MATSEC AM Accounting cheat sheet

Accounting equation: Assets = Capital + Liabilities; every transaction preserves this equality, so debits always equal credits in total.

Double entry rule: debit the receiver of value, credit the giver; for each account, increases sit on the normal side (assets/expenses debit, liabilities/income/equity credit).

Accrual basis: recognise revenue when earned and expenses when incurred, not when cash moves; this drives prepayments (asset) and accruals (liability).

Depreciation methods: straight line = (cost − residual)/useful life per annum; reducing balance = carrying amount × rate; units of production = (cost − residual) × units used/total units.

Trial balance extracts debit and credit balances; it proves arithmetic equality only and will not detect errors of omission, commission, principle, compensating errors or original entry.

Suspense account arises when a trial balance fails to agree; the difference is posted to suspense and cleared once errors are located and corrected.

Bank reconciliation: adjusted cash book balance = bank statement balance + deposits not yet credited − unpresented cheques ± bank errors; timing items are not errors.

Inventory valuation under IAS 2: lower of cost and net realisable value, where NRV = estimated selling price − costs to complete − selling costs; FIFO and weighted average permitted, LIFO prohibited.

Control account reconciliation: closing balance per receivables ledger control = opening balance + credit sales − cash received − discounts allowed − irrecoverable debts written off − returns inwards.

Cost classification: direct costs are traceable to the cost unit; indirect (overhead) costs are not; prime cost = direct materials + direct labour + direct expenses.

Absorption costing: predetermined overhead absorption rate = budgeted overhead / budgeted activity base (labour hours, machine hours or direct labour cost).

Over/under absorption: absorbed overhead = actual activity × predetermined rate; compare with actual overhead incurred; excess absorbed is over-absorption (credit to P&L).

High-low method: variable cost per unit = (highest total cost − lowest total cost)/(highest activity − lowest activity); fixed cost = total cost − variable element.

Marginal costing: contribution = sales − variable costs; profit = contribution − fixed costs; closing inventory valued at variable production cost only.

Break-even: BEP units = fixed costs / contribution per unit; BEP revenue = fixed costs / C/S ratio; margin of safety = (budgeted sales − BEP sales)/budgeted sales.

Relevant costing: include only future incremental cash flows; exclude sunk costs, committed fixed costs and apportioned common costs; include opportunity costs.

Variance formulas (standard costing): material price = (standard price − actual price) × actual quantity; material usage = (standard quantity − actual quantity) × standard price; labour rate and efficiency variances follow the same pattern.

Process costing: normal loss is valued at scrap value and borne by good output; abnormal gain is debited to the process account and credited to the abnormal gain account.

Conceptual framework qualitative characteristics: relevance (including materiality) and faithful representation are fundamental; comparability, verifiability, timeliness and understandability are enhancing.

Fundamental accounting conventions: going concern, accruals, consistency, prudence, business entity and historical cost; prudence must not permit deliberate understatement.

IAS 1 requires a complete set of financial statements: statement of financial position, statement of profit or loss and OCI, statement of changes in equity, statement of cash flows and notes.

Recognition criteria: recognise an element when future economic benefits are probable and the item has a cost or value measurable reliably.

Measurement bases permitted: historical cost, current cost, realisable value, present value and fair value; fair value is an exit price under IFRS 13.

Regulatory hierarchy: IFRS issued by the IASB; EU endorsement and local company law (e.g. Companies Act provisions) determine which entities must apply them and filing requirements.

Audit and oversight: an audit expresses an opinion on fair presentation under the reporting framework; it does not guarantee the absence of fraud and does not certify solvency.

Fundamental ethical principles (IESBA): integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour.

Share issues: ordinary shares are recorded at nominal value in share capital, with any excess credited to share premium; issue costs are usually deducted from share premium.

Bonus (capitalisation) issue: no cash raised; transferred from reserves to share capital at nominal value, increasing the number of shares but not total equity.

Rights issue: proceeds split between share capital (nominal × new shares) and share premium; the bonus fraction adjusts prior-year EPS and comparative figures.

Dividends: only recognised when declared/approved; unpaid amounts are a current liability; dividends paid appear in the statement of changes in equity, not in profit or loss.

Loan note issue: split between liability and equity components when convertible; finance cost = opening carrying amount × effective interest rate; discount amortised over the term.

Deferred tax: arises from temporary differences between accounting carrying amount and tax base; recognised as a non-current liability or asset under the liability method.

Ratio formulas: gross margin = gross profit/revenue; ROCE = operating profit/(total assets − current liabilities); gearing = debt/(debt + equity); current ratio = current assets/current liabilities.

Efficiency ratios: inventory turnover = cost of sales/average inventory; receivables days = receivables/revenue × 365; payables days = payables/cost of sales × 365.

Cash flow (IAS 7): classify as operating, investing or financing; interest and dividends paid may be operating or financing but must be applied consistently; non-cash items are added back.