Introduction to Financial Accounting: March 2021 Transactions Analysis

This financial accounting assignment analyzes various transactions that occurred in March 2021. It begins with an introduction to financial accounting, focusing on the summarization, evaluation, and reporting of a company's financial activities, including the use of Generally Accepted Accounting...Read More

Introduction to Financial
Accounting
1

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
1...................................................................................................................................................3
2...................................................................................................................................................4
3.................................................................................................................................................21
CONCLUSION..............................................................................................................................22
REFERENCES..............................................................................................................................23
2

INTRODUCTION
Financial accounting is area of the accounting that deals with the summarization,
evaluation, including reporting of company's financial activities. This entails the preparing of
financial accounts for public usage. Fundamental form of financial accounting standards
employed in any particular jurisdiction is known as Commonly Agreed Accounting Principles. It
contains the rules, regulations, and conventions that govern the business sector (Connolly and
Bank, 2018). The study covers practical task of recording and adjusting certain financial
transaction in financial statement. Further, this covers importance of prudence concept along
with examples to use the concept in business.
MAIN BODY
1.
Events occurred during month of March 2021: Following are different types of functions and
transactions were carried out in March 2021, as outlined below:
Credit Sales: Customers purchase for which payments are deferred are referred to credit sales.
Late payments enable companies to create cash from the goods they have bought, and then
would use to repay the vendor. As a result, allowing buyers to create additional purchases is
possible with a reasonable delayed payment (Bendell and Doyle, 2017). In some businesses,
where lengthier payment conditions could be used to entice customer base, credit sales are key
competitive method. As in given case credit sales of 4500 has been made to Cold. This
transaction affected sales and trade receivables account simultaneously.
Cash Sales- Cash sales in business are those that are made with cash. This is the situation in
which the vendor gets the cash payment at time of delivering. Cash sales, apart from credit sales,
don't really contribute in accounts receivables. To meet the criteria sale as cash sale, seller does
not have to receive currency notes. Cash transactions are those that include a direct deposit
into seller's bank account including credits card payments. In given case, cash sales amounting
600 has been made. This affected cash and sales account simultaneously (AN and AK, 2020).
Credit Purchase: When a company buys products or services on credits or on account with the
intention of reselling them later, this is referred to as Credit Purchases in reporting. Credit
transactions, like purchases, may be employed to buy products and services whether on credits or
on account. Account receivables and account payable are generated as a result of credit purchase.
3

The purchaser's account payables are their present obligation, and they would pay supplier
at later agreed-upon date. It should be registered as Credit Transaction by the buyer. As here,
credit purchase of 1800 has been made from Morn which has affected purchases as well as trade
payable.
Purchase return- This is regarded as return of goods purchased from suppliers on credit. This
transaction affects purchase and trade payable. In given case, goods have been returned which
are bought from Night of 1400. This has impacted purchase as well as purchase return account,
and also trade payable balance will be reduced (Mian and Sufi, 2018).
Cash receipts from customers: Cash receipts in business are receipt of cash, usually
from customer, that increases (debit side) a corporation's cash balances on balance sheet. Here
cash received from customer Warn amounting 3100 which affected cash and trade receivable
account.
Cash payment to suppliers- The cash charged to vendors for stock purchases is measured by
adjusting costs of goods sold from income statement and accounts payables from balance sheet
for stock movements. Here payment of 870 to supplier reduced cash and trade payable balance.
Purchase of equipment: The most liquid resource of a business is cash fund. A corporation 's
assets would be reduced if it buys equipment for money (i.e. decrease in cash balance in hand).
Because owner 's capital equals assets less liabilities purchasing equipment with cash would
decrease owner 's capital. Here purchase of equipment increased equipment value and decreased
cash balance.
2.
Date Particular Lr No. Dr. Cr.
31/03/21 Cold A/C 4500
To Sales A/C 4500
(Credit Sale To Cold)
31/03/21 Cash A/C 600
To Sales A/C 600
(Sale For Cash)
31/03/21 Purchase A/C 1800
To Morn A/C 1800
(Credit Purchase From Morn)
31/03/21 Night A/C 1400
4

To Purchase Return A/C 1400
(Return Good To Night)
31/03/21 Cash A/C 3100
To Warn A/C 3100
(Received Cash From Warn)
31/03/21 Night A/C 870
To Cash A/C 870
(Made Payment To Night)
31/03/21 Equipment A/C 11000
To Cash A/C 11000
(Purchased Equipment )
31/03/21 Electricity A/C 1000
Drawings A/C 1000
(Being correction entry has been made to record electricity
expense)
31/03/21 Wages Expenses Account 500
Accruals Account 500
(Being wages accrued)
31/03/21 Prepayment Account 1250
Rent Expenses account 1250
(Being prepaid rent recorded)
31/03/21 Depreciation Account 18000
Provision for depreciation
account
18000
(Being depreciation recorded)
31/03/21 Allowance Expenses 770
Allowance for doubtful debts accounts 770
(Being allowance for doubtful debt has been made)
Sales Account
Date Description Dr Date Description Cr
31/03/21 Sales Returns Day
Book
2700 1/3/2021 Balance b/d 30000
0
31/03/21 Sales Day Book 12660
31/03/21 Balance c/d 321880 31/03/21 Cash Sales (CB) 6820
Cold 4500
Cash Sales (CB) 600
5

324580 32458
0
31/03/21 Balance b/d 32188
0
Purchases Account
Date Description Dr Date Description Cr
1/3/2021 Balance b/d 153840 Purchase Return 1400
31/03/21 Purchases Day Book 10020
31/03/21 Cash Purchases (CB) 2100
Morn 1800
31/03/21 Balance c/d 16636
0
167760 16776
0
31/03/21 Balance b/d 167760
Carriage inwards Account
Date Description Dr Date Description Cr
01/03/21 Balance b/d 1300
31/03/21 Balance c/d 1300
1300 1300
31/03/21 Balance b/d 1300
6

Returns Outwards Account
Date Description Dr Date Description Cr
01/03/21 Balance b/d 5450
31/03/21 Balance c/d 11700 31/03/21 Purchase returns book 4850
31/03/21 NIGHT A/C 1400
11700
1170
0
31/03/21 Balance b/d
1170
0
Inventory Account
Date Description Dr Date Description Cr
01/04/20 Balance b/d 51600 31/03/21 Balance c/d
5160
0
51600
5160
0
31/03/21 Balance b/d 51600
Loan Liability Account
Date Description Dr Date Description Cr
01/03/21 Balance b/d
3000
0
31/03/21 Balance c/d 50000 31/03/21 New Loan (CB) 2000
7

0
50000
5000
0
31/03/21 Balance b/d
5000
0
Trade Receivables Account
Date Description Dr Date Description Cr
01/03/21 Balance b/d 45860 31/03/21
Sales Returns Day
Book 2700
31/03/21 Sales Day Book 12660 31/03/21 Discount allowed (CB) 500
31/03/21 Receipts (CB) 5900
31/03/21 Balance c/d
4942
0
58520
5852
0
31/03/21 Balance b/d 49420
Discount Allowed Expense
Account
Date Description Dr Date Description Cr
31/03/21 Cash Book 500 31/03/21 Balance c/d 500
500 500
31/03/21 Balance b/d 500
8

Allowance for Receivables
Account
Date Description Dr Date Description Cr
01/04/20 Balance b/d 3000
31/03/21 Balance c/d 3770 31/03/21 Increase Journal 5 770
3770 3770
31/03/21 Balance b/d 3770
Allowance Expense Account
Date Description Dr Date Description Cr
31/03/21 Increase Journal 5 770 31/03/21 Balance c/d 770
770 770
31/03/21 Balance b/d 770
Trade Payables Account
Date Description Dr Date Description Cr
31/03/21 Purchase Returns Book 4850 01/03/21 Balance b/d
2590
0
31/03/21 Discounts received (CB) 210 31/03/21 Purchases day Book
1002
0
31/03/21 Paid (CB) 3320
31/03/21 Balance c/d 27540
35920 3592
9

0
31/03/21 Balance b/d
2754
0
Discount Received Income
Account
Date Description Dr Date Description Cr
31/03/21 Balance c/d 210 31/03/21
Discounts received
(CB) 210
210 210
31/03/21 Balance b/d 210
Equipment Account
Date Description Dr Date Description Cr
01/03/21 Balance b/d
17000
0
31/03/21 New Equipment (CB) 20000 31/03/21 Balance c/d
1900
00
19000
0
1900
00
31/03/21 Balance b/d
19000
0
Provision for Depreciation
Account
Date Description Dr Date Description Cr
10

01/04/20 Balance b/d
3400
0
31/03/21
Annual depreciation
journal
1800
0
31/03/21 Balance c/d 52000
52000
5200
0
31/03/21 Balance b/d
5200
0
Depreciation Expense
Account
Date Description Dr Date Description Cr
31/03/21 Annual Dep’n Journal 4 18000 31/03/21 Balance c/d
1800
0
18000
1800
0
31/03/21 Balance b/d 18000
Bank Account
Date Description Dr Date Description Cr
01/03/21 Balance b/d 32880 31/03/21 Payments (CB)
3842
0
31/03/21 Receipts (CB) 32720
31/03/21 Balance c/d 2718
11

0
65600
6560
0
31/03/21 Balance b/d 27180
Drawings Account
Date Description Dr Date Description Cr
01/03/21 Balance b/d 5000 31/03/21 Journal 1 1000
31/03/21 Drawings (CB) 3000
31/03/21 Balance c/d 7000
8000 8000
31/03/21 Balance b/d 7000
Capital Account
Date Description Dr Date Description Cr
31/03/21 Balance c/d
16500
0 01/04/20 Balance b/d
1650
00
16500
0
1650
00
31/03/21 Balance b/d
1650
00
Accruals Account
Date Description Dr Date Description Cr
31/03/21 Balance c/d 500 31/03/21 Wages Journal 2 500
12

500 500
31/03/21 Balance b/d 500
Prepayments Account
Date Description Dr Date Description Cr
31/03/21 Rent Journal 3 1250
31/03/21 Balance c/d 1250
1250 1250
31/03/21 Balance b/d 1250
Wage a/c
Date Description Dr Date
Descripti
on Cr
01/03/21 Balance b/d
5239
0
31/03/21 Wages paid (CB) 4000
31/03/
21
Balance
c/d 56890
31/03/21
Accrued wages
journal 2 500
5689
0 56890
31/03/21 Balance b/d
5689
0
13

Rent expense Account
Date Description Dr Date Description Cr
01/03/21 Balance b/d 34380 31/03/21 Prepaid Journal 3 1250
31/03/21 Rent paid (CB) 4100 31/03/21 Balance c/d
3723
0
38480
3848
0
31/03/21 Balance b/d 37230
Electricity Expense Account
Date Description Dr Date Description Cr
01/03/21 Balance b/d 16100
31/03/21 Electric paid (CB) 1900
31/03/21 Journal 1 1000 31/03/21 Balance c/d
1900
0
19000
1900
0
31/03/21 Balance b/d 19000
Bourne Sales Day Book March 2021
Date Customer Invoice
No. Amount
2-
Mar Mild 35 3,700
14

5-
Mar Cold 36 1,200
11-
Mar Warm 37 2,600
11-
Mar Warm 38 3,100
24-
Mar Wet 39 2,060
31-
Mar-
21
Cold 40 4500
31-
Mar-
21
600
17,760
Bourne Sales Returns Day Book March 2021
Date Customer Credit
note no.
Amo
unt
16-
Mar Cold 3 1,200
20-
Mar Freeze 4 1,500
31-
Mar-
21
Night 48 1,400
4,100
15

Bourne Purchase Day Book March
2021:
Date Supplier Invoice
No.
Amo
unt
5-
Mar Dark I39B 2,650
6-
Mar Night XXX97 1,400
8-
Mar Morn 8814 2,000
10-
Mar Night I40B 870
21-
Mar Shine 210955 3,100
31-
Mar-
21
Morn
8819
1800
Total 11,820
Bourne Purchase Returns Day Book March 2021:
Date Supplier Credit
note no. Amount
9-
Mar Dark XX949 2,650
18-
Mar Ray 712 2,200
16

Total 4,850
Bourne Cash Receipts Book March
2021:
D
ate Detail
Discou
nt
Allowed
Total Cash
Sales Receivables Oth
er
12-
Mar Wind 400 4,600 4,600
14-
Mar Axminster 920 920
18-
Mar Mild 100 1,300 1,300
20-
Mar Loan 20,000 20,0
00
25-
Mar
Wool
carpet 3,400 3,400
27-
Mar
Carpet
tiles 2,500 2,500
31-
Mar Warm 3100
35,820
Bourne Cash Payments Book March 2021:
17

Date Detail
Discou
nt
received
Total Cash
purchases Payables Rent Electri
c Other
10-
Mar Rent paid 4,100 4,100
12-
Mar Dark 150 2,500 2,500
14-
Mar Shadow 60 820 820
16-
Mar Electric 1,700 1,700
21-
Mar Equipment 20,000 20,000
25-
Mar Electric 200 200
27-
Mar Beds 2,100 2,100
29-
Mar Drawings 3,000 3,000
29-
Mar Wages 4,000 4,000
31-
Mar Supplier £870
31-
Mar Equipment 11000
Total 210 38,420 2,100 3,320 4,100 1,900 27,000
Trial balance
Ledger Account Dr Cr
Sales 321,880
18

Purchases 166,360
Carriage Inwards 1,300
Returns Outward 10,300
Wage Expense 56,890
Rent Expense 37,230
Electricity expense 19,000
Inventory at 1 April 2020 51,600
Loan 50,000
Trade receivables 50,820
Discount allowed expense 500
Allowance for Receivables 3,770
Allowance expense 770
Trade Payables 27,070
Discount received 210
Equipment 201,000
Depreciation of equipment 52000
Depreciation Expense 18,000
Bank 19,010
Drawings 7,000
Capital 165,000
Accruals 500
Prepayments 1,250
Total 630,730 630,730
Income statement
£ £
Sales 321,880
Opening inventory 51,600
Purchases + Carriage - returns 165,960 + 1800 + 1,300 – 10300-1400 157,360
Less Closing Inventory -62,000
Cost of sales 146,960
Gross Profit 174,920
Discount received 210
175,130
19

Expenses:
Wages 56,890
Rent 37,230
Electricity 19,000
Discounts allowed 500
Allowance for doubtful debts 770
Depreciation 18,000
132,390
Net Profit 42,740
Statement of Change in Financial Position
£ £ £
Non-Current Assets Cost Depreciatio
n
Carryin
g
Equipment 201,00
0
-52,000 253,000
Current assets
Inventory 62,000
Trade Receivables 50,820
Less allowance for doubtful debts -3,770
47,050
cash 19,010
Prepayments 1250
129,310
382,310
Capital
Opening 165,000
20

Net profit for the year 42,740
Drawings -7,000
200,740
Non-Current Liabilities
Loan 50,000
Current Liabilities
Trade Payables 27,070
Accruals 500
Other current liabilities 104000
131,570
382,310
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3.
The Prudence principle is a core accounting rule which specifies that obligations, costs, and
losses could never be do understate in business. Prudence dictates that if obligations are under-
recorded, there will be a large outflow of money as the liability explodes. Income statement and
cash balance statement both show unexpected change as a direct consequence of this. To prevent,
this scenario prudence demands that the company continue making plans for possible
obligations, costs, including losses in immediate future with each year progresses. It would mean
that only one accounting cycle fails at the same time. Prudence, but at other hand, says that sales,
earnings, and properties must not be exaggerated (Ramadhan and Sugandi, 2020). If one start
overstating income side, the benefit one would possibly arrive at would be on higher side. Better
profits offer investors a false sense of security. It can reveal that the company is unable to regain
its sales year after year. It also depicts an unsuitable image of existing assets. So, in order to
escape this scenario, assumption of caution comes in handy. Prudence boosts the trust of a wide
variety of stakeholders. That is a cautious accounting technique including this is only pragmatic
when it comes to accounting for business losses, costs, and obligations. The reasoning behind the
principle is that income, properties, and revenue shouldn't be exaggerated (i.e., just report them
when there's full trust in the recoverability of revenues, assets use, and benefit realization) and
costs, liabilities, as well as losses ought not be understated i.e. recording these even if chance of
occurring is lower (Shkulipa, 2021).
Expenses must be reported as soon as possible, although sales must only be recorded
until they are assured. Prudence principal aids in deferring revenue recognition until there is
ample clarity of revenue's realization. Despite the fact that this strategy is conservative, it means
that preparer doesn't inflate the income excessively (Conway, 2020). The purpose of financial
reporting (i.e. accurate and Fairview) is met thanks to prudence principle. When an expenditure
is likely to arise in the immediate future, prudence ensures that the necessary arrangements are
made (via accounting standards). As a result, it means that accounting is completed. According
to the cautious policy of prudence, business's financial statements appear fewer positive,
ensuring that customers do not develop false expectations. As a result, financial statements often
viewed at a slight disadvantage of the real situation.
Examples:
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 The sum a company would know in a year is measured by trade receivables. It's
impossible to predict which debtor will file for bankruptcy in the immediate future.
Prudence concept ensures that company pays for poor and uncertain debts.
 Internal Accounting Rules recommend valuing inventory at expense or net realized value
sum, whichever is lower, when it comes to stock valuation. Assume that the overall loss
accrued to date is $ 16000, and that it could be sold on the market for $ 29000
post incurring the $ 4000 expense. As a result, the loss is $16,000 as well as net realizable
value being $25,000 in this case (29000 -4000). The stock is priced at $ 16000, which is
the lesser of these two values (Alexander and Fasiello, 2020).
 A corporation has a gross budget of $ 106,000. (Cost). It could be bought for $ 136,000
on the free market. However, you cannot reveal investments at $ 136,000 when
acknowledging a $ 20,000 return. It's difficult to exaggerate the worth of your money.
The contributions will continue to be listed at a price of $ 105000.
 A trading deal with a client is currently being negotiated. The deal has a good chance of
coming to fruition. And if the deal is eventually reached, caution would ensure that the
organization does not accept sales until the goods covered by the agreement are already
sold. There ought to be no question over sales realization (Mohd, Farizal and Zulkepli,
2020).
CONCLUSION
From above study this has been articulated that individuals who obtain financial information
or details and used such information for decision objectives include shareholders, vendors,
banks, staff, government officials, company owners, as well as other stakeholders. All domestic
including international accounting concepts guide financial accounting. Financial accounting
processes involve recording of business transactions and reporting them to different stakeholders.
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