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Unit 4 Financial Accounting Principle BTEC Level 4 HND in Business


Accounting plays crucial role in the company to prepare final accounts in effective manner. Present report deals with preparation of financial statements of 6 clients and showing financial position. Moreover, accounting principles and concepts are discussed in the report. Accounting guidelines issued by various professional bodies are explained as well. Furthermore, trial balance and ledger accounts are prepared for the clients. Moreover, sales and purchase ledger control both are produced. Thus, it can be said that financial accounting principles provides way to produce correct financial statements of the business.

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Report to Line Manager

To: Line Manager

Subject: Importance of accounting regulations and concepts in the business and various concepts for achieving growth of company.

Define financial accounting: - Financial accounting is a financial statement of a company. In financial statement we include income statement and balance sheet of the company. It is the process of recording, summarising, classifying and interpreting the financial statement of a company. Financial accounting is the accounting activities of the company and it’s a preparation of profit and loss accounts and balance sheet of a company. Company issue their financial statement time to time and assess the statement regularly (Warren and Jones, 2018). The main purpose of financial accounting is to forecast for the company, how to earn more profits in future. Financial statement include cash flow, income statement, balance sheet, retained earnings. In income statements include revenue and expenses of the company. Cash flow include operating, investing and financing activities of the company. Balance sheet is a statement of financial year it include assets, liabilities, capital equity etc. Financial statement also shows the financial condition of a company. There are some principle regarding financial accounting that is company report should be easy to understand and credible and comparable. Financial accounting follow the common rules which is accounting standards. Financial accounting is differ from managerial accounting and its forecast the financial reports of the company and this reports shows to the stakeholders, regulators of the company. The IASB (International Accounting Standards Board) objective is to provide financial information to investor, shareholders and lenders. And then decision involves buying, selling, or holding equity and to provide loans from credit.

You can take this sample: Financial Analysis Of Pepsico

Explain regulation relating to financial accounting: - The main purpose of financial accounting is to forecast for the company. In the financial accounting prepared profit and loss statement and statement of financial position of partnership to examine. The accounting standards are designed for betterment of financial accounting. In accounting standards include what transaction should be shown in financial statement (Mullinova, 2016). The main purpose of creating accounts standards is to define proper accounting practice with in legal framework. The necessity of accounting regulation is when an individual choose to start a business. The need for accounting standards only becomes apparent when the key characteristics of the various mediums through which business venture can be carried. Financial accounting focusses on the following areas that is identification and recording of financial information. In financial accounting the activities should be reported. In this include clarity, accuracy materialistic data which helps in better to judge a report. Financial statement are prepared under regulatory framework. First is professional regulation, in this its outline that recommended methods that can be used to value inventory and to provide guidance on when inventory should be recognised. The next international regulation, in this the main aim of the IASC was to promote the company worldwide and compare consistency in financial statements with other companies. ISAB main aim is to establish open participatory and transparent due process, collaborate globally for standard setting community and to connect with investors, regulators, business leaders and the global accountancy profession at every stage of process. The ISAB has full control on developing and set its own technical aspects.

Describe accounting rules and principles: - The rules and concepts that govern in accounting. The main purpose of accounting principle is the accounting is based on legalistic accounting which is detailed or complicated. If any company distribute their financial statements to the shareholder or to the public so its required to follow generally accepted accounting principle for preparing financial statements (Libby, 2017). Some basic accounting principle are:-

The business as a single entity concept:- The business is a single entity . Business all activities are treated separately .A business can run long after the existence of its owner.

The specific currency principle: - All country have their own currency. Some companies who conduct business in foreign currencies ant then convert the currencies in prevalent exchange rate of currency.

The specific time period principle: - Financial statement prepare in a specific time period. In income statement there is start date and end date. And balance sheet is prepare on a certain date.

The Historical Cost Principle: - The prices which is items were bought and sold its valuation is done in financial statements. The real value may changes in inflation and recession time.

The Full Disclosure Principle: - This principle focuses on all accounting scandals in news now days. And company should reveal all the relevant aspects of the functioning.

The Recognition Principle: - In this principle companies reveals their income and expenses in the same time period in which they were accrued.

The Non-Death Principle of Businesses

In this principle businesses will continue to function eternally and have no end date as such.

The Matching Principle: - In this principle the accrual system of accounting should be used for every debit there should be credit.

The Principle of Materiality: - the report should be materialistic and accurate. There are inaccuracy in records of financial accounting so the company note judge the right and not to forecast (KHAJAVI and EBRAHIMI, 2017).

The Principle of Conservative Accounting: - In this principle expenses are recorded immediately but incomes are recorded only when it comes in cash.

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