Zenkei Bookkeeping Grade 1 cheat sheet

Qualitative characteristics: relevance (predictive value, confirmatory value, materiality) and faithful representation (complete, neutral, free from error) are fundamental; comparability, verifiability, timeliness, understandability are enhancing.

Definitions: asset = present economic resource controlled by the entity as a result of past events; liability = present obligation to transfer an economic resource; equity = residual interest in assets after deducting liabilities; income/expenses = increases/decreases in assets or decreases/increases in liabilities that increase/decrease equity, other than contributions/distributions.

Recognition criteria under the revised framework: recognition is appropriate only if it gives users useful information; relevance is lost if the item's measurement uncertainty is too high, and faithful representation is lost if the level of measurement uncertainty is excessive or the item cannot be measured with sufficient reliability.

Measurement bases: historical cost, fair value, value in use/fulfilment value, and current cost. Fair value is an exit price in an orderly transaction between market participants at the measurement date (IFRS 13).

Going concern: financial statements are prepared on a going-concern basis unless management intends to liquidate or has no realistic alternative but to cease trading.

Accrual basis: effects of transactions are recognised when they occur, not when cash is received or paid; the accrual basis and going concern are the two underlying assumptions.

Monetary unit assumption: items are measured in a stable currency; inflation-adjusted (constant-dollar) accounting departs from this assumption.

Materiality: information is material if omitting or misstating it could influence decisions of primary users; materiality is entity-specific and is a threshold for both recognition and disclosure.

Double-entry rule: every transaction has equal debits and credits; normal balances are debit for assets and expenses, credit for liabilities, equity, and revenue; contra accounts carry the opposite normal balance.

Journal entry sequence: analyse the transaction, identify accounts affected, determine debit/credit direction, record in the general journal, post to the ledger, and prepare a trial balance.

Compound entries and compound journal entries: multiple debits and credits in one entry are permitted provided total debits equal total credits; split entries are used when a transaction affects more than two accounts.

Trade discounts are deducted before recording; cash (sales) discounts are recorded separately (sales discounts debit, purchase discounts credit) using either the gross method or the net method.

Notes receivable: record at face value; accrue interest with debit Interest Receivable / credit Interest Revenue; discounting a note at a bank creates a contingent liability unless the transfer qualifies for derecognition.

Inventory systems: perpetual updates inventory and cost of goods sold with each transaction; periodic uses purchases and a period-end count; freight-in is a cost of inventory, freight-out is a selling expense.

Error correction: use a correcting entry that reverses the erroneous entry and records the correct one; the trial balance detects only errors that cause unequal debits and credits, not errors of principle, omission, or compensating errors.

Petty cash: establish with debit Petty Cash / credit Cash; reimburse by debiting the expense accounts and Cash Over and Short (for shortages) and crediting Cash; the petty cash account is not adjusted on reimbursement.

Adjusting entries fall into four types: accrued revenues, accrued expenses, deferred (unearned) revenues, and prepaid expenses; each is recorded at period end to satisfy the matching and revenue-recognition principles.

Accrued expense: debit expense / credit accrued liability; accrued revenue: debit receivable / credit revenue; both reverse in the following period when cash is received or paid.

Prepaid expense: initially debit an asset; at period end debit expense / credit the asset for the expired portion. If initially expensed, the adjusting entry debits the asset / credits the expense for the unexpired portion.

Unearned revenue: initially credit a liability; at period end debit the liability / credit revenue for the earned portion. If initially credited to revenue, the adjusting entry debits revenue / credits the liability for the unearned portion.

Depreciation methods: straight-line = (cost − residual value) / useful life; declining balance = carrying amount × rate; units-of-production = (cost − residual) × units used / total expected units. Depreciation is an allocation, not a valuation.

Bad debts: allowance method records estimated uncollectibles (debit Bad Debt Expense / credit Allowance for Doubtful Accounts); write-off debits Allowance and credits Accounts Receivable and does not affect net income or net receivables.

Closing entries: close revenue accounts to Income Summary, close expense accounts to Income Summary, close Income Summary to Retained Earnings, and close dividends/drawings to Retained Earnings; temporary accounts are zeroed, permanent accounts carry forward.

Accrual vs. deferral: an accrual recognises an amount before cash changes hands; a deferral recognises cash first and allocates it to future periods.

Statement of financial position: assets, liabilities, and equity at a point in time; classified format separates current and non-current; current items are those expected to be realised or settled within 12 months or the operating cycle, whichever is longer.

Statement of profit or loss: revenue, cost of sales, gross profit, operating expenses, finance costs, and tax; the single-step and multi-step formats differ in whether subtotals such as gross profit are presented.

Statement of cash flows (IAS 7): operating, investing, and financing activities; interest paid and dividends paid may be classified as operating or financing, and interest/dividends received as operating or investing, provided the policy is consistent and disclosed.

Indirect method operating section: start with profit before tax, add back non-cash items (depreciation, amortisation, impairment, bad debt expense), adjust for gains/losses on disposal, and adjust for changes in working capital.

Statement of changes in equity: opening balance, prior-period adjustments, profit for the period, other comprehensive income, transactions with owners (share issues, dividends, treasury shares), closing balance.

Earnings per share (IAS 33): basic EPS = (profit attributable to ordinary shareholders) / weighted-average number of ordinary shares outstanding; diluted EPS adjusts both numerator and denominator for dilutive potential ordinary shares.

Disclosure of accounting policies: significant judgements, key sources of estimation uncertainty, and the measurement basis; IFRS requires disclosure of the judgements that have the most significant effect on the amounts recognised.

Ratio analysis: current ratio = current assets / current liabilities; quick ratio = (current assets − inventory) / current liabilities; debt-to-equity = total liabilities / total equity; gross margin = gross profit / revenue.

Cost classification: product costs (direct materials, direct labour, manufacturing overhead) attach to inventory; period costs (selling, general, administrative) are expensed as incurred.

Prime cost = direct materials + direct labour; conversion cost = direct labour + manufacturing overhead; manufacturing overhead is applied using a predetermined rate = estimated overhead / estimated activity base.

Overhead variance: applied overhead − actual overhead; overapplied (credit balance) reduces cost of goods sold, underapplied (debit balance) increases it at period end.

Cost flows in a manufacturer: raw materials → work in process → finished goods → cost of goods sold; cost of goods manufactured = beginning WIP + total manufacturing costs − ending WIP.

Absorption costing includes fixed manufacturing overhead in product cost; variable costing expenses fixed overhead as a period cost, so absorption profit exceeds variable profit when inventory increases.

Contribution margin = sales − variable costs; contribution margin ratio = contribution margin / sales; break-even units = fixed costs / unit contribution margin; break-even sales = fixed costs / contribution margin ratio.

Relevant costs for decisions are future costs that differ among alternatives; sunk costs and allocated fixed costs are irrelevant; opportunity cost is the benefit forgone and is relevant.

Standard costing variances: material price variance = (standard price − actual price) × actual quantity; material quantity variance = (standard quantity − actual quantity) × standard price; labour rate and efficiency variances follow the same pattern.

Corporation characteristics: separate legal personality, limited liability of shareholders, perpetual existence, and double taxation of corporate profits and dividends (in jurisdictions with classical systems).

Share issuance: par value shares record Common Shares at par and Additional Paid-in Capital for the excess; no-par shares record the full proceeds in the share account; treasury shares are recorded at cost and reduce total equity.

Dividends: cash dividends reduce retained earnings and cash; stock dividends and stock splits do not change total equity; a stock dividend capitalises retained earnings into share capital.

Corporate income tax accounting: deferred tax arises from temporary differences between accounting carrying amounts and tax bases; deferred tax assets/liabilities are measured at the tax rates expected to apply when the difference reverses.

Taxable income vs. accounting profit: permanent differences (e.g., non-deductible fines) never reverse; temporary differences (e.g., depreciation timing) reverse over time and create deferred tax.

Contract law elements: offer, acceptance, consideration, capacity, and legality; a contract is void if illegal or lacking capacity and voidable if based on fraud, duress, or undue influence.

Agency: an agent binds the principal within actual or apparent authority; ratification by the principal creates the same effect as prior authorisation.

Business forms: sole proprietorship (unlimited liability, single taxation), partnership (joint and several liability in general partnerships), and limited liability company (limited liability, flow-through or entity taxation depending on jurisdiction).

Control (IFRS 10): an investor controls an investee when it has power over the investee, exposure to variable returns, and the ability to use its power to affect those returns; control triggers consolidation.

Acquisition method (IFRS 3): identify the acquirer, determine the acquisition date, recognise and measure identifiable assets acquired and liabilities assumed at fair value, and recognise goodwill or a gain from a bargain purchase.

Goodwill = consideration transferred + non-controlling interest + previously held interest − net fair value of identifiable assets acquired and liabilities assumed; goodwill is not amortised but tested annually for impairment.

Non-controlling interest may be measured at fair value (full goodwill) or at the proportionate share of identifiable net assets (partial goodwill); the choice is made per acquisition.

Consolidation adjustments: eliminate the parent's investment against subsidiary equity, eliminate intercompany balances and transactions, and eliminate unrealised profits in inventory and non-current assets.

Equity method (IAS 28): applies to associates and joint ventures; the investment is initially at cost, then adjusted for the investor's share of profit or loss, other comprehensive income, and dividends received.

Foreign currency translation (IAS 21): assets and liabilities of a foreign operation are translated at the closing rate, income and expenses at the transaction-date rate (or average), and exchange differences are recognised in other comprehensive income.

Business combinations vs. asset acquisitions: a transaction is a business combination only if the acquired set includes inputs and processes that together significantly contribute to the ability to create outputs; otherwise it is an asset acquisition with no goodwill.