Financial

Accounting
LBBA
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 INTRODUCTION

We will analyze Financial Accounting in this assignment. Financial accounting is the way an
organization arranges all tax transactions and reports to represent its financial
performance and condition for internal or external users. We will find out about business
exchanges, double bookkeeping. We will also find out financial reports, control accounts,
alteration diaries, and bank compromises. We will explain every budget report, control
accounts with settlements, bank resolutions, and modification journals here to find out the
more efficient answer. This assignment will assist us to understand the financial account
more severely.

LO-1:

TASK-1.1:

Business Transaction:

A business transaction is an activity or development that can be measured in terms of

money. This transaction directly affects a business organization's financial condition. There
are some accounting components including assets, liability, equity, income or expense of
the owner. We can say that the exchange which changes any of these components are
known as business transactions.

There are mainly four types of business transactions. They are given below in detail.

Sales: A sale may be a business between two or other parties within which the client
receives goods either tangible or intangible, services and assets. Sales mainly take place in
exchange for cash or in some cases, other assets paid to a seller. Sales transactions are
posted in accounting journals as a debit against sales account and cash or accounts
receivable as a credit (Atrill, 2017).

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Purchase: For completing the business goals, products or services must be gained and
these transactions are called purchase. The accounting journal of the purchase transaction
is posted as, inventory account as a debit against cash or accounts payable as credit.

Receipts: A receipt is a piece of paper that is simply getting from somebody as proof that
they received cash or a product from you. Example: profit on sales, rent, interest, etc. It
proves that you’ve bought something from them. These are posted as a debit against the
source of revenue. Again, as a credit in the accounting journal as cash or bank account.

Payments: A payment is an associate quantity of cash that's paid to somebody or the act of
paying this cash. These are the expenses that include salary, wages, tax, etc. In accounting
journal, the description payment account system is recorded as debt and in a bank as a
credit

There is some main guideline for business transactions. They are given below:

• Each transaction must be financially measurable,

• Accounting components (assets, liabilities, equity, revenue, expenses) should be
affected by transactions
• Minimum two parties should be involved in any transaction,
• The Transactions ought to be legal etc.

Double entry Book Keeping:

Double entry or accounting is the system by which the amount of each transaction has to be
recorded on at least two debit and credit accounts. In this system, the amount of debt is
equal to the amount posted as credit. For example, there are two accounts for the business
sale of any product or service. One is called a sales account that is credited and the other is
known as cash or debited accounts.

There is also an old method of accounting or bookkeeping and it is known as a manual

double entry system. This transaction is recorded manually by an accountant and is very
slow. Nowadays the electronic system is introduced and is more updated and time-
consuming and accurate. In this system, transactions are recorded in software

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automatically. Tally, SAP is these types of software. Most business organizations are now
using electronic systems to consume their time and accuracy.

Trial Balance:

The main role of the trial balance is to ensure that all entries in the general ledger of a
company are accurate and properly balanced. A trial balance is a record of each general
ledger account's left balances. The sum of a trial balance's debt and credit side must be
equal (Carey, 2014). Otherwise, it indicates that in the general ledger something is
incorrectly recorded and correction is needed.

Trial balance helps us to prepare the financial reports easily because we find every ending
balance of general ledgers.

All end balances of the general ledger are the components of the trial balance. Such as sales,
stock, assets and so on.

It is very important to get accuracy and correct all the errors of an organization's trail-
balancing business transactions. It also helps in the preparation of financial statements. It
ensures that all transactions posted in accounting books have the same debit and credit
balance. It also accurately calculates the balance of each general ledger.

LO 2

Differences between Financial reports and Financial Statements and

how, when and why are they produced:

Every transaction that has a financial effect is included in the financial report. Financial
reports play a significant role in running a business. It is related to financial data transmit.
Again, it is related to internal or external users to assist them in making decisions. Some
financial reports are regularly arranged and some reports are arranged as required (Carey,
2014). Some reports are for management purposes only and some are for outsiders.

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Instead, Financial statements are also financial reports, but they are more formal.
Accounting methods are used to prepare financial statements. Term of the financial
statements is generally used for below reports:

1. Financial statement
2. Statement of income
3. Statement of cash flow
4. Statement of equity changes.

As mentioned above, financial statements are in fact financial reports. It is prepared on the
basis of firm instructions provided by the relevant financial reporting structure according
to International Financial Reporting Standards. Financial Statement is one of those
financial reports that are regularly submitted in accordance with applicable law.

Lastly, we can say there are no significant differences between financial statements and
financial reports. But their use is slightly different in formulating methods and
acknowledgment in the financial and accounting world.

Types of Financial Statements and what they cover:

There are basically four types of financial statements and they are:

1. Financial Statement: An organization's financial position at a certain date is

represented by a Financial Position Statement consisting of the following components
(Britton, 2016).
Assets: The things that are owned or controlled by an organization like Fluid,
stock, Kit, etc.
Liabilities: The organization, like account payable, creditors, etc. is accountable
to someone.
Equity: The principal or owners right towards an organization. Equity is also
known as the differences between assets and liabilities.

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2. Statement of Income: The financial performance of an organization is measured by
income statement in terms of profit and loss. Below are the two income components
Statement:

Income: It is the earning of an organization, like Profits, Rent, etc.

Expenses: It is the price that is paid by the organization over the period i.e.
Salary, utilities.

The differences between income and expenses are known as profit or loss.

3. Statement of Cash Flow: Cash flow statement is the depiction of cash and bank
balance movement over a particular period of time. It is categorized into three
fragments and they are:
 Functioning Activities: It includes cash movement for major activities of an
organization
 Investing Activities: It represents the flow of funds for an organization's
acquisition or sale of assets. Example: purchase of Covered Van.
 Financing Activities: it represents the disbursement of capital and liability,
together with the compensation of interest and surplus.

4. Statement of Equity Changes: This Statement represents the movement of owners '
equity that is also known as reserved earnings. The following elements are required for
equity changes-
• Financial performance for the period specified in the Income Statement,
• Capital invested over the period,
• Bonuses paid,
• Earnings or expenses directly linked to fairness,

It's all about the types of accounts and what they cover.

LO 3

TASK-3.1:

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Bank Reconciliation:

The statement that explains why the bank book of the organization is different from the
bank statements. Combining these two accounts is important to resolve any transactions.
Bank reconciliation is regularly prepared to ensure that the cash information provided by
the organization is accurate (Bendrey, 2016). These also help to identify dishonesty or
financial exploitation.

The cash balance of a business and the bank statement do not always match. There are
many reasons behind this, such as incorrect deposit entry, outstanding checks, bank service
fees, interest, inadequate fund checks, etc. For this, the declaration of bank reconciliation is
needed.

Bank Reconciliation needs some methods for preparing and they are given below:

Step 1: Adding deposits that are not recorded in the bank statement balance,
Step 2: Subtracting outstanding checks from the cash book balance,
Step 3: Adding bank service charges to the cash book balance,
Step 4: Adding interest income to the cash book as per bank statement,
Step 5: Adjusting banknotes that are not recorded in the cash book,
Step 6: Check all cash book entries and bank stat entries.

An organization and bank management are both interested in the result of bank
reconciliation. It exposes if any error is found. Although bank reconciliation is a month-end
process, it can be reconciled on a daily basis by smaller companies that have fewer
transactions.

TASK-3.2:

TASK-3.3:

LO 4

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Control Accounts:

A common record account with the summary amount of a secondary repository is called
control accounts. It keeps the ledger details free and needs to check the correct balance to
prepare an organization's financial statements. For example, The Sanctioned Accounts
General Leader Payable. It will contain only the summary of amounts payable when it is
used as a checking account.

This is because the general headline is short, clean and clean without details. It is the most
updated balance of a certain description time ledger account. It is moved directly to the
balance sheet or statement of income taking into account the account's variety (Atrill,
2017).

If a company buys or sells credit it should use its control account to identify clearly what is
owed and what the company owes. Generally, Control Accounts are used to carry out too
many transactions in large companies.

Control accounts support effective financial management in some processes. They are
given below:

• The Control account speeds up the processing of account information. The check
account balance can be utilized directly without waiting to be reconciled with and
extracted by Description Balances.
• Account Control shortens information and cleanses accounts.
• It provides balances quickly so that at the end of the description period it is possible
to quickly prepare the financial statements.
• It provides a basis for financial accounts reconciliation.

Suspense Account:

There are differences between the suspense account and control accounts. A Suspense
account is a provisional account that covers the difference in debt and credit. In contrast,
the control account is a full account or an account summary.

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A Suspense account is generated mainly if the credit for the trial balance does not match or
an organization has an unrecognized transaction. Suspense is a general ledger that acts as a
holding account until the mistake has been resolved (Needles 2011). Suspense is thus a
temporary account to resolve any differences that require close before the end of the
accounting phase.

The Suspense Account Fund is legally secured as soon as the differences or unknown
transactions have been identified. It is ready to resolve any inconsistencies on trial balance
or against an unspecified transaction temporarily. It is a temporary solution and thus it is
protected. But we need to find out the error immediately for a large degree of
inconsistency. Otherwise, when they load more transactions, it will be hard to detect the
error later.

Reconciling:

The reconciliation of the Control Account ensures that the record entries for sales and
purchase to the record entries. Both the sums ought to be just like that. Any mismatch in
the sum means the Sales or purchase ledger or the control account has made a mistake. The
inconsistency should, therefore, be recognized and resolved.

The suspense account is prepared contrary to any error in the trial balance. It must
reconcile and detect the discrepancy or identify the transaction for any unknown
transaction (Horngren 2012).

A company must check each ledger and trial balance for the reconciliation of these
accounts. The Description ledger balance of the Description control account may be
checked by checking the account reconciliation.

An Organization must ensure a reasonable trial balance and each leader balance. For
instance, the credit balance should be available for an asset account. If there is an incorrect
balance in any account or the opposite, the error must be found and resolved.

If the problem cannot yet be identified, then each transaction in every leader account
should be checked against journal entry. It is, therefore, possible to ensure that the entire
transaction is correctly posted.

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The role of Debtor and Creditors accounts:

The accounts of the debtors represent the sum owed by each of the debtors. The balance of
the debtor account must correspond to the balance of the debtor's sum.

The account of the creditor is the other side of the account of the obligor. The amount to be
received for all creditors is shown. The balance of the creditor account must also be in
keeping with the balance of the creditor sum.

Both accounts have the role to quickly investigate all receivables and accounts payable.
These accounts clearly show how much debtors or creditors owe a company (Elliott, 2017).
These are short and clean accounts. Many debtors or creditors could be found in a business.
So, it will be difficult to figure out how much debt and debts the company has left, if the
company does not prepare debtor and creditor control accounts. So, preparing debtor and
creditor control accounts is very important. These accounts play an important role in
providing Summary debtors and creditors information.

TASK-4.1:

TASK-4.4:

CONCLUSION:
This task focuses mainly on business transactions, accounting, trial balance, reporting of
accounts and suspense accounts and their reconciling processes, financial statements,
banking reconciliation procedures, and preparation. We resolved the problems required
and prepared the statements accordingly.

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REFERENCES

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