KASNEB CIFA Foundation cheat sheet

Accounting equation: Assets = Liabilities + Capital. Every transaction changes at least two elements and the equation must stay balanced.

Double-entry rule: debit increases assets and expenses; credit increases liabilities, capital and income. The opposite reduces each element.

A trial balance that agrees proves only that total debits equal total credits; it does not detect errors of omission, principle, commission, compensating errors or original entry.

Straight-line depreciation = (Cost − Residual value) ÷ Useful life; the annual charge is constant.

Reducing-balance depreciation = Carrying amount × Rate; the charge is higher in early years and falls over the asset's life.

FIFO assigns the earliest purchase costs to cost of sales and values closing inventory at recent costs; AVCO recomputes a weighted average cost after each purchase.

Bank reconciliation: adjust the cash book for items not yet recorded (bank charges, standing orders, direct credits); adjust the bank statement for unpresented cheques and uncredited deposits.

Period-end adjustments: accrued expense is a liability, prepaid expense is an asset, accrued income is an asset and income received in advance is a liability.

Capital expenditure acquires or improves a non-current asset; revenue expenditure is incurred in ordinary trading and is charged to profit or loss.

Opportunity cost is the value of the next best alternative forgone; it is the relevant cost in choosing between scarce alternatives.

A change in price causes movement along a demand curve; changes in income, tastes, related-good prices or expectations shift the demand curve.

Price elasticity of demand = percentage change in quantity demanded ÷ percentage change in price. Absolute value above 1 is elastic, below 1 is inelastic, equal to 1 is unitary.

Market equilibrium occurs where quantity demanded equals quantity supplied; a price above equilibrium creates a surplus, a price below creates a shortage.

Short-run costs: Total cost = Fixed cost + Variable cost; Average cost = Total cost ÷ Output; Marginal cost = Change in total cost ÷ Change in output.

Perfect competition has many price-taking firms, identical products, free entry and exit, and perfect information; a monopoly has one seller and barriers to entry.

GDP = Consumption + Investment + Government spending + (Exports − Imports); real GDP adjusts nominal GDP for price changes.

Inflation is a sustained rise in the general price level, measured by the consumer price index; demand-pull and cost-push are two main causes.

The multiplier k = 1 ÷ (1 − Marginal propensity to consume) = 1 ÷ Marginal propensity to save; it shows the change in income from a change in autonomous spending.

Simple interest: I = P × r × t; Amount = P(1 + r t), where r is the annual rate and t is time in years.

Compound amount: A = P(1 + r)^n; compound interest = A − P, where n is the number of compounding periods.

Present value: PV = FV ÷ (1 + r)^n. Present value of an ordinary annuity = A × [1 − (1 + r)^−n] ÷ r.

Mean = sum of observations ÷ number of observations; median = middle value of ordered data; mode = most frequent observation.

Variance = average of squared deviations from the mean; standard deviation = square root of variance and is expressed in the original units.

Probability addition rule: P(A or B) = P(A) + P(B) − P(A and B); for independent events, P(A and B) = P(A) × P(B).

Permutations: nPr = n! ÷ (n − r)! for ordered selections; combinations: nCr = n! ÷ [r!(n − r)!] for unordered selections.

Index number = (Current period value ÷ Base period value) × 100; it expresses change relative to a chosen base period.

Coefficient of variation = (Standard deviation ÷ Mean) × 100%; it compares relative variability between data sets with different units or means.