Table of Contents
1.1 Define financial accounting and its purposes.
Definition of financial accounting.
Purposes of financial accounting.
1.2 Tesco stakeholders and their interests in the financial information.
Draw a journal and calculate the Owner’s Capital on 1st January 2019.
Complete double-entry recording within the relevant ledgers.
Cash Book ledger
Concept of ‘Consistency’ and ‘Prudency’ in terms of accounting.
Purpose of depreciation in formulating accounting statements.
Two widely used methods of calculating depreciation.
Straight-line depreciation method.
Unit of Production method.
Difference between the financial statements prepared by the Sole Trader and the Limited Companies
1.1 Define financial accounting and its purposes
Definition of financial accounting
Accounting is the art of reporting financial information to its different types of users including customers, investors, banks and creditors. In addition, financial accounting is mainly an activity of financial management. According to Atrill and McLaney (2015), financial accounting is an organization’s monetary flow. Financial accounting is a type of accounting that is managed by a number of key principles known as accounting principles. In terms of accounting principles, these are comprised of a number of regulations or rules that are followed by an organization. Bendrey (2013) said that business organizations have to follow these accounting principles when making any financial report for the business.
Purposes of financial accounting
GAAP (Generally Accepted Accounting Principles) mainly restrains accounting principles that support standardizing different parameters of accounting practices. On the other hand, IASB and FASB are the key set makers of accounting principles (Broadbent and Cullen, 2013). Financial Accounting Standards Board (FASB) is the private sector company of the U.S. where the International Accounting Standards Board (IASB) is FASB’s internationally agreed form (Atrill and McLaney, 2015).
The main accounting principles are listed and explained as follows:
Cost Principle: Cost principle is a kind of accounting principle where the business organizations only state the liabilities, equity and assets with their main purchasing cost (Atrill and McLaney, 2015).
Accrual Principle: Accrual principle is a kind of accounting principle that focuses on the financial transactions of a business organization. On the other hand, financial transactions must be recorded frequently instead of preparing the cash flow statement (Atrill and McLaney, 2015).
Consistency Principle: The consistency principle is a kind of accounting principle where the business organizations should focus on a principle of consistency till there is no derive of accounting principles’ better version (Atrill and McLaney, 2015).
Economic Entity Principle: Economic entity principle focuses on a business organization’s all transactions and that must be upheld properly to make the financial report. This helps in no confusion of the accounting of different businesses and other accounts mingling with one another (Atrill and McLaney, 2015).
Full Disclosure Principle: Full disclosure principle makes sure about the important financial information that is stated for readers to develop acknowledgment about financial statement’s different preferences and conditions (Atrill and McLaney, 2015).
Matching Principle: Matching principle is a kind of accounting principle that focuses on recording revenue and other expenses related to the revenue. In addition, this accounting principle helps to manage the accounting easily where this accounting principle is the key part of accrual accounting (Atrill and McLaney, 2015).
Materiality Principle: The materiality accounting principle focuses on the recorded transactions in the accounting books. If transactions are not followed properly in accounting books, then this may negatively impact an organization’s financial management (Elliott and Elliott, 2017).
Monetary Unit Principle: This accounting principle focuses on the transactions that are recorded daily basis in accounting books. The monetary unit principle helps to focus on the related purchases as well as transactions in an accounting window. In addition, this accounting principle also helps to derive values of organizational liabilities and assets with no hassle (Elliott and Elliott, 2017).
Reliability Principle: The reliability principle is a type of accounting principle which is concerned with the proven transactions. On the other hand, proven transactions are the transactions that have evidence. Such as, when a customer purchases a product from a shop and the shopkeeper provides a purchase receipt to the customer. That means this transaction is a proven transaction. However, this transaction comes under the concept of the reliability principle (Elliott and Elliott, 2017).
Time Period Principle: Time period is the accounting principle that is concerned with an organization’s reporting idea that results in effective operations in a short time period. This is the essential accounting principle that helps to create good prosperity for an organization (Elliott and Elliott, 2017).
1.2 Tesco stakeholders and their interests in the financial information
The internal stakeholders of Tesco are employees and managers where the external stakeholders of Tesco are shareholder, creditor and debenture holder which are explained as follows:
Employees: Employees are the key internal stakeholder of Tesco and Tesco provides salaries or wages to its employees by focusing on its financial position. On the other hand, employees of Tesco are eager to know the financial position of Tesco (Tesco Annual Report, 2018).
Management/managers: The management system or managers of Tesco are interested to know the financial situation of this company. In addition, the financial statement of Tesco supports the managers to do different types of functions at the workplace (Tesco Annual Report, 2018)…………………………………