SACE Stage 2 Accounting cheat sheet

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

Accrual basis: revenue is recognised when earned and expenses when incurred, regardless of cash timing; adjusting entries are required at period end.

Closing entries transfer revenue, expense and drawings balances to the capital account, leaving only permanent accounts open for the next period.

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

Inventory cost flow: FIFO assigns oldest costs to cost of sales; weighted average uses total cost ÷ total units; periodic and perpetual systems give different interim figures.

Perpetual inventory records: purchase returns credit Inventory; freight in debits Inventory; a credit sale records both revenue and cost of sales.

Bank reconciliation: adjusted bank balance = bank statement balance + deposits not yet credited − unpresented cheques; adjusted cash book balance must then agree.

Trial balance extracts debit and credit balances; it detects unequal postings but not errors of omission, commission, principle, original entry, or compensating errors.

Cost classification: product costs (direct materials, direct labour, manufacturing overhead) attach to inventory; period costs are expensed as incurred.

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

Contribution margin = selling price − variable cost per unit; contribution margin ratio = contribution ÷ sales; it covers fixed costs before profit arises.

Break-even units = fixed costs ÷ contribution per unit; break-even sales dollars = fixed costs ÷ contribution margin ratio; target profit units add profit to fixed costs.

Margin of safety = actual or expected 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 expenses it, so profit differs by the change in inventory × overhead rate per unit.

Relevant costing: include only future costs and revenues that differ between alternatives; ignore sunk costs and allocated common fixed costs.

Flexible budget restates budgeted costs for actual activity; the sales volume variance is the difference between static and flexible budget, the flexible variance is price or spending.

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 transaction end to end.

Bank reconciliation and monthly bank statements are detective controls over cash; pre-numbered documents and sequence checks detect missing transactions.

Batch totals (hash, record count, financial total) verify that all source documents in a batch are processed exactly once.

Access controls: unique user logins, password rules, role-based permissions and audit logs limit and trace who can enter or change data.

Audit trail requires that every transaction be traceable from source document to ledger and back; deleting or overwriting records breaks the trail.

Backup and disaster recovery: regular off-site backups, tested restores, and documented recovery procedures protect data integrity and availability.

Limitations of internal control include collusion between employees, management override, human error, and cost-benefit constraints on control design.

Capital investment appraisal: accept a project with positive net present value; the internal rate of return is the discount rate giving zero NPV.

Payback period = time for cumulative cash inflows to recover the initial outlay; it ignores cash flows after payback and the time value of money.

Accounting rate of return = average annual profit ÷ average investment; average investment = (initial cost + residual value) ÷ 2.

Make-or-buy and special-order decisions use incremental analysis; a special order is accepted when its contribution is positive and spare capacity exists.

Limiting factor decisions: rank products by contribution per unit of the scarce resource, not by contribution per unit or selling price.

Ethical framework: identify the issue, gather facts, identify affected parties, evaluate alternatives against professional codes, then act and disclose appropriately.

Professional codes require integrity, objectivity, confidentiality and competence; threats include self-interest, self-review, advocacy, familiarity and intimidation.

Non-financial information such as quality, delivery, environmental impact and staff turnover complements financial analysis in evaluating performance.