Korea Accounting Manager Level 2 cheat sheet

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

Double-entry rule: each transaction has equal total debits and credits, so the trial balance totals must match.

Normal balances: assets and expenses are debit-normal; liabilities, equity, and revenue are credit-normal.

Accrual basis recognizes revenue when performance obligation is satisfied and expenses when incurred, regardless of cash timing (K-IFRS 1115 / 1037 concepts).

Adjusting entries at period end: accruals (unrecorded revenue/expense), deferrals (prepaid/uneared), depreciation, and bad-debt estimates.

Closing entries zero out temporary accounts (revenues, expenses, dividends) into retained earnings; permanent accounts carry forward.

Current assets/liabilities: expected to be realized or settled within 12 months or the normal operating cycle, whichever is longer.

Historical cost vs. fair value: K-IFRS permits fair value for certain assets (investment property, biological assets, some financial instruments) with recognition rules.

Going concern: financial statements assume the entity continues in operation for the foreseeable future absent evidence to the contrary.

Accrual concept: revenue and matching expenses are recognized by economic substance, not by cash receipt or payment.

Prudence (conservatism): do not overstate assets or income; recognize liabilities and losses when probable.

Consistency: apply the same accounting policies each period unless a change is required by a standard or gives more relevant information (disclose changes retrospectively).

Materiality: omission or misstatement is material if it could influence users' economic decisions; assess in context, not by a fixed threshold alone.

Substance over form: transactions are accounted for according to their economic substance, not merely their legal form.

Monetary unit and periodicity assumptions: records are kept in a stable currency unit and reported over defined accounting periods.

Recognition criteria (K-IFRS conceptual framework): relevant and faithful representation; elements recognized when probable future economic benefits flow and measurement is reliable.

Journal entry format: date, accounts debited, accounts credited, amounts, and a brief description; post to the general ledger afterward.

Sale on credit: debit Accounts Receivable, credit Sales Revenue; on collection debit Cash, credit Accounts Receivable.

Purchase of inventory on credit: debit Inventory (or Purchases), credit Accounts Payable; payment debits Accounts Payable, credits Cash.

Depreciation entry: debit Depreciation Expense, credit Accumulated Depreciation (contra-asset); carrying amount = cost − accumulated depreciation.

Bad debt write-off (allowance method): debit Allowance for Doubtful Accounts, credit Accounts Receivable.

Prepaid expense adjustment: debit Expense, credit Prepaid Expense for the portion consumed during the period.

Unearned revenue adjustment: debit Unearned Revenue, credit Revenue as the performance obligation is satisfied.

Payroll entry: debit Salaries Expense (gross), credit withholding liabilities and Cash (net); employer contributions are separate expense.

Statement of financial position: Assets = Liabilities + Equity at a point in time; classified into current and non-current.

Statement of profit or loss: Revenue − Cost of sales = Gross profit; Gross profit − Operating expenses = Operating profit; then finance costs and tax give net profit.

Statement of cash flows (K-IFRS 1007): operating, investing, financing sections; interest and dividends classified consistently and disclosed.

Current ratio = Current assets ÷ Current liabilities; quick ratio = (Current assets − Inventory) ÷ Current liabilities.

Gross margin = Gross profit ÷ Revenue; operating margin = Operating profit ÷ Revenue; net margin = Net profit ÷ Revenue.

Return on equity = Net profit ÷ Average equity; return on assets = Net profit ÷ Average total assets.

Inventory turnover = Cost of sales ÷ Average inventory; days inventory = 365 ÷ turnover.

Debt ratio = Total liabilities ÷ Total assets; interest coverage = Operating profit ÷ Interest expense.

Cost classification: product costs (direct materials, direct labor, manufacturing overhead) attach to inventory; period costs (selling, administrative) are expensed as incurred.

Prime cost = Direct materials + Direct labor; conversion cost = Direct labor + Manufacturing overhead.

Predetermined overhead rate = Estimated total overhead ÷ Estimated allocation base (e.g., direct labor hours, machine hours).

Applied overhead = Predetermined rate × Actual base; underapplied if applied < actual overhead, overapplied if applied > actual.

Contribution margin = Sales − Variable costs; contribution margin ratio = Contribution margin ÷ Sales.

Break-even units = Fixed costs ÷ Unit contribution margin; break-even revenue = Fixed costs ÷ Contribution margin ratio.

Target profit units = (Fixed costs + Target profit) ÷ Unit contribution margin.

Relevant costs for decisions: avoidable, future, differential costs; sunk costs and allocated common fixed costs are irrelevant.

High-low method: Variable cost per unit = (Highest cost − Lowest cost) ÷ (Highest activity − Lowest activity); fixed cost = Total cost − Variable cost per unit × Activity.

Korean corporate income tax is levied on taxable income (net income adjusted for tax add-backs and deductions) at progressive statutory rates set by the Corporate Tax Act.

Value-added tax (VAT) standard rate in Korea is 10%; zero-rated exports and VAT-exempt items are treated differently from taxable supplies.

VAT taxable period: first period January 1–June 30, second July 1–December 31; return and payment generally due within 25 days after period end.

Withholding tax applies to certain domestic and foreign-source income (e.g., interest, dividends, royalties) at statutory rates unless a tax treaty reduces them.

Tax adjustments: non-deductible expenses (fines, certain entertainment costs) are added back; non-taxable income and deductions reduce taxable income.

Commercial Code requires a stock company (주식회사) to maintain legal reserve (이익준비금) of at least 10% of cash dividends until reaching half of capital.

Directors owe duties of care and loyalty to the company; interested-director transactions require board approval and disclosure under the Commercial Code.

Statute of limitations: tax assessment generally limited to 5 years (10 years for fraud or failure to file) from the statutory due date under the Framework Act on National Taxes.

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

Double-entry rule: each transaction has equal total debits and credits, so the trial balance totals must match.

Normal balances: assets and expenses are debit-normal; liabilities, equity, and revenue are credit-normal.

Accrual basis recognizes revenue when the performance obligation is satisfied and expenses when incurred, regardless of cash timing.

Adjusting entries at period end: accruals, deferrals, depreciation, and bad-debt estimates.

Closing entries zero out temporary accounts (revenues, expenses, dividends) into retained earnings; permanent accounts carry forward.

Current assets/liabilities: realized or settled within 12 months or the normal operating cycle, whichever is longer.

Historical cost vs. fair value: K-IFRS permits fair value for certain assets (investment property, biological assets, some financial instruments).

Going concern: statements assume the entity continues in operation for the foreseeable future absent contrary evidence.

Accrual concept: revenue and matching expenses are recognized by economic substance, not cash timing.

Prudence: do not overstate assets or income; recognize liabilities and losses when probable.

Consistency: apply the same accounting policies each period unless a change is required by a standard or gives more relevant information.

Materiality: omission or misstatement is material if it could influence users' economic decisions.

Substance over form: account for transactions according to economic substance, not merely legal form.

Monetary unit and periodicity: records kept in a stable currency unit and reported over defined periods.

Recognition criteria: relevant and faithful representation; recognize when probable future economic benefits flow and measurement is reliable.

Journal entry format: date, accounts debited, accounts credited, amounts, and description; post to the general ledger afterward.

Sale on credit: debit Accounts Receivable, credit Sales Revenue; on collection debit Cash, credit Accounts Receivable.

Purchase of inventory on credit: debit Inventory (or Purchases), credit Accounts Payable; payment debits Accounts Payable, credits Cash.

Depreciation entry: debit Depreciation Expense, credit Accumulated Depreciation; carrying amount = cost − accumulated depreciation.

Bad debt write-off (allowance method): debit Allowance for Doubtful Accounts, credit Accounts Receivable.

Prepaid expense adjustment: debit Expense, credit Prepaid Expense for the portion consumed.

Unearned revenue adjustment: debit Unearned Revenue, credit Revenue as the performance obligation is satisfied.

Payroll entry: debit Salaries Expense (gross), credit withholding liabilities and Cash (net); employer contributions are separate expense.

Statement of financial position: Assets = Liabilities + Equity at a point in time; classified into current and non-current.

Profit or loss: Revenue − Cost of sales = Gross profit; less operating expenses = Operating profit; then finance costs and tax give net profit.

Cash flow statement: operating, investing, financing sections; interest and dividends classified consistently and disclosed.

Current ratio = Current assets ÷ Current liabilities; quick ratio = (Current assets − Inventory) ÷ Current liabilities.

Gross margin = Gross profit ÷ Revenue; operating margin = Operating profit ÷ Revenue; net margin = Net profit ÷ Revenue.

Return on equity = Net profit ÷ Average equity; return on assets = Net profit ÷ Average total assets.

Inventory turnover = Cost of sales ÷ Average inventory; days inventory = 365 ÷ turnover.

Debt ratio = Total liabilities ÷ Total assets; interest coverage = Operating profit ÷ Interest expense.

Product costs (direct materials, direct labor, manufacturing overhead) attach to inventory; period costs are expensed as incurred.

Prime cost = Direct materials + Direct labor; conversion cost = Direct labor + Manufacturing overhead.

Predetermined overhead rate = Estimated total overhead ÷ Estimated allocation base.

Applied overhead = Predetermined rate × Actual base; underapplied if applied < actual, overapplied if applied > actual.

Contribution margin = Sales − Variable costs; contribution margin ratio = Contribution margin ÷ Sales.

Break-even units = Fixed costs ÷ Unit contribution margin; break-even revenue = Fixed costs ÷ Contribution margin ratio.

Target profit units = (Fixed costs + Target profit) ÷ Unit contribution margin.

Relevant costs: avoidable, future, differential costs; sunk costs and allocated common fixed costs are irrelevant.

High-low method: Variable cost per unit = (Highest cost − Lowest cost) ÷ (Highest activity − Lowest activity).

Korean corporate income tax is levied on taxable income (net income adjusted for add-backs and deductions) at progressive statutory rates under the Corporate Tax Act.

VAT standard rate in Korea is 10%; zero-rated exports and VAT-exempt items differ from taxable supplies.

VAT taxable period: January 1–June 30 and July 1–December 31; return and payment generally due within 25 days after period end.

Withholding tax applies to certain domestic and foreign-source income (interest, dividends, royalties) at statutory rates unless a treaty reduces them.

Tax adjustments: non-deductible expenses (fines, certain entertainment costs) are added back; non-taxable income and deductions reduce taxable income.

Commercial Code requires a stock company to maintain a legal reserve of at least 10% of cash dividends until reaching half of capital.

Directors owe duties of care and loyalty; interested-director transactions require board approval and disclosure under the Commercial Code.

Statute of limitations: assessment generally limited to 5 years (10 years for fraud or failure to file) from the statutory due date.