This report states that you are working as junior accountant a report to be presented to prove that firm is aware of the rules and regulation of accounting.
- Record daily transaction by using double entry system and extraction of trial balance.
- Preparation of final accounts, by following principles, for different forms of organisation like partnerships and companies.
- Maintenance of bank reconciliation for assuring that both, bank and company record correct balance.
- Reconciliation of suspense account balance to right accounts by shifting recorded transactions.
Financial accounting is a form of accounting in which the accountants prepare the financial statements using the accounting standards formulated by the regulatory bodies. Financial accounting process ensures that the financial statements prepared by the managers reflect the accurate and reliable information and represents the true and fair view of the company. This project report discusses about the financial accounting and regulations that are required in formulation of these statements. Various accounting rules and principles that must be considered and implemented in the organisation for the efficiency of operations and proper reflections of the financial position of company (Bruce Pounder, 2010) Conventions and concepts related to materiality and consistency. The recording of journal entries using the transactions of business and preparation of income statements and balance sheets. And finally the application of depreciation in the financial statements and types of depreciation methods.
PART A: BUSINESS REPORT
1. Define Financial Accounting
Finance accounting is also called commonly as accounting. The finance accounting is the process of recording, classifying and summarising in a manner that is understandable to the users of the information such as shareholders, investors etc. The financial accounting is the accounting process that is undertaken to prepare the financial statements of the company such as income statement, balance sheet, cash flow statement for the purpose of reflecting the operations of the company. The financial statements of the company are used in defining the financial position and health of the company so that the stakeholders of the company can take decisions regarding various things by relying on these statements and therefore it is the duty of financial managers to prepare these financials with due care and by using accurate information such that they represent the true and fair view of the company.
The financial accounting is done using the certain pre specified standards of accounting which are determined and prepared by the standard setting bodies such as IASB and FASB. The IASB issues the accounting standards which are called International financial reporting standards (IFRS) and these standards are recognized in companies all over the globe, the FASB is a US based accounting standard body which has issued US-GAAP for performing accounting in the companies. If the companies do not follow these principles in their financials then the accounts are rejected by the auditors and said to be adverse accounts, which are not reliable for use (Chea, 2011 )
2. Regulations relating to financial accounting
Financial accounting is done for the purpose of providing accurate and reliable information to the users of the financial statements. The assurance of the reliability and accuracy of the stakeholders are gained by the company when they use the accounting standards that are issued by the regulatory bodies such as IASB and FASB. The standards provided in these regulations tells the accountants and managers how they need to keep record of the financial transactions for regulatory purposes. The reports that are typically prepared under financial accounting includes income statement, balance sheet and cash flow statements. These bodies decrease the chances of discrepancies and abuse in the recording of financial transactions. Every user requires that financial statements represents fair, accurate, reliable, understandable and comparable information’s about the financial position and health of the company. In order to accomplish all these requirements, companies are required to undertake these accounting principles that are issued by these bodies. The most common regulatory frameworks are provided by IASB and FASB, these reporting standards are IFRS and US-GAAP. Globally accepted accounting principles are different in every country but the regulation source is almost same in every country.
3. Various accounting rules and principles applicable
- Debit the receiver and credit the giver: This accounting rule is applicable on all the personal accounts that are related in the business transactions. The personal account can include all the natural persons or legal person. If that particular individual receives anything from the business, then his personal account Is debited and if he gives anythinng to the entity his account his credited in the accounts of the firm.
- Debit what comes in and credit what goes out: This accounting rule is applicable on the real accounts of the company. The real accounts are related to the assets or property that are owned by the company. Whenever the company purchases the assets the real account is debited as per the rule and when the company discards the property, account of that property is credited in the accounts of company.
- Debit all expenses and losses and credit all incomes and gains: this rule of accounting is applied on the nominal accounts of the company. Nominal accounts are those accounts that record the expenses and incomes of entity. The accounts such as rent account, salaries account, sales account come under this head. ( Gitman, Juchau, and Flanagan, 2015)
- Going Concern Principle: This accounting principle implies and assumes that the company will continue to exist for the coming future period and carry on its operations and continue to attain its objectives, and also that it will not liquidate. And if the accountant feels that the company will not be able to survive then his duty is to disclose about that.
- Matching principle: the matching principle of accounting requires the companies to follow accrual accounting system, according to this principle the accountant tries to match the revenues with its expenses.
- Revenue recognition principle: This accounting principle states that the company has to use accrual basis of accounting rather than cash basis accounting which means the company should recognize the revenue when the product is sold and not when the amount is received from the customers. And the same goes with the expenditures.
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4. Conventions and concepts related to material disclosure and consistency
Material Disclosure: this accounting convention suggests that the accountant should focus on recording the transactions which are significant and all the insignificant things should be ignored, this is important because the unnecessary minute transactions overburden the accounts of company. There so such per determined formula for choosing material or immaterial events, this decision is totally dependent on the skills and knowledge of the accountant to judge which transactions are important to be recorded in the books of accounts and which are not. This should be considered that a transaction which is material for one entity may be immaterial for another one, and the items which is material in the current year can be immaterial in the another year.
Consistency: The Consistency convention of accounts implies that the accounting practices which are applicable in the current year should be remain unchanged for many periods. The name itself implies that the rules and policies that are adopted by the business should remain consistent in the company for longer periods and should only be changed in cases when there are sufficient grounds for the changes. And if the companies in any case changes the policies because of the urgent requirements, the company should take proper steps in implementation of those changes. The stakeholders and employees also require consistency in the policies so that they can be comfortable in working with the company.( Glover, 2014 )