CSEC POA cheat sheet

Accounting equation: Assets = Capital + Liabilities; every transaction preserves this equality because double entry records equal debits and credits.

Golden rules: debit the receiver, credit the giver (personal accounts); debit what comes in, credit what goes out (real accounts); debit expenses and losses, credit incomes and gains (nominal accounts).

Normal balances: assets and expenses are debit balances; liabilities, capital and revenue are credit balances; drawings are a debit contra to capital.

The cycle order: source documents, books of original entry, ledger posting, trial balance, adjustments, financial statements, closing entries.

Capital = Assets - Liabilities; profit increases capital, drawings and losses reduce it. Closing capital = opening capital + profit - drawings.

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

Stock (inventory) at year end is a current asset in the statement of financial position and a deduction from cost of sales in the trading account.

Carriage inwards is a cost of purchases; carriage outwards is a selling expense and is never added to purchases.

Purchases returns (returns outwards) reduce purchases; sales returns (returns inwards) reduce sales.

Books of original entry: sales journal (credit sales), purchases journal (credit purchases), sales returns journal, purchases returns journal, cash book, and the general journal for non-routine entries.

Only credit transactions enter the sales and purchases journals; cash sales and cash purchases are recorded in the cash book.

Posting rule: sales journal total is debited to the sales (receivables) ledger control account and credited to sales; individual amounts go to debtors' accounts.

Purchases journal total: debit purchases, credit payables control; purchases returns journal total: debit payables control, credit purchases returns.

Cash book with discount columns is both a book of original entry and part of the double-entry system; discount allowed is a debit, discount received a credit.

Contra entry: cash withdrawn from bank for office use is debited to cash and credited to bank, recorded on the credit side of the cash book and debit side of the bank column.

Petty cash imprest system: the float is restored by reimbursing exactly the amount spent, so the balance returns to the fixed imprest figure.

General journal narration explains each entry; the journal records opening entries, corrections of errors, asset disposals and adjustments.

Ledger division: sales ledger holds debtors (trade receivables), purchases ledger holds creditors (trade payables), nominal ledger holds expenses, income and capital.

A trial balance lists all ledger balances at a date, debits in one column and credits in the other; total debits must equal total credits.

Sources of trial balance totals: assets and expenses are debit balances; liabilities, capital and income are credit balances.

A trial balance that balances does not prove accuracy: errors of omission, commission, principle, original entry, complete reversal and compensating errors stay hidden.

Errors a trial balance does reveal: single (one-sided) entry, addition errors in one account, posting to the wrong side, transposition and two different accounts posted with different amounts.

Suspense account is opened for the difference between trial balance totals and cleared as errors are found; a one-sided error of $X is corrected by entering $X in suspense.

Transposition error (e.g. $540 written as $450) creates a difference divisible by 9; the correction goes through the suspense account.

Trial balance order follows the ledger: assets first, then liabilities, capital, drawings, income and expenses; net profit is not shown in a pre-closing trial balance.

Balance sheet (statement of financial position) accounts are real accounts and are carried forward; nominal accounts are closed to the trading and profit and loss account.

Error of principle: a transaction recorded in the wrong class of account (e.g. motor vehicle repairs debited to motor vehicle account); correction uses the correct expense account.

Error of commission: correct class, wrong account (e.g. debited to J. Brown instead of J. Browne); correction transfers between the two personal accounts.

Error of original entry: wrong amount entered in the book of original entry and posted consistently; both accounts are corrected by the same amount.

Complete reversal of entries: debit and credit swapped; correction doubles the amount to reverse and re-post correctly.

Compensating errors: two or more errors of equal amount on opposite sides cancel, leaving the trial balance in balance.

Sales ledger control account: debit opening balances, credit sales, dishonoured cheques, interest charged; credit cash received, discount allowed, sales returns, bad debts, set-offs, closing balances.

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

Control account balance should equal the total of the individual ledger balances; differences arise from errors in the ledger, omissions from the control account, or wrong casting.

Bad debts recovered: debit cash, credit bad debts recovered (income), not the debtor's personal account.

Trading account: Sales less sales returns = net sales; opening stock + purchases + carriage inwards - purchases returns = goods available; less closing stock = cost of sales; gross profit = net sales - cost of sales.

Profit and loss: gross profit plus other income less expenses (including depreciation, bad debts, provision for doubtful debts) = net profit.

Accruals (matching) concept: expenses incurred but unpaid are added to the expense and shown as current liabilities; income earned but not received is added to income and shown as current assets.

Prepayments: amounts paid in advance are deducted from the expense and shown as current assets.

Depreciation is an expense in the profit and loss account; accumulated depreciation is deducted from the asset's cost in the statement of financial position.

Straight-line depreciation = (Cost - Residual value) / Useful life; reducing balance = Net book value x rate.

Provision for doubtful debts: create or increase it by debiting profit and loss; decrease it by crediting profit and loss; it is deducted from trade receivables.

Closing stock appears twice: deducted in the trading account and as a current asset in the statement of financial position.

Statement of financial position order: non-current assets at net book value, current assets (stock, receivables less provision, prepayments, cash), capital plus net profit less drawings, non-current liabilities, current liabilities.

Partnership financial statements add an appropriation account: net profit is shared as interest on capital, partners' salaries, interest on drawings (deducted), then residual profit in the agreed ratio.

Interest on capital is a credit to each partner's current account and an appropriation of profit, not an expense in the profit and loss account.

Interest on drawings is a debit to the partner's current account and added back to distributable profit.

Fixed capital accounts change only on introduction or withdrawal of capital; current accounts absorb profit share, drawings, interest on capital and salaries.

In the absence of a partnership agreement, the Partnership Act applies: profits and losses shared equally, no interest on capital or salaries, 5% interest on loans.

Partner's loan is a liability of the partnership, separate from capital, and earns interest credited to the partner's current account.

Goodwill on admission of a partner: the new partner pays for a share; existing partners' capital accounts are credited in the old profit-sharing ratio.

Revaluation on admission: increases in asset values are credited to old partners in the old ratio; the new partner is not entitled to pre-admission gains.

Dissolution: assets sold, proceeds applied to pay creditors, then partners' loans, then capital; any deficiency is borne by partners in the profit-sharing ratio (Garner v Murray rule for insolvent partners).

Company capital: issued share capital is a liability in the statement of financial position; share premium is a capital reserve, not income.

Calls in arrears are deducted from called-up capital; calls in advance are added to capital and shown as a current liability.

Dividends are an appropriation of retained earnings, declared from profits, and are not an expense in the income statement.

Corporation tax and transfers to reserves are appropriations shown in the statement of changes in equity, not in profit before tax.

Statement of financial position for a company: non-current assets, current assets, share capital and reserves (equity), non-current liabilities, current liabilities.

Receipts and payments account is a summary of cash and bank; it is not the same as an income and expenditure account.

Income and expenditure account: revenue for the period less expenses for the period, on an accruals basis; surplus or deficit is added to or deducted from the accumulated fund.

Subscriptions in arrears are current assets; subscriptions in advance are current liabilities; life membership is capitalised and released over the member's life.

Club trading activities (bar, canteen) show gross profit in a separate trading account; the profit is added to income in the income and expenditure account.