ICAEW ACA Accounting (ICAEW) cheat sheet

Double entry: every transaction has equal debits and credits; total debits must equal total credits in the trial balance.

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

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

Ledger posting rule: day book totals are posted periodically to the nominal (general) ledger; individual receivables/payables entries go to the memorandum or receivables/payables ledger.

Accounting equation: Assets = Capital + Liabilities; profit increases capital, drawings reduce it.

Sales tax: output tax is a credit (liability), input tax a debit (asset); only the net amount goes to the income statement.

Trial balance extracts balances at a date; it detects unequal debits/credits but not errors of principle, omission, commission, original entry, reversal, or compensating errors.

Suspense account: opened for the difference on the trial balance; cleared when errors are found and corrected via journal.

Sole trader: Statement of profit or loss then Statement of financial position; capital section = opening capital + profit − drawings.

Partnership: appropriation account shows interest on capital, partner salaries, interest on drawings, then residual profit shared in the profit-sharing ratio.

Partnership capital vs current accounts: fixed capital accounts hold permanent capital; current accounts absorb appropriations, drawings, and interest.

Company: statement of profit or loss, statement of changes in equity (share capital, share premium, retained earnings), statement of financial position.

Share issues: proceeds split between share capital at nominal value and share premium; issue costs usually deducted from premium.

Dividends are distributions of retained earnings, recognised when declared/paid, not an expense in profit or loss.

Closing inventory: lower of cost and net realisable value, applied item by item; affects cost of sales and current assets.

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

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

Accrued expense: debit expense, credit accrual (current liability); prepaid expense: debit prepayment (current asset), credit expense.

Depreciation: systematic allocation of depreciable amount over useful life; methods include straight-line and reducing balance.

Straight-line depreciation = (cost − residual value) / useful life; reducing balance = carrying amount × rate.

Irrecoverable debts: debit irrecoverable debts expense, credit receivables; recovery later debits cash and credits irrecoverable debts recovered income.

Allowance for receivables: created/increased by debiting expense, credited to allowance; decrease is a credit to the income statement.

Allowance is usually a percentage of receivables after writing off irrecoverable debts; it is an estimate, not a write-off.

Bank reconciliation: adjust cash book for items not yet recorded (bank charges, standing orders, direct credits); reconcile to bank statement with unpresented cheques and lodgements not credited.

IAS 7 structure: operating, investing, and financing activities, plus reconciliations of cash and cash equivalents.

Cash and cash equivalents: short-term, highly liquid investments (typically ≤3 months) less bank overdrafts repayable on demand.

Indirect method operating cash flow: profit before tax + depreciation/amortisation − gain on disposal ± working capital movements − interest and tax paid.

Investing activities: purchase and sale of non-current assets, interest and dividends received (policy choice under IAS 7).

Financing activities: proceeds from share issues, loans raised/repaid, dividends paid, finance lease payments.

Increase in receivables or inventory reduces operating cash flow; increase in payables increases it.

Non-cash transactions (e.g., bonus issue, asset acquired by lease) are excluded from the statement and disclosed separately.

Cash flow ratios: cash from operations to maturing debt; free cash flow = operating cash flow − capital expenditure.

Profitability: gross margin = gross profit/revenue; operating margin = operating profit/revenue; ROCE = operating profit / (equity + non-current liabilities).

Liquidity: current ratio = current assets/current liabilities; quick ratio excludes inventory.

Efficiency: inventory days = inventory/cost of sales × 365; receivables days = receivables/revenue × 365; payables days = payables/purchases × 365.

Gearing = debt / (debt + equity) or debt/equity; interest cover = operating profit / finance cost.

Limitations: historical cost, different accounting policies, inflation, creative accounting, non-financial factors omitted.

ICAEW Code of Ethics fundamental principles: integrity, objectivity, professional competence and due care, confidentiality, professional behaviour.

Threats: self-interest, self-review, advocacy, familiarity, intimidation; apply safeguards or decline/withdraw.

Confidentiality exceptions: legal or professional right/obligation to disclose; do not use information for personal advantage.

Double entry: every transaction has equal debits and credits; total debits must equal total credits in the trial balance.

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

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

Ledger posting rule: day book totals are posted periodically to the nominal (general) ledger; individual receivables/payables entries go to the memorandum or receivables/payables ledger.

Accounting equation: Assets = Capital + Liabilities; profit increases capital, drawings reduce it.

Sales tax: output tax is a credit (liability), input tax a debit (asset); only the net amount goes to the income statement.

Trial balance extracts balances at a date; it detects unequal debits/credits but not errors of principle, omission, commission, original entry, reversal, or compensating errors.

Suspense account: opened for the difference on the trial balance; cleared when errors are found and corrected via journal.