KASNEB CS21 cheat sheet

Accounting equation: Assets = Liabilities + Capital; every transaction preserves this equality.

Double entry rule: each transaction has equal debits and credits; debits increase assets and expenses, credits increase liabilities, capital and income.

Accrual basis recognises revenue when earned and expenses when incurred, regardless of cash movement; matching pairs expenses with the revenue they generate.

Depreciation methods: straight line = (Cost - Residual) / Useful life; reducing balance = Carrying amount x rate; units of production = (Cost - Residual) x units used / total units.

Trial balance lists closing debit and credit balances; it proves arithmetic equality only, not the absence of errors of principle, omission or compensating error.

Bank reconciliation: adjusted cash book balance = uncredited receipts and unpresented cheques reconciled to bank statement balance.

Inventory valuation under IAS 2: lower of cost and net realisable value; FIFO and weighted average permitted, LIFO is not.

Gross profit = Sales - Cost of sales; net profit = Gross profit + other income - operating expenses; mark-up = gross profit / cost, margin = gross profit / sales.

Time value of money: FV = PV(1+r)^n; PV = FV / (1+r)^n; annuity PV = PMT x [1 - (1+r)^-n] / r.

Net present value: accept a project when NPV > 0; IRR is the discount rate at which NPV = 0, and accept when IRR exceeds the cost of capital.

WACC = (E/V) x Ke + (D/V) x Kd x (1 - tax rate), where V = E + D.

Capital asset pricing model: Ke = Rf + Beta x (Rm - Rf); beta measures systematic risk only.

Dividend growth model: Ke = D1/P0 + g, where D1 = D0(1+g).

Working capital cycle = inventory days + receivable days - payable days; a shorter cycle reduces financing need.

Payback period ignores cash flows after the cut-off and the time value of money; discounted payback corrects the latter.

Profitability index = PV of cash inflows / initial investment; accept when index exceeds 1.

The five Cs of credit: character, capacity, capital, collateral and conditions; capacity and character carry the most weight in lending decisions.

Credit risk assessment ratios: current ratio, debt-to-equity, interest cover and cash flow coverage of debt service.

Credit scoring assigns weighted points to borrower attributes; a cut-off score separates accept from reject, and scorecards require periodic validation.

Expected credit loss = probability of default x loss given default x exposure at default.

Aging schedule classifies receivables by days outstanding; rising past-due proportions signal deteriorating credit quality.

Credit terms 2/10 net 30: a 2% discount for payment within 10 days, otherwise full payment in 30 days; the implied annual cost of forgoing the discount is high.

Security types: fixed and floating charges, guarantees, lien, mortgage and pledge; a floating charge crystallises on default.

Concentration risk arises when exposure to a single borrower or sector exceeds a set proportion of the portfolio.

Agency problem: separation of ownership and control creates scope for managers to pursue self-interest; monitoring, incentives and disclosure are the standard controls.

Board committees: audit, risk, remuneration and nomination; the audit committee should comprise independent non-executive directors with financial expertise.

Separation of duties, delegation of authority and rotation of duties are core internal control techniques against fraud and error.

Corporate governance codes typically require an independent chair, a balance of executive and non-executive directors, and disclosure of compliance or explanation of departure.

Stakeholder theory holds that the firm is accountable to employees, customers, suppliers and community, not only shareholders.

Fayol's management functions: planning, organising, commanding, coordinating and controlling; Mintzberg describes managerial roles as interpersonal, informational and decisional.

Span of control: narrow spans suit complex or risky work; wide spans require standardised processes and capable staff.

Risk management cycle: identify, assess (likelihood x impact), treat (avoid, reduce, transfer, accept), monitor and review.

CIA triad: confidentiality, integrity and availability are the core objectives of information security.

Access control principles: least privilege, need-to-know and segregation of duties; authentication factors are knowledge, possession and inherence.

Encryption: symmetric uses one shared key and is fast; asymmetric uses a public-private pair and supports digital signatures and key exchange.

Audit trails and system logs must be protected from modification; log integrity underpins detection and forensic investigation.

Backup strategy: full, incremental and differential backups; the 3-2-1 rule keeps three copies, on two media, with one offsite.

Input, processing and output controls: validation checks (range, format, check digit), reconciliation totals and exception reports.

Business continuity: recovery time objective is the maximum tolerable downtime; recovery point objective is the maximum tolerable data loss.

Cloud and outsourcing risk: data residency, vendor lock-in, service level agreements and right-to-audit clauses are key contractual controls.

Contract essentials: offer, acceptance, consideration, intention to create legal relations and capacity; a counter-offer destroys the original offer.

Law of agency: an agent binds the principal within actual or apparent authority; ratification validates an unauthorised act.

Negotiable instruments: a cheque is a bill of exchange drawn on a banker payable on demand; crossing restricts it to collection through a bank.

Business structures: sole trader has unlimited liability; a limited company provides limited liability and separate legal personality.

Economics: price elasticity of demand = % change in quantity demanded / % change in price; demand is elastic when the absolute value exceeds 1.

Break-even point in units = fixed costs / contribution per unit; contribution per unit = selling price - variable cost per unit.

Statistics: mean, median and mode measure central tendency; standard deviation measures dispersion and equals the square root of variance.

Probability: P(A or B) = P(A) + P(B) - P(A and B); independent events satisfy P(A and B) = P(A) x P(B).