Financial Accounting Report: Statement Analysis, Reconciliation

This report delves into the core concepts of financial accounting, examining the systematic compilation of financial operations. It provides a comparative analysis of economic position statements (balance sheets) and revenue statements, highlighting the elements of bank reconciliation statements and the reconciliation of control and suspense accounts. The report includes practical examples of income statements and balance sheets for sole traders and corporations, with detailed calculations and working notes. It explores the differences between income statements and statements of financial position, focusing on timing, reported items, and their uses for management, lenders, and creditors. Furthermore, the report offers an in-depth explanation of bank reconciliation statements, providing an illustrative example. The report also describes the reconciliation of control accounts (sales and purchase ledgers) and suspense accounts, along with the differences between these two types of accounts. The conclusion emphasizes the importance of financial accounting in recording transactions and preparing financial statements, highlighting the roles of bank reconciliation, suspense accounts, and control accounts in ensuring accuracy and transparency.

Financial
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK ..............................................................................................................................................3
Question 1....................................................................................................................................3
Question 2....................................................................................................................................4
Question 3....................................................................................................................................5
Question 4....................................................................................................................................6
Question 5....................................................................................................................................7
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Financial accounting relates to the systematic compilation of operations related to the
recording and tracking of a business entity's various financial and accounting operations (Ball,
2013). The study report includes a comparison and contrast between economic position
statements or balance sheet and revenue statements, various elements of the bank reconciliation
declaration, and how control and suspense accounts are reconciled. This study also involves
practical presentation of sole trader and corporate 's income statements and balance sheets.
TASK
Question 1.
Income Statement for the year ended 31st April 2019
Particulars Amount Particulars Amount
To Opening Inventory 160000 By Sales 1400000
To Purchase 840000 By Closing Inventory 100000
To Wages 440000
Add: Outstanding 20000 460000
To Gross Profit 40000
1500000 1500000
To Heat and Light 80000 By Gross Profit 40000
Add: Outstanding gas
payment 8000 72000
To Sundry Expenses 170000
Less: Prepaid Rent 44000 126000
To Depreciation 96000
To Net Profit -254000
Total 40000 Total 4000
Balance Sheet as on 31st April,2019
Liabilities Assets
Capital 960000 Furniture and Fittings 480000
Less: Drawings 110000 Less: Depreciation 96000 384000
Net Profit -254000 596000

Trade Receivables 160000
Bank Overdraft 80000 Inventory 100000
Outstanding Wages 20000 Prepaid Rent 44000
Outstanding Gas
payment 8000 Other Current Assets 16000
Total 704000 Total 704000
Question 2.
Statement of profit & loss account for Kenny Paton as at 31st August, 2019
Particulars Amount
Sales revenue 2064000
less: Cost of sales (W.N.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 financial position for Kenny Paton as at 31st August, 2019
ASSETS Amount
Non current assets
Tangible assets
Premises 1232000
Property, plant &
equipment (W.N. 2) 816000
Current assets

Trade receivables 608000
Bank 32000
Inventory 78000
Total assets 2766000
EQUITY & LIABILITIES
Equity
Ordinary 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
Working notes:
1) Cost of sales:
Particulars Amount
Opening inventory 96000
Purchases 1024000
Less: closing inventory 78000
Depreciation: plant & equipment 115200
Office equipment 28800
Total 1186000
2) Property, plant & equipment:

Particulars Amount Amount
Cost 768000 192000
Less: depreciation 115200 28800
Total 652800 163200
3) Dividend:
10% x Share capital = 1328000 x 10%
= 132800
4) Reserves:
Profit less dividend = 250000 less 132800
= 117200
Question 3.
Financial statements such as income statements, balance sheet etc. are crucial part of
company's books of final accounts. Primary aim of formulation of final accounts is providing a
complete assessment of fiscal performance of company. In case of corporate business reporting
is required by relevant rules and as per statute. Generally financial statements are reported by
business entities on annual basis (Bryer, 2013). For internal assessment and analysis final
accounts are analysed by Organisation's on half yearly or quarterly basis. Following is discussion
on major difference in income statements and statement of financial position:
Timing: For assessment of position of assets and liabilities on a specific date balance sheet is
formulated by different business entities. It possess position of all assets and liabilities in
monetary values on specific point of period. But for assessment of net gains and income over a
specific period P&L or income statements is used by companies.
Items reported: Major reporting items in balance sheet is value of company's all assets and
liabilities as on year ended date. Assets are further presented in headings of non current assets
and current assets, and liabilities side contains capital, current liabilities and non current
liabilities. But in case of income statement all expenses and incomes incurred by company
during financial year is reported.
Uses for management: Managerial personnels mainly use the data and figures reported under
statement of financial position, to take long term fiscal and economic decisions in business

entity. Whereas to operate day to day functions, taking short term decisions and determining
short term goals income statement of company is analysed by managers (Chiang, Nouri and
Samanta, 2014).
Uses for lenders and creditors: Balance sheet presents funding structure, solvency and leverage
position of company which is used by lenders and creditors to determine credit policies and
period to be given by them to company. On another side income statements are used by creditors
and lenders to analyse the actual profitability and sales level to determine whether company in
position to repay its debt within stipulated period.
Question 4.
Bank reconciliation Statement:
Bank reconciliation statements are referred to as adjustment account representing major
differences or irregularities between bank balance in cash book and statement issued by bank.
BRS preparation's primary motto is to assess and define the primary reason for the difference in
such balances (Bank Reconciliation Statement. 2018). It also recognizes any transaction and
balance errors, misrepresentations, concealed irregularities and omissions. Following presented
is illustration of BRS:
In case if adjustment are made in passbook's balance:
Statement of Bank-reconciliation
Bank balance as per pass book 600
Add items :
Bank charges 63
Outstanding Deposits 135
Not Sufficient
fund(NSF) Cheque 85
Adjustment of direct
debit rates 111
Deposit in transit 175 569
Deduct items:
Outstanding Cheques
Cheque Number 10786 112
Cheque Number. 10790 145 257

Bank balance as per
cash book 912
In case if adjustment are made in bank balance recorded in cash book:
Statement of Bank-reconciliation
Bank balance as per cash book 912
Add items:
Outstanding Cheques
Cheque Number 10786 112
Cheque Number. 10790 145 257
Deduct items:
Bank charges 63
Outstanding Deposits 135
Not Sufficient
fund(NSF) Cheque 85
Adjustment of direct
debit rates 111
Deposit in transit 175 569
Bank balance as per pass book 600
Question 5.
Manner of reconciliation of Control Account: Accountants prepare a control account that
includes the values or closing figures of all ledgers to efficiently summarize them. Control
accounts function as an inner accounting process check (Hope, Thomas and Vyas, 2013).
Accountants generally formulates two significant control accounts named: Sales and Purchase
control account. At the moment of reconciliation, account officer ensure that the amount of sales
and purchase ledgers are in line with balances recorded in control accounts.
Sales Ledger Control Account
Dr Cr

Details Amount Details Amount
Opening Balance 25000 Bad debts 2500
Credit sales 190000 Discount allowed 2100
Receipts from credit customer 170000 Sales return 19200
Transfer to purchase ledger 2120
Balance c/d 359080
385000 385000
Purchase Ledger Control Account
Dr Cr
Details Amount Details Amount
Discount 2400 Opening Balance 25740
T/f from sales ledger 1720 Purchases: Credit 149500
Purchase return 112500 Paid to suppliers 129850
Refund from supplier 1970
Balance c/d 186500
305090 305090
Manner of reconciliation of Suspense Account: Accountants prepares a suspense account to
enter for short period any unspecified and irregular or unidentified amounts. While finalising
annual accounts such amounts and balances of suspense account are reallocated to right
accounts (Lawrence, A., 2013). Accountants reconcile the suspense account by recognising and
identifying the main source of recorded figures by analysing possible circumstances and
reallocate them. For understanding reconciliation of suspense account following example is
important:
A goods supplier invoiced for $2100. Company's accountant has confusion in mind that
what is appropriate head for this expense as he does not know exact department and source of
entry. So he has entered this amount i.e. $2100, to the suspense account: by crediting amount in
creditors and by debiting amount in suspense account at the same time:
Account Debit Credit
Suspense Account Dr.$2100
Accounts Payable $2100

Account Debit Credit
At year end before finalisation of accounts, he (accountant) wants to record above
mentioned transaction and find that this invoice and entry belongs to company's purchase
department. Thus to to reconcile suspense account, he is required to debit “Supplies-purchase
department” account and credit suspense account.
Account Debit Credit
Suspense Account Dr. $2100
Supplies – Purchase Department $2100
Difference between control and suspense account:
Control Account Suspense Account
It helps to check the ledgers account balance. It helps to define the major cause of balance
sheet or ledgers variation.
It is basically a summary account containing
ledgers balance.
It is a memorandum account containing values
and figures that are unclassified or
incompatible.
CONCLUSION
It was founded from the above study that financial accounting plays a vital role in
efficiently recording transactions and finalizing accounts. Bank reconciliation statement's
preparation provides assistance in recognizing mistakes, omissions and difference in cash book
balance and bank passbook balance. Suspense accounts and control account are most widely
prepared account that enables company to allocate any suspicious, concealed or irregular
amount.