Financial Accounting Principles - Recording Transactions

This assignment solution delves into fundamental financial accounting principles. It begins by defining bookkeeping and explaining how business transactions are maintained within the accounting system, emphasizing the double-entry system and the accounting equation. The solution then clarifies the roles of books of prime entry, journals, and ledgers. It proceeds to demonstrate the extraction of a trial balance using provided ledger balance data and prepares a bank reconciliation statement. Furthermore, the assignment defines the roles of suspense and control accounts, highlighting their differences. Finally, it constructs a control reconciliation statement for accounts receivables and payables, providing a comprehensive overview of key accounting concepts and practical applications.

Financial Accounting
Principles

Contents
INTRODUCTION ..........................................................................................................................3
MAIN BODY...................................................................................................................................3
1. Define book-keeping and how are the business transactions maintained in this system of
accounting...................................................................................................................................3
2. Define book-keeping, books of prime entry, journals and ledgers.........................................4
3. Extract the trial balance with the help of the data of ledger balances provided......................6
4. Prepare the Bank reconciliation statement with the help of data given. ................................7
5. Define the Role of suspense and control account. Also mention the difference between
them.............................................................................................................................................7
6. Prepare the control reconciliation statement for the accounts receivables and payables of the
business. .....................................................................................................................................9
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
In this report it discuss about the concept of bookkeeping and the various of business
proceedings which are truly maintained in the accounting system of organization (Abdullah,
Stroulia and Nawaz, 2020). This is very significant to record the transactions in the debit and
credit side of the balance sheet because this statement show the company financial position and
ensure that total of both the assets and liability are similar if its not similar then its shows
irrelevancy in accounts. In another task it define the books of journals, ledgers and prime entry.
Afterwards it describe the meaning of trial balance and with the assistance of information it
provides the ledger balances and its important to create or put balance correctly in the trial
balance because the income statement of the firm also depends upon the accurate trial balance.
Also in another instance it prepare the bank reconciliation statement for the provided
information. Apart form this, it mainly explain the role and objective of suspense and control
account and show the comparison on them also. At last it create the control reconciliation
statement through the assistance of accounts receivable and payable.
MAIN BODY
1. Define book-keeping and how are the business transactions maintained in this system of
accounting.
Double entry book-keeping system is defined as a system which explains that there are
two parts to every transaction that occurs and affects two ledger accounts as a result. This
system deals in two or more than two accounts for each and every transaction or dealings that
takes place. The two effects are in the form of debit and credit (Cao, Jia and Manogaran, 2019).
Hence, there comes about two parts in the form of an equal and an opposite transaction affecting
two respective accounts. This system bases on the accounting equation Assets= Liability +
Equity. Hence any transaction that takes place, it has two respective effects. If it impacts the
asset side it needs to affect and change the amount of liability also so that the equation can be
balanced.
The respective principles that are required to be followed are:
 Debit is recorded on the right and credit in the left.
 Every debit constituent should have a comparable credit element.
 Debit account gets the benefit and credit account provides the benefit.

The steps involving in double entry system of recording are:
1. Procurement of written documents: The first step in this system involves attainment of all
the documents that are proof of the business transactions that took place from the
accounting source document.
2. Recording in journal: The initial place where the transactions are recorded is in the books
of original entry as journal books of the company also referred as the day books
(Chandra and Siswanto, 2021). It gives an overview of the transaction and of the accounts
in ledger that are affected by the transaction.
3. Updating ledger accounts: The respective transactions are then written down in the
bookkeeping ledger accounts in a T structure. Each account represents a different ledger
and affects either of the two sides.
4. Debit or credit: The transactions are recorded in the ledger accounts through debit or
credit methods. With being recorded as a debit and then as a credit in the respective two
different ledger accounts. The bookkeeper should be well versed with the concepts to
make sure that the entries in the books are correct.
5. List in charts of accounts: All the different accounts in ledgers are all kept at a single
place named as chart of accounts with all the transactions in the ledger maintained,
recorded and created at a single place.
6. Support through mathematical formula: all the ledger accounts are then supported and
checked through the accounting equation formula to ensure the debits and credits
done in the entire book keeping are true and correct (Doron, Baker and Zucker, 2019).
This helps to then establish a trial balance.
7. Trial balance : If all the balances in ledger are matching and correct, the trial balance
shows up. With all the debits and credit sides match with the amount. If not, then
corrections need to be made so that a rectified trial balance could be generate.
8. Formulation of financial statements: After the completion of making of the trial balance,
then the financial statements are prepared such as income statement and balance sheet.
In the end, it also involves, making adjustment entries, rectifying if any mistakes and preparing a
modified trial balance and preparing for closing entries to ensure correct financial statements.

2. Define book-keeping, books of prime entry, journals and ledgers. Double entry book-keeping: It states that each and business transaction which is recorded
in the books of accounts has two effects, equal and opposite. It affects two or more than
two accounts with each transaction that takes place. It is established on the basis of an
equation: Assets= Liabilities + Equity. The transactions are recorded in terms of debit
and credit. This establishes a system of accuracy in the preparation of financial
statements.
 Books of prime entry: It refers to the original source of document where the transactions
are recorded that occur in a business organisation at the first place before being entered in
any separate journals or ledgers. These are of a great help to the accountants when they
required re-checking of any of the business transactions as ledgers might be of
complication when the requirement is just re checking all the transactions of the business
(Faber and Jonker, 2019). There are 6 books of prime entry refereed as:
1. Sales Journal
2. Purchase Journal
3. Purchase Return Journal
4. Sales Return Journal
5. Cash Journal
6. General Journal
 Journal: A journal is also termed as a book of original entry or a day book. It has the
collections of all the business transactions recorded in a chronological manner. The
details and informations put in the journal while recording the transactions are termed as
journal entry. The documents on which the journal is base includes the business
vouchers, invoices and transaction receipts and cards.
 Ledgers: A ledger is a collection of many different accounts that record the accounting
transactions. Each and every account in ledger has some opening carry forward balance
and it mentions each and every transaction taking it from journal and record it as either as
debit or credit (Feng, Conrad and Hussein, 2022). This is also termed as second book of
entry. It provides the individual balances of each and every account that the company has
in their books of accounts.

3. Extract the trial balance with the help of the data of ledger balances provided.
Trial Balance
This statement is the report of accounting that records the last balance in each and every generic
account of ledger (Frank, 2018). It basically means that it explain the total side of asset and
liability, sales revenue, equity, costa and the account of profit and loss.
Trial balance is mainly run as a portion of closing month procedure. This is significantly utilized
to confirm the complete total of all debits side similar to the total of all credits side. Which
means there are no unequal entries of journal in the system of accounting that would create it
unfeasible to make adequate financial documents.

4. Prepare the Bank reconciliation statement with the help of data given.
Bank Reconciliation statement
It can be defined as a statement that relates the balance of cash through the balance sheet of
organization to the comparable value on its bank document. Accommodation of two accounts
mainly assist to determine that there is any requirement to show variations in accounting. This
statement of bank are done at daily intervals to confirm that the lists of firm's cash are adequate
or not. It also assist to identify any fraud and impact on cash (vanček, 2022). It also identify the
service of bank which includes fees, penalties and NSF checks. It will come and get tuned
through the balance of firm cash.
Bank reconciliation A/C
5. Define the Role of suspense and control account. Also mention the difference between them.
Control Account: It is also called adjustment account. In this A/C, general ledger keeps
clean all the details and it includes all the balances correct which is used in making financial
statements of an organisation (Laila and Puspitasari, 2021). It records the data and items in
several subsidiary ledgers and concise into the proportionate adjustment A/C.
For a small business establishment, all the accounts are together kept in a single ledger and the
balances for making trial balance can be extracted from that ledger account. But for a big
business enterprise, that deals in a massive number of transactions and dealings and where a

whole set of accounts are maintained. Few subsidiary ledger accounts are opened such as sales
ledger, purchase ledger which then become a part of double entry system. To make a trial
balance for such big organisations, it is necessary to extract the numbers from these subsidiary
ledgers. But to sometimes avoid such situations, business keep a control account maintained for
all the subsidiary ledgers for collecting the amount of balances.
There are two ways to keep control accounts under double-entry system.
 In case the business maintains the accounts for sales ledger and purchase ledger as part of
the double entry system, the use of control accounts in that case only remains to provide
information regarding the balances and is not a part of double entry system (Patra and
Rath, 2022).
 In case the organisation keeps the control accounts and treats them as a part of double-
entry system, then the subsidiary ledgers are not its part and are only to provide analysis
for the balances.
The purpose of keeping control accounts is to summarise and make records of large number of
massive transaction at one point of time and of the same kind. They assist in various transactions
reconciliation and in identification and findings of respective errors in the recordings.
Roles Of Control Account:
 It aids in verifying the numerical rightness of items uploaded in the particular ledger
accounts.
 It helps to prevent all kind of errors and frauds in the accounts because it maintains the
particular ledger account transactions. It assists to checking out the accuracy of the balance of the purchase and sales ledgers.
Suspense Account: It is a temporary account which collect and store the transactions and it has
been created for modify the variation between debit and credit side. It is made for short time
period. Suspense account is an account that is established for a temporary purpose and maintain
the records of those transactions that are not allotted under their correct accounts. It is done so
that the transactions and amounts that do not have a proper account to be recorded under, do not
get misplaced (Sharma, 2019). The purpose for establishing suspense accounts is due to the
situations when the proper account needed to record a particular transaction is not present and
hence is kept under suspense account.

This account is established for a temporary purpose and maintain the records of those
transactions that are not allotted under their correct accounts. It is done so that the transactions
and amounts that do not have a proper account to be recorded under, do not get misplaced. The
purpose for establishing suspense accounts is due to the situations when the proper account
needed to record a particular transaction is not present and hence is kept under suspense account.
Roles Of Suspense Account :
 If an accountant is in doubt about the transactions of debit and credit side so in that case
he will make a suspense account purpose of placing the entry.
 If there will be incurred any type of expenses which is beneficial for more than one A/C
so it can be placed in suspense A/C for temporary basis.
Differences Between Control and Suspense A/C:
Control Account Suspense Account
 It is summary A/C which includes the
debit and credit balance of the
subsidiary A/C in ledgers.
 In a general ledger, it is a summary
account.
 It contains the total record of the data
and transactions of particular items.
 Ex: Total credit sales for a day , total
cash accumulated from customers in a
day.
 It is a temporary A/C which has been
made to managed the distinguish B/W
credit and debit balance.
 It has been created for temporary.
 It aids to to maintain the books
organised through dividing the
unexamined transactions.
 Ex: It occurs when one account is
debited with 77 and credited with 87.
6. Prepare the control reconciliation statement for the accounts receivables and payables of the
business.
Control reconciliation statement: This statement of control reconciliation are generic
accounts of ledger that summarize a big amount of proceedings. This is the main part of double
entry system (Ye and Hu, 2020). Which are utilized to show the adequacy in the system of
accounting ledger. In this statement it also include some steps to reconcile the control balances of
accounts:

 They Fix the faults of control account in both the receivable or payable account of control
by listing the debits or credits.
 They also fix the mistakes receivable or payable ledger in the register of ledger balances
such as receivable or payable by adding and subtracting.
Accounts receivable: This is the type of transaction or payment in which the firm will receive
for their customers who buy their products and services in a form of credit. Basically the period
of credit is having a small range start for some days and end with in a months or in other case it
stretch the time duration for a year. In simple words in this firm must have to exceed a line of
credit to their customers. In which firm can sell their products and services in both cash and
credit form. This trade receivable is also activated as current assets on the firm's balance sheet.
Accounts payable: The type of payable belongs to the account in which the generic ledger
shows a firm's duty to pay off the liability of short time duration to their creditors or providers.
One another important use of accounts payable in context for the department of business or
sections that is mainly answerable for creating the payments which are self-owed by the
organization to distributors and some other creditors.

CONCLUSION
The above report concluded that double entry bookkeeping is important to maintain
because it shows the firm transactions in both the asset and credit side which is important to
record in an appropriate manner because it helps the company to understand the firm's financial
position in long run. If it discuss about the trial balance its necessary to prepare because without
the trial balance company can't create an income statement and not appropriately recognize the
profits in their business. Also in bank reconciliation statement its important to check the similar
transactions of cash. On that basis firm prepare the bank reconciliation statement and check the
incorrect transaction in bank statement.

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