Financial accounting field of finance lays high level of emphasis on preparing and presenting annual reports at the end of accounting year. With the motive to assess business performance and providing stakeholders with suitable information for decision making companies undertake financial accounting practices. The present report is based on different case scenario which in turn provides deeper insight about accounting conventions and principles. Besides this, report will shed light on the manner in which journal, edger and trial balance helps in preparing financial statements. Further, it also depicts how bank reconciliation statement helps in matching records of cash and pass book. In this, concept related to depreciation, suspense and control account will also be described.
1. Financial accounting
It is a specialise branch of accounting it keeps the company financial records by using standardised guidelines. All the transactions are recorded, summarized and presented in a financial statement. Financial accounting represent only just one sector and it provide financial information to the company. The financial statements consider as external because it is given to the shareholders, and primary recipients they outsider of the company. Financial accounting main purpose is to provide enough information which is related to financial statements. Financial accounting is governed by local and international accounting standards. Financial accounting is not limited to recording, classifying and summarizing the information which is related to business transactions (Jannard, 2017). This accounting generates three financial statements which gives the required information these are balance sheet, income statements and cash flow statements.
For investors, they look the business history for taking a decision to investing in a company. So the financial accounting should be relevant, reliable, comparable and it should be consistent. Accounting information to be useful for the user for decision making purpose so it must be relevant. End users need most recent data to make a decision in favour. If the company does not produce reliable financial data , so the investor are unable to gain accurate data. The financial statement must be comparable, if the data should be comparable the investors are able to make judgement (Schroeder, Clark and Cathey, 2016). Financial accounting is very useful for a company report so its easy to understand and comparable and credible.
2. Regulations relating financial accounting
The international accounting standard board (IASB) stated that the main objective of financial accounting is to give or provide the financial information to their existing and potential investors and other creditors in making decision regarding to investment in the company. Financial accounting is the process of identifying , measuring and to communicating . International financial reporting standards (IFRS) it is issued bye IASB and it becomes more widely spread . In regulatory frame work for the preparation of financial statement is necessary there are some reasons, these are: the needs of the users of financial statements are meet with basic needed information (Macve, 2015). All the information which is provided to outsider is relevant and comparable which in turn helps in increasing users confidence as well as regulating the behaviour of the company. Financial statements allow the organisation to communicate the information about their performance. Financial reports provide summarized information about organisation transactions for external investors.
The Companies Act 2006 is the main frame which the companies and accountant have to follow. Accounting standards are authoritative statements detailing how particular type of transaction should be recorded in financial statements and accordingly with accounting standards will normally give the necessary or fair view of the report. The main and initial purpose of creating accounting standards was to define proper accounting practice with in a legal framework in this guideline give by accounting standard.
3. Accounting rules and principles
A number of accounting principles have been developed for usages these are:
Accrual principle: this is the concept of accounting that should be recorded in the accounting periods when the actually occur. This is important for the construction of financial statements that show the actually happened in accounting period.
Consistency principle: This concept stated that once a company can adopt an accounting principle every time they should use this concept. If they not to follow the principle that means the business continuously jump between the different accounting treatments.
Cost principle: in this concept business should only records its assets , liabilities and equity at original purchase cost . This concept is less valid.
Economic entity principles: This is the concepts in which the transaction of a business should keep separately . The accountants keeps all the business transactions of a sole proprietorship. For legal purpose sole proprietorship and its owner consider to be one entity.
Full disclosure principle: In this concept financial statements of a business all the information Jan impact on reader understanding of those financial investments.
Going concern principle: This concept is used by the business that would be justified in deferring the recognition of some expenses like depreciation.
Matching principle: In this concept when the company record revenue then they record all the related expenses at the time (Basic accounting principles, 2018).
Materiality principle: In this concept record all the transaction which is not doing so it Jan change the decision making process .This is the quite difficult concept.
Monetary unit principle: In this concept that a business should only record those transaction which is done in unit of currency.
Reliability concept: In this concept only those transaction should be recorded which is proven or have an evidence.
Revenue recognition Principle: In this concept it only recognize revenue when business completed the earning process (Robson, Young and Power, 2017).
Time period principle: in this concept a business should report the results of its operation. It should be create a standard to set comparable periods.
4. The conventions and the concepts relating to consistency and material
The convention concept states that it requires transactions to be recorded at the price , and at time and for assets to be valued at the original cost. If there is a possibility of loss so the account taken into earliest.like dep