NSSCAS Accounting (8244) cheat sheet

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

Double entry: each transaction has equal debits and credits. Debit entries increase assets and expenses; credit entries increase liabilities, capital and income.

Books of prime entry: sales day book (credit sales), purchases day book (credit purchases), sales returns day book, purchases returns day book, cash book, petty cash book, general journal.

Posting rule: totals of day books post to ledger control accounts; individual items post to personal (receivable/payable) ledgers.

Trial balance: list of ledger balances; total debits must equal total credits. It detects arithmetic and one-sided errors only, not errors of principle, omission, commission, original entry, reversal or compensating errors.

Capital vs revenue: capital expenditure acquires or improves a non-current asset; revenue expenditure relates to day-to-day trading and is charged to profit or loss.

Drawings reduce capital; profit increases capital; a net loss and drawings both reduce closing capital. Closing capital = opening capital + profit − drawings + capital introduced.

Sole trader income statement: Revenue − Cost of sales = Gross profit; Gross profit − Expenses = Net profit. Cost of sales = Opening inventory + Purchases + Carriage inwards − Closing inventory.

Statement of financial position: Non-current assets + Current assets − Current liabilities − Non-current liabilities = Capital/Equity.

Accruals (matching) concept: income and expenses are recognised when earned or incurred, not when cash moves; adjust for accruals and prepayments.

Prudence concept: inventory valued at the lower of cost and net realisable value; provide for doubtful debts and depreciation.

Company statement of financial position presents equity as share capital, share premium, retained earnings and revaluation reserve; liabilities are split current and non-current.

Company income statement shows gross profit, operating profit, finance costs, profit before tax, tax expense and profit for the year; dividends are shown in the statement of changes in equity, not as an expense.

Going concern and consistency are the assumptions underpinning statement preparation; a departure must be disclosed.

Cost of a non-current asset includes purchase price, delivery, site preparation, installation and non-refundable duties; excludes training and routine repairs.

Straight-line depreciation = (Cost − Residual value) ÷ Useful life, charged evenly each year.

Reducing balance depreciation = Carrying amount × fixed percentage; charge falls each year and the asset is never fully written down to zero.

Depreciation is an application of the matching concept: it allocates cost over the periods benefiting from the asset; it is not a fund for replacement.

Disposal account: debit with carrying amount and accumulated depreciation; credit with sale proceeds; the balancing figure is profit (credit) or loss (debit) on disposal to the income statement.

Profit on disposal = Proceeds − Carrying amount; carrying amount = Cost − Accumulated depreciation to date of sale.

Non-current asset register records cost, acquisition date, depreciation method, accumulated depreciation, carrying amount and disposal details for each asset; it is reconciled to the nominal ledger asset accounts.

Bank reconciliation: adjusted cash book balance = bank statement balance + unpresented cheques − uncredited deposits ± bank errors; items already in the cash book are not adjusted again.

Items recorded by the bank but not the business (bank charges, interest, standing orders, dishonoured cheques, direct credits) are entered in the cash book first.

Petty cash imprest: the float is restored by reimbursing exactly the amount spent, so the balance returns to the fixed imprest amount.

Imprest system proof: cash in hand + petty cash vouchers = imprest float.

Suspense account: opened for the difference on a trial balance; cleared when one-sided errors are found. It cannot correct errors that do not affect the trial balance agreement.

Error correction: error of principle (wrong class of account), commission (right class, wrong person), original entry (wrong figure in prime records), omission (not recorded), reversal (debit and credit swapped), compensating (two errors cancel).

Effect on profit: overstating closing inventory or understating expenses overstates profit; correct via journal with narrative.

Appropriation account: profit for the year is shared as interest on capital, partners' salaries, interest on drawings (deducted), then residual profit or loss in the profit-sharing ratio.

Capital account: fixed capital contributions plus share of residual profits only if capitals are not fixed; current account accumulates share of profits, salaries, interest on capital less drawings and interest on drawings.

Interest on drawings is income to the partnership and is debited to the partner's current account.

Admission of a partner: revalue assets, record goodwill, and either raise a goodwill account then write it off to old partners or adjust via capital/current accounts so the new partner pays for a share of goodwill.

Retirement: revalue assets, share goodwill among remaining partners, settle the retiring partner's balance via cash or a loan account.

Dissolution: realise assets, pay realisation expenses, settle liabilities, then distribute the balance to partners; the realisation account shows profit or loss on realisation shared in the profit-sharing ratio.

Goodwill is not retained on the statement of financial position after admission or retirement; it is written off to the continuing partners.

Share issue: debit cash with proceeds; credit share capital with nominal value and credit share premium with the excess.

Bonus (capitalisation) issue: converts reserves into share capital; no cash received; total equity unchanged. Rights issue: shares offered to existing shareholders, usually below market price, raising cash.

Debenture interest is a finance cost charged to profit or loss and accrued whether or not paid; debentures are non-current liabilities.

Reserves: share premium and revaluation reserve are non-distributable; retained earnings are distributable and reduced by dividends.

Dividends: interim and final dividends are recognised when declared/approved; unpaid declared dividends are current liabilities; dividends are not an expense.

Disclosure: statement of financial position shows called-up share capital, reserves, non-current liabilities and current liabilities separately; income statement discloses profit before tax, tax and profit for the year.

Corporation tax is an expense matched to the accounting period and is a current liability until paid.

Gross profit margin = Gross profit ÷ Revenue × 100%; net profit margin = Profit before tax ÷ Revenue × 100%.

Return on capital employed (ROCE) = Operating profit ÷ (Total assets − Current liabilities) × 100%.

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

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

Receivables collection period = Trade receivables ÷ Credit sales × 365 days; payables payment period = Trade payables ÷ Credit purchases × 365 days.

Gearing = Non-current liabilities ÷ (Non-current liabilities + Equity) × 100%; high gearing means greater financial risk.

Limitations: ratios use historical cost figures, ignore non-financial factors, and are distorted by differing accounting policies; compare with prior years and industry peers.

Cost classification: direct costs (materials, labour, expenses) traceable to the product; indirect costs (overheads) are apportioned, reapportioned and absorbed.

Prime cost = Direct materials + Direct labour + Direct expenses; production cost = Prime cost + Production overhead absorbed.

Manufacturing account: Opening raw materials + Purchases − Closing raw materials = Materials consumed; add direct labour and production overhead = Production cost; adjust work in progress to find cost of goods manufactured.

Marginal costing: contribution = Sales − Variable costs; profit = Total contribution − Fixed costs. Inventory is valued at variable cost only.

Absorption costing: inventory includes fixed production overhead absorbed by a predetermined rate (budgeted overhead ÷ budgeted activity); profit differs from marginal costing only by the fixed overhead in inventory.

Break-even units = Fixed costs ÷ Contribution per unit; break-even revenue = Fixed costs ÷ Contribution-to-sales ratio.

Decision rules: accept a special order if it yields positive contribution and no better use of capacity exists; make or buy on relevant (avoidable) costs; shut down only if contribution is negative.