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Financial Accounting (Rehman)
Financial Accounting (Rehman)
Financial Accounting (Rehman)
PEARSON BTEC HIGHER NATIONAL DIPLOMA IN BUSINESS (RQF) 10. FINANCIAL ACCOUNTING (LEVEL 4)
BILAL NADEEM
DATE ISSUED COMPLETION DATE SUBMITTED ON
PLAGIARISM
Plagiarism is a particular form of cheating. Plagiarism must be avoided at all costs and students who break the rules, however
innocently, may be penalised. It is your responsibility to ensure that you understand correct referencing practices. As a
university level student, you are expected to use appropriate references throughout and keep carefully detailed notes of all
your sources of materials for material you have used in your work, including any material downloaded from the Internet.
LEARNER DECLARATION
I CERTIFY THAT THE ASSIGNMENT SUBMISSION IS ENTIRELY MY OWN WORK AND I FULLY UNDERSTAND THE CONSEQUENCES OF PLAGIARISM. I
UNDERSTAND THAT MAKING A FALSE DECLARATION IS A FORM OF MALPRACTICE.
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Table of Contents
Task 1..........................................................................................................................................................2
Double entry system...................................................................................................................................2
Sales............................................................................................................................................................3
Purchase.....................................................................................................................................................3
purchase return and sales return...............................................................................................................4
MR. John.....................................................................................................................................................8
Trail balance................................................................................................................................................8
Task 2..........................................................................................................................................................8
Mary............................................................................................................................................................8
Income statement.......................................................................................................................................8
Mary............................................................................................................................................................9
Balance sheet..............................................................................................................................................9
Verso Ltd...................................................................................................................................................10
Income statements...................................................................................................................................10
Verso Ltd...................................................................................................................................................11
Balance sheet............................................................................................................................................11
Income statement, balance sheet and cash flows...................................................................................12
Task 3........................................................................................................................................................14
Unpresented cheques...............................................................................................................................15
Bank lodgments not yet credited.............................................................................................................16
Standing order..........................................................................................................................................16
Direct debits..............................................................................................................................................16
Dishonored cheques.................................................................................................................................16
Account reconciliation..............................................................................................................................16
Bank reconciliation...................................................................................................................................17
Task4.........................................................................................................................................................17
Suspense account.....................................................................................................................................18
Trail balance After correction Errors........................................................................................................18
References.................................................................................................................................................21
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Task 1
Double entry system
The principle of double entry every business transaction has a two aspect, which is recorded properly
and carefully. Double entry system has an account for every asset, every liability and capital. The double
entry system requires that the debited amount should be equal to the credited amount. If someone
pays to purchase a machine from any retailer or supplier, he handed over the cash and in return, he
acquired the machine. Eventually, the buyer and the seller, both would be affected by this plain
settlement. Ultimately, the buyer’s account balance would decline, and his assets will be expanded, the
monetary worth will increase by debit, and the value decreases by credit. Completely the seller will be
the one getting short by an asset but ultimately is getting an incremental in his cash balance. On the
other hand, seller’s account such as turnover account or accounts payable would be affected and will be
increased through credit and decrease through debit. A debit increases when an asset or expense
account occur, or decreases a liability or capital account occur. It is always positioned on left side in an
accounting entry and credit is an accounting entry which is increases a liability or capital account, or
decreases an asset or expense account. It is always positioned on right in an accounting entry. (Harold
Averkamp, 2020) (Bragg, 2019)
Sales
Sales when we sell the things or product on the basis of cash, in our record we post entry in our
bookkeeping, cash is debit and sales is credit because we receive cash exchange of, we give customer
some good or product. There are two type of sales cash sale and credit sales. Cash sales occur normal
entry which is mentioned above so we move on, Credit sales is when we sell something on credit basis,
we need to create accounts of debtor. we can receive our money from our debtors in future. We want
to know what balance of our current asset account.so entry we record for our book keeping is debtor
account is debit and sale account is credit. (svtuition, 2015)
Purchase
We record purchases entry on the basis product we purchase against money, we take the decisions of
sale and manufacture. So, we need to pass the journal entries of purchases. we consider that purchase
as the current assets in inventory which is needed for manufacturing or sale. There are two type of
purchases one is cash purchases other is credit purchases. Cash purchase when we purchase the apple
on the basis of cash, so the entry we pass journal entries purchase is always debit and cash is always
credit. On the other hand, when we purchase on credit basis instead of cash, we create an account of
creditor because we have to pay the creditor in future and we have to know what is our liability. So, the
entry we pass in our record is purchase account debit and creditor account always credit.
(wallstreetmojo, 2019)
We also maintain our receipt is recorded when items are received from suppliers in any warehouse.
when you first prepare the cash receipts book, firstly you need to identify which receipts relate to cash
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and credit toward your customer in which you can apply buy now and pay later customers strategy. The
simple way check and clear whether the customer has a sales ledger account includes details, accounts,
number and column. if they have all of the details with sale ledger then these clients are credit
customers. If there is no data available of sales ledger number, then the receipt will relate to a cash
customer. For example, if we order some complete computer system and supplier give us invoice
receipt, we can check the amount and details and make sure that is according to our contract.
(accountancylearning, 2019)
Mr. John has started a new business and he invested with £180,000 deposited in bank on Jan 10 th
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1st /2 Bal b/d 27,000
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DR. Rent A/C CR.
Date Transaction Amount Date Transaction Amount
14th / 1 Bank 5000 31st/1 Bal c/f 5,000
1st/2 3000
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DR. Machinery A/C CR.
Date transaction Amount Date transaction Amount
19th /1 BANK 6000 31st /1 Bal c/f 6000
MR. John
Trail balance
AS AT 31st January 1st
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ITEMS DEBITS CREDITS
Capital 180,000
Bank 119,000
Cash 199,00
sales 29,000
Stationery 1000
Criss 3000
Machinery 6000
Drawing 3000
Interest 2000
office interest 10,000
Task 2
Mary
Income statement
For the year ended 30th September 2011
ITEMS £ £
Sales 2,235,000
Less: Cost good sold
Opening stock 74,000
Purchase 1,520,000
Closing stock -77,000 -1,517,00
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Less expense
Marketing expensive (24,000-3000) 21,000
Business rates 43,000
Insurance 49,000
Energy cost (57,000 +4000) 61,000
Motor expenses 39,000
Wages & salaries 306,000
Depreciation 14,000
Bad debts 4000
Increases in provision for bad debts 2000 -539,000
Mary
Balance sheet
As Of 30th September 2011
Non-current assets
Building 500,000
Vehicle (W1) 26,000 526,000
Current Assets
Inventory 77,000
Account receivable (W2) 80,000
Less: provision of bad debts -3000
Prepayment 3000
Bank 2000
Cash 1000 160,000
Total Assets 686,000
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Long term liabilities 60,000
Payables 61,000
Accruals 12,000 133,000
Total Capital & liabilities 686,000
Working
W1
Vehicles
at cost 70,000
Depreciation 44,000
Net book value 26,000
W2
Account receivables 84,000 -4,000 = 80,000
Verso Ltd
Income statements
For the year ended 31st December 2018
ITEMS £ £
Sales 2,860,000
Less: Cost of goods sold
Opening inventory 125,000
Purchase 1,200,000
Less: closing inventory (1,35,000) (1,190,000)
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Less interest paid (15,000)
Profit before tax 10,66,000
Tax (140,000)
Profit after tax 926,000
Less dividends year (180,000)
Profit for the year 746,000
Adding opening balance 1,298,000
Profit and loss account balance at the year- 2,044,000
end 31st December 2018
Verso Ltd
Balance sheet
At the year 31st September 2011
ASSETS £ £
NON-CURRENT ASSETS
Building 2,268,000
Equipment at cost 780,000
Less accumulated depreciation -585,000
Net book value 195,000 2,463,000
CURRENT ASSETS
Inventory 135,000
Accounts receivables 376,000
Less provision for doubtful debts -14,000 362,000
Prepayment 6,000
Bank 68,000 571,000
Total Assets 3,034,000
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Income statement, balance sheet and cash flows
A financial report is the report which show company’s direction in which they discuss about income,
revenue, expense, profit & loss.it is also known as financial statement also called profit and loss. They
signalize the major points such as income and expenses over a particular period of time as it may be
monthly, bimonthly, annually or half-yearly or a certain months statement for example it will show all
the income and expenses from the start of the month and it could be income after expenses i.e. Net
income and loss of the total month. The main purpose of these financial statements is to assess the
worth of the company’s performance. Quarterly and annually financial statements are commonly used
by capitalists and lender to view the overall performance of the company performance. The company’s
statement could be huge or tiny it varies on the volume of a company. The balance sheet uses to show
the monetary picture on a precise day or in balance sheet it lists down all the assets company that
retains and it also all the liabilities that company owed and also owner’s interest and share in company.
Balance sheet can also be obtainable in two different ways, one is account format and other is report
format. In account format it list down as of right to left wherein all the assets are itemized on the right
side and all the liabilities and owner’s equity is on the left side and in report format all the assets are
steeply ahead and all the accountabilities and landlord’s equity at the bottommost (Shaun, 2020)
Along With the support of cash flow report it creates a lot of complicated things simple to govern
business and the stream of cash that how much cash is entering and leaving your business, and not only
that it also manage balance sheets and income statements, it’s one of the three extremely vital levers of
financial statements for running any business interests to make sure you have plenty of cash to keep
working. (Kaeiva, 2011)
Mary business’s financial statements demonstrate that her gross revenue is in surplus because her
trades are about 2,235,000 after cost of goods traded the outstanding income, she acquires is 718,000.
After that, all expenses that are 539,000 are deducted from the proceeds from the business That's why
we reduced gross profit because we want to know our net profit (actual profit). Across the balance
sheet, we recognized our assets, liabilities and capital. Receivable accounts with 80,000 that increase
assets, the same goes for payable accounts an increase of 61,000 is not a good thing for a business, since
money is due by the consumer and with 12,000 accretion growth. As for verso Ltd, sales are 2,860,000
and the aggregate profit is 1,670,000 which is similarly in excess. Then not as much of all the expense
which appear in the industry and net profit is 2,044,000. In account receivable.
Verso Ltd is improved in both the companies. If we discuss, the gross profit is higher than Mary's
because Verso sales are higher than Mary's. Mary's expenses are lower because her business has less
Sales Verso Limited. When we evaluate two balance sheets then we’ll understand the status of two
companies and then we will apply the equation of assets = Liability + Equity Verso’s account receivable
are higher as compare to Mary’s according to this Verso balance sheet is impressive as compare to the
Mary’s that is pretty respectable for the company however on the other hand when we will compare
payable between Verso and Mary’s we get to know that Verso’s payables 220,000 are also higher than
Mary’s if Verso accounts receivable are in excess amount as compare to the accounts payable and if
they are sure that they can pay off all their payables then they don’t have to be worry. But if their
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payables are due within one year and receivables are not then it probably will represent certain financial
resources troubles, guessing that all these accounts payable are due within one year. I think if we
compare Mary as sole proprietor then she is performing nice work for the reason that she managed her
business single-handedly, she completed per year 539,000 and her accounts receivable is 80,000 that is
bonus point for sole proprietor. In company we can make any kind of decisions with voting rights but, in
sole proprietor only owner can make his/her decisions. There are not many complicated techniques are
required to setting up a Sole Proprietorship business it is easy but to open a company you are require
enrolling every single document which is mandatory. Obtaining an investment for a business is a little
complicated and sometimes much more complicated when it is compared to a company. The authorities
as well recommends more financial assistance for limited company than to a business maintained as a
sole proprietor.
Certified Public Accountant use generally accepted accounting principles (GAAP) to monitor them in
recording and reporting monetary knowledge. GAAP contains a Broad set of principles has been
controlled by GAAP and it is developed by the accounting work and the Securities and Exchange
Commission (SEC). There are two laws, according to the Securities Act of 1933 and Securities Exchange
Act of 1934, gives the authority to SEC an to create reporting and disclosure requests. Everyday
businesses implement a principle called GAAP to monitor their hard work. GAAP stands for Generally
Accepted Accounting Principles. Their rules are usually used for financial reporting that regulates the
accounting profession in the United States. Most companies' financial records are prepared for every
other business in the same way that they use GAAP methods, resulting in financial reports from US,
managers, shareholders, bankers and potential investors. Ready to understand someone. As well as
comprehensive GAAP accounting rules that include both benchmarks and procedures. Much of the rest
of the world works on the principles of the International Financial Reporting Standards (FRIS) although
they exist basically fictional without the pacify of the procedure included in the GAAP. Although this
business generally complies with GAAP, it also complies with IFRS. We carefully prepare assets, liabilities
and owner's equity to prepare income statements in income, income, expenses, profit, profit, loss and
balance sheet (Cli20, 2020)
Task 3
Adjustment
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Adjusted/corrected balance per bank 251
D3
Adjustment 1:
Account receivable
Cash 24
Adjustment 2:
Bank charge
Cash 40
Adjustment 3:
Account payable
Cash 25
Adjustment 4:
Account receivable
Cash 72
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Unpresented cheques
Cheque written and recorded by the depositor but not yet paid by the bank at the bank
statement date we have written therefore on our books we have them decreasing on our checking
account balance however they have not yet cleared the bank because when recipient take that cheque
to their bank then their bank need to contact our bank before the transaction on the bank then our bank
will contact us then they will clear the recipient bank to make that transaction sometimes it take time
and sometimes it don’t. (Steven Bragg, 2020)
Standing order
With the help of standing orders you can send a fix amount on regular basis, and they can be
used to send to other people too, most common reasons to set up a standing order is paying rent, utility
bills, and as a freelancer you might be using standing order to make payment to your employee and it
can enhance business performance by reproducing acquisitions and fees more accurately than starting
separate contracts with each purchase or payment. (Steven Bragg, 2018)
Direct debits
When you are using direct debit, you do not have to make any instruction for your bank because
with the help of direct debit it automatically generate instructions from you to your bank. Payments are
made when direct debit authorizes someone to deposit payments from your account. You give this
option by completing a form. This could be a paper form or a web page that you complete online. Once
authorized, the organization may automatically charge you (provided they follow the rules of the
present scheme). (GoCardless Ltd, 2020)
Dishonored cheques
If the cheque is dishonored there are many it can be dishonored some of these reasons are, in
sufficient balance or fund, stale cheque, postdated cheque, mutilated cheque, crossed to two banks first
one is, In Sufficient Balance when bank refuses to pay because of insufficient balance in payer bank
account. Stale Cheque when the date written on the cheque is far off the validity that is tree month that
cheque is stale cheque. Postdated Cheque when payee is claiming the cheque one or more days earlier
that cheque cannot be claimed because payee is claiming before the date of the cheque. Mutilated
cheque a torn cheque, account on fire or paint these types of cheque are mutilated cheque also known
as dishonored cheque. Crossed to two banks when there is more than one special crossing in the favor
of two banks that cheque us also dishonored. (Sakshi Agarwal, 2020)
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Account reconciliation
Account reconciliation which record compromise which begins cautiously with other kinds of
compromise notice to it somehow or another. This is a procedure of confirming and checking all record
adjusts are right by looking at two arrangements of records toward the finish of a specific bookkeeping
period. Contrasts are perceived and changes made to the record as necessary so as to account for the
right qualities in the General Ledger. (elprocus, 2019)
Bank reconciliation
Bank reconciliation statement is where all the exchanges are coordinated with the given information
which is stopped by the bank explanation with the proper interior organization. The objective is to affirm
that every exchange in the bank articulation is solid and like the interior records as realistic in the
organization's records. This technique can get extremely intricate as a result of the adjustment in time
when explicit information and important data are recorded structure the bank and friends. Rehashed
changes are mandatory. (elprocus, 2019)
Task4
Errors
Purchase£120
Sales 500
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Light & heat bill 100
Suspense account
A suspense account is a record where you record unclassified exchanges. The record incidentally holds
passages while you choose how you will order them. A pressure record can likewise hold data about
differences as you accumulate more information. At the point when you open a bookkeeping tension
record, the conversation is careful in expectation. You can open a financial balance to hold assets for
pressure records. This keeps unspecified exchanges separate from ordered exchanges. In representing
private venture, most anticipation accounts are gotten out all the time. To be gotten out, the record
must have a zero equalization. Move suspense account sections into their assigned records to make the
tension equalization zero. Certainly, you designate sections in the tension record to a lasting record.
There is no standard measure of time for getting out a tension record. Most governments get out their
tension records monthly or quarterly. For example, above details are show that they do not debit so the
correction is suspense account and cash is credit. Following type of error Systematic Errors, Gross Errors
and Random Errors. Firstly, we have systematic error which is on the basis of observation, environment
and Instrumental errors. Gross errors are the errors physical errors in analysis for recording
measurement outcomes.
(Cameron, 2017)
Suspense account
Description Amount in Description Amounts in
Pounds pounds
Discounts 38
Capital 5000
Drawing 2800
Stocks 2567
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Debtors (2130-6) 2124
Return inwards 85
Discounts received 46
Discount 38
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Cheque paid to 24.270 Credit purchases 37.590
creditors
£ £
contra 1700
References
accountancylearning, 2019. accountancylearning. [Online]
Available at: https://www.accountancylearning.co.uk/how-to-post-the-cash-receipts-book/
[Accessed 11 6 2020].
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Accounting-Simplified, 2017. Accounting-Simplified.com. [Online]
Available at: https://accounting-simplified.com/accounting-for-purchase-returns.html
[Accessed 06 06 2020].
Cameron, A., 2017. Use a Suspense Account for Questionable Transactions. [Online]
Available at: https://www.patriotsoftware.com/blog/accounting/what-is-suspense-account-journal-
entry-example/
[Accessed 11 6 2020].
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Kaeiva, 2011. Bench. [Online]
Available at: https://bench.co/blog/accounting/cash-flow-statements/
[Accessed 03 06 2020].
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