Principles of Financial Accounting: Journal Entries and Ledgers

This assignment provides a comprehensive overview of financial accounting principles, regulations, and their practical application. It defines financial accounting and differentiates it from management accounting, highlighting the role of GAAP and IFRS. The assignment outlines key accounting regulations from bodies like the ASB and IASB. It details fundamental accounting rules and principles, including accrual, conservatism, consistency, and matching principles, alongside the rules for personal, real, and nominal accounts. The conventions of consistency and material disclosure are explained. Practical journal entries and ledger postings are demonstrated for six different clients, illustrating the application of these principles in real-world scenarios. The assignment concludes by reinforcing the importance of these principles for accurate and transparent financial reporting.

Principles of Financial Accounting
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Contents
Introduction.................................................................................................................................................3
LO1.............................................................................................................................................................4
Define financial accounting.....................................................................................................................4
LO2.............................................................................................................................................................5
There are some regulations of the financial accounting explain it...........................................................5
LO3.............................................................................................................................................................7
Describes the accounting rules and the principles....................................................................................7
LO4.............................................................................................................................................................9
Explain the conventions and concepts relating to consistency and material disclosure...........................9
Client 1......................................................................................................................................................10
Client 2......................................................................................................................................................18
Client 3......................................................................................................................................................19
Client 4......................................................................................................................................................21
Client 5......................................................................................................................................................23
Client 6......................................................................................................................................................24
Conclusion.................................................................................................................................................26
Bibliography...............................................................................................................................................27
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Introduction
The main aim of the report is to provide the explanation about the financial accounting with that
the various regulations which are used for the financial accounting are also highlighted. The
journal entries are performed with the reporting of those transactions in their respective accounts.
The profit and loss and the financial statements are prepared so that the financial position of the
organization can be examined. These transactions will provide the overall understanding of the
financial accounts in the report.
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LO1
Define financial accounting.
Financial accounting is doing everything in the financial prospects of the company; it is a
process of preparing the financial statements of the company which includes the balance sheet,
profit and loss account and other final accounts (Kwok, 2017). This system of accounting is
different from the management accounting which includes the preparation of the financial reports
to help the insider managers.
A process of preparing the financial statements of the company, which help the insiders and
outsiders of the company like the stakeholders, clients, employees, investors and company in
large (Kwok, 2017). It used to prepare the balance sheet, profit and loss account and other
financial reports.
The accounting standards which govern this accounting is the GAAP and IFRS, the purpose of
this accounting is providing the outside people an understanding towards the financial reporting
of the company which is not available to them by management accounting (Narayanaswamy,
2017). The financial reporting consists of cash flow statements, profit and loss statements,
balance sheet other statements of retained earnings.
Thus, financial reporting is successful in providing the outsiders people the study of inner facts
or statements of finance that are useful in knowing the company final position. They also help in
maintain systematic records, ascertaining the true financial position, ascertaining the equity and
solvency ratios (Adkins, 2018).
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LO2
There are some regulations of the financial accounting explain it.
The regulations are the bind set of rules that are formed by the govern authority recognized by
the board of finance (Kwok, 2017). The regulations in the context of the financial accounting are
developed rules and principles by the independent body with which all the financial statements
are prepared in the framework of these regulations (Epstein, 2018).
Image: Financial Accounting
Source: Ng Careers, 2018
The financial statements are prepared within the framework of GAAP a regulatory authority that
regulates the rules and regulations governing the financial statements (Kwok, 2017).
The Accounting standards board (ASB): this board is made to provide the principles and rules
to guide the financial standards; it has the power to issue its own accounting standards, it tries to
bring the uniformity and accuracy in the financial accounting (Narayanaswamy, 2017). It
consists of ten members of the board, the members of board are appointed by the nomination
committee which consists of the chairman and some directors of the (FRS) council. It is a
autonomous body in issuing the accounting standards (Kwok, 2017).
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IASB (The international accounting standards board) it is formed in 2001 April an
autonomous body in London. It is sole in providing the UK based standards on the accounting it
consist of the IASC which also gives the international accounting standards.
Statement of principles; they govern the principles used by the ASB it provides the conceptual
framework to the standards. It provides the support to the policies and methods of the ASB it
works for the betterment of the ASB (Narayanaswamy, 2017).
Financial reporting and its examples: it consist of the cash flow statement, intangible assets,
tangible fixed assets, the objectives of the FRS is to provide a authentic framework to all the
transactions conducted by this reporting (Kwok, 2017).
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LO3
Describes the accounting rules and the principles
The accounting rules and principles are governed by the GAAP an autonomous body who
controls and directs the affairs of the accounting (Kwok, 2017). The rules and the principles are
the base which teaches any company to layout these sets whenever it’s performing any financial
task. They are the guided rules which everyone needs to be followed in the era of the performing
any financial statements (Kwok, 2017).
Basic accounting principles:
1. Accrual Principle: accordingly all the transactions are recorded when they actually
occurred rather than when they actually entered in the cash flows.
2. Conservatism principle: this principle talks of the conservatism to the financial
statements of recording of expenses and liabilities as early and soon but recording of
revenue and assets when they occur (Epstein, 2018).
3. Consistency principle: this includes the continuous use of the accounting standards
and the principles for a period of time.
4. Cost Principle: all the items of the company assets, liabilities and revenues and other
expenses are recorded at the original cost of purchase.
5. Economic entity principle: the transactions of the company are serrated from its
owners and the business.
6. Full disclosure principle: all the information relating to adoption of accounting
standards is disclosed by the company at the footnote of balance sheet (Adkins, 2018).
7. Going Concern Principle: it tells that the life of a business is ongoing it is not affected
by any rules and regulations it will remain responsible for all the uncertainties in future.
8. Matching principle: it talks about the entering of the expenses along with the
revenues, to match it along (Adkins, 2018).
9. Materiality principle: this concept uses the recording of transactions in the accounting
records.
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10. Monetary principle: all the transactions are recorded at some units and are measurable
in monetary terms (Epstein, 2018).
11. Time period principle: all the transactions are reported and monitored within a period
of time.
12. Revenue recognition principle: recognizing the revenue when the company has
completed its earnings process.
Basic rules of accounting: there are 3 rules of the accounting.
1. Personal accounts: it includes the debit the receiver and credit the giver it includes all
personal accounts like person names, firms name and other personal accounts (carrers,
2018).
2. Real account: debit what comes in credit what goes out it consist of real assets like
furniture, purchase and all.
3. Nominal account: debit all the expenses and losses and credit all incomes and gains.
Like commission received, wages, salaries etc.
Thus, the rules and principles of the accounting standards facilitate the uniformity,
accuracy and flexibility in the transactions (carrers, 2018).
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LO4
Explain the conventions and concepts relating to consistency and material disclosure.
The principles of the consistency and the material disclosure govern that all the accounting
standards and the policies while ones adapted to the financial statements must be consistent to be
for a period of time (Berger, 2018). The materiality principle explains the disclosure of all the
related methods in the financial report.
The concept of consistency teaches us that when ones the company adopted a method of doing
accounting it must continue that in future years to attain the consistency or accuracy because
change in methods and techniques can lead to multiplication or discomfort in the whole
accounting process (Stockenstrand, 2017). Example straight line method, FIFO or LIFO methods
The concept of materiality explains that all the financial information are material to the financial
statements so they should be disclosed or attached in the financial reporting to be known by the
outsiders and insiders of the company (Narayanaswamy, 2017). For example contingent
liabilities which are shown on the footnote of the balance sheet.
Thus, all the information or the principles which are adopted in the company at a particular time
must be disclosed with final reports and must be use the constant methods to draw a accurate
result (Berger, 2018).
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Client 1
I. The book of Prime entry
Calculation of Owner's Capital
Particulars Amount
Assets:
Van 51250
Premises 340000
Fixture 8100
Receivables 4500
Inventory 63900
Cash at Bank 62400
Cash in Hand 5600
Total Assets 484500
Liabilities:
Payables 6750
Total Liabilities 6750
Owner's Equity 477750
Journal Entries
In the books of Alexandra
For the Year ended January 2018
Date Particular LF Debit Credit
1-Jan-
18
Storage Expenses A/C
Dr. 400
To Bank A/C 400
(For Storage Cost paid by Cheque)
2-Jan-
18
Purchases A/C
Dr. 6080
To S. Hood 1450
To D. Main 2060
To W. Tone 960
To R. Foot 1610
(Being goods purchased on credit)
3-Jan- J. Wilson A/C 1120
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18 Dr.
T. Cole A/C
Dr. 1640
F. Syme A/C
Dr. 2080
J. Allen A/C
Dr. 910
P. Whilte A/C
Dr. 2420
F. Lane A/C
Dr. 770
To Sales 8940
(For goods sold on credit)
4-Jan-
18
Motor Expenses A/C
Dr. 470
To Cash 470
(Being motor expenses paid)
7-Jan-
18
Drawings A/C
Dr. 1500
To Cash 1500
Being cash withdrawal for personal use)
9-Jan-
18
T. Cole A/C
Dr. 680
J. Fox A/C
Dr. 1310
To Sales 1990
(For goods sold on credit to both)
11-
Jan-
18
Sales Return A/c
Dr. 680
To J. Wilson 270
To F. Syme 410
(Being sold goods returned)
14-
Jan-
18
Van A/C
Dr. 28500
To Abel Motors Limited 28500
(For purchased Van on credit)
16-
Jan-
18
Bank A/C
Dr. 7020
Discount allowed A/C
Dr. 511
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To P. Mullen 1400
To F. Lane 3100
To J. Wilson 850
To F. Syme 1670
To Receivables 511
(Being discount given and receivables paid)
19-
Jan-
18
R. Foot A/C
Dr. 50
To Purchase Return 50
(Being goods returned to R. Foot)
22-
Jan-
18
Purchases A/C
Dr. 3740
To L. Mole 1830
To W. Wright 1910
(For goods purchased on credit)
24-
Jan-
18
J. Brown A/C
Dr. 4600
S. Hood A/C
Dr. 3600
R. Foot A/C
Dr. 1400
Payables A/C
Dr. 976
To Bank A/C 9600
To Discount received 976
(Being discount received on purchases)
27-
Jan
Salaries A/C
Dr. 4800
To Bank A/C 4800
(Being salaries paid by cheque)
30-
Jan-
18
Business Rates A/C
Dr. 1320
To Bank A/C 1320
(For business rates paid)
31-
Jan-
18
Abel Motors Ltd. A/C
Dr. 20500
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