BGCSE Bookkeeping & Accounts cheat sheet
BGCSE Bookkeeping & Accounts · Keep the key ideas within reach.
Accounting Concepts, Principles and the Accounting Equation
Accounting equation: Assets = Capital (owner's equity) + Liabilities; every transaction keeps it balanced.
Assets are resources controlled by the business with future economic benefit; liabilities are present obligations to transfer resources.
Capital = Assets − Liabilities; profit increases capital, drawings and losses decrease it.
Going concern: assume the entity continues operating for the foreseeable future, so assets are not valued at break-up prices.
Accruals (matching): revenue and expenses are recognised when earned or incurred, not when cash moves.
Prudence: understate rather than overstate assets and profits; recognise losses as soon as reasonably certain.
Business entity: the owner's personal transactions are kept separate from the firm's records.
Consistency: apply the same accounting methods each period so figures are comparable.
Materiality: an item is recorded separately only if its omission or misstatement could affect users' decisions.
Double-Entry Bookkeeping and Books of Original Entry
Every transaction: debit one or more accounts and credit one or more accounts for equal total amounts.
DEAD CLIC: Debits increase Expenses, Assets, Drawings; Credits increase Liabilities, Income, Capital.
Books of original entry: sales day book, purchases day book, sales returns book, purchases returns book, cash book, petty cash book, general journal.
Source documents: invoice (credit sale/purchase), credit note (returns), debit note, receipt, cheque counterfoil, bank statement.
Sales day book totals are posted: debit Trade Receivables, credit Sales. Purchases day book: debit Purchases, credit Trade Payables.
Sales returns: debit Sales Returns, credit Trade Receivables. Purchases returns: debit Trade Payables, credit Purchases Returns.
The journal records non-routine items (opening entries, corrections of error, purchase of fixed assets on credit) with a narration.
Cash book is both a book of original entry and a ledger account; it is the only book with a debit and credit column for cash and bank.
Ledger Accounts, Trial Balance and Correction of Errors
Ledger: nominal (income and expense), personal (receivables/payables), and private (capital/drawings) accounts.
Balancing a ledger account: total each side, enter the difference on the smaller side, then bring it down on the opposite side.
Trial balance is a list of ledger balances; total debits must equal total credits, proving arithmetical accuracy only.
Errors not revealed by a trial balance: omission, commission, principle, original entry, reversal, compensating errors.
Errors revealed by a trial balance: single entry, addition/subtraction error, transposition, posting to the wrong side.
Suspense account holds the difference in a trial balance until errors are found; clear it by journal entries.
Error of principle: capital expenditure posted to a revenue account (e.g. machinery repairs debited to Machinery).
Correction of error uses the journal: reverse the incorrect entry, then record the correct one.
Bank Reconciliation and Control Accounts
Bank reconciliation explains the difference between the cash book bank balance and the bank statement balance.
Items in cash book but not statement: unpresented (outstanding) cheques, uncredited deposits/lodgements.
Items in statement but not cash book: bank charges, interest, standing orders, direct debits, dishonoured cheques, credit transfers - adjust the cash book.
Adjusted cash book balance = statement balance − unpresented cheques + uncredited deposits (after cash book adjustments).
Trade receivables control account: opening balance + credit sales − sales returns − receipts − discounts allowed − bad debts = closing balance.
Trade payables control account: opening balance + credit purchases − purchases returns − payments − discounts received = closing balance.
Contra (set-off) between a customer and supplier of the same firm reduces both receivables and payables control accounts.
A difference between control account and receivables ledger is an error; investigate and correct by journal.
Depreciation, Accruals, Prepayments and Adjustments
Straight-line depreciation = (Cost − Residual value) ÷ Useful life; same charge each year.
Reducing balance: annual charge = Net book value × fixed percentage; charge falls each year.
Depreciation is an expense in the income statement; accumulated depreciation is a credit balance deducted from cost in the statement of financial position.
Net book value = Cost − Accumulated depreciation.
Accrued expense: expense incurred but unpaid; debit expense, credit accruals (current liability).
Prepaid expense: paid in advance; debit prepayments (current asset), credit expense.
Accrued income: earned but not received; debit accrued income (current asset), credit income.
Income received in advance: debit income, credit income in advance (current liability).
Provision for doubtful debts is created by debiting expense and crediting provision; it is an estimate, not a write-off.
Financial Statements for Sole Traders
Income statement: Sales − Cost of sales = Gross profit; Gross profit − Expenses = Net profit.
Cost of sales = Opening inventory + Purchases + Carriage inwards − Purchases returns − Closing inventory.
Statement of financial position: Non-current assets + Current assets − Current liabilities − Non-current liabilities = Capital.
Capital (closing) = Opening capital + Net profit + Additional capital introduced − Drawings.
Current ratio = Current assets ÷ Current liabilities; ideal around 2:1.
Quick (acid test) ratio = (Current assets − Inventory) ÷ Current liabilities; ideal around 1:1.
Gross profit margin = Gross profit ÷ Sales × 100%; Net profit margin = Net profit ÷ Sales × 100%.
Return on capital employed = Net profit ÷ Capital employed × 100%.
Inventory turnover = Cost of sales ÷ Average inventory (times per period).
Partnership Accounts and Non-Profit Organisations
Partnership appropriation account distributes profit: interest on capital, partners' salaries, interest on drawings, then residual profit shared in profit-sharing ratio.
Interest on drawings is income to the partnership; it is debited to each partner's current account.
Fixed capital accounts stay constant; current accounts record drawings, salaries, interest and profit share.
In the absence of a partnership agreement, profits and losses are shared equally and no interest or salaries are allowed.
Goodwill on admission of a partner: new partner pays a premium, credited to old partners in their old profit-sharing ratio.
Non-profit organisations use a receipts and payments account (cash summary) and an income and expenditure account (accruals basis).
Surplus or deficit = Income − Expenditure in the income and expenditure account; it adjusts the accumulated fund.
Accumulated fund = Assets − Liabilities of a non-profit organisation, equivalent to capital.
Subscriptions in arrears are current assets; subscriptions in advance are current liabilities.
Company Accounts, Capital Structure and Finance
Share capital: ordinary shares carry voting rights and variable dividends; preference shares carry fixed dividend rates and priority on winding up.
Issued share capital = Number of shares issued × Nominal (par) value; share premium arises when issued above par.
Statement of financial position: Share capital + Share premium + Reserves + Retained earnings = Total equity.
Debentures are long-term loans carrying fixed interest; they are liabilities, not equity.
Dividends are paid only out of distributable profits and are not an expense in the income statement.
Corporation tax and interest on debentures are deducted before arriving at profit for the year.
Reserves: capital reserves (share premium, revaluation) are not distributable; revenue reserves (retained earnings) are.
Bonus (capitalisation) issue converts reserves into share capital without raising new cash.
Rights issue offers existing shareholders new shares, usually below market price, raising new finance.
Interpretation and Analysis of Financial Statements
Profitability ratios: gross margin, net margin, ROCE - measure earnings performance.
Liquidity ratios: current ratio and quick ratio - measure ability to meet short-term obligations.
Efficiency ratios: inventory turnover, receivables collection period = Receivables ÷ Credit sales × 365 days.
Payables payment period = Payables ÷ Credit purchases × 365 days.
Gearing = Debt (long-term loans) ÷ (Debt + Equity) × 100%; high gearing means greater financial risk.
Dividend cover = Profit after tax ÷ Ordinary dividends; dividend yield = Dividend per share ÷ Market price per share × 100%.
Earnings per share = Profit after tax attributable to ordinary shareholders ÷ Number of ordinary shares.
Limitations of ratio analysis: differing accounting policies, historical cost figures, inflation, industry differences, and non-financial factors ignored.
Comparing ratios over time (trend) and against similar firms gives more meaning than a single year's figures.
Accounting Concepts, Principles and the Accounting Equation
Accounting equation: Assets = Capital (owner's equity) + Liabilities; every transaction keeps it balanced.
Assets are resources controlled by the business with future economic benefit; liabilities are present obligations to transfer resources.
Capital = Assets − Liabilities; profit increases capital, drawings and losses decrease it.
Going concern: assume the entity continues operating for the foreseeable future, so assets are not valued at break-up prices.
Accruals (matching): revenue and expenses are recognised when earned or incurred, not when cash moves.
Prudence: understate rather than overstate assets and profits; recognise losses as soon as reasonably certain.
Business entity: the owner's personal transactions are kept separate from the firm's records.
Consistency: apply the same accounting methods each period so figures are comparable.
Materiality: an item is recorded separately only if its omission or misstatement could affect users' decisions.
Double-Entry Bookkeeping and Books of Original Entry
Every transaction: debit one or more accounts and credit one or more accounts for equal total amounts.
DEAD CLIC: Debits increase Expenses, Assets, Drawings; Credits increase Liabilities, Income, Capital.
Books of original entry: sales day book, purchases day book, sales returns book, purchases returns book, cash book, petty cash book, general journal.
Source documents: invoice (credit sale/purchase), credit note (returns), debit note, receipt, cheque counterfoil, bank statement.
Sales day book totals are posted: debit Trade Receivables, credit Sales. Purchases day book: debit Purchases, credit Trade Payables.
Sales returns: debit Sales Returns, credit Trade Receivables. Purchases returns: debit Trade Payables, credit Purchases Returns.
The journal records non-routine items (opening entries, corrections of error, purchase of fixed assets on credit) with a narration.
Cash book is both a book of original entry and a ledger account; it is the only book with a debit and credit column for cash and bank.
Ledger Accounts, Trial Balance and Correction of Errors
Ledger: nominal (income and expense), personal (receivables/payables), and private (capital/drawings) accounts.
Balancing a ledger account: total each side, enter the difference on the smaller side, then bring it down on the opposite side.
Trial balance is a list of ledger balances; total debits must equal total credits, proving arithmetical accuracy only.
Errors not revealed by a trial balance: omission, commission, principle, original entry, reversal, compensating errors.
Errors revealed by a trial balance: single entry, addition/subtraction error, transposition, posting to the wrong side.
Suspense account holds the difference in a trial balance until errors are found; clear it by journal entries.
Error of principle: capital expenditure posted to a revenue account (e.g. machinery repairs debited to Machinery).
Correction of error uses the journal: reverse the incorrect entry, then record the correct one.
Bank Reconciliation and Control Accounts
Bank reconciliation explains the difference between the cash book bank balance and the bank statement balance.
Items in cash book but not statement: unpresented (outstanding) cheques, uncredited deposits/lodgements.
Items in statement but not cash book: bank charges, interest, standing orders, direct debits, dishonoured cheques, credit transfers - adjust the cash book.
Adjusted cash book balance = statement balance − unpresented cheques + uncredited deposits (after cash book adjustments).
Trade receivables control account: opening balance + credit sales − sales returns − receipts − discounts allowed − bad debts = closing balance.
Trade payables control account: opening balance + credit purchases − purchases returns − payments − discounts received = closing balance.
Contra (set-off) between a customer and supplier of the same firm reduces both receivables and payables control accounts.
A difference between control account and receivables ledger is an error; investigate and correct by journal.
Depreciation, Accruals, Prepayments and Adjustments
Straight-line depreciation = (Cost − Residual value) ÷ Useful life; same charge each year.
Reducing balance: annual charge = Net book value × fixed percentage; charge falls each year.
Depreciation is an expense in the income statement; accumulated depreciation is a credit balance deducted from cost in the statement of financial position.
Net book value = Cost − Accumulated depreciation.
Accrued expense: expense incurred but unpaid; debit expense, credit accruals (current liability).
Prepaid expense: paid in advance; debit prepayments (current asset), credit expense.
Accrued income: earned but not received; debit accrued income (current asset), credit income.
Income received in advance: debit income, credit income in advance (current liability).
Provision for doubtful debts is created by debiting expense and crediting provision; it is an estimate, not a write-off.
Financial Statements for Sole Traders
Income statement: Sales − Cost of sales = Gross profit; Gross profit − Expenses = Net profit.
Cost of sales = Opening inventory + Purchases + Carriage inwards − Purchases returns − Closing inventory.
Statement of financial position: Non-current assets + Current assets − Current liabilities − Non-current liabilities = Capital.
Capital (closing) = Opening capital + Net profit + Additional capital introduced − Drawings.
Current ratio = Current assets ÷ Current liabilities; ideal around 2:1.
Quick (acid test) ratio = (Current assets − Inventory) ÷ Current liabilities; ideal around 1:1.
Gross profit margin = Gross profit ÷ Sales × 100%; Net profit margin = Net profit ÷ Sales × 100%.
Return on capital employed = Net profit ÷ Capital employed × 100%.
Inventory turnover = Cost of sales ÷ Average inventory (times per period).
Partnership Accounts and Non-Profit Organisations
Partnership appropriation account distributes profit: interest on capital, partners' salaries, interest on drawings, then residual profit shared in profit-sharing ratio.
Interest on drawings is income to the partnership; it is debited to each partner's current account.
Fixed capital accounts stay constant; current accounts record drawings, salaries, interest and profit share.
In the absence of a partnership agreement, profits and losses are shared equally and no interest or salaries are allowed.
Goodwill on admission of a partner: new partner pays a premium, credited to old partners in their old profit-sharing ratio.
Non-profit organisations use a receipts and payments account (cash summary) and an income and expenditure account (accruals basis).
Surplus or deficit = Income − Expenditure in the income and expenditure account; it adjusts the accumulated fund.
Accumulated fund = Assets − Liabilities of a non-profit organisation, equivalent to capital.
Subscriptions in arrears are current assets; subscriptions in advance are current liabilities.
Company Accounts, Capital Structure and Finance
Share capital: ordinary shares carry voting rights and variable dividends; preference shares carry fixed dividend rates and priority on winding up.
Issued share capital = Number of shares issued × Nominal (par) value; share premium arises when issued above par.
Statement of financial position: Share capital + Share premium + Reserves + Retained earnings = Total equity.
Debentures are long-term loans carrying fixed interest; they are liabilities, not equity.
Dividends are paid only out of distributable profits and are not an expense in the income statement.
Corporation tax and interest on debentures are deducted before arriving at profit for the year.
Reserves: capital reserves (share premium, revaluation) are not distributable; revenue reserves (retained earnings) are.
Bonus (capitalisation) issue converts reserves into share capital without raising new cash.
Rights issue offers existing shareholders new shares, usually below market price, raising new finance.
Interpretation and Analysis of Financial Statements
Profitability ratios: gross margin, net margin, ROCE - measure earnings performance.
Liquidity ratios: current ratio and quick ratio - measure ability to meet short-term obligations.
Efficiency ratios: inventory turnover, receivables collection period = Receivables ÷ Credit sales × 365 days.
Payables payment period = Payables ÷ Credit purchases × 365 days.
Gearing = Debt (long-term loans) ÷ (Debt + Equity) × 100%; high gearing means greater financial risk.
Dividend cover = Profit after tax ÷ Ordinary dividends; dividend yield = Dividend per share ÷ Market price per share × 100%.
Earnings per share = Profit after tax attributable to ordinary shareholders ÷ Number of ordinary shares.
Limitations of ratio analysis: differing accounting policies, historical cost figures, inflation, industry differences, and non-financial factors ignored.
Comparing ratios over time (trend) and against similar firms gives more meaning than a single year's figures.