KASNEB DCM cheat sheet

Five Cs of credit: Character, Capacity, Capital, Collateral and Conditions - the framework used to judge a borrower's willingness and ability to repay.

Days sales outstanding = (trade receivables ÷ credit sales) × 365; a rising DSO signals slower collection and higher receivables investment.

Credit terms written as '2/10, net 30' mean a 2% discount is available if paid within 10 days, otherwise the full amount falls due on day 30.

Annualised cost of forgoing a cash discount = (D ÷ (1 − D)) × (365 ÷ (N − d)); for 2/10 net 30 the cost is approximately 37.2% per annum.

Investment in receivables = (credit sales ÷ 365) × average collection period; this figure drives the financing cost in any credit policy appraisal.

NPV of a credit policy change = incremental contribution − (change in receivables investment × cost of capital) − incremental bad debts.

An aging schedule sorts receivables into bands (0–30, 31–60, 61–90, over 90 days) and exposes the value and proportion overdue.

Factoring is an outright sale of receivables to a factor (with or without recourse); invoice discounting is borrowing secured on receivables while the firm still collects.

Credit insurance indemnifies against buyer default but does not replace credit assessment, limits or collection procedures.

Accounting equation: Assets = Liabilities + Equity; every transaction recorded must preserve this equality.

Double entry requires equal debits and credits; a balanced trial balance proves arithmetic equality only, not the absence of errors.

Accrual basis recognises revenue when earned and expenses when incurred, irrespective of the timing of cash flows.

Straight-line depreciation charge = (cost − residual value) ÷ useful life; the charge is constant each year.

Reducing-balance depreciation charge = carrying amount × fixed rate; the annual charge declines as the asset is written down.

IAS 2 measures inventory at the lower of cost and net realisable value; cost includes purchase price, conversion costs and other attributable costs.

IFRS 15 five steps: identify the contract, identify performance obligations, determine the transaction price, allocate the price, recognise revenue when each obligation is satisfied.

IAS 37 recognises a provision only where a present obligation from a past event, probable outflow and reliable estimate all exist; a contingent liability is disclosed, not recognised.

IAS 7 classifies cash flows as operating, investing and financing; interest paid may be presented as operating or financing under the chosen policy.

Elements of a valid contract: offer, acceptance, consideration, intention to create legal relations, capacity and legality of object.

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

An invitation to treat (shop display, advertisement, auction call) is not an offer - the other party normally makes the offer.

Salomon v Salomon established that a company is a separate legal person distinct from its members, giving rise to limited liability.

Sale of Goods Act implies terms as to title, description, fitness for purpose and satisfactory quality into contracts for goods.

Agency may arise by express or implied agreement, ratification, necessity or estoppel; the principal is bound by acts within the agent's actual or apparent authority.

Negligence requires a duty of care, breach of that duty, causation and damage that is not too remote.

A contract is discharged by performance, agreement, frustration or breach; remedies include damages, specific performance and rescission.

Parties to a bill of exchange: the drawer issues it, the drawee accepts and pays, and the payee receives the sum.

Opportunity cost is the value of the next best alternative forgone when resources are committed to a chosen use.

Price elasticity of demand = % change in quantity demanded ÷ % change in price; |PED| > 1 is elastic, < 1 inelastic, = 1 unit elastic.

Break-even units = fixed costs ÷ (selling price − variable cost per unit); at this output total contribution equals fixed costs.

Contribution per unit = price − variable cost per unit; contribution margin ratio = contribution ÷ sales revenue.

Law of demand: ceteris paribus, quantity demanded falls as price rises; supply curves slope upward because higher prices justify higher marginal costs.

Law of diminishing returns: adding more of a variable input to fixed inputs eventually reduces marginal product.

Fiscal policy operates through government spending and taxation; monetary policy operates through money supply and interest rates set by the central bank.

Market structures rank from perfect competition to monopoly; as competition falls, price-setting power and barriers to entry rise.

Entrepreneurship rests on opportunity recognition, innovation, risk-bearing and resource mobilisation; a business plan covers market, operations, finance and risk.

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

Kenya's Data Protection Act 2019 requires lawful, minimised, accurate and secure processing of personal data and grants data subjects rights of access and erasure.

The Computer Misuse and Cybercrimes Act 2018 criminalises unauthorised access, interception and data interference in Kenya.

Encryption converts plaintext to ciphertext with a key for confidentiality; hashing is one-way and verifies integrity rather than hiding content.

An audit trail logs who accessed or changed data and when, supporting accountability, control testing and forensic review.

Backup rule 3-2-1: keep three copies of data, on two different media, with one copy off-site or offline.

Ethical principles for professional accountants: integrity, objectivity, professional competence and due care, confidentiality and professional behaviour.

Independence requires the auditor to be free of financial, employment or personal interests that could bias the audit opinion.

Phishing uses fraudulent messages impersonating a trusted party to capture credentials; controls are verification procedures, multi-factor authentication and staff training.