Accountancy
Domain focus
Accountancy in CICT tests the accounting equation, double-entry bookkeeping, the trial balance and the preparation and interpretation of basic financial statements for a sole trader or small company.
Core rules and concepts
- The accounting equation is Assets = Liabilities + Capital. Every transaction must keep it in balance.
- Double entry: each transaction has equal debits and credits. Debit entries increase assets and expenses; credit entries increase liabilities, capital and income.
- Books of original entry include sales day book, purchases day book, cash book and general journal. Post to the ledger, then extract a trial balance.
- Accrual accounting matches income earned with expenses incurred, not merely cash received or paid. Prudence prevents overstating assets or income.
- Capital expenditure acquires or improves a non-current asset; revenue expenditure covers day-to-day running costs.
Worked example
A business buys equipment for 120,000 on credit. Debit equipment (asset) 120,000; credit trade payable (liability) 120,000. Assets and liabilities both rise by 120,000, so capital is unchanged. If it later pays 50,000 cash, debit payable and credit cash; assets and liabilities each fall by 50,000.
Traps
A trial balance can balance even when a transaction is posted to the wrong account or omitted entirely. Do not treat a loan repayment as an expense: the principal reduces a liability, while only interest is an expense. Do not record drawings as a business expense; they reduce capital.