BGCSE Accounting 1442 cheat sheet

Going concern assumes the entity will continue operating long enough to realise assets and settle liabilities in the normal course of business.

Accruals (matching) records revenue when earned and expenses when incurred, not when cash is received or paid.

Consistency applies the same accounting policies each period unless a change improves fair presentation; the effect of any change is disclosed.

Prudence introduces caution under uncertainty so assets and income are not overstated and liabilities and expenses are not understated.

Business entity treats the owner and the business as separate accounting units, so personal transactions are excluded from business records.

Historical cost records assets at acquisition cost less depreciation or impairment, rather than at current market value.

Materiality permits omission or misstatement only when it cannot influence the economic decisions of users.

Realisation recognises revenue when control of goods or services passes and the amount is reasonably certain.

Debit entries increase assets and expenses and decrease liabilities, capital and income; credit entries have the opposite effect.

Sales day book records credit sales only; its total is posted as Dr receivables control and Cr sales.

Purchases day book records credit purchases; its total is posted as Dr purchases and Cr payables control.

Sales returns day book total is posted as Dr sales returns and Cr receivables control.

Purchase returns day book total is posted as Dr payables control and Cr purchase returns.

Cash book is both a book of original entry and a ledger; debit columns record receipts and credit columns record payments.

Petty cash imprest is restored by reimbursing the exact amount spent, so the float returns to its original fixed amount.

General journal records non-routine adjustments, corrections, opening entries and year-end transfers.

Discount received is recorded as Dr payables control and Cr discount received; discount allowed is Dr discount allowed and Cr receivables control.

Trial balance lists debit and credit balances; total debits must equal total credits before financial statements are prepared.

Error of omission leaves a transaction entirely out of the records, so both debit and credit are missing and the trial balance still balances.

Error of commission posts to the wrong account of the same class, such as the wrong customer account, and the trial balance still balances.

Error of principle posts to the wrong class of account, such as treating a machine purchase as an expense, and the trial balance still balances.

Error of original entry enters the wrong amount in the books and posts that same wrong amount to both sides.

Compensating errors are two or more independent errors that cancel in amount, so the trial balance still balances.

Suspense account is opened when trial balance totals differ; its balance equals the difference and it is closed after corrections.

A one-sided error affects the suspense account; the correction journal places suspense on the missing side.

A transposition error such as recording 540 as 450 creates a difference divisible by 9, here 90.

Sales ledger control: opening debit balance + credit sales - sales returns - receipts - discounts allowed = closing debit balance.

Purchase ledger control: opening credit balance + credit purchases - purchase returns - payments - discounts received = closing credit balance.

Contra set-off is Dr payables control and Cr receivables control when the same party is both customer and supplier.

Bank statement balance is adjusted for unpresented cheques, deposits not yet credited and bank errors to reconcile to the cash book.

Cash book balance is adjusted for direct credits, standing orders, direct debits, bank charges, dishonoured cheques and interest.

Unpresented cheque is a payment in the cash book not yet debited by the bank; deduct it from the bank statement balance.

Deposit not yet credited is a receipt in the cash book not yet on the bank statement; add it to the bank statement balance.

A bank overdraft in the cash book is a credit balance and is presented as a current liability.

Control account balances should agree with the sum of individual ledger balances; discrepancies are investigated and corrected.

Gross profit = revenue - cost of sales; cost of sales = opening inventory + purchases + carriage inwards - returns outwards - closing inventory.

Profit for the year = gross profit + other income - expenses.

Statement of financial position: assets = capital + liabilities.

Closing capital = opening capital + profit for the year + capital introduced - drawings.

Current assets include inventory, trade receivables, prepayments and cash; current liabilities include payables, accruals and bank overdraft.

Accrued expense is added to the expense in the income statement and shown as a current liability.

Prepaid expense is deducted from the expense and shown as a current asset.

Accrued income is added to income and shown as a current asset; income received in advance is deducted from income and shown as a current liability.

Depreciation is charged to the income statement; accumulated depreciation is deducted from asset cost in the statement of financial position.

Appropriation: profit for the year + interest on drawings - interest on capital - partners' salaries = residual profit shared in the profit-sharing ratio.

Interest on capital is credited to each partner's current account; interest on drawings is debited.

Partners' salaries are credited to current accounts and are not an expense in the income statement.

Fixed capital accounts remain unchanged; current accounts record appropriations, drawings and share of profit.

On admission, goodwill paid by the new partner is credited to old partners in their old profit-sharing ratio.

Revaluation gain or loss on admission or retirement is shared among old partners in their old profit-sharing ratio.

Dissolution realises assets, pays liabilities and distributes remaining cash according to capital balances after current accounts.

In the absence of an agreement, profits are shared equally, with no interest on capital, no interest on drawings and no salaries.

A debit balance on a partner's current account indicates the partner owes the firm; a credit balance indicates the firm owes the partner.

Receipts and payments account records all cash receipts and payments and is not prepared on the accruals basis.

Income and expenditure account records income earned and expenses incurred, similar to an income statement.

Surplus = income - expenditure; a deficit arises when expenditure exceeds income.

Accumulated fund is the equivalent of capital; assets - liabilities = accumulated fund.

Subscriptions in arrears are current assets; subscriptions in advance are current liabilities.

Life membership subscriptions are capitalised and recognised over the expected membership period or as income according to policy.

Donations for a specific purpose are recorded as restricted funds and are not general income.

A trading activity surplus is added to income; a trading deficit is deducted.

Depreciation of club assets is charged to the income and expenditure account.

Gross profit margin = gross profit / revenue × 100.

Net profit margin = profit before tax / revenue × 100.

Return on capital employed = operating profit / capital employed × 100; capital employed = total assets - current liabilities.

Current ratio = current assets / current liabilities; an ideal near 2:1 depends on the industry.

Quick ratio = (current assets - inventory - prepayments) / current liabilities; it is a stricter liquidity test.

Inventory turnover = cost of sales / average inventory; inventory days = 365 / inventory turnover.

Receivables collection period = trade receivables / credit sales × 365 days.

Payables payment period = trade payables / credit purchases × 365 days.

Gearing = debt / (debt + equity) × 100 or debt/equity; higher gearing increases financial risk.