QCAA Accounting cheat sheet

Accounting equation: Assets = Liabilities + Equity; every transaction preserves this equality, so debits always equal credits.

Accrual basis recognises revenue when earned and expenses when incurred, regardless of cash timing; cash basis recognises only on cash movement.

Adjusting entries at period end cover accruals (revenue earned or expense incurred but not recorded) and deferrals (prepaid expenses, unearned revenue).

Depreciation formulas: straight-line = (cost − residual) ÷ useful life; reducing balance = carrying amount × rate; units of production = (cost − residual) × units used ÷ total units.

Closing entries transfer revenue, expense and drawings balances to the income summary and then to equity, leaving temporary accounts at zero.

Perpetual inventory records cost of sales at each sale; periodic inventory derives cost of sales = opening inventory + purchases − closing inventory.

A trial balance proves debit-credit equality only; it does not detect omitted transactions, compensating errors, or postings to the wrong account of the same side.

Classification: current assets are realised within 12 months; non-current liabilities are due beyond 12 months; retained earnings are accumulated profits less dividends.

Cost behaviour: total fixed cost is constant in total but falls per unit; total variable cost rises with volume but is constant per unit.

High-low method: variable cost per unit = (highest cost − lowest cost) ÷ (highest activity − lowest activity); fixed cost = total cost − (variable rate × activity).

Contribution margin = sales − variable costs; contribution margin ratio = contribution ÷ sales; break-even units = fixed costs ÷ contribution per unit.

Break-even sales dollars = fixed costs ÷ contribution margin ratio; target profit units = (fixed costs + target profit) ÷ contribution per unit.

Margin of safety = actual or budgeted sales − break-even sales, expressed in units, dollars or as a percentage of actual sales.

Absorption costing includes fixed manufacturing overhead in product cost; variable costing treats fixed overhead as a period cost, so profit differs by the change in inventory × fixed overhead rate.

Overhead allocation: predetermined rate = budgeted overhead ÷ budgeted allocation base; applied overhead = rate × actual base; under- or over-applied = applied − actual.

Relevant costs for decisions are future and differential; sunk costs and allocated common fixed costs are irrelevant except where they change in total.

Internal control components: control environment, risk assessment, control activities, information and communication, and monitoring.

Segregation of duties separates custody of assets, authorisation of transactions, and record keeping so no one person controls a whole transaction cycle.

Bank reconciliation: adjusted bank balance = bank statement balance + deposits in transit − unpresented cheques ± bank errors; adjusted cash balance = ledger balance + collections by bank − unrecorded payments ± ledger errors.

The bank reconciliation is a control because it independently verifies cash records against an external source and detects fraud or error.

GST in Australia: 10% on taxable supplies; the business records GST collected as a liability and GST paid as an input credit, remitting the net to the ATO.

A subsidiary ledger holds individual debtor or creditor accounts; the control account in the general ledger must equal the sum of the subsidiary ledger balances.

Physical controls include pre-numbered documents, safe custody, restricted access, and periodic stocktakes reconciled to inventory records.

Information system controls distinguish general controls (access, backup, change management) from application controls (input validation, batch totals, exception reports).

Accept a special order only if the incremental revenue exceeds incremental costs and spare capacity exists; fixed costs unchanged by the order are irrelevant.

Make-or-buy: compare avoidable internal costs with the purchase price plus any opportunity cost of freed capacity.

Keep-or-drop a segment: drop only if avoidable costs exceed lost contribution margin; allocated fixed costs that continue are irrelevant.

Capital budgeting: payback period = initial investment ÷ annual net cash inflow; accept under a set maximum payback.

Net present value = present value of cash inflows − initial outlay; accept if NPV > 0; NPV and IRR agree for conventional independent projects.

Accounting rate of return = average annual profit ÷ average investment; it ignores the time value of money.

Profitability index = present value of cash inflows ÷ initial investment; rank mutually exclusive projects by NPV, not by index.

CVP analysis assumes constant selling price, constant variable cost per unit, fixed costs constant within the relevant range, and a single product or constant sales mix.