KASNEB CS13 cheat sheet

Accounting equation: Assets = Liabilities + Capital (owner's equity); every transaction preserves this equality.

Double entry: each transaction affects at least two accounts, with total debits equal to total credits.

Debit increases assets and expenses; credit increases liabilities, capital and income.

Accrual basis: revenue is recognised when earned and expenses when incurred, not when cash moves.

Depreciation (straight line) = (Cost − Residual value) ÷ Useful life; reducing balance applies a fixed rate to carrying amount.

Gross profit = Revenue − Cost of sales; net profit = Gross profit + other income − operating expenses.

Current ratio = Current assets ÷ Current liabilities; a ratio below 1 signals potential liquidity strain.

Trial balance equality of debits and credits detects arithmetic errors but not errors of principle or omission.

Time value: FV = PV(1 + r)^n; PV = FV ÷ (1 + r)^n for a single sum.

Net present value = sum of discounted cash flows minus initial outlay; accept a project when NPV > 0.

Internal rate of return is the discount rate at which NPV = 0; accept when IRR exceeds the cost of capital.

Payback period = time to recover the initial outlay from cumulative cash inflows; ignores cash flows after payback.

Weighted average cost of capital = (E/V)Ke + (D/V)Kd(1 − t), where t is the corporate tax rate.

Capital asset pricing model: Ke = Rf + β(Rm − Rf); beta measures systematic risk.

Dividend valuation model: P0 = D1 ÷ (Ke − g), valid only when growth g is less than Ke.

Profitability index = PV of future cash flows ÷ initial investment; accept when the index exceeds 1.

The five Cs of credit: character, capacity, capital, collateral and conditions.

Current ratio and quick ratio assess short-term repayment capacity; the quick ratio excludes inventory.

Gearing (debt ÷ equity) indicates financial risk; high gearing raises default exposure for lenders.

Interest cover = EBIT ÷ interest expense; a low multiple signals weak ability to service debt.

Aging schedule classifies receivables by days outstanding; older buckets carry higher expected default.

Credit terms '2/10 net 30' mean a 2% discount if paid within 10 days, otherwise full payment in 30 days.

Effective annual cost of foregoing a cash discount = (d ÷ (1 − d)) × (365 ÷ (N − D)).

Security interests rank by priority of registration; a registered charge generally prevails over an unregistered one.

Agency problem: managers (agents) may pursue self-interest over shareholders' (principals') interests; monitoring and incentives mitigate it.

Separation of roles: the chair should not be the chief executive; independent non-executive directors strengthen board oversight.

Audit committee should comprise independent non-executive directors and oversee external audit and internal controls.

COSO internal control components: control environment, risk assessment, control activities, information and communication, monitoring.

Three lines model: operational management owns risk, risk and compliance functions oversee, internal audit provides independent assurance.

Management functions: planning, organising, directing and controlling (often extended with staffing and coordinating).

Span of control: narrow spans give closer supervision; wide spans reduce cost but demand more delegation.

Stakeholder theory holds that firms are accountable to parties beyond shareholders, including employees, creditors and communities.

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

Authentication verifies identity; authorisation determines permitted actions; accounting records who did what.

Segregation of duties in systems: the person who initiates a transaction should not also authorise or record it.

Input, processing and output controls are the three categories of application controls in an IT environment.

A general control example is access management; an application control example is a field validation check.

Encryption renders data unreadable without the key; symmetric encryption uses one shared key, asymmetric uses a key pair.

Backup strategy 3-2-1: three copies, on two media types, with one copy held off-site.

Audit trail logs must be protected from modification to preserve evidential value.

Law of contract essentials: offer, acceptance, consideration, intention to create legal relations and capacity.

A company is a separate legal person; shareholders' liability is limited to unpaid amounts on their shares.

Business law: a cheque is a bill of exchange drawn on a banker payable on demand.

Economics: price elasticity of demand = percentage change in quantity demanded ÷ percentage change in price.

Break-even quantity = Fixed costs ÷ (Selling price − Variable cost per unit).

Margin of safety = (Actual sales − Break-even sales) ÷ Actual sales, expressed as a percentage.

Statistics: standard deviation measures dispersion around the mean; a low value indicates clustered data.

Professional ethics: integrity, objectivity, confidentiality, professional competence and due care, and professional behaviour.

Bank reconciliation: adjusted bank statement balance equals adjusted cash book balance after timing differences.

Suspense account holds the difference in a trial balance until the error is located and corrected.

Provision for doubtful debts is an estimate of irrecoverable receivables; it is a charge against profit.

Inventory valuation under IAS 2 uses the lower of cost and net realisable value.

Revenue recognition under IFRS 15 follows the five-step model beginning with identifying the contract with the customer.

Working capital cycle = inventory days + receivable days − payable days.

Future value of an annuity = PMT × [((1 + r)^n − 1) ÷ r].

Present value of a perpetuity = annual cash flow ÷ discount rate.

Operating leverage rises with fixed operating costs; financial leverage rises with fixed financing costs.

Dividend payout ratio = dividends ÷ earnings per share; retention ratio = 1 − payout ratio.

Credit scoring assigns weights to borrower attributes to rank applicants by probability of default.

Loan-to-value ratio = loan amount ÷ value of collateral; a higher ratio increases lender exposure.

Concentration risk arises when credit exposure is clustered in one borrower, sector or region.

A covenant is a contractual condition imposed on a borrower; a negative pledge restricts granting security to others.

Risk management: risk is assessed as likelihood × impact; responses are avoid, reduce, transfer or accept.

Delegation transfers authority but not ultimate accountability.

A whistleblowing policy provides protected channels for reporting misconduct.

Board committees commonly include audit, risk, remuneration and nomination committees.

A firewall filters network traffic by rules; antivirus software detects known malicious code signatures.

Phishing is a social-engineering attack that deceives users into revealing credentials or data.

Disaster recovery focuses on restoring IT systems; business continuity covers the whole organisation.

Data validation checks input for reasonableness; data verification confirms it matches the source document.

A partnership is not a separate legal person; partners generally bear unlimited joint and several liability.

Consideration must be sufficient but need not be adequate; past consideration is generally not valid.

Opportunity cost is the value of the next best alternative forgone when a choice is made.

Normal distribution: approximately 68% of observations lie within one standard deviation of the mean.