Cameroon GCE O-Level Accounting cheat sheet

Accounting is the process of identifying, recording, classifying, summarising, analysing, interpreting and communicating financial information to users for informed decisions.

Users split into internal (owners, management, employees) and external (investors, lenders, suppliers, customers, government/tax authority, public); each has a different information need.

The accounting equation: Assets = Capital + Liabilities; expanded: Assets = Capital + Profit - Drawings + Liabilities.

Going concern: the business is assumed to continue operating for the foreseeable future, so assets are not valued at break-up prices.

Accruals (matching): revenue and costs are recognised when earned or incurred, not when cash changes hands.

Prudence/conservatism: do not anticipate profit but provide for all known losses; stock is valued at the lower of cost and net realisable value.

Business entity: the owner's private transactions are kept separate from the business's transactions.

Consistency: the same accounting methods (e.g. depreciation method) are applied from period to period so results are comparable.

Money measurement: only items capable of being expressed in monetary terms are recorded (a skilled workforce is excluded).

Source documents: invoice (credit sale/purchase), credit note (returns inwards/outwards), debit note, receipt, cheque counterfoil, petty cash voucher, bank statement.

Sales day book records credit sales only; cash sales go straight to the cash book. Purchases day book records credit purchases only.

Sales returns day book (returns inwards) and purchases returns day book (returns outwards) record goods returned.

The journal proper records items with no other book: opening entries, purchase/sale of non-current assets on credit, correction of errors, year-end adjustments.

Cash book is both a book of original entry and a ledger account; it has cash and bank columns and may include discount allowed and discount received columns.

Petty cash imprest system: a fixed float is issued; at the end of the period the vouchers total is reimbursed so the float is restored to the imprest amount.

Imprest amount = cash in hand + petty cash vouchers at any time; reimbursement = total vouchers paid since last top-up.

Posting rule: the day book total is posted to the ledger; the individual amounts are posted to the personal (debtors/creditors) accounts.

Every transaction has two effects: debit one account, credit another, for equal amounts; total debits always equal total credits.

DEAD CLIC: Debits increase Expenses, Assets, Drawings; Credits increase Liabilities, Income, Capital.

Debit the receiver, credit the giver: the account receiving value is debited, the account giving value is credited.

Debit balance = asset or expense; credit balance = liability, capital or income.

A trial balance lists all ledger balances; if total debits equal total credits it detects arithmetic errors but not errors of principle, omission, commission, original entry, compensating errors or complete reversal.

Suspense account is opened for the difference in the trial balance and cleared when errors are corrected; it is not a real ledger account.

Error of principle: correct double entry but wrong class of account (e.g. revenue expenditure debited to a non-current asset account).

Error of commission: right class, wrong account within the class (e.g. debited to J. Bello instead of J. Bell).

Bank reconciliation: adjusted cash book balance + unpresented cheques - uncredited deposits = bank statement balance; reconcile via timing differences and errors.

Trading account: Sales - Cost of goods sold = Gross profit, where COGS = Opening stock + Purchases + Carriage inwards - Returns outwards - Closing stock.

Profit and loss account starts with gross profit, adds other income and deducts expenses (including depreciation, bad debts, provision for doubtful debts, discount allowed) to give net profit.

Accrued expense: expense incurred but unpaid; debit expense, credit accrual (current liability). Prepaid expense: debit prepayment (current asset), credit expense.

Accrued income is a current asset; income received in advance is a current liability.

Depreciation is a non-cash expense charged to the profit and loss account; accumulated depreciation is a credit balance deducted from the asset cost in the balance sheet.

Bad debts are written off (debit bad debts, credit debtor); a provision for doubtful debts is created on remaining debtors and shown as a deduction from debtors.

Increase in provision = expense in P&L; decrease in provision = income (reduction of expense).

Balance sheet: Non-current assets + Current assets - Current liabilities = Net current assets; Capital + Non-current liabilities + Net profit - Drawings = Financed by.

Drawings are deducted from capital, never treated as an expense in the profit and loss account.

Cost of a non-current asset = purchase price + delivery + installation + legal fees - trade discount; excludes repairs and training.

Straight-line depreciation = (Cost - Residual value) / Useful life; equal charge each year.

Reducing balance depreciation = Net book value x fixed percentage; charge falls each year and the asset is never fully written off.

Sum-of-digits (accelerated) charges more in early years; units-of-production charges per unit of output.

Disposal account: debit with cost, credit with accumulated depreciation and with sale proceeds; the balancing figure is profit (credit) or loss (debit) transferred to P&L.

Profit on disposal = Sale proceeds - Net book value at date of sale.

Asset register records cost, date of purchase, depreciation rate, accumulated depreciation, location and disposal details for each asset.

Capital expenditure is added to the asset; revenue expenditure (repairs, servicing) is charged to the P&L in the year incurred.

Sales ledger control account: debit opening debit balances and credit sales; credit cash received, discount allowed, returns inwards, bad debts, closing debit balances.

Purchases ledger control account: credit opening credit balances and credit purchases; debit payments, discount received, returns outwards, closing credit balances.

Control account closing balance must equal the total of the individual ledger balances; differences reveal errors or omissions.

Contra entry (set-off) between sales and purchases ledgers appears on opposite sides of both control accounts.

Incomplete records: calculate missing figures from the accounting equation and the trading relationship; use mark-up and margin.

Mark-up = Gross profit / Cost of goods sold x 100; Margin = Gross profit / Sales x 100; Sales = Cost x (1 + mark-up).

Statement of affairs: list assets and liabilities at start and end to derive opening and closing capital; Profit = Closing capital + Drawings - Additional capital - Opening capital.

Missing cash figure: Total receipts - Total payments = Closing cash/bank balance; use the cash account to derive unknown drawings or takings.

Partnership agreement (deed) sets profit-sharing ratio, interest on capital, interest on drawings, partners' salaries and loan interest; in the absence of an agreement, profits are shared equally and no interest is allowed.

Appropriation account: starts with net profit, deducts partners' salaries and interest on capital, adds interest on drawings, then shares the remainder in the agreed ratio.

Capital account: fixed capital method keeps capital constant; current account records share of profit, drawings, interest on capital and salary.

Interest on drawings is income to the partnership (credited to appropriation); interest on capital is an expense of appropriation (debited).

Admission of a partner: new partner pays capital and possibly goodwill; goodwill brought in cash is credited to the old partners in their old ratio.

Retirement: revaluation profit or loss is shared by all partners; the retiring partner's balance is settled by cash or transferred to a loan account.

Dissolution: assets are realised, liabilities paid, realisation expenses met; profit or loss on realisation is shared in the profit-sharing ratio.

Partner's loan account carries interest at the agreed rate; it is a liability of the firm, not part of capital.

Share capital: authorised (nominal) capital is the maximum the company may issue; issued capital is what has been offered; called-up and paid-up capital follow calls.

Ordinary shares carry voting rights and a variable dividend; preference shares carry a fixed dividend and rank before ordinary shares for dividend and repayment.

Debentures are long-term borrowings carrying fixed interest, charged to the profit and loss account before tax, and shown as non-current liabilities.

Share premium is the excess of issue price over nominal value; it is a capital reserve, not distributable as dividend.

Appropriation of profit: profit after tax less transfers to reserves, dividends paid and proposed, retained profit carried forward.

Dividend per share = Total ordinary dividend / Number of ordinary shares; earnings per share = Profit after tax / Number of ordinary shares.

Published accounts must show a true and fair view; balance sheet format groups items into non-current assets, current assets, current liabilities, non-current liabilities and equity.

Reserves are of two kinds: capital reserves (share premium, revaluation) and revenue reserves (retained profit).

Manufacturing account: Direct materials + Direct labour + Direct expenses + Factory overheads + Opening work in progress - Closing work in progress = Cost of production.

Prime cost = Direct materials + Direct labour + Direct expenses; production cost = prime cost + factory overheads adjusted for WIP.

Direct costs vary with output and are traceable to the product; indirect costs (overheads) cannot be traced and must be apportioned.

Cost of goods manufactured is transferred to the trading account as the equivalent of purchases; manufacturing profit arises when transfer price exceeds cost.

Unit cost = Total production cost / Number of units produced; job costing accumulates cost per job, unit costing per unit of identical output.

Overhead absorption rate = Budgeted overheads / Budgeted activity base (labour hours, machine hours or units).

Fixed costs stay constant in total but fall per unit as output rises; variable costs stay constant per unit.

Stock of raw materials, work in progress and finished goods are shown separately; WIP is valued at prime cost plus absorbed overheads.

Gross profit margin = Gross profit / Sales x 100; Net profit margin = Net profit / Sales x 100.

Return on capital employed (ROCE) = Operating profit / Capital employed x 100; capital employed = total assets - current liabilities.

Current ratio = Current assets / Current liabilities; a value near 2:1 is often taken as satisfactory but varies by industry.

Quick (acid test) ratio = (Current assets - Stock - Prepayments) / Current liabilities; around 1:1 indicates short-term liquidity.

Stock turnover = Cost of goods sold / Average stock (times); Stock holding period = 365 / stock turnover (days).

Debtors collection period = Debtors / Credit sales x 365; Creditors payment period = Creditors / Credit purchases x 365.

Asset turnover = Sales / Net assets; a higher figure indicates efficient use of assets to generate revenue.

Gearing = Non-current liabilities / (Non-current liabilities + Equity) x 100; high gearing means greater financial risk.

Ratios are only meaningful when compared with prior years, budgets or industry averages, not in isolation.

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

Cash control: banking intact daily, bank reconciliation, segregation of duties between receiving, recording and authorising payments, dual signatures on cheques.

Stock control: physical counts, stock cards, reorder levels, minimum and maximum levels, FIFO or weighted average valuation, and stocktake reconciliation.

Segregation of duties means no single person should record, authorise and custody the same asset; this deters fraud and error.

Ethical principles: integrity, objectivity, professional competence and due care, confidentiality, professional behaviour.

Computerised systems: automatic double entry, real-time posting, audit trail, access controls, password protection, backup and disaster recovery.

Advantages of computerised accounting: speed, accuracy, instant reports, automatic posting; risks include data loss, hacking, input error and system failure.

Audit trail and access logs allow transactions to be traced from source document to ledger and back, supporting fraud detection.