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Financial Accounting

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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 31stDecember 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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