Financial Accounting

INTRODUCTION

Financial accounting is the process of preparing financial accounts on annual basis so as to identify the true and fair financial position of company. Such financial accounts includes profit & loss a/c, Balance sheet, cash flow statement etc. that records the operating performance of company over a specified period of time. The present assignment includes the preparation of financial statements of different companies so as to know their financial position in market. In addition with this, bank reconciliation are prepared in order to ensure company and bank records are correct.

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TASK 1

P1 Preparation of Journal and Ledger accounts

Journal Entries

as on 1 June, 2016

Date	Particulars	Debit	Credit
1 June, 2016	Bank account	65000
	To capital account		65000
2 June, 2016	Purchases account	8000
	To trade payable account		8000
7 June, 2016	Cash account	4000
	To Sales account		4000
8 June, 2018	Trade payable account	4000
	To Bank account		4000
14 June, 2018	Prepaid Insurance account	75
	To Bank account		75
15 June, 2018	Trade receivable account	12000
	To Sales account		12000
16 June, 2018	Purchases account	10000
	To trade payable account		10000
18 June, 2018	Equipment account	3000
	To Cash account		3000
20 June,2018	Prepaid Rent account	150
	To Bank account		150
21 June, 2018	Cash account	10000
	To Sales account		10000
25 June, 2018	Cash in hand account	100
	To Bank account		100
30 June, 2018	Stationary account	30
	To cash in hand account		30
	Total	116355	116355

General Ledger accounts

Cash account
Particulars	Debit amount	Particulars	Credit amount
Sales account	4000	Equipment account	3000
Sales account	10000	Stationary account	30
Bank account	100	Balance c/d	11070
Total	14100	Total	14100

Bank account
Particulars	Debit amount	Particulars	Credit amount
Capital account	65000	Account payable account	4000
		Prepaid insurance account	75
		Prepaid rent account	150
		Cash in hand account	100
		Balance c/d	60675
Total	65000	Total	65000

Capital account
Particulars	Debit amount	Particulars	Credit amount
Balance c/d	65000	Bank account	65000
Total	65000	Total	65000

Purchases account
Particulars	Debit amount	Particulars	Credit amount
Trade payable account	8000	Balance c/d	18000
Trade payable account	10000
Total	18000	Total	18000

Trade payable account
Particulars	Debit amount	Particulars	Credit amount
Bank account	4000	Purchase account	8000
Balance c/d	14000	Purchase account	10000
Total	18000	Total	18000

Trade receivable account
Particulars	Debit amount	Particulars	Credit amount
Sales account	12000	Balance c/d	12000
Total	12000	Total	12000
Sales account
Particulars	Debit amount	Particulars	Credit amount
Balance c/d	26000	Cash account	4000
		Trade receivables account	12000
		Cash account	10000
Total	26000	Total	26000

Prepaid Insurance account
Particulars	Debit amount	Particulars	Credit amount
Bank account	75	Balance c/d	75
Total	75	Total	75

Equipment account
Particulars	Debit amount	Particulars	Credit amount
Cash account	3000	Balance c/d	3000
Total	3000	Total	3000

Prepaid Rent account
Particulars	Debit amount	Particulars	Credit amount
Bank account	150	Balance c/d	150
Total	150	Total	150

Stationary account
Particulars	Debit amount	Particulars	Credit amount
Cash account	30	Balance c/d	30
Total	30	Total	30

P2 Preparation of trail balance

Trail Balance

Particulars	Debit	Credit
Cash account		11070
Bank account		60675
Capital account	65000
Purchases account		18000
Trade payable account	14000
Trade receivable account		12000
Sales account	26000
Equipment account		3000
Prepaid Insurance account		75
Prepaid Rent account		150
Stationary account		30
Total	105000	105000

TASK 2

P3 Preparation of final accounts

Income statement For the year ended 31st December 2017

Revenue:	Amount
Sales	125000
less: returns	1500
	123500
LESS: COGS	83500
Interest received	1000
Rent received	4850
Gross profit	45850
Expenses:
Rent and rates	1500
postage	900
Insurance	7500
Bad debts	1200
Depreciation	5000
Wages and salaries	13200
To provision for bad debts 934
Less: Bad debts written off 650	284
Outstanding expenses	340
Interest before Interest and taxes	15926

Balance Sheet as at 31^stDecember 2017:

Equities and Liabilities

AMOUNT

Assets

AMOUNT

Capital 120800

Less: Drawings 5150

Creditors

Rent received in advance

Reserves

Suspense account

115650

3900

490

15926

7489

Bank balance

Cash

Debtors

Motor van 25000

less: Acc. Depreciation 5400

Prepaid insurance

Loan given

10594

340

12500

19600

411

100000

143455

143445

Difference between direct debit and standing order, Bank charges, Dis-Honer Cheque:

Direct debit – Direct debit is the process of collection of payments when they become due, this concept is considered to be the most reliable and simple way of making payments. Direct debit provides convenience to general public who are engaged in transferring regular and continuous payments ( Baxter, 2011).

With the help of this procedure an individual gets the authority to collect payments from a person's account as that specific individual gives permission to that party to control their account for various payments but against reliable paper work. These payments are general utility bills, taxation statements etc. direct debit is the instruction which a client gives to their bank to deduct a sum of amount without asking when it becomes due. Direct debit can be used for:

General utility bills and expenses, when they become due every month bank has the authority to pay them without asking or informing their client.
This system can also be used for fixed membership fees, when these subscription fees become due every month such as gym membership, hotel membership etc.

Standing orders – Standing orders are the the instructions which are given to bank and not authorisation, payments made through standing orders are regular and fixed they don't change until and unless client intimate bank to change them. Examples of payments are monthly or annual donations and charity. Standing order are rigid as they amount which is paid once can not be refunded ( Edwards, 2013).

Standing orders is a kind of facility of pre authorized payment which is instructed by a client to its bank or other institution, these orders are generally used for recurring expenses, which happen every month or period like insurance premium, instalments of loans etc. Standing orders gives control while direct debit gives flexibility and safety. Uses of standing orders are described below:

Payments which are fixed in amount and period that is monthly, weekly or yearly.
It provides control to the client over their account, they can withdraw their orders whenever they want to.
Clients can use this system as a facility which is provided by their banker as they don't have any obligation to use this facility.

Bank charges – Bank charges is the fee which is charged by the bank from their clients against the services provided by them, usually amount that is levied by banks is fixed in amount and even in duration. This fee is charged against services which are:

Facility of overdraft, overdraft is the bank service which enables a client to withdraw over limit amount but to a extend ( Francis, 2013).
ATMs is the facility which is provided by the banks which enables to withdraw a specific amount of cash through Automatic teller machines, banks provides an ATM cards which has a unique chip that only authorises specific person to withdraw the money against which bank charges few fee.
Internet banking is the service which enables an individual uses all the banking services using online platform, banks provides an unique username and password against which bank charges a fixed amount of fee every month or year ( Huizinga, 2012).

Bank charges is beneficial for both customer and bank as it gives customer an satisfaction of services availed through bank and gives bank the opportunity to earn profit so that they serve better. Bank fees are also charged when a cheque is dishonoured due to few reason.

Dis honour cheque - A cheque would be consider as appropriate order to a bank to make payment that are stated as sum from drawers account. It is a specific kind of document that can be order to bank to make payment of particular amount of capital form an individual account to the party whose name would be mentioned under the cheque. There is a kind of situation in which cheque can be dishonoured because of having insufficient amount in the drawers account. The cheque is being issued towards discharged of debt obligations or any other legal aspects. In case any such kind of case can be arises the bank can immediately issue one cheque return memo to payee’s bankers by written statements with proper reason for non-payment of the amount ( Mulford, 2011).

There are various aspects in which cheques can get dishonoured directly by the banks. Some of them are mentioned underneath:

Exceeds arrangement: It is considering as one of the simple mistakes or concern because of which bank return all those cheques which are remain unpaid. Sometimes, writing the cheques against overall salary that is credited on a particular date.
Amount in words and figures: In case the bank dishonours the cheques in case the amount entered into is cheques is different.
Payment Name: It is considered as one of the effective aspects which will be related with the payee name which is absent on the bank cheques in that case, bank cannot be going to accept the cheques.
Signature get differ: In sometimes, an individual can forget to write signature as one did, while opening their bank account. Bank would be going to dishonour the cheques, if it cannot get matched with the specimen available in the bank record.
Instrument outdated and stale cheques: It can be valid for mainly three months from the date recorded on prepared cheque. If it is presented after the end of three months in that case it is known as stale. Bank cannot be going to make payment of stale cheques ( Openshaw, 2013).

Direct debit	Standing orders	Bank charges	Dishonour cheque
Direct debit is an authorisation which is given by the client to their banks.	Standing orders are the instructions which are given by an individual to their banks.	Bank charges is the fee which is charged by the bank in order to satisfy customers with their services.	Dishonour cheque is the state when a cheque is unable to pass.
These are the regular payments which are fixed and charged monthly or annually (Scott, 2015).	These are the regular payments which are variable in nature as they can be altered on the instructions.	Bank charges are the fixed as well as variable in nature. ATM and overdraft fees are fixed while other charges are variable.	Dishonour cheque is a penalty which is fixed in nature and compulsory to be paid by the clients in order to pay off their liabilities.
In case of direct debit there is no customer protection, as the amount which is paid cannot be refunded.	According to this service, amount which is charged can be refunded is that is amount is paid immediately before the request.	In case of Bank charges, if the amount is wrongly charged than it will be refunded.	Amount which is paid due to penalty charged against dishonoured cheque, it can not be refunded ( Vyas, 2011).

P4 Preparation of financial accounts for sole trader and limited company

Income statement of sole trader

Revenue	12/31/2017
Total Revenue	9567000
Cost of Revenue	2222000
Gross Profit	7345000
Operating Expenses
Research Development	1224000
Selling General and Administrative	3818000
Non Recurring	-
Others	38000
Total Operating Expenses	-
Operating Income or Loss	2265000
Income from Continuing Operations
Total Other Income/Expenses Net	-
Earnings Before Interest and Taxes	2276000
Interest Expense	-
Income Before Tax	2276000
Income Tax Expense	3288000
Minority Interest	-
Net Income From Continuing Ops	-1012000
Non-recurring Events
Discontinued Operations	-4000
Extraordinary Items	-
Effect Of Accounting Changes	-
Other Items	-
Net Income
Net Income	-1016000
Preferred Stock And Other Adjustments	-
Net Income Applicable To Common Shares	-1016000

Balance sheet of the sole trader

	12/31/2017
Current Assets
Cash And Cash Equivalents	2120000
Short Term Investments	3743000
Net Receivables	695000
Inventory	-
Other Current Assets	1185000
Total Current Assets	7743000
Long Term Investments	6331000
Property Plant and Equipment	1597000
Goodwill	4773000
Intangible Assets	69000
Accumulated Amortization	-
Other Assets	273000
Deferred Long Term Asset Charges	5195000
Total Assets	25981000
Current Liabilities
Accounts Payable	2641000
Short/Current Long Term Debt	781000
Other Current Liabilities	117000
Total Current Liabilities	3539000
Long Term Debt	9234000
Other Liabilities	1720000
Deferred Long Term Liability Charges	3425000
Minority Interest	-
Negative Goodwill	-
Total Liabilities	17918000
Stockholders' Equity
Misc. Stocks Options Warrants	-
Redeemable Preferred Stock	-
Preferred Stock	-
Common Stock	2000
Retained Earnings	13943000
Treasury Stock	-21892000
Capital Surplus	15293000
Other Stockholder Equity	717000
Total Stockholder Equity	8063000
Net Tangible Assets	3221000

Income statement of company

Revenue	Amount
Total Revenue	39460000
Cost of Revenue	36850000
Gross Profit	2610000
Operating Expenses
Research Development	-
Selling General and Administrative	1891000
Non Recurring	-
Others	-
Total Operating Expenses	-
Operating Income or Loss	718000
Income from Continuing Operations
Total Other Income/Expenses Net	26000
Earnings Before Interest and Taxes	761000
Interest Expense	194000
Income Before Tax	567000
Income Tax Expense	139000
Minority Interest	-
Net Income From Continuing Ops	445000
Non-recurring Events
Discontinued Operations	-
Extraordinary Items	-
Effect Of Accounting Changes	-
Other Items	-

Net Income	428000

Balance sheet of company

Current Assets
Cash And Cash Equivalents	2427000
Short Term Investments	282000
Net Receivables	5691000
Inventory	2510000
Other Current Assets	12000
Total Current Assets	10908000
Long Term Investments	4390000
Property Plant and Equipment	13726000
Goodwill	-
Intangible Assets	1487000
Accumulated Amortization	-
Other Assets	-
Deferred Long Term Asset Charges	-
Total Assets	30509000
Current Liabilities
Accounts Payable	13049000
Short/Current Long Term Debt	958000
Other Current Liabilities	279000
Total Current Liabilities	14286000
Long Term Debt	2692000
Other Liabilities	2920000
Deferred Long Term Liability Charges	334000
Minority Interest	-
Negative Goodwill	-
Total Liabilities	20232000
Stockholders' Equity
Misc. Stocks Options Warrants	-
Redeemable Preferred Stock	-
Preferred Stock	-
Common Stock	869000
Retained Earnings	5254000
Treasury Stock	-
Capital Surplus	1567000
Other Stockholder Equity	2586000
Total Stockholder Equity	10277000
Net Tangible Assets	8790000

TASK 3

P5 Preparation of bank reconciliation statement

Revised cash Book (as per bank column)

Date	Particulars	Dr. balance	Date	Particulars	Cr. Balance
	Balance as per cash book	1760		Insurance paid	170
	Cheque not yet presented	270		Monthly bill	56
	Transfer from mr patel	1070		Cheque from arif	186
	Drawings	105		bank charges	25
	Dividend received	325		By balance as per pass book	3093
		3530			3530

TASK 4

P6 Preparation of rectified Journal entries with Suspense account

Rectified Journal Entries

Date	Particulars	Debit	Credit
1	Purchases account	2000
	To A Musa account		2000
2	Cash account	1340
	To Van account		1340
	Suspense account	670
	To bank account		670
3	G tahir account	650
	To sales account		650
4	Electricity bill account	790
	To cash account		790
5	Motor vehicle expense account	500
	To Motor vehicle account		500
6	Sales account	270
	To Suspense account		270
7	Cash account	380
	To Suspense account		380
8	Bank account	384
	To sales account		384
	Total	6984	6984

Suspense account

Particulars	Debit amount	Particulars	Credit amount
Bank account	670	cash account	380
To balance b/d		Sales account	270
		Balance c/d	20
Total	670	Total	670

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CONCLUSION

It has been concluded from the above project report that it is essential for every organization to prepare their financial accounts on annual basis in order to analyses their actual financial position of company in competitive market. Financial accounts includes balance sheet, profit & loss accounts, cash flow statements etc. It is also necessary for an organization to show their financial statement in front of their stakeholders on the basis of which further decision regarding investment in company are made.

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Financial Accounting

INTRODUCTION

TASK 1

P1 Preparation of Journal and Ledger accounts

P2 Preparation of trail balance

TASK 2

P3 Preparation of final accounts

P4 Preparation of financial accounts for sole trader and limited company

TASK 3

P5 Preparation of bank reconciliation statement

TASK 4

P6 Preparation of rectified Journal entries with Suspense account

CONCLUSION

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