their involvement in the
financial subject matter of the organisation so that they can assure about financial
perspective of system.
 Board of manager (BOD)- These are person of an organisation who are involves in the
decision making of the firm. Internal stakeholder of the organisation are really eager to
know the actual performance of the organisation. These person are very important to a
business organisation to responsible for the business declinism. They prepare the business
long term plan and implement it in the business in order to represent the business position
in front of external stakeholder.
Part (B)
Client 1.
Business transaction- In every firm , there are broad range of business transactions such as:
 Sales- It can be defined as trading of the goods and services within the boundaries of a
country. The firm sales the goods to its demanded customer.
 Purchase- It is basically acquiring products and services from manufacturer.
 Income- It is a list of earning that comprise of subjective concern direct and indirect
earnings. It may be generating by selling the goods or earning from other sources. and
acknowledging to person who has received money.
 Payments- It is defined as disbursement of the money in paying off to its creditors and
other expenses.
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Double entry:
 Manual system- This is the process where a business firm records the transaction by the
accountant of the business manually with hand (Ferran and Ho, 2014). This accounting
system is used by the small firm in order to records the financial business transaction.
 Electronic system- This is the process where business transaction records by using the
electronic devices. This system facilitates the controlling the accounting method,
recording of transactions by use of information processing system based accounting tools
like computer device. As it perceived the business transaction in systematic or organised
way.
 Debit & credit method- This is the process where business transaction are recorded by
using the accounting principle (Hiebl, 2014). Double entry system is accounting
procedure that defined the rule of the recording the business by opening two ledger in the
books of accounts . It may have two sides debit and credit.
Here, double entry transaction of Alexandra on the basis of given information is mentioned as
follows:
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Trial balance- Trial balance is total summery of the business transaction that are prepared by the
accountant of the business in order to understand the financial structure of the company. The trial
balance statement are prepared after adjusting or recording all the business transaction and
posting the summarised balance in the ledgers. This statement is identifies error and mistakes in
the recording the transaction. It may occur by wrong entry, error of omissions etc. It must match
the balance of debit and credit.
Trail balance
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Client 2
(a)
P&L account for Munteanu limited for year ending 31st december, 2018
Particulars Amount Particulars Amount
To op. Stock
To purchase- 61000
Less- Return- 1500
To GP
15000
59500
80500
By closing stock
By sales- 138000
Less- Return 3000
20000
135000
155000 155000
To administration expenditure
To distribution expenditure
To corporate tax
To finance cost
To depreciation on building
To Net profit
32000
32000
2000
1500
8800
4200
By net profit 80500
80500 80500
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(c)Concept and conventions of accounting-
 Consistency- It is accounting concepts that described as a business firm must be followed
the same accounting principle that is adopted at first financial year. And it should be
continued in upcoming years or future period. It may be changes a accounting principle
when it wants to improve the quality of the financial statement and reports. It is
mandatory compliances in order to follow the same business concepts. So that they can
compare the financial aspects with previous one.
 Full discloser- According to this concepts of accounting, All the material data should be
disclosed while preparing the financial statement (Lanen, Anderson and Maher, 2013). It
is defined as present all the financial detail that are happening during the financial year. It
is also consists of provides all the information related to a company's operations.
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(d) Objectives of the Depreciation in formulating the financial statements.
Depreciation- It is terms that can be defined as reduction in the value of assets over the
period of time. The term depreciation means devaluation in the fix asset. This is fix value that
charge to the asset in order to damage the ability of working. It is allocation of the asset value
over the year due to utilisation of the tangible assets.
Purpose of depreciation- The main purpose behind the depreciation is to ascertain the
net realisable value or actual price of the particular assets (Pinnuck, 2012). Here, some purpose
are maintained as follows:
 Purpose of the depreciation is to determine the actual value of the tangible asset.
 A portion of the assets is charge to direct expenses to assessing the actual value.
 Financial statement are prepared by considering the actual value of asset so it represent
the update amount of tangible asset.
Methods of depreciation: There are mainly two methods to find out the value of the
depreciation. Both method of depreciation are described as below:
 Straight line method (SLM)- This is the highly used method by the company to
diminishing the value in the asset. This is also known as fixed instalment method. It is
common method to use in calculating the reduction in the value of assets. It may include
some points:
- Determines the cost of assets.
- Analyse scrap value of fixed assets
- Determining the estimated living period of assets.
The above all the step are required to calculate the amount of the depreciation an the basic
formula of the depreciation
Depreciation = (value of assets- scrap value)/ Life of assets.
 Reducing balance method- It is also called written down method. As per this method,
the depreciation is calculated on the decreased value of assets by applying the certain
percentage of rate of depreciation (Adler, R., 2013). This method of depreciation are
really helpful to know the actual value of assets. It is suitable for the assets such as
computer devices, motors etc. This is the method that is used in those assets class which
are depreciated more in the starting year of purchase.
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(e) Difference between financial reports and statements:
Basis Financial reports Financial statements
Nature The financial reports are the business
information that furnish to the top
management of firm so that they can
make the business decision regarding
the future.
Where as the statements are prepared
on the basis of financial information
and business data.
Time limit There is no particular time limit to
prepare these financial reports.
But the financial statements are
created at the end of year.
Example Example of financial reports are
bank statement, debtors report etc.
It consider the cash flow statement
and fund flow statement.
Types of financial statements: Financial statement of a company includes various accounting
statement such as income statement, balance sheet and cash flow statement. The detail discussion
of these statement are as follows:
 Income statement- It is a financial statement that shows the direct and indirect
expenditure and sales revenue generated by the business (Rutherford, 2013). It consists of
trading account as well as profit & loss account. Trading account shows the total sales
revenue and purchase of goods made during the particular year. Where profit and loss
account shows the total profit and loss made during the year.
 Balance sheet- It is statement that shows the assets, liabilities and owners capital of a
company at the particular point of time. In the financial accounting system, it is
mandatory to prepare these statement to know the business profits and capital. It shows
the business efficiency to pay off its liabilities at specific time of period. Cash Flow Statement- It is also knowns as statements of cash flows from the business
activities. It statement shows the changes made in the financial statement affects to cash
and cash equivalents of a business. It may includes the cash flow from three business
activities such as operating, financing and investing activities. But out of all business
process it includes the cash generating activities and disbursement of operating activities.
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Types of businesses on the basis of ownership:
Sole traders- The sole traders are individual business owner that operate the business
individually and prepared all the financial statement without any help of person or accountant.
Sole proprietors are the business owner that handled all the business activity in such as
systematic manner. They prepared the financial statement including trading , profit & loss
account and balance sheet. These statement are created by the business owner by not following
the accounting concepts and rules. Financial statement of a business are comprises of:
 Income statement
 Balance sheet.
Limited companies- Limited companies are operates the business activities by maintaining the
proper records of business transaction. These financial transaction are recorded by the specific
person of the company like accountant and it verified by the charted accountant. Company have
mandatory obligation to prepare the analytical or annual report in order to measure the financial
activities. At the end of the year, companies are required to prepare the basic statement that are
mentioned as follows:
 Trading account
 P&L account
 P&L appropriation account
 Balance sheet
 Statement of cash flow
Client 3.
(A) Purpose of preparation of bank-reconciliation statement- It is a statement that match the
variances that are presented in the cash book of the organisation with bank balance. It is basically
a statement that verify the data between the bank and cash balances of an organisation. To
equalisation the data shown in cash book of a firm with pass book.
The statement is prepared to ascertain the deviation between pass book and cash book of
an organisation. It helps in detecting all the missing records in pass book but happening in the
business. So management of the business can reconcile the balance that are lack in the pass
books. CEO of the burcu needs to considered the points while preparing the bank statement.
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To check the corrective data- The main purpose behind to prepare BRS is measure the
accurate data of cash book.
Detecting the frauds- Reconciliation statement find the error in the cash book that are recorded
by the management.
(B) The areas that may causes to vary the records with bank transaction:
There are some different area where business management can find the difference in the
bank records with cash transaction. Here some of the reason are mentioned below:
 Due to bank charges- This is the main reason behind the variances between cash and
bank records. Banking charges should be considered in the cash book. Bank charges are
expenses of the business that must be shown in the books of accounts.
 Interest credited by bank- It is the income of the business that is credited by the business
in the books of accounts. Amount that is maintained with the bank, bank provides the
interest on it.
 Bank also deducted the amount as interest debited for bank loan that amount is not
entered in the cash books turn a reason of deviation.
 Uncleared cheques that are presented by the firm in bank also become reason of
difference.
 cheque is issued by the client but not deposited in the bank to clearance.
(C) Imprest- The terms imprest can be defined as monetory fund that used by the
corporates in order to disbursement of the direct expenses (Kotas, 2014) . It is a cash
balances that used by the fim to pay off the little expenses. A fund is deposited in the
account on regular basis to maintain the cash balances.
(D) Cash book for Burcu limited for September, 2018:
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Client 4.
(a)
(I) Sales ledger control account- This can be defined as a kind of account that is prepared by
companies to manage the debt amount of various types of debtors (Weygandt, Kimmel
and Kieso, 2015).
Sales ledger control account
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(ii) Purchase ledger control account- It can be define as a kind of account that is being
prepared by companies in order to check total creditors. With the help of it, organisations
can assess about how much amount of debt they have to pay (Duff, 2016).
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Purchase ledger control account
(b)
Control account- It is a kind of account that is prepared by companies to keep the detailed
summary of all kind of financial transactions. The key feature of this account is that under it,
description of each account's ledger.
Client 5
Suspense account: It may be defined as a type of account that is prepared by companies'
accountants to record those transactions that are becoming cause of difference in debit and credit
total of trial balance (Kanagaretnam, Zhang and Zhang, 2016). Herein, this is important to know
that under this account amount is not recorded for a fixed period of time. As well as this account
is made at the end of each month.
Features:
 This account focuses on those transactions which are doubtful.
 As well as this account helps in minimisation of errors as much as possible in preparation
of other accounts.
 It is useful for keeping accuracy in company's financial statements.
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Formulation of trial balance using control account:
Particulars Amount (Dr ) Amount (Cr )
Sale A/c 11000
Opening stock 2200
Capital A/c 7100
Control Account 3300
Purchase A/c 7000
Rent Paid Accountss 2500
Cash in bank 8400
Payable 3500
Receivables 3200
Travel expense 1600
Total 24900 24900
Journal entries to make corrections:
Particulars Amount Amount
Suspense A/c Dr.
To White A/c
7500
7500
Simon A/c Dr.
To Smith A/c
2200
2200
Jones A/c Dr.
To Suspense A/c
4200
4200
Suspense a/c
Particulars Amount Particulars Amount
White a/c 7500 Balance B/d 3300
Jones a/c 4200
Total 7500 Total 7500
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CONCLUSION
In this project report, it is concluded that financial accounting is primary object of the
business firm in order to provides the business detailed information to its user such as internal
stakeholder and external shareholders. So the external shareholder can analysis the business
performance by evaluating the financial statement. Company is also prepared these kind of
business reports and statement to compare the performance with previous one. In addition to
this, it is essential for the institution to follow the accounting principle and method when
recording the business transaction to prepare the financial statement.
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REFERENCES
Books and journals:
Nilsson, F. and Stockenstrand, A .K., 2015. Financial accounting and management control. The
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Wang, X., 2014. Research on the improvement of internal control under accounting
informationization environment. In Applied Mechanics and Materials. (Vol. 687, pp.
1962-1965). Trans Tech Publications.
Zeff, S. A., 2016. Forging accounting principles in five countries: A history and an analysis of
trends. Routledge.
Pinnuck, M., 2012. A review of the role of financial reporting in the global financial
crisis. Australian accounting review. 22(1). pp.1-14.
Gheorghe, D., 2012. The accounting information quality concept. Economics, Management, and
Financial Markets. 7(4). pp.326-336.
Gray, S. J., Coenenberg, A. and Gordon, P., 2013. International Group Accounting (RLE
Accounting): Issues in European Harmonization. Routledge.
Gupta, A., 2016. Financial Accounting for Management. Pearson Education India.
Ferran, E. and Ho, L.C., 2014. Principles of corporate finance law. Oxford University Press.
Hiebl, M. R., 2014. Upper echelons theory in management accounting and control
research. Journal of Management Control. 24(3). pp.223-240.
Lanen, W., Anderson, S. and Maher, M., 2013. Fundamentals of cost accounting. McGraw-Hill
Education.
Adler, R., 2013. Management Accounting. Routledge.
Kotas, R., 2014. Management accounting for hotels and restaurants. Routledge.
Rutherford, B .A., 2013. A pragmatist defence of classical financial accounting research. Abacus.
49(2). pp.197-218.
Kanagaretnam, K., Zhang, G. and Zhang, S. B., 2016. CDS pricing and accounting disclosures:
Evidence from US bank holding corporations around the recent financial crisis. Journal
of Financial Stability. 22. pp.33-44.
Duff, A., 2016. Corporate social responsibility reporting in professional accounting firms. The
British Accounting Review. 48(1). pp.74-86.
Weygandt, J. J., Kimmel, P. D. and Kieso, D. E., 2015. Managerial accounting. Wiley..
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