CIMA BA3 cheat sheet

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

Double entry: debit entries increase assets and expenses and decrease liabilities, capital and income; credit entries do the reverse.

Trial balance lists every ledger balance; it proves arithmetic equality only - it will not reveal compensating errors, omitted transactions or errors of principle.

Books of prime entry: sales day book, purchases day book, sales returns day book, purchases returns day book, cash book, petty cash book, general journal.

Journal entries are used for non-routine items: opening entries, corrections of error, adjustments, and transfers between ledger accounts.

Accruals (matching) concept: income and expenses are recognised in the period they are earned or incurred, not when cash moves.

Going concern assumes the entity continues in operation for the foreseeable future, justifying carrying assets at cost rather than break-up value.

Prudence requires caution under uncertainty - recognise liabilities and losses promptly; recognise gains only when realised.

Capital vs revenue: capital expenditure acquires or improves a non-current asset; revenue expenditure is consumed in day-to-day trading and charged to profit or loss.

IAS 2 inventories: measured at the lower of cost and net realisable value; NRV = estimated selling price less costs to complete and costs to sell.

FIFO leaves closing inventory valued at the most recent purchase prices; AVCO recalculates a weighted average after each receipt.

Depreciation allocates the depreciable amount (cost less residual value) over useful life: straight line = (cost − residual)/life per annum.

Reducing balance depreciation charges a fixed percentage on the opening carrying amount, giving a higher charge in early years.

IAS 16: revaluation surplus on a non-current asset goes to other comprehensive income and is held in a revaluation reserve, not profit or loss.

Profit on disposal = proceeds − carrying amount at date of sale; carrying amount = cost (or valuation) less accumulated depreciation.

IAS 38: research expenditure is expensed; development expenditure is capitalised only if technical and commercial feasibility and other criteria are met.

Irrecoverable debts are written off to profit or loss; a doubtful debts allowance is created using a percentage of receivables and adjusted, not re-created, each year.

Bank reconciliation: adjust the cash book for items not yet recorded (bank charges, standing orders, dishonoured cheques); adjust the bank statement balance for unpresented cheques and uncredited lodgements.

Statement of financial position: non-current assets + current assets − current liabilities − non-current liabilities = net assets, equal to capital plus reserves.

Statement of profit or loss: gross profit = revenue − cost of sales; profit before tax = gross profit − expenses + other income.

Cost of sales = opening inventory + purchases (less returns) + carriage inwards − closing inventory.

Gross profit margin = gross profit / revenue × 100%; mark-up = gross profit / cost of sales × 100%.

Current ratio = current assets / current liabilities; quick ratio = (current assets − inventory) / current liabilities.

Inventory turnover = cost of sales / average inventory (times); receivables collection period = receivables / credit sales × 365 days.

Gearing = debt (or debt + preference shares) / (debt + equity) × 100%; measures financial risk and long-term solvency.

Return on capital employed = operating profit / capital employed × 100%, where capital employed = total assets − current liabilities.

Statement of cash flows (IAS 7) splits cash into operating, investing and financing activities; interest and dividends paid may be classified as operating or financing if applied consistently.