I85PREP
⌘ K
KASNEB CS33 study materials
KASNEB CS33 study resources

KASNEB CS33: Accountancy: Double Entry, Accrual Accounting and Reporting Judgements

KASNEB CS33 · Work through your exam, one topic at a time.

All guide sections

Accountancy: Double Entry, Accrual Accounting and Reporting Judgements

Core accounting logic

Accountancy questions test whether you can translate business events into the accounting equation and then into the financial statements. You must understand double entry, the accrual and matching bases, capital versus revenue expenditure, depreciation, inventory valuation at the lower of cost and net realisable value, provisions and contingencies, and the purpose of the trial balance. Know how the statement of profit or loss, statement of financial position and statement of cash flows articulate through retained earnings and cash.

Traps candidates fall into

  • Reversing debits and credits: assets and expenses increase on the debit side; liabilities, equity and income increase on the credit side.
  • Treating cash paid as the expense. Accruals require matching, so unpaid expenses are liabilities and prepayments are assets.
  • Classifying repairs, installation or legal fees incorrectly. Costs necessary to bring an asset to use are capitalised; routine repairs are expensed.
  • Changing a depreciation estimate and restating prior years. A change in useful life or residual value is applied prospectively.
  • Valuing inventory at cost when net realisable value is lower, or including obsolete stock.
  • Ignoring substance over form, for example a lease that transfers substantially all risks and rewards.

Worked example

A machine costs 500,000, has a residual value of 50,000 and a five-year life. Straight-line depreciation is (500,000 - 50,000) / 5 = 90,000 per year. After two full years the carrying amount is 500,000 - 180,000 = 320,000. If the total life is revised to eight years at the start of year three, depreciate the remaining 320,000 - 50,000 over the six remaining years, giving 45,000 per year. The change is prospective, not a prior-year adjustment.

Rule of thumb

Before calculating, ask: has an asset, liability, income or expense been created or consumed? Then decide the debit and credit, and check whether the amount belongs in profit or loss or on the statement of financial position.