FINANCIAL ACCOUNTING

Financial Accounting

Financial Accounting

Task 1

In your own words, explain who uses financial accounts and their information needs.

Users of financial information can be categorized according to their interest or specific needs. Generally the users of financial information are categorized as shareholders or owners, sponsors, monitoring and surveillance bodies, managers, providers, creditors, employees, customers and beneficiaries, taxpayers, regulatory organizations, and finally government units. Each of these users have their own interest in the financial statements of the business.

Shareholders or owners use this information for the monitoring of the firms performance. Sponsors are interested in these accounts as they give them the right picture of the company's standing in the market and tells them that whether they should sponsor this company further or not. The interest of monitoring bodies and government is almost the same, where they look out for procedural and financial transparency. Taxation authorities have also similar interest.

When we talk about the characteristics of financial information, profit is the main trait of the financial statements; it has the quality to adapt to the common user's need and is usually the starting point for analysis of the financial position of the company. The main features of financial statements include reliability, which means that the data provided in them is reliable and can be used to base decision upon. In order for the financial statement to be reliable, it should be truthful, objective, presentable, verifiable and should carry sufficient information.

Consolidated Balance Sheet for the Group

 

£ million

£ million

Assets

 

 

Noncurrent Assets:

 

 

Property, plant and equiment

125

 

 

90

215

Current Assets

105

 

 

100

205

Total Assets

 

420

 

 

 

Equity and Liabilities

 

 

Ordinary £1 shares

 

250

Retained Earning

 

120

 

 

370

 

 

 

Current liabilities

 

50

 

 

420

 

 

 

Task 2

Discuss the differences in accounting for Capital as it relates to Sole traders, Partnerships and Companies

When we look at the capital side of the balance sheet, its treatment is very different when we look at it from the perspective of different ownerships. The Capital in sole traders, when it is introduced, is included in the capital account of the owner, where as in partnership, it is included in the partnership fixed capital account. If we talk about companies, then this is included in the capital employed section of the share holder's equity.

Lucy's trader

Income Statement

for the year ended 2011

 

 

 

Sales

 

£ 379,230

Less: Cost of goods sold

 

 

Opening inventories

£ 31,900 Add: Purchases

£ 103,870 £ 135,770 less: Closing inventories

£ 41,280 £ 94,490

Gross Profit

 

£ 284,740

 

 

 

Less: Operating Expenses

 

 

Vehicle running costs

£ 26,894

 

Salaries

£ 138,827

 

Administration expenses

£ 34,728

 

Utility expenses £ 19,732

 

Depreciation

£ 25,500 £ 245,681

Operating Profit

 

£ 39,059 Less: Interest on bank loan

 

£ 8,500

Net Profit before Tax

 

£ 30,559 Less: Total Tax

 

£ 18,000

Net profit

 

£ 12,559

 

 

 

Task 3

Jack and Jil Partnership

Trial Balance

For the period ended 28th feb 2011

 

 

£

£

Capital account

Jack

 

£ 90,000 Jill

 

£ 90,000

 

 

 

 

Current Accounts

Jack

 

£ 10,000 Jill

 

£ 10,000

 

 

 

 

Drawings

Jack

£ 42,000 Jill

£ 32,000

 

Purchases

£ 374,000

 

Sales

 

£ 573,000

Returns

£ 2,000 £ 1,000

Postage and Stationery

£ 9,000

 

Staff wages

£ 93,000

 

Rent and Insurance

£ 22,000

 

General Expenses

£ 12,000

 

Bad debts written off

£ 2,000 ...