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Meaning & Defining of Financial Accounting

INTRODUCTION

Accounting and management are the key requirements of businesses and organizations. There are types of strategies and plans that are made in terms of maintaining financial ethicalness and consistency. Accounting principles and concepts frame the structure of keeping records and details in an organized manner. Financial accounting rules, legislations, and standards assist managers and accountants to operate the business and functions according to rules and legislations (Edwards, 2013).

There is a business report prepared which defines the meaning of financial accounting, regulations related to financial accounting. There are rules and principles defined subject to maintain financial ethicalness and discipline are defined in this context. Conventions and consistency which remain related to consistency and material disclosure are also defined in this context. Practical evaluation done subject to the book-keeping system, trial balance, accounting rules, retaining of transactions, and information in books of accounts elaborated in this context. Analysis of financial information by using various data are reconciled and operated in financial accounting.

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BUSINESS REPORT

1. Defining financial accounting

Financial accounting

Financial management and accounting is one of the important branch of management accounting which assist managers and accountants to keep financial records and information in systematic manner. There are guidelines, legislations and rules made subject to financial accounting. These rules are followed by organisations to present financial reports and publish relevant information for stockholders, shareholders and owners of organisation. Mainly financial accounting is used to maintain the financial records and information in effective manner and present these reports to managers and stakeholders of organisation. These statements are mainly associated with external and internal environment of business (Hatfield, 2014).

Financial accounting is also considered as a language of organisation which communicates the organisational aim and objectives in financial terms and provides an information related to economic and financial information for outside parties as shareholders and creditors. Financial accountants and chartered are hired by the business to maintain and analyse the essential aspect in terms of business and operations. There are type of financial statements are prepared by organisations which present the information related to financial performance and analyse the financial health of business.

Cash flow statement: This is the statement which present the information related to consumption of cash during the year. This statement mainly contains the information of utilization of cash in in various activities such as cash flow from operating activities, cash flow from investing activities and cash flow from financing activities. Overall cash inflows and outflows information are presented in this statements. With the help of this statements managers and accountants be able to make strategies and plans for arrangement of cash (Songini, Gnan and Malmi, 2013).

Income and expenditure statement: This is the statement which defines the profitability of organisation. This statement covers all the revenue expenditure and income to evaluate the profit and loss for the year. All the expenses are recorded in the debit side of statement and all the income and revenues are recorded in credit side. Excess over expenditure is considered as a profit and excess over income indicates loss. Evaluation of income statement helps mangers and accountants to make profit strategies and plans.

Financial position statement: This statement mainly associated with identifying the total assets and liabilities of organisation. This statement present the clear picture of financial position of organisation to stakeholders, investors, financiers and directors. Current assets, fixed assets, current liabilities, share capital(Equity and preference), non current and current liabilities are the elements which are considered in this statement. To generate financial help and funds, there are strategies and plans are prepared by mangers of association.

Change in equity statement: This statement mainly associated with analysing the variations in equity and share capital of organisation. There is a statement prepared which contains equity share capital, shares issued during the year, sum of reserves and surplus, securities premiums and profit. With the help of this statement managers be able to identify the difference and variations done during the year subject to equity (Zeff, van der Wel and Camfferman, 2016).

2. Regulations related to financial accounting

Rules, regulation and legislations helps to maintain and control the accounting records in more effective and efficient manner. To get accurate information and results managers and accountants adopt financial rules and legislations. By adhering financial rules and regulations organisation be able to maintain its financial information and details in systematic way. Financial accounting is a process which starts form gathering information, collecting financial data and keeping the records for making financial plans and strategies. It is very important for the business to present the financial information accurately and as per the legal structure.

IASB (International Accounting Standards Board)

IASB was formed in April 2001 which is one of the independent accounting standard board produces rules and regulations related to financial accounting. There is a committee operates the IASB and keep align with making financial plans and strategies for better management and operations. There are two main bodies as the trustees and the IASB works upon financial accounting standards. Financial reporting standards and Standard Advisory council works together to produce financial rules and regulations.

FRS

Financial Reporting standards and the quality management are the essential aspect in terms of making the financial rules and regulations for better evaluation and management of finance department. FRS 1 mainly associated with handling cash flows, operating activities, taxation treatment, return on investments and producing finance, acquisition and disposals, equity dividends and management are considered in this context (Aletkin, 2014).

FRS 3 provides rules and regulations related to present the financial performance in terms of profit and loss of organisation. Financial performance of organisation is evaluated on the basis of following components under FRS 3;

  • Outcomes of regular operations containing acquisition
  • Outcomes subject to discontinued operations
  • Revenues and losses on the sale or termination of an operation, costs of a fundamental reorganisation or reconstructing, profitability and losses on the disposal of non current assets
  • Records of extraordinary items and transactions.

There are also some financial reporting standards made which are adopted by organizations which are as follows

FRS 10 which is related to treatment of goodwill and intangible assets.

FRS 15 this is the principle which provides rule related to tangible fixed assets with exception of investment properties. SSAP 19 also followed under this standard as accounting for investment properties. Main objective of FRS is to define the tangible fixed assets which are counted at consistent basis (Ennew, Waite and Waite, 2013).

FRS 18standard defines the policies and standards subject to disclosure of accounting policies. Main objective of this standard is to assure managers and accountants for material information in more effective and efficient manner. This FRS is also interrelated with SSAP 2 which is related to 'disclosure of accounting policies' which are published under accounting periods. This contains following essential elements such as relevance, reliability, comparability, understandability.

Read Also:
Analyzing The Financial Condition and Health of The Company

3. Accounting rules and principles

Rules of accounting

Credit what goes out and debit what comes in: The given guideline applies on the genuine records of the organization which its arrangements with. These are the advantages of the organization and in this way they have a charge adjust in the books of record. The genuine records of organization incorporates records, for example, plant and gear, Building, Land and so forth (Boone, Linthicum and Poe, 2013).

Debit all expenses and losses, credit all the revenues and gains: This manage of bookkeeping applies on all the ostensible records that the organization manages. The capital that the organization have is an obligation for it and in this manner it has credit adjust.

Credit the giver and debit the receiver: The individual records of organization are the genuine individuals who manages the business and these records can likewise additionally be legitimate body. According to this control of bookkeeping, it applies on all the individual records that are managing the business either immediate or in a roundabout way (Colasse and Durand, 2014).

Accounting principles:

Matching principle: This rule suggests that the incomes that are happened in a money related year ought to be coordinated with the cost that is caused in delivering that income.

Historical Cost Principle: According to this rule of bookkeeping, It is required by the bookkeepers that they record the advantage bought by the organization at the value which is paid by the organization to obtain the benefit and this cost is considered as the premise of bookkeeping at the season of the buy and furthermore in the resulting Financial years.

Revenue recognition Principle: The standard of income acknowledgement is principally worried about chronicle the incomes of business in the salary articulation of the company (Di Pietr, AyArt and Ronen, 2014).

4. The conventions and concepts relating to consistency and material disclosure

Material Disclosure: This progression is taken by the bookkeepers so money related proclamations of the organization are not loaded with consistently subtle elements and exchanges that are not critical to be recorded. According to this tradition of bookkeeping, it infers that the bookkeepers of organization need to record and mull over just those exchanges which are applicable and have noteworthy direction and all the unimportant things must be overlooked. It ought to likewise be noticed that a thing which is material for one concern can be Irrelevant or insignificant for another worry. Yet at the same time this procedure is entangled on the grounds that their no such particular recipe with respect to which exchanges are applicable and which are not, this is simply an issue of decisions that will be taken by the bookkeeper who is setting up the records. And furthermore, a thing material in one monetary year may get superfluous in next bookkeeping year.

Consistency convention: According to this tradition of bookkeeping, it suggests that bookkeeping hones which are relevant or embraced in current year ought to be appropriate in the organization for the specific time frames and ought not be changed for specific periods. This tradition just infers that associations need to stay steady when they embrace any rule of representing different periods (Drexler, Fischer and Schoar, 2014). At the point when the organization's have settled approaches, it additionally turn out to be simple and straightforward for the partners to utilize the money related articulations as against when the organizations change the strategies consistently. This is on account of when the organization's stay consistent for a more extended span it implies that organization's tasks are fruitful and they don't require any adjustments in the arrangements. For example if the organization esteems the stock at the market cost or cost whichever is less, at that point it ought to take after this standard for different periods. So also, if some organization deteriorates the settled resources of the organization utilizing straight line technique for devaluation, at that point the organization should utilize that specific strategy for deteriorating every one of the benefits. If are you worried about your assignment help service then check our service also.

CLIENT 1

Double entry book keeping system

This accounting system mainly associated with maintaining accounting information and details in books of accounts for a particular duration and time. There are two major two sided formates made as debit side and credit side. As per this concept every transaction contains two aspects which affects the accounts. This is one of the essential accounting tool which follows the following accounting equation as

Assets = Capital + liabilities

CLIENT 2

a) Profit and loss statement

Profit and loss statement of Peter Piper for the year ended 31st December 2017

Particulars

Amount

Particulars

Amount

To Opening stock

82200

By sales a/c

1215000

To wages and salaries (177500+1220)

178720

To Purchase a/c

778800

To Gross Profit

276920

By closing Stock

101640

1316640

1316640

To motor expenses

87400

By Net Profit

276920

To Heating and lighting

4950

To Depreciation

on freehold primes 4650

on equipments 7500

on Vehicle 2800

14950

To Advertisement expenses

4810

To administration expenses

17650

To net profit

147160

276920

276920

b) Financial position statement

CLIENT 3

a) Profit and loss of Raintree Ltd.

b) Financial position statement of Raintree Ltd.

c) Accounting concepts

d) Purpose of depreciation in formulating accounting statements

Depreciation is the way toward decreasing the estimation of settled resources of the organization in the monetary of the organization with the goal that the organization can expand the costs of the organization and in this way lessen the benefits. Depreciation process diminishes the book estimation of the advantage of organization. Depreciation of settled resources are started when the organization buys the benefits of the organization. For deteriorating the benefits of the organization, the chiefs right off the bat need to choose the technique for devaluing the advantages and later the assessed life of hardware and the administrators of the organization additionally need to decide the piece estimation of the benefits toward the end (He, Craig and Wen, 2013). The techniques for the Depreciation incorporate straight line strategy, lessening esteem technique and per unit devaluation strategy. Depreciation helps the supervisors in lessening the gainfulness of the organization by expanding the costs by mulling over devaluation as a cost. Devaluation is a non money use yet assumes a noteworthy part in the monetary articulations. The strategies for devaluation are examined underneath to sum things up:

Straight line technique: This technique is considered as the one of the simplest strategy for devaluing the advantages and is effectively reasonable by everybody, which is the reason the greater part of the organizations receive this technique for Depreciation. Under this strategy for Depreciation, the settled resources are devalued by the comparative sums in consistently. Under this technique for Depreciation the first cost of advantages are taken and the evaluated scrap esteem is deducted from it and furthermore, it is separated by the aggregate existence of the benefits that was at first assessed by the bookkeepers of the organization. The sum which is figured is then deducted from the adjust of the benefits each year till the life of the advantage and afterwards the advantage is disposed of by the organization

Diminishing balance method:According to this technique for Depreciation, the sum is figured by taking the opening estimation of the advantage and separating it by the rest of the life. The sum is deducted from the estimation of the advantage, till the estimation of the benefit winds up zero. Get the unique content essay writing service with chat support.

CLIENT 4

a) Bank reconciliation Statement

BRS or Bank compromise explanation is a money related report which is set up to accommodate bank adjust of passbook and bank adjust of money book, the word accommodate characterize as making one exchange with another. The essential point of this archive is to distinguish the reasons of deviation in account adjusts, this announcement is made on a particular date when bank passbook is refreshed (Seda and Kramer, 2014). This statement is prepared to comprehend the contrasts between the bank adjust of both the books. The distinction in the equalizations happens because of few reasons which influences certain exchanges and they are defined as follows:

  • Postponement is likewise considered as the most widely recognized reason of deviation in the equalizations of passbook and money book. Here postponement is alluded as the deferral from banks in freedom of specific checks and request drafts.
  • Premium earned is the sum which is earned by the client against their saved sum which at times isn't spoken with the clients and distinction in equalizations of both the books happens.
  • Mistakes and oversights are the most well-known reason because of which couple of exchanges like check issued, instalment got are influenced. Exclusion is the state when an exchange is erroneously precluded to record and blunder is the state when an exchange is wrongly recorded.
  • Administration charges additionally drives the distinction, as now and then customer is unconscious of bank expenses which are charged without suggesting the clients. .
  • Exchange of money through different sources requires time, if a customer instantly records an exchange of instalment which is still during the time spent travel than it will prompt deviation in both the books.
  • Extortion recognition;it isn't essential that each time the deviation happens because of some oversight, now and again it can be an after-effect of misrepresentation submitted by customer or the bank. BRS is the key of keeping these cheats.

Bank Reconciliation Statement As on 1december December 2017

Date

Particulars

Details

Amount

31/12/17

Bank Balance as per cash book (Dr. Balance)

19973

01/12/17

Add: opening adjusting figure

987

02/12/17

Add: deposits

176

06/12/17

Add: Distinction between adjust of 783

9

17/12/17

Add: instalment to Cook

97

29/12/17

Add: Finding of lease

260

1529

Total

21502

02/12/17

Less: 780

426

02/12/17

Less:781

737

05/12/17

Less: bank charges

47

10/12/17

Less: standing orders

137

11/12/17

Less: 310923

297

24/12/17

Less: difference of cash deposit (sales)

1

30/12/17

Less:Payment received from Fred

119

1764

Balance as per passbook (Cr. Balance)

19738

b) cash book

Cashbook of Kendal Ltd. (Bank only)

Date

particular

amount

Date

particular

amount

01/12/17

To balance b/d(Balancing figure)

20208

02/12/17

By 780

426

01/12/17

To balance adjustment

987

02/12/17

By 781

737

02/12/17

To Deposits

176

05/12/17

By bank charges

47

06/12/17

To difference of balance

9

10/12/17

By standing orders

137

17/12/17

To cook

97

11/12/17

By 310923

297

29/12/17

To rent

260

24/12/17

By cash deposit

1

30/12/17

By Fred a/c

119

By balance c/d

19973

21737

21737

CLIENT 5

a) Sales ledger control account and purchase ledger control account

Sales ledger control account for Henderson

Particulars

Amount

Particulars

Amount

To balance b/d (Debit balance)

12600

To credit sales

152350

By Transfer to purchase ledger

330

By Discount allowed

380

By Receipts from debtors

141610

By opening balance

12600

By Sales return

7320

By Bed debts written off

120

By balance c/d (Debit balance)

2590

164950

164950

Purchase ledger accountant

Particular

Amount

Particular

Amount

To general ledger control a/c

By opening balance on (Cr. balance)

9160

Purchase return

1110

Credit purchase

116500

Payment to creditors

101010

Discount Received

290

To transfer from sales ledger

330

To balance c/d

22920

125660

125660

b) Importance of control account

Control accounts are prepared to analyse the financial accounts which are prepared on the basis of detailed accounts. It become difficult for the organisations to maintain and record the detailed information about transactions in that condition control accounts plays vital role.

CLIENT 6

a) Suspense account and main features

There are some key features defined below which defined the suspense account as;

  • Used to prepare trial balance
  • To assist detecting undefined transactions and fining errors
  • To assist the management decisions and making the difference
  • To rectifying one sided errors and completing accounts
  • To prepare final accounts

b) Trial balance (£)

Particular

Debit amount

Credit amount

Suspense a/c

110

Sales

1100

Rent paid

250

Receivables

320

Travel Expenses

160

Purchase

700

Payables

350

Cash at bank

840

Capital

710

Total

2270

2270

(c) Reconcile suspense account

Suspense account

Particulars

Amount

Particulars

Amount

To White's personal account

750

By balance b/d

330

By John's personal account

420

750

750

d) Difference between clearing accounts and suspense accounts

In general context suspense account and clearing accounts are considered similar but there is a significant difference found subject to those accounts. There are some transaction which remain unrecorded are considered in suspense account. Whereas, clearing accounts are the accounts which are open to clear all the relevant accounts which do not exist for further. The closing balance remain Zero after clearing the accounts whereas there are chances that balance can be remained in suspense accounts (Seda and Kramer, 2014).

CONCLUSION

As per above defined report the scope of management accounting elaborated in organisational context. Financial accounting is very crucial subject in organisational context which helps to correlate the financial information and management decision for growth and development of organisation. The business report defined the meaning of financial accounting and process of making the financial accounting. There are rules and regulations subject to maintain financial records and information also defined in this context. Accounting conventions and concepts related to consistency and material disclosure also defined in this context. Journal entries, book keeping system, trial balance, process of preparing income and expenditure accounts, bank reconciliation, ledger control accounts, suspense accounts are defined in this context.

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