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Regulations Related to Financial Accounting

University: University of Chester

  • Unit No: 11
  • Level: Undergraduate/College
  • Pages: 18 / Words 4482
  • Paper Type: Assignment
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Organization Selected : Beatty and Liao


Financial accounting (FA) is an essential part of business that assists in keeping track of financial transactions. This accounting system supports entities in identifying the financial health of company and making necessary modifications in practices so that profit of organization can be increased (Beatty and Liao, 2014). This accounting process aids in providing necessary details to investors and creditors that assist them in making correct decision of investment. Accounting principles are set rules and regulations that help in analysing the funds and finding out actual performance of enterprise. Present study will describe the regulations related to financial accounting. Furthermore, it will explain the convention and concepts related to consistency and material disclosure. Study will illustrate the bank reconciliation statement and sales purchase ledger.


1. Financial accounting

Financial accounting can be defined as a specialized branch of accounting that emphasises more on providing necessary details to investors or external stakeholders so that their interest can be enhanced (Brewer, 2013). Each firm has to use standardized guidelines in order to maintain records and prepare financial reports. It is very important for company to prepare financial statements as per given guidelines. Each firm has to prepare balance sheet, P&L, cash flow and statement of stakeholder equity in an appropriate manner. All these records support in providing necessary details to investors and creditors so that they can make their decision (Pratt, 2016).

Organization inputs and outputs considered statements with the help of evaluating financial statement, financial accounting defines organization condition in market with the help of financial statements, profit and loss statements, revenue and expenses. Financial accounting reports decided what are corrective ideas to expand organization business with the help of equations. Financial statements or equation are majorly corrective on the bases of organization market structure. Financial accounting is based on organization business activity. Financial accounting gathers summarizes organization equation and evaluated all the doubtful correction and particular equation of variable sequence by the organization effects.

Financial accounting (FA) is the system that treats money for measuring economic performance of entity. It keeps record of cash inflow and outflow in a systematic manner so that financial statements can be prepared properly without any mistake. Generally accepted accounting principles (GAAP) and International financial reporting standards (IFRS) are considered as standard framework that describe principle to prepare the records (Scott, 2015).

The main objective of implementing financial accounting system is to provide necessary information related to business health to outside stakeholders. Its purpose is to serve requirements of equity investors. With the help of FA, company can analyse its economic position, performance and can compare it with competitors. This financial accounting system allows management in monitoring day to day transactions and analysing effects of these activities on business health (Thornton, 2018). This supports creditors in identifying creditworthiness of company so that they can make their decision of investing their money in firm.

One of the main agendas of enterprises of using financial accounting principles is to maintain capital so that they can utilize their financial resources properly and minimize cost as well. Relevance, reliability, compatibility and consistency are the main aspects of FA. Company always need funds so that it can run operations smoothly and can expand business. By looking at financial records of business, investors get necessary details about company. This aids them in making their decision and ensuring that entity will be able to give good returns over their investments (Macve, 2015). This supports in identifying lacking points in fund allocation and cash flow activities so that cost can be controlled and profit of the organization can be increased.

Cash flows- Cash amounts of net and cash equality is being transfers into and out of business. Cash flow generate positive cash flows. And maximize long term free cash flows. Cash flows are related for business profitably. To evaluated Cash flows it is compulsory that business operating cash flows is divided by capital expenditure under that remaining amount divided by in dividends.

Income statements- Income statements show that what is revenue generate and expenditure in business statements, if the revenue is higher than expenditure it shows that business is in profit when expenditure is higher in revenue it shows business in loss position in market

Balance sheet- In a financial statements balance sheet shows that what financial condition in particular balancing year is. It shows that organization liabilities, assets, capital, net profit and net income. This balance sheet equation are the best way to evaluated by this usually following formula- Assets = Liabilities + Equity.

2. Regulations related to financial accounting

Financial reporting council (FRC) is considered as a regulatory body that governs corporate reporting system. There are several principles and regulations that have been made in order to prepare financial reports in an accurate manner (Gassen, 2014). Regulations for financial accounting system are described as below:

  • IFRS (International financial reporting standards): These standards have been developed by International accounting standard board (IASB). This provides international framework of preparing accounting reports. It gives certain guidelines so that company can prepare their statements as per the industry norms. Firms which are operating their business in other countries have to follow these norms. It is essential for them to prepare their reports as per these guidelines (Bazley and et.al, 2013).
  • FRC (Financial reporting council): It is another body that is responsible for reporting to foster the investments. It continuously monitors transactions related to finance so that economic issues can be effectually resolved. FRC incorporates several bodies: accounting standard board, financial reporting review panel, accountancy and actuarial discipline board, etc.
  • IASB: It is another regulatory body that provides detailed guidelines related to drafting database and disclosure of accounts. These are international norms and are accepted globally (Sharma and Panigrahi, 2013).

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3. Accounting rules and principles

GAAP (Generally accepted accounting principles) has prepared several principles that are essential to be followed by entity which are registered under company's act. These principles are described as below:

  • Full disclosure: It is one of the main principles of accounting. This explain that it is essential to disclose relevant information in accounting report of the firm. Complete information related to assets, liabilities and other things need to be disclosed properly (Bradshaw and et.al, 2013). Most of the organizations mention an essential policy information in initial notes so that investors can get details regarding the same.
  • Going concern principle: It is another most important principle which explains that company is expected to continue in the near future. But if accountant believes that financial position of firm is not good then it is essential for entity to clarify this thing in its financial statement. This helps investors and creditors in making the right decision (Accounting Principles, 2018).
  • Matching principles: Accrual basis accounting is required to be followed by entities. This standard explains that company's expenses need to be matched with its revenues.
  • Revenue recognition principle: This rule explains that revenue of company can be recognized when product is being sold in the market regardless of firm's actual receive money. In this, entity has to note revenues in first month of operations but receive cash in next month (Beatty and Liao, 2014).
  • Cost principle: It is the most important rule which explain that cost is amount which  is spent by entity for running business. It explains that asset amount is not being adjusted to reflect increase in the value. Thus, if investors want to gather information about long term assets value of entity then individual can receive by looking at financial statements.
  • Materiality: It is essential for organization to generate data from authentic sources. It would not be accepted if it is immaterial (Pratt, 2016).
  • Monetary unit assumptions: This principle explains that all economic activities need to be recorded in US Dollar. Over a period of time, purchasing power of Dollar has not been changed and thus, accountant measures economic activities in US Dollar (Macve, 2015).

4. Convention and concepts related to consistency and material disclosure

Financial accounting principles explain various terms such as materiality, full disclosure, consistency, convention, etc. that are needed to be followed by organizations which are conducting their operations across the world. Convention principle is highly depended upon perfect disclosure of information (Bazley and et.al, 2013). This principle helps accountant in minimizing issues that are faced by them while preparation of accounting statements. Convention principle is applicable for the firm which conducts its operations for longer duration.

Material disclosure is an essential part of accounting in which it is essential for entity to disclose necessary information in financial statements. This helps in analysing the efficiency of business and to support in identifying financial health of company. Consistency is another main norm which describes consistency needs to be maintained so that entity can become able to generate adequate profit. Business has right to make changes in its accounting process after concerned bodies make changes in rules and regulations (Sharma and Panigrahi, 2013). Accounting audit has to follow these principles so that they can compare the financial performance of entity over a period of time.

Materiality concept ensures that complete necessary information is being disclosed. These details might change the perception of one person. It might be useful for one person or can be immaterial for other. Security and exchange commission has declared that an item which is at least 5% of total assets need to be disclosed separately in balance sheet. These small items are also considered as material (Bradshaw and et.al, 2013). Auditors have to disclose all material items in the financial statements so that future complications can be minimized.


1. Drafting journals

In order to prepare financial statement, owner has to first prepare journal entries and need to record all these entries into book. For disclosing journal entries, it is essential to analyse balance sheet and income statement for 2017 (Beatty and Liao, 2014). 

2. Double entry recording within relevant ledgers

Double entry recording is the system in which financial transactions are being recorded in two accounts i.e. in debit and credit. Each business has to prepare statements by making two entries, if funds are receiving by entity then  it is shown in credit side but if it is related to outflow of cash then it is reflected in debit side. All these entries support management in identifying financial condition of  firm and making plan for  growth of organization so that expenditures can be controlled and revenues can be enhanced (Bradshaw and et.al, 2013).

3. Trial balance to check arithmetical accuracy of double entry system

Trial balance can be defined as the list of all general ledgers accounts of business (Pratt, 2016). Trial balance for Alexandra is drawn as below: 

Interpretation: Trial balance for the year 2017 shows that there has been many transactions made by entity in a particular period of time. The above trail balance shows that entity has high value of purchase as compared to sales. It can be interpreted that company's expenses are high and sales revenues of company are less. This trial balance has been prepared by following GAAP and IFRS principles (Brewer, 2013).


A. Profit and loss statement

Profit and loss account is the statement that explains profits earned by entity and expenses that incurred in order to run its business (Sharma and Panigrahi, 2013).

Interpretation: From the above P&L statement, it is identified that revenues generated by company is £1215000. Gross profit of company is 455640.  When all expenditures are being deducted from total revenues then net profit is generated by entity (Pratt, 2016). From the statement, it is shown that net profit of Peter Piper client for 31st December 2017 is 136660.

B. Balance sheet

Balance sheet is the statement that reflects financial position of entity in a particular year. This mainly includes assets, liabilities, equity, etc. This supports in analysing the financial growth of business and its sustainability in market (Bazley and et.al, 2013). Balance sheet of Peter Piper for the same year is prepared as below: 

Interpretation: From the above balance sheet, it can be interpreted that total current assets of firm is £219510. Fixed assets of business is 296050 and total assets is 515560. When it comes to liabilities section, then it is found that total current liability of the firm is 89420 and total equity and liabilities is 515560.


A. Profit and loss statement of Raintree LTD

Raintree is client third who has given all details calculations related to income raised in the company in 2017. Sales, production and rest other activities are specifically related with revenue generated in the organization. 

B. Financial position of Raintree LTD

Raintree LTD has provided information related to assets and liabilities in order to prepare balance sheet of company. Financial position of firm is illustrated as below:

Interpretation: From the above balance sheet, it can be interpreted that total current assets of company is worth 60000 and total assets are 119000. When it comes to liabilities section, then it is found that current liabilities of entity are 20000 and total liabilities of firm are 119000.

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C. Accounting principles

Consistency concept - Consistency concept states that once you adopt this principal or method you will continue to follow this constantly And if the new vision is some way to improves it's directly effects documents. If the clients are rapidly constantly follows consistency, so that the result reports period to period comparable. Consistency concepts are mostly ignored by the mangers because they only focused on revenue for generating profits at the results' ignorance by managers suddenly profitably crises  on the business revenue. The consistency principle is also known as the consistency concept. Consistency principal are sticks to with end follows this method thought your accounting period. This consistency principal are guideline of follows the principle of rules of accounting methods. it may effected that all managers are related with business and continuing  business principle .consistency concept. The sole purpose of consistency concept is that ensure transaction or record in the same way.

Prudence concept - prudence required that recording expense and liabilities as soon as possible ,but in this concept revenue only when they are required for  realised or assured. Prudence concept is also called conservative prudence. Prudence is a key accounting principle which make sure that assets and income are not be overstated and liability and assets are not understated. it is a business care about the liabilities or effects of variable on prudence. Prudence concept required for the purpose of business related revenue  and expenditures.

Significance of measuring depreciation

Purpose of depreciation- the purpose of depreciation is to match a productive assets and the ravanue earned from using the asset . Depreciation systematically allocates or removes cost from the balance sheet to expanse on the income statement over the assets useful life. Depreciation for matching the equation for its called deprecation matching principle charged depreciation because of long live machines used in business have significance cost and they will be useful for only limited periods of no. of years. Purpose of deprecation is that when a machine have small no. of years are used so deprecation will help to how will be find out machined life or if its not working on business what ws the scarp value for only time we sale. If we are not to use deprecation it will loss for the company while the lager when the transaction is accrued.

Straight line method- under the straight line method it will be recognized as a fixed asset. The purchase cost of a company and the estimated salvage value are divided as results shows that the depreciation on assets in a company statements This method is designed to reflect the consumption pattern of the underlying asset, and its used to particular manner is to be used. Formula of straight line method is: purchase cost of company - estimated salvage value= deprecation on assets. 

Written down value method - Written down value method is also know as diminishing value method . In this method the deprecation is calculated in fixed percentage each year on deceasing book value and its commonly know as written down value of the assets. As this method equalizes the total charges of using the asset. While applying the depreciation rate both salvage or scrap value and removal costs are ignored. It is not possible to reduce the book value to zero; but it can be reduced close to its salvage value at the end of its useful life. 

Straight line method or written method comparative- straight line method are amount of depreciation are  initially lower and wdv have initial higher . Annual depreciation charge are in straight line ,method is remaining fixed during the usefully life and in wdv its reduced every year . Calculation of  deprecation in straight- line method on original cost but the other hand written down value on the assets . In straight line value scrap value is not be remaining on the other hand in diminishing values have always remained deprecation value.


A. Purpose for framing bank statement

Bank reconciliation statement is used to comparing the records to those work if found any difference in the cash book records. Similarly, happened with Kendal as the transaction are not match as per the record books so there is need to prepare the bank reconciliation statement. It is a practical perspective and it helps to avoid the overdrafts and fees. Through bank reconciliation statement, Kendal confirms and find out what the mistakes and balance shown in chequebooks or register will agree or not. 

Through bank reconciliation statement, internal cash will be control in the account. It helps to find out internal and bank errors and expose fraud such as withdrawals which are unauthorized and stolen checks or cash without knowledge. These statements help to confirm the accuracy of all the balance which are shown in organization's register and bank's records that is why Kendal confirms because there is mismatching in the figures of company's books. Through bank reconciliation statement chart Kendal identifies the errors and rectifies them also which are recorded in the books. It also gives indications to update the books if any entries are not recorded and also check an undue delay in the collection and clearing the cheques. Through this statement chart, Kendal understands the difference between the balance in bank statement and in accounting records. There is need to maintain and complete a bank reconciliation because it will help to see that if any customers checks had bounced or issued in wrong way or been stolen.  On completing the financial year, the auditors also examine and compare the records as per the bank reconciliation in order to cross verify the records. Get the best online assignment help at the best price.

B. Rationale for recording in bank statements

Sometimes bank collect or credit our account as per the instruction given by the government and they sends us SMS but it may take long time to receive from the bank. For this, the cash book show less balance as per the pass book.

Sometimes bank pay insurance, factory rent and home loans etc and debits our account and sends intimations but it takes some time and there is disagreement between cash records and bank records.

Many time debtors may directly deposited the amount into bank with information instead of paying cash, that time also the cash book and pass book balance will disagree due to this cash book show less balance and pass book will show more balance.

When a check is received from a debtor, cash book is recorded the date on which debtor collect but he may take long time to deposit the check on bank at that time also balance will not mismatch.

Bank also take some charges and interest on overdraft and company have no knowledge about this because it takes long time to receive the message and there is disagreement between the cash book and bank records.


A. Formation of sales ledger control account and purchase ledger control account

Purchase Ledger Control Account

Sales Ledger control account

B. Control account

General ledger has been summarized in this account. Accounts receivable and accounts payable are aggregated in this account (Control Accounts, 2018.). Its main requirement is to separate the subsidiary ledger which is not gathered in detail format with context of general ledger.


A. Suspense account and its characteristics

Suspense accounts is temporary ledger accounts. Suspense accounts helps in preparation of trail balance in suspense accounts its helps to identifying the error and identifying location in statements. it is also help to judging the nature of error and help to improve for preparing of final accounting in the statements and in suspense accounts some types of doubtful case describe an  accounts used temperately. This account is used when proper account are could not be determine and transaction was recorded. Suspense accounts are includes all the detail's for the evaluating the various arrears. In proper accounts description on doubtful case are related for equation of suspense account. Suspense accounts are related for the equation of variable of creating statements of continuing for the purpose of relating the nature of organizational business effects. The suspense accounts used because of proper accounts are not recorder on determiner when the proper accounts are recorded the determine so effectually transaction move to suspense accounts.  

1. Resolving problems: suspense account main feature is that resolving the problem in statements and after that remove to the ledger .resoling problems in suspense accounts are very useful because its reduce chance for organizational profitability (Lubbe, Modack and Watson,  2014).

2. Identifying the error: suspense account identifying error and its reduced error rectifying for ledger statements. Suspense accounts automatically close when all errors are rectifying.

3. Trail balance preparations: when trail balance is not matched and also the amount difference can be put on shortly in suspense account.

B. Difference between suspense account and clearing account

The basic difference in between suspense accounts and clearing accounts  is that suspense accounts are those accounts which particular holds on problems can identify the problem till when problem is not solve and clearing accounts are those accounts which have clearing all the accounting  statements or transaction related to the problems (Warren and Jones, 2018).suspense accounts are usually works on unnecessary pending transaction with no closed transaction .clearing accounts are temporary account and contain of amount which is transferred in another account . Clearing accounts and suspense accounts are same temporary accounts and both are resolving the problems by the statements of transaction it may be related do for the perpetration of variable of correction.

Clearing account are use for different clearing criteria. Clearing accounts works that statement are created all the time zero balancing finger. Suspense accounts are related for the rectifying the problems or statements loss and profit accounts. So suspense accounts and clearing accounts are both not same but some of features related to other in other transaction way of equations. Suspense accounts and clearing accounts both are zero out periodical and the common feature is that both are temporary accounts. Clearing accounts are clearing used for uncertainty way of transaction in the statements. Clearing account are used to hold the transaction while its solved. Suspense accounts are closed in any time on a fixed scheduled a clearing accounts are closed until time to pots them in the permanent accounts 


In the above report, it has been concluded that financial performance of organization has been identified by analysis various financial statements such as statement of cash flow, balance sheet and profit and loss statement. In context of balance sheet, all assets and liabilities are either debit or credited. In income statement, all profit and loss or organization are recorded and cash flow is subdivided into three parts. Financial statements plays very important role in each and every industry which should be framed according to accounting principles of IASB, IFRS and GAAP standards. Different accounting techniques, prudence and consistency principle are followed for drafting these financial statements.


  • Bazley, M. and et.al., 2013. Financial Accounting: An Integrated. Thomson Pty Ltd, South Melbourne.
  • Beatty, A. and Liao, S., 2014. Financial accounting in the banking industry: A review of the empirical literature. Journal of Accounting and Economics. 58(2-3). pp.339-383.
  • Bradshaw, M. and et.al., 2013. Financial reporting policy committee of the American accounting association's financial accounting and reporting section: Accounting standard setting for private companies. Accounting Horizons, 28(1), pp. 175-192.
  • Brewer, W. F., 2013. The nature of narrative suspense and the problem of rereading. In Suspense (pp. 117-138). Routledge.
  • Gassen, J., 2014. Causal inference in empirical archival financial accounting research. Accounting, Organizations and Society, 39(7). pp. 535-544.
  • Lubbe, I., Modack, G. and Watson, A., 2014. Financial accounting GAAP principles. OUP Catalogue.
  • Macve, R., 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision, Tool, Or Threat?. Routledge.
  • Pratt, J., 2016. Financial accounting in an economic context. John Wiley & Sons.
  • Scott, W. R., 2015. Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall.
  • Sharma, A. and Panigrahi, P.K., 2013. A review of financial accounting fraud detection based on data mining techniques. arXiv preprint arXiv:1309.3944.
  • Thornton, S. C., 2018. A Collection of Case Studies on Financial Accounting Concepts (Doctoral dissertation, University of Mississippi).
  • Warren, C. S. and Jones, J., 2018. Corporate financial accounting. Cengage Learning.
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