CMA Foundation Paper 2 (FFCA) cheat sheet

Accounting equation: Assets = Liabilities + Capital; every transaction keeps it balanced, so total debits always equal total credits.

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

Journal entry sequence: identify accounts, classify each as personal/real/nominal, apply the golden rule, then post to ledger and balance the account.

Trial balance agrees only when both debit and credit totals match; it does not detect errors of principle, compensating errors, or complete omission of a transaction.

Errors of principle (e.g., capital expenditure posted as revenue) do not disturb trial balance agreement; one-sided errors do, and are located via the suspense account.

Bank reconciliation starts from cash book or pass book balance and adjusts for cheques deposited but not credited, cheques issued but not presented, bank charges, and direct collections.

Depreciation methods: straight line = (Cost - Scrap)/Useful life; written down value = fixed % of opening book value, giving higher charge in early years.

Accounting conventions include consistency, full disclosure, materiality, and conservatism; concepts include going concern, accrual, matching, and money measurement.

Consignment: consignor records consignment as goods sent out; consignee never records goods as purchase, only remits sale proceeds less commission and expenses.

Valuation of consignment stock = proportionate cost + proportionate consignor's expenses; consignee's expenses on unsold stock are excluded unless expressly agreed.

Joint venture without separate books: each co-venturer records own transactions and the venture account; profit is shared in the agreed ratio after adjusting mutual dues.

Bills of exchange: drawer credits debtor and debits bills receivable; on discounting, the discount charged is an expense of the drawer, and endorsement transfers liability.

Hire purchase: buyer capitalises cash price, treats instalments as principal plus interest; seller recognises sale at cash price and interest as income over the term.

Branch accounting: dependent branch keeps no full books, so head office passes entries for goods sent, remittances, and expenses to find branch profit via a branch account.

Independent branch maintains full double entry and remits to head office; reconcile through a head office current account adjusted for goods in transit and cash in transit.

Partnership admission: new partner's capital and premium for goodwill are credited; sacrificing ratio = old ratio minus new ratio for existing partners.

Trading account derives gross profit = Net sales - Cost of goods sold, where COGS = Opening stock + Purchases + Direct expenses - Closing stock.

Profit and loss account converts gross profit into net profit by deducting indirect expenses and adding indirect incomes; accruals and prepayments are adjusted first.

Balance sheet presentation: non-current assets, current assets, equity and liabilities; capital is adjusted for drawings, additional capital, and net profit.

Closing stock appears on the credit of the trading account and as a current asset; goods taken by the owner are deducted from purchases and charged to drawings.

Adjusting entries before final accounts: outstanding expenses, prepaid expenses, accrued income, income received in advance, depreciation, and provision for doubtful debts.

Manufacturing account shows raw material consumed, direct labour, and factory overheads, transferring cost of production to the trading account.

Abnormal loss is credited to the trading account at full cost plus insured value recovered, with the net loss charged to the profit and loss account.

Statement of profit and loss under company format classifies expenses by nature and discloses revenue from operations, other income, and tax separately.

Prime cost = Direct material + Direct labour + Direct expenses; works cost adds factory overheads; cost of production adjusts for work-in-progress.

Cost of sales = Cost of goods sold (opening finished stock + cost of production - closing finished stock) + selling and distribution overheads.

Profit = Sales - Total cost; sales = Total cost + Profit, so sales value at a desired margin = Total cost / (1 - margin on sales).

Cost classification bases: by nature (material, labour, expense), by behaviour (fixed, variable, semi-variable), by function (production, administration, selling), by traceability (direct, indirect).

Fixed cost per unit falls as output rises while total fixed cost is constant; variable cost per unit is constant while total variable cost varies with output.

Cost centre is a location, person, or item of equipment for which costs are collected; cost unit is the unit of product or service for which cost is ascertained.

Overhead absorption rate = Budgeted overhead / Budgeted base (labour hours, machine hours, or direct wages); under- or over-absorption is the difference from actual.

Cost accounting records past costs for ascertainment and control; management accounting is forward-looking and includes non-financial information.

Job costing accumulates costs per job or batch using a job cost sheet; suitable for customised, non-standard production such as printing or construction.

Contract costing uses a contract account; notional profit = Value of work certified + Work uncertified - Cost incurred to date, and profit credited follows the degree of completion.

Process costing averages costs over output; normal loss is valued at scrap value, abnormal loss is valued at cost per good unit, and abnormal gain is credited to the process account.

Equivalent units convert partly completed work-in-progress into completed units; cost per equivalent unit = Process cost / Equivalent units produced.

Marginal costing values inventory at variable cost only; contribution = Sales - Variable cost, and fixed costs are written off against contribution for the period.

Absorption costing includes fixed production overhead in product cost, so profit differs from marginal costing only by the movement in inventory value.

Standard costing compares standard cost with actual cost; variances are analysed into price and usage (material) or rate and efficiency (labour).

Reconciliation of marginal and absorption profit: difference = Change in inventory units x Fixed overhead absorption rate per unit.

Integrated (integrated accounting) system combines cost and financial ledgers in one set of books; non-integrated system keeps a separate cost ledger with a cost ledger control account.

In a non-integrated cost ledger, the cost ledger control account represents financial ledger items and is the balancing link between the two systems.

Budgetary control compares budgeted with actual results; a flexible budget is recast at actual activity level before variance analysis to remove volume effects.

Material price variance = (Standard price - Actual price) x Actual quantity purchased; material usage variance = (Standard quantity - Actual quantity) x Standard price.

Labour rate variance = (Standard rate - Actual rate) x Actual hours paid; labour efficiency variance = (Standard hours for actual output - Actual hours worked) x Standard rate.

Fixed overhead variances split into expenditure (budget) variance and volume variance, where volume variance = (Budgeted hours - Actual hours) x Standard rate.

Zero base budgeting builds each budget from nil and justifies every cost; activity based costing assigns overheads using cost drivers such as setups and machine hours.

Cost control techniques include standard costing, variance analysis, inventory control levels (reorder, minimum, maximum), and EOQ = square root of (2 x Annual demand x Ordering cost / Holding cost per unit).

Relevant costs are future costs that differ between alternatives; sunk costs and committed fixed costs are ignored in decisions.

Opportunity cost is the contribution forgone from the next best alternative and must be included when capacity is scarce.

Make or buy decision: compare avoidable in-house cost with the buy price plus any lost contribution from released capacity.

Shut down decision: a segment continues in the short run if its contribution covers avoidable fixed costs; unavoidable fixed costs are irrelevant.

Accept special order if incremental revenue exceeds incremental variable cost and no profitable regular business is displaced.

Break-even point in units = Fixed cost / Contribution per unit; in value = Fixed cost / P/V ratio, where P/V ratio = Contribution / Sales.

Margin of safety = Actual sales - Break-even sales; it measures the fall in sales before a loss arises and can be expressed as a percentage of actual sales.

Required sales for target profit = (Fixed cost + Target profit) / Contribution per unit; with limiting factors, rank products by contribution per unit of the scarce resource.