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Essay on Financial Accounting

Financial accounting is a constituent part of accounting that encompasses documenting, compressing, and relaying the financial dealings of a commercial establishment. It requires the construction of financial documents, such as the equity report, earnings statement, and cash inflow statement, which divulge facts and figures about the financial position, execution, and cash movements of an enterprise (Weygandt, Kimmel, & Kieso, 2018). The main goal of financial accounting is to furnish timely, trustworthy, and relevant monetary insights to stakeholders, comprising investors, creditors, government agencies, and the general public, to aid in their decision-making processes.

Cheques in Transit

A cheque in transit pertains to a cheque produced by the remitter (the individual who composes the cheque) but has yet to be presented to the bank for remittance. In other words, the cheque is being validated. The funds still need to be subtracted from the remitter’s account or added to the receiver’s (the individual who will receive the payment) account (Dhanva, Harikrishnan, & Babu, 2018). Throughout this period, the cheque is considered to be in transit or in the validating process, and the receiver will not be able to access the funds until the cheque clears.

Adjusting Entries

Adjusting entries are a fundamental accounting process component that guarantees financial statements are precise and dependable. These entries are established at the end of an accounting interval to modify accounts that have not been properly documented or to distribute expenses and incomes correctly (Libby, Short, & Libby, 2014). They are necessary because most accounting systems document transactions when they happen, not when the equivalent cash is transferred. Adjusting entries are typically utilized to document accrued expenses, pre-paid expenses, accrued incomes, and unearned incomes. By constructing Adjusting entries, enterprises can update their financial records to correctly display the current fiscal position (Abdul-Rahamon & Adejare, 2014). For instance, if a business still needs to disburse a bill, but the service has been given, an adjusting entry can be created to record the expense and update the accounts payable balance. A similar alteration entry may be made to record unearned wages and revise the liabilities account if a company has been paid for administrations that have yet to be rendered.


GAAPs, moreover known as, by and large, acknowledged bookkeeping standards, are a collection of guidelines, controls, and rules that indicate how money-related statements must be created and displayed. These rules are implied to ensure that all organizations’ budgetary data is exact, tried and true, and steady for clients (Young, 2014). The presentation of financial statements, revenue recognition, asset and liability recognition, and other crucial accounting concepts are all covered by various GAAP rules and principles. According to Ghazali, Shafie, and Sanusi (2015), the main goal of GAAP is to ensure that financial statements provide relevant and trustworthy information to stakeholders, including investors, creditors, and regulators.

Source Records

Any documentation that backs up a financial transaction is referred to as a source document in accounting. They serve as evidence of a commercial transaction and provide a paper trail. Several source papers are available that improve accounting and corporate operations (Hall, 2015). A sales invoice is a crucial source document to start with. It offers a thorough explanation of the products or services that a business sells to a consumer. The date of the sale, the number and kind of products or services sold, the price per unit, and the total amount owed are all included in sales invoices. Sales invoices are used to monitor income and accounts receivable and provide proof of a sale (Sadiqin, 2021). A credit note is yet another often-utilized source document. A vendor reduces the amount owing for products or services by issuing a credit note to a customer. A credit note contains details such as the justification for the credit, the transaction date, the credit amount, and any account modifications. Credit memos are used to fix billing problems, settle customer disputes, and document modifications to accounts receivable.

Enterprise Entity Concept

The idea that a company organization is a separate and distinct entity from its owners or stakeholders is known as the business entity concept, and it is a basic accounting principle. Concurring to this theory, a company’s money-related activities and its owners’ accounts ought to be treated independently in bookkeeping (Tricker, 2015). The thought presupposes that the company may be a diverse substance from its proprietors or shareholders, with its claim personality. The business’s money-related articulations, counting salary explanations, adjust sheets, and cash stream articulations, ought to be created autonomously of the owners’ accounts. The business entity concept is basic for exact budgetary announcing because it permits investors, leasers, and other partners to assess the budgetary execution of the commerce based on its possess merits. Additionally, it helps to ensure that business owners do not commingle their finances with those of the business, which can result in legal and tax implications (Fung, 2014).

Cash Flow

Adjusting the net profit for non-cash items= Rs. (200,000+20,000-10,000)= 210,000

Subtracting the increase in accounts receivable= 210,000-15,000=195,000

Adding the decrease in inventories = 195,000+25,000= 225,000

Hence, the cash flow in that trading year is Rs. 220,000.

Adjusting Entries for supplies

Supplies Expense 230,000

Supplies 230,000

Explanation: The supplies used during the year can be calculated by subtracting the beginning balance of supplies (Rs. 70,000) from the total supplies purchased during the year (Rs. 300,000) and then subtracting the ending balance of supplies (Rs. 75,000). Therefore, the supplies used during the year is -= Rs. (300,000 – 70,000 – 75,000)= Rs. 230,000

To adjust the supplies on hand at the end of the year:

Supplies=Rs. 75,000

Supplies=Hand Rs.=75,000

The supplies on hand at the end of the year are =75,000.

Hence, these adjusting entries, the Supplies account = (Rs. 300,000 – Rs. 230,000)=70,000

This reflects the actual amount of supplies still on hand at the end of the year. The Supplies Expense account will have a balance of Rs. 230,000 to reflect the supplies used during the year.

Accounting Equation

Accounting Equation is Assets= Liabilities +Equity

In this transaction, assets will be affected and will be reflected in the cash account (3000*3=9,000)

The transaction will not affect liabilities. Hence, they will remain unchanged.

Similarly, the transaction will not affect Equity. Hence, they will remain unchanged.

Hence, Accounting Equation; 9000= 0+0

Classification of Idle cash investment

The 8% certificate of deposit (CD) has an alluring interest rate of 8% and a maturity of 90 days. Because it reaches maturity within a mere 90 days, less than a year, it should be categorized as a current asset on the balance sheet, as is expounded by financial experts. More specifically, it should be reported as a short-term investment or marketable security to reflect its financial position accurately. The amount invested in this financial instrument should be duly recorded at its fair value on the balance sheet, indicating its value at the purchase time. In addition, there is a more exciting option for investors in the form of the 112-day CD, which offers an even better interest rate of 9%. Xu and Zhang (2014) assert that an investment that matures in less than one year; should be classified as a current asset on the balance sheet. Hence, similarly to the first CD, it should be reported as a short-term investment or marketable security at its fair value, as this represents the most accurate financial position of the organization. As a result, when the December 31 balance sheet is published, the first CD should be classified as a short-term investment or marketable security at fair value, while the second CD should also be classified as a short-term investment or marketable security at fair value.


Abdul-Rahamon, O. A., & Adejare, A. T. (2014). The analysis of the impact of accounting records keeping on the performance of the small-scale enterprises. International Journal of Academic Research in Business and Social Sciences4(1), 1-17.

Dhanva, K., Harikrishnan, M., & Babu, P. U. (2018, April). Cheque image security enhancement in online banking. In 2018 Second International Conference on Inventive Communication and Computational Technologies (ICICCT) (pp. 1256-1260). IEEE.

Fung, B. (2014). The demand and need for transparency and disclosure in corporate governance. Universal Journal of Management2(2), 72-80.

Ghazali, A. W., Shafie, N. A., & Sanusi, Z. M. (2015). Earnings management: An analysis of opportunistic behavior, monitoring mechanism, and financial distress. Procedia Economics and Finance28, 190-201.

Hall, J. A. (2015). Accounting information systems. Cengage Learning.

Libby, R., Short, D., & Libby, P. (2014). EBOOK: Financial Accounting. McGraw Hill.

Sadiqin, A. (2021). Implementation of Accounts Receivable Control Against the Risk of Doubtful Accounts at PT. Radhar Delta Bersaudara Sidoarjo Branch. Jurnal Ekonomi, Manajemen, Bisnis, Dan Sosial (Embiss)1(2), 109-114.

Tricker, R. I. (2015). Corporate governance: Principles, policies, and practices. Oxford University Press, USA.

Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2018). Financial Accounting with International Financial Reporting Standards. John Wiley & Sons.

Xu, J., & Zhang, X. (2014). China’s sovereign debt: A balance-sheet perspective. China Economic Review31, 55-73.

Young, S. (2014). The drivers, consequences, and policy implications of non-GAAP earnings reporting. Accounting and Business Research44(4), 444-465.


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