Unit 10 Financial Accounting Assignment Sample – BTEC-HND-LEVEL 4

This assignment explains the steps involved in budgeting and planning the business. This study revolves around the accounting principles, regulations, and rules followed by business organizations.

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Accounting principle includes the rules and regulations followed by the business organizations should follow when preparing financial data. Common sets of accounting principle include the following:

  • Conservatism Principle
  • Consistency Principle
  • Cost Principle
  • Matching principle
  • Matching and accrual principle
  • Principles of an economic entity

Assignment solutions of HND Financial accounting

Introduction: Balancing the accounts lays at the core of the business management principles. This unit aims at giving a basic understanding of accounting techniques and principles. Students learn the methods of preparing accounts for sole partnerships, enterprises, and private business organizations.

On completing this unit successfully, learners will be able to contribute towards the accounting function of an organization, understand how to prepare and record financial accounts for businesses. They will gain the knowledge, and skills needed to progress to a higher level of education.

Responsible accounting is the branch of accounting that relates to budgeting the organization. The goal of responsible accounting is to provide help to the Planning and Control OF THE responsible responsibility center of a business organization. It also helps in the preparation of the yearly and monthly budget of an organization.

P1. Apply the double-entry bookkeeping principle

Brief Idea about double entry system

Double entry is an underlying accounting principle that states that all bank transactions exhibit opposite and equal effects in a couple of accounts.

Liabilities + Equity = Assets

In simple terms, in a double-entry system transactions get recorded in terms of liabilities and assets. The debit account creates a credit in another. The sum of all credits equals the sum of all debits. The double-entry Bookkeeping principle normalizes the accounting process and eases the preparation of financial statements, improvising detection of errors.

Types of Accounts

Accounting and bookkeeping are methods of communicating, measuring, and recording the financial information of a firm. Business transactions get recorded in the form of economic events for bookkeeping or accounting purposes. In general, it is an interaction between two financial entities like consumers and businesses or businesses and vendors.

System accounting principles classify transactions into accounts. Following are the classifications of accounts in a business transaction.

  • Liabilities
  • Revenue
  • Equities
  • Expenses
  • Losses
  • Gains

Credit and debit

Credit and debit are important entities in Double-entry Accounting Principles. Debit refers to the entity present on the left side of an account ledger. Balanced accounting equals the number of debits and credits.

Debits can increase in one account and decrease in another. For instance, debit can decrease liabilities and equity in one account, and increase assets in another, supporting the general Accounting equation. The sum of assets and liabilities equals the equity in an account.

Debits decrease the balance between loss and expense amount. The credit increases the balance of a normal income account.

Double-entry accounting system developed in the mercantile period that helped bankers and merchants to understand the Profit and cost

Philosophers believe that the double-entry system gave birth to capitalism. Nevertheless, the accounting Equation forms the Basis of the double-entry accounting principle. It develops the concept that expands to a complex, multi-term expression in the form of a balance sheet. The double-entry accounting principle forms the foundation of a balance sheet, where the sum of assets of an enterprise equals the liabilities and equity of stockholders.

The double-entry accounting principle relates sources of capital to the utilities of capital. All financial transactions get reflected in a couple of accounts. As businesses take loans from banks, the borrowed money will increase the company’s assets; the loan liability will increase by a proportionate amount.

When proprietors buy raw material by paying cash, it leads to an increase in inventory while reducing the cash capital of a business. As every transaction executed by a business affects two or more accounts, this accounting principle is termed double-entry accounting.

Since the accounting equation maintains a balanced nature, the right-side value of the equation equals the left-hand side value. The Financial Accounting Standards Board mandates private business organizations to follow this rule.

Small-scale businesses with more than one employee or planning to apply for loans need to follow the double-entry accounting principle. It’s more concise and enables companies to keep track of the financial condition, whether it’s deteriorating or improving.

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P2: Produce a trial balance using the balance of rule

The implication of trial balance

In the double-entry accounting principle, Trial balance is the incomplete statement of the credit and debits. As mentioned before, each financial transaction takes place, so that credit equals debt. Quality should be maintained in the accounting ledger and Trial balance. If the total number of credits does not equal debit, there is a sign of error and it should get corrected.

Businesses prepare a trial account before the reporting period so that Entries listed in accounting are intact and mathematically correct.

Even if the bookkeeper finds that the trial account is mathematically balanced, it doesn’t mean that there is no accounting error.

The accountant might have forgotten to list a transaction or interpreted an inefficient transaction. Some errors would not show up on the trial account.

Step involved in preparing a trial account

  • Before you start working with the trial account make sure that every ledger account is balanced. The difference between the sum of debit accounts and the sum of the Credit entries produces the balance.
  • Prepare a balance sheet with 8 columns. The column headings include Account number, account name, and Respective columns for Credit and debit balances.
  • Transfer the account number, account name with the corresponding credit and debit column to the trial account for every ledger account.
  • Find the sum of the credit and debit accounts. The summation of credit and debit accounts should be equal to a trial account. If the summations are equal, you can close the trial balance.
  • If the summation isn’t the same, you need to re-evaluate and get the error corrected.

M1: Assess transactions and show the progression of trial account using double-entry bookkeeping

The accounting process involves a series of steps that describe how small-scale organizations record collect and process financial statements. The accounting process may vary from one organization to the other, and the steps involved in the process may vary too. Nevertheless, the general steps involved in the process remain the same.

Step 1: analyze and characterize the transactions

In general, the Accounting cycle starts with identifying the transactions related to business. Note that business is a separate entity to the owner, only the business transactions should be taken into account.

After identifying the transactions, the bookkeeper examines the accounts that get affected. Each transaction gets recorded and supported by source documents like sales and invoices, Petty cash prizes, debit and credit reports, and payroll expenses.

Step 2: Record the journal entries for a transaction

Account entries get recorded in a document known as a daybook. Journals get referred to as copies of the original entry, as it is the first copy of the transactions that get entered and recorded to the accounting system.

Journals get converted to the general and subsidiary ledger. The general ledger has a copy of the transaction in the form of account receivables, rentals, fixed assets, and more. The general ledger relies on the private ledger for liabilities and assets, and the nominal ledger for income and expenses.

Accounts get transferred to the ledger in the form of balanced double entries, wherein each debit expense has equal and opposite credit careers.

Step 4: Prepare an imbalance trial account

Balances on the accounts of the general ledger get listed to form the trial balance at the end of a transaction. By this time, total debits equal total credits.

The accountant uses the unadjusted account to validate or verify the credit and debit entries. Check whether the balance and calculation of the record are correct or not. If the trial account doesn’t balance, the accountant makes changes to the entries until it balances.

Step 5: Prepare a 4-column worksheet

After step 4 is over, the accountant prepares a 4-column worksheet and transfers the unadjusted trial account to the first two columns of the sheets. He adjusts entries including prepayments, accruals, and depreciation. The accountant ensures that the records get completed as per the accrual principle, following the matching principle. Adjusted entries get transferred to the first two columns of the worksheet.

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P3: Steps to prepare final accounts from a trial account

The final Account is the result of the accounting process. Final account or Annual accounts include the following documents

  • Balance sheet
  • Profit and loss and trading account

If it is a manufacturing organization, the final account includes the following entity:

  • Manufacturing a/c
  • Profit loss and trading a/c
  • Balance sheet
  • The accountant needs the Trial balance and additional information to form the final account information(s).

Profit and loss a/c

It implies the result of the operation or indicates the transaction results in a profit and loss. Thus, accountants identify expenses in terms of services received and incomes as profits earned by the organization. It’s known as the mercantile accounting system or accrual accounting principle. It adjusts outstanding expenses, closing stock, or advanced incomes.

The balance sheet indicates the liabilities and assets of an organization on a specific date. Keep in mind it does not represent annual or monthly data. A balance sheet shows the financial condition of an entity on a particular date.

Manufacturing Account indicates the pricing of the product manufacture of a particular date. The accountant transfers the cost to the trading account.

Significance of the vital components of a final account

A) Trading account

  • Trading Account shows the profit or loss made on a gross basis and includes the direct cost of goods.
  • In a trading account, income gets credited as sales and debits the pricing of products sold by the company.
  • In simple terms, opening stock and purchases forms debit and credit include the closing stock in an organization.
  • It deducts or adjusts the sales and purchase returns from the sales and purchases respectively.
  • The accountant transfers the balance (aka gross profit/loss) to the loss and profit account.

B) Implication of the profit and loss account

  • A profit and loss account demonstrates the performance of individual entities.
  • Accountant transfers the gross profit and loss account to the P&L account.
  • Incomes like discounts and offers get credited
  • The net Profit and loss account gets transferred to the P&L appropriation a/c.
  • Bank charges interest on loan withdrawal, and that amount gets credited
  • Interest credited on the Commission or salary of the business proprietor and transferred to the reserves gets debited.
  • Accountant transfers the net balance to the capital Account.

C) Manufacturing account

  • Raw materials consumed in production (stock + purchases – opening stock), depreciation of building or factory, machinery, and related manufacturing expenses get debited.
  • Opening WIP stock gets debited, and closing WIP stock gets credited
  • Accountant balance is the cost of goods and transfers to the Trading account.
  • Students should know that a manufacturing account is also a periodic statement.

D) Additional Information

  • When the balance sheet gets prepared, the accountant will likely have some accounts that are yet to get finalized. He/she might need to make some modifications or changes to the entities.
  • In general, an accountant gets such information from the trial accountant. It is known as adjustments.
  • It is a simple transaction that gets transferred to the account record. It may include information that needs to get rectified and necessitates a double-entry effect.
  • It may include indirect information in the form of trial balance interpreted as adjustments to the results.

M3: Apply account reconciliation process demonstrating the use of transit deposits

Bank reconciliation is one of the commonly-used cash control procedures needed to identify error Irregularities or adjustments in accounts. With an in-house team handling the reconciliations process, likelihood of fraud and saves time Invested into managing the statement.

Our bank reconciliation process may have different statements but all serve the same purpose. The reconciliation process compares the bank statement with cash reported in the general ledger.

Bank reconciliation ought to get completed for all accounts, as it ensures the accuracy of bank records. It may find that bank balances are lower than expected, leading to overdraft fees or bounced checks. As mentioned earlier, bank reconciliation detects fraud in the activities; this information enables better control of receipts or payments in cash.

Bank reconciliation terminology

Some of the terms associated with bank reconciliation are s follows:

Transit account: it refers to the checks that got received and recorded by an entity, that are yet to be recorded. If it happens at the month-end, it is less likely to get noted in the then statement and get recorded as reconciliation in a bank statement. Deposit in transit occurs when the deposit comes too late to be recorded. It occurs when the entity moth’s delay in mailing the depositor doesn’t mail the deposit at all.

Conclusion

Control account finds its application in recording the subsidiary account and cross-checks them. Suspense balance gets recorded to the account before getting transferred to the final account. Bank reconciliation is the process that manages subsidiary and final accounts. An accountant is to make sure that the amount invested equals the amount deducted from the final account.

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