AAT Level 3 FAPS cheat sheet

DEAD CLIC: debits increase Expenses, Assets and Drawings; credits increase Liabilities, Income and Capital.

Accounting equation: Assets = Capital + Liabilities. Extended: non-current assets + current assets − current liabilities − non-current liabilities = capital.

Books of prime entry: sales day book, purchases day book, sales returns day book, purchases returns day book, cash book and general journal.

Only credit transactions are recorded in the sales and purchases day books; cash sales and cash purchases go through the cash book.

Trade discount is deducted on the invoice and never posted to a ledger account; settlement (cash) discount is posted to discount allowed or discount received.

Output VAT on sales is credited to the VAT control account; input VAT on purchases is debited; the balance is payable to, or recoverable from, the tax authority.

A trial balance lists debit and credit balances; equal totals prove arithmetical agreement only, not that entries are free from error.

The general journal records opening entries, corrections of error and other non-regular transactions, each with a dated narrative.

Purchases returns are credited to the supplier's account and debited to the purchases returns account via the returns outwards day book.

Receivables ledger control: debit opening balance, credit sales, interest charged and dishonoured cheques; credit receipts, sales returns, discounts allowed and irrecoverable debts written off.

Payables ledger control: credit opening balance and credit purchases; debit payments, purchase returns, discounts received and contras.

Contra between ledgers: debit payables ledger control, credit receivables ledger control, for the offsetting balances of the same party.

Adjusted cash book: enter bank charges, bank interest, standing orders, direct credits and dishonoured cheques shown on the statement, then re-balance.

Bank reconciliation: adjusted cash book balance + lodgements not yet credited − unpresented cheques = bank statement balance.

Petty cash imprest: the reimbursement equals the total of vouchers paid in the period, restoring the float to its agreed amount.

The receivables ledger control account balance should equal the sum of the individual customer balances; any difference indicates an error.

Supplier statement reconciliation differences arise from timing (goods or payments in transit), omissions and errors; the ledger is corrected only where the ledger itself is wrong.

Accrued expense: Dr expense, Cr accruals, reversed next period. Prepaid expense: Dr prepayments, Cr expense, reversed next period.

Straight-line depreciation = (cost − residual value) ÷ useful life; reducing balance = carrying amount × fixed percentage.

Depreciation entry: Dr depreciation expense, Cr accumulated depreciation; the asset cost account is never credited for depreciation.

Irrecoverable debt written off: Dr irrecoverable debts expense, Cr trade receivables. Later recovery: Dr bank, Cr irrecoverable debts recovered.

Allowance for doubtful debts: an increase is Dr expense, Cr allowance; a decrease is Dr allowance, Cr expense.

Errors not affecting trial balance agreement: principle, omission, commission, original entry, reversal and compensating errors.

Errors affecting trial balance agreement: single (one-sided) entry, transposition, addition error, and posting only one side of a journal.

A suspense account holds the difference on the trial balance; each correction is journalised with suspense as the opposite entry until the account clears.

Extended trial balance columns: trial balance, adjustments, adjusted trial balance, statement of profit or loss, statement of financial position.

Cost of sales = opening inventory + purchases + carriage inwards − purchase returns − closing inventory.

Gross profit = revenue − cost of sales; profit for the year = gross profit − expenses − finance costs − tax.

Closing inventory adjustment: Dr inventory (asset), Cr cost of sales; the opening inventory balance is already included in cost of sales.

Capital section: opening capital + capital introduced + profit for the year − drawings = closing capital.

Statement of financial position order: non-current assets, current assets, current liabilities, non-current liabilities, capital.

Inventory is measured at the lower of cost and net realisable value; NRV = estimated selling price − costs to complete and sell.

Drawings are deducted from capital and are never shown as an expense in the statement of profit or loss.

Carrying amount of a non-current asset = cost − accumulated depreciation; a disposal removes both the cost and the related accumulated depreciation.

Statements are prepared on the accruals basis, with going concern assumed, so income and expenses are matched to the period they relate to.