TASC Accounting Level 3 cheat sheet

Accounting equation: Assets = Liabilities + Equity; every transaction preserves this equality, so double-entry records equal debits and credits.

Accrual basis: revenue is recognised when performance obligations are satisfied, and expenses when incurred, regardless of cash timing; cash basis recognises only cash movements.

Depreciation methods: straight-line = (cost − residual) ÷ useful life; reducing balance applies a fixed percentage to carrying amount; units-of-production charges per output unit.

Inventory cost formulas: FIFO assigns oldest costs to cost of sales; weighted average recalculates a unit cost after each purchase; LIFO is prohibited under IFRS.

Lower of cost and net realisable value: inventory is written down when NRV (estimated selling price less costs to complete and sell) falls below cost; the write-down is an expense.

Closing trial balance errors: a transposition of digits (e.g. 54 recorded as 45) creates a difference divisible by 9; an omitted journal entry leaves the trial balance balanced but the accounts wrong.

Statement of financial position classification: current assets/liabilities are expected to be realised or settled within 12 months or the operating cycle; all others are non-current.

Bank reconciliation: adjusted cash book balance = unadjusted balance ± items not yet recorded (bank charges, standing orders, dishonoured cheques); adjusted bank statement = statement balance ± timing differences (outstanding cheques, deposits in transit).

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

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

Overhead absorption rate = budgeted production overhead ÷ budgeted activity level (labour hours, machine hours, or units); applied overhead = actual activity × absorption rate.

Over- or under-absorption = actual overhead incurred − overhead absorbed; over-absorption (absorbed > actual) is credited to cost of sales, under-absorption is debited.

Contribution per unit = selling price − variable cost per unit; break-even units = fixed costs ÷ contribution per unit; margin of safety = (budgeted sales − break-even sales) ÷ budgeted sales.

Relevant costing: only future, incremental cash flows that differ between alternatives are relevant; sunk costs and allocated common fixed costs are irrelevant.

Process costing: equivalent units = completed units + (closing work in progress × percentage complete); cost per equivalent unit = total process cost ÷ equivalent units.

Standard costing variances: material price = (standard price − actual price) × actual quantity; material usage = (standard quantity for actual output − actual quantity) × standard price.

Segregation of duties: the functions of authorising transactions, recording transactions, and custody of assets must be assigned to different people to reduce fraud and error risk.

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

Batch processing: transactions are accumulated and processed as a group; total control totals (hash, record count, financial totals) detect lost or altered records between input and processing.

Access controls: authentication verifies identity (passwords, tokens); authorisation determines permitted actions; audit logs record who did what and when.

Data validation checks: range check (value within limits), format check (pattern match), existence check (valid code), check digit (calculated digit detects keying errors), and reasonableness check.

Backup and recovery: the grandfather-father-son rotation keeps three generations of files; a disaster recovery plan specifies recovery time and recovery point objectives.

General controls apply to all applications (access, change management, backup); application controls apply to specific processes (input, processing, output controls).

Time value of money: future value = present value × (1 + r)^n; present value = future cash flow ÷ (1 + r)^n; use the annuity factor for equal periodic cash flows.

Net present value = present value of cash inflows − initial investment; accept a project when NPV > 0; among mutually exclusive projects, choose the highest positive NPV.

Internal rate of return is the discount rate at which NPV = 0; accept when IRR exceeds the cost of capital; IRR can give misleading rankings for unconventional cash flows.

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

Weighted average cost of capital = (E/V) × cost of equity + (D/V) × cost of debt × (1 − tax rate), where V = E + D.

Cost of equity (dividend growth model) = (next dividend ÷ current share price) + dividend growth rate; the capital asset pricing model adds a risk-free rate plus beta × market risk premium.

Gearing = debt ÷ (debt + equity) or debt ÷ equity; higher gearing increases financial risk and the required return on equity.

Relevant cash flows for investment appraisal exclude sunk costs, allocated fixed overheads, and financing costs (captured in the discount rate); include opportunity costs and tax effects.