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MindMap Gallery ACCA F3 Financial Account
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ACCA F3 Financial Account
Financial accounting: CH1, CH2, CH3, Sources, recrds and books of prime entry, CH5ledger accounts and double entry
Edited at 2022-03-14 19:32:43
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ACCA F3 Financial Account
- bacteria
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- Outline
Financial accounting
CH1
Financial reporting
Recording
analyzing
summerising
Financial statements
SOFP statement of financial position
Asset
controlled
Liability
Equity/Capital
SOPL statement of profit or loss
Income
Expense
Needs
(a) Investors - dividend, any changes in share price, managerial efficiency,liquidity position, future prospects and so on (b) Employees--the security of employment future prospects (C) Lenders capability of redemption (d) Suppliers-be a good customer, pay its debts (e)Customers- abilities to continue producing and supplyinggoods (f) Government-comply with law,ability to pay tax,etc (g) The public--all the reasons mentioned above
Types of business entities
sole rtader
partnership
Limited liability company
CH2
CH3
CH4 Sources, recrds and books of prime entry
source documents
types
quotation quotation
purchase order Purchase quotation
sales order sales order
goods received note
goods despatched note
invoice bill
relates to a sales order or a purchase order
when trades on credit, supplier sends out, customer receives.
credit note
negative invoice
sales return purchase return
debit note
adjust an invoice
books of prime entry
as
a. sales day book
b. purchase day book
c. sales return day book
d. purchase return day book
e. cash book
receipts
patment
when analysis columns are completed
f. petty cash book
cash book for small payments
imprest system Imprest system
the amount of money in petty cash is kept at an sgreed sum or 'float'
g. journal
record for transaction which are not recorded in any of the other
unusual movement as
purchase NCA
drawing
invest capital
CH5 ledger accounts and double entry
ledger accounts general ledger
summarize all the individual transactions listed in the books of prime entry
format T-account (T-type account)
nominal ledger (general ledger) Nominal ledger
summarizes the financial affairs of a business
such as
plant and machinery at cost(NCA)
motor vehicles at cost(NCA)
proprietor's capital(liability)
wages and salaries (expense item)
reent and local taxes (expense item)
accounting equation
ASSETS=CAPITAL LIABILITIES
double entry bookkeeping
CH6 form trial balance to financial statements
trial balance
a list or ledger balances shown in debit and credit columns
steps as steps
i. collecting ledger accounts
ii. balance
iii. collecting the balances
SOPOL
steps as steps
i. collecting income and expenses accounts
ii. balance
iii. gather together in the P/L account
iv. collecting the balance
SOFP
steps as steps
i. collecting assets,liabilities and capital accounts
ii. balance
iii. gather together in the capital account
iv. collecting the balance
CH7 (IAS2) inventory stock
COGS
Opening inventory purchase-closing inventory -purchase return
If you buy something for sale, put it on Purchase. Those that need processing and are not sold at the end of the period are placed in inventories.
valuing inventory
FIFO
AVCO
cost of carriage freight
awards
the cost of purchase
outwards
selling expense
IAS2
definitions
inventories are assets
held for sale
in the process of production
consumed in production process or in the rendering of services
net realisable value (NRV) net salvage value
~Sales price ~less costs to complete (X) ~less selling and distribution costs (X) =NRVX
cost of inventories
cost of purchase
purchase price
import duties
cost which is directly attributable
less any trade dicounts
costs of conversion
directly related
production overheads
bringing it to present location and condition
accounting
1||| DR P/L a/c CR purchase account
2||| DR inventory account (closing inventory value) CR P/L a/c
3||| DR P/L a/c CR invntory account (opening inventory value)
CH8 (IAS 16) Tangible Non-current assets Tangible assets
Non-current assets
bought by the business for the long term
include
tangible
intangible
cost
Asset expenditure VS other expenditure
Depreciation
Methods
straight line
(cost - residual value)/useful life
reducing balance
depreciation rate(%) X carrying amount (CA)
CA= Cost - accumulated deprication (F3 does not consider depreciation)
revisited
residual value
useful life
Accounting
DR Depreciation expense (SPL) CR Accumulated depreciation (SOFP)
disposal
Sales peoceeds(money earned from selling)
>CA profit on dispoal
<CA loss on dispoal
Accounting
1||| Remove the cost of the asset DR Disposal account CR Non-current asset
2||| remove accumulated deprecation charge to date DR Accumulated deprecation CR Disposal account
3||| account for the sales proceeds DR cash CR Disposal account
4||| ballance off disposal account to find the profit or loss on disposal DR profit on disposal (p/l a/c) CR p/l a/c (loss on disposal)
revaluation
CAS VS IAS
CAS upword X downword ✓
IAS upword ✓ downword ✓
Accounting
1||| ad just cost account to revalued amount DR Non-current asset cost(SOFP) CR Revaluation surplus(SOFP)
2||| remove the accumulated depreciation to date because the asset has no fallen in value DR Accumulated depreciation (SOFP) CR Revaluation surplus (SOFP)
3||| excess depreciation charge is transferred each year from revaluation surplus to retained earnings DR Revaluation surplus (excess deprecation) CR retained earnings
disclosure (Disclosure)
addition
disposal
increses/decreases fromm revaluations
reductions in carrying amount
depreciation
any other movements
CH9 (IAS38) Intangible Nom-current assets intangible assets
examples
development expenditure
goodwill
But not within Guideline 38
concessions patents license trade marks
Research expenditure
Research
no guarantee that the expenditure will generate profit
write expenditure off in the year i is incurred
Accounting
DR Research expenditure (SOPL) CR Bank
Development expenditure
Development
future profits are expected
must capitalize as an intangible non-current asset if all of the relevant cyiteria of PIRATE are satisfied
Accounting
DR Intangible non-current asset (SOFP) CR Bank/payables
Amortization
finite life
has
DR Amrtisation expense CR Accumulated amrtisation
didn`t has
Although amortization is not required, regular impairment testing is required
CH10 Accruals and payments Prepayment payable
Accruals accounts payable
Accounting when closing
DR Expense(SPL) CR Accurals(SOFP)
Current liabilities -accurals
Actual operating expenses incurred
Reversing when opening
DR Accruals(SOFR) CR Expense(SPL)
Prevent excessive memorization and do DR
When to pay and when does it count as real expense?
Prepayments Prepayments
Accounting when closing
DR Prepayments (SOFP) CR Expense (SPL)
Current assets - prepayments
Since the money spent is counted as an expense (it has not actually been incurred), the prepaid expenses in the current period should be counted as asset prepayment.
Reversing when Opening
DR Expense CR Prepayments
Prevent missing notes and do CR
Accruals income accounts receivable
Accounting when closing
DR Accrued income CR Income
Current assets -accrued income
actual income
Reversing when opening
DRIncome CR Accruals income
Prevent excess CRs from being recorded
When is the money collected? When is the real income considered?
Deferred income Advance payments
Accounting when closing
DRIncome CR Deferred income
Current liabilities - Deferred income
Since the money received is counted as income (it has not actually occurred), the income received in advance in the current period should be counted as a liability, deferred income.
Reversing when opening
DR Deferred income CR Income
Prevent missed recording of DR
Judgment and calculation (after-class questions)
CH12 Irrecoverable debts and allowances Bad debts, bad debt provisions
Irrecoverable debts
Debts which will never pay
expence account
accounting
happen
DR Irrecoverable debts account (expence) CR Receivable
recovered
DR cash at bank CR Irrecoverable debts account (expence)
allowance
may not pay
assets account
accounting
increase
DR Irrecoverable debts expense CR Allowance for receivables
decrease
DR allowance for receivables CR Irrecoverable debts expense
After-school questions
CH13 sales tax VAT
sales tax
as
indirect tax indirect tax
cumulative tax cumulative tax
registered
charge output sales tax on sales
suffer input sales tax on purchase
irrecoverable sales tax VAT is not deductible
regarded as part of the cost of the items
gorss amount
inclvsive
net amount
exclusive
accounting
salex tax in books
sales day book
purchase book
cash book
payable
as a current liability in the SOFR
main points
CH14 Control accounts General ledger of income and expenditure
Control accounts
receiveables ledger control account (RLCA)
memorandum ledger Detailed ledger
receivables ledger
balancesagree
payable ledger control account (PLCA)
memorandum ledger
payable ledger
balancesagree
Other entries
Contra entries
customerz which also supplies
DRPLCA CR RLCA
Returns
sales return
1. Sold DR RLCA CR Sales
2. Customer pay DR Bank CR RLCA
3. Returns DR Sales(Returns) CR RLCA
CO owes to customers
4. Refunds customers DR RLCA CR Bank
pruchaseretuen
1. Purchased DR Purchase CR PLCA
2. Pay supplier DRPLCA CR Bank
3. Returns DRPLCA CR Purchase(Returns)
Supplier owes to CO
4. Supplier refunds DR Bank CR PLCA
Discount
Settlement discount
Discount allowed
to customer
Customer is expected to take up
Sale DR RLCA (net of diacount) CR Revenue/Sales
If does noe take up DR Cash(discount) CR Revenue/Sales
Customer is not expected
Sale DR RLCA(full amount) CR Revenue / Sales (full amount)
If does take up DR Revenue / Sales (discount) CR RLCA
Discount recceived
net of Trade discount but inclusive of settlement discount
Purchase DR Purchase CR PLCA
Take up DRPLCA(discount) CR Discounts received (SPL)
from supplier
as an inducement to settle debt early
Trade discount
reduce the selling price
for regular customers or bulk buyers
never appear in the financial statements
Reconciliation
PLCA
RLCA
CH15 Bank reconciliations Bank statements
Difference
Timing difference Unfulfilled matters (bank)
Outstanding logatments /deposits credited after date
Unpresented/Outstanding checks
Omission Unfulfilled items (enterprise)
Such as
standing orders
recurring payment instructions
direct debits
bake charge
Such as electricity bill
interest
on deposit
Deposit interest
on overdraft
Borrowings
Dishonoured/Bounced checks
Credit transfer
Errors by business
Transposition errors
digital string bits
Casting errors
Sum error
Errors by bank
Reconciliation
Cash book
Bank reconciliation
CH16 Correction of errors Correction of wrong accounts
Types of errors
trial balance
errors of omission
omission
errors of commission
Wrong entry but does not change the nature of the account
errors of principle
Wrong entry and change of account nature
compensating errors
Simultaneous data string bits
not balance
transposition error
debits do equal credits
no corresponding credit/debit made
two debit/credit entries
Suspense account suspense account
temporary accounts
never appear in the final account
used for
To account for a debit / credit entry when the accountant is unsure as to where it should go
To make a preliminary trail balance when an error has been detected
step
1. Determine the original accounting entry which was made
2. Decide what entry should have been made
3. Make the required adjustment
Adujstment to profit
CH17 Incomplete records Incomplete record
Cost structuree
Cost of sales = opening inventory purchase -closing inventory
Magin
Sales 100%
Mark-up
COS 100%
Derive missing figures from given information
credit sales and receipts
purchases and payables
Drawing
cash drawing
DR Drawing CR Cash
goods drawing
DR Drawing CR Purchase
Accounting equation
Debits =Credits
Assets = Liability Capital Profit -Drawings
CH18 Preparation of financial statements for sole traders Financial reports for sole proprietorships
CH19 Introduction to company accounting Outline the company’s accounting treatments
CH20 Preparation of financial statements for companies Prepare company financial reports
Working
Depreciation
(To administrative expenses and Cost of sales)
Administrative expenses
Pre T/B Depreciation Receiveable allowance bad debts allowance accrued (prepayment)
Cost of sales
Opening inventory Purchase (purchase return) (Closing inventory) -Errors(charge in T/B) Depreciation
Property, plant and equipment
cost Acc.dep chg.dep CA Buildings plant and equipment Property
Retained earnings
B/f per T/B profit for period Divided paid
SOPL
Revenue (Cost of sales) GROSS PROFIT Discount received (Administrative expense) (Distribution costs) PROFIT BEFOR TAX (income tax for the year)(only chg) PROFIT FOR THE YEAR
STATEMENT OF CHANGE IN EQUITY
Share capital Share premium Retained earnings Total Balance at 1.Jan.YYYY Total comprehensive income for the year (profit for the year) Dividend paid Balance at 31.Dec.YYYY
SOFP
Assets Non-current assets Buildings plant and equipment property Current assets Inventory Cash at bank Trade reveivable(charge in bad debts, allowance) Prepayment Total assets Equity and liabilities Equity Share capital Share premium RE Revolution surplus Liability Bank overdraft Sales tax payable Current tax payable (note the calculation method) Trade payable Accrued Total equity and liabilities
CH22 Statements of cash flows Prepare cash flow statement
types of cash flows
operating activities
investing activities
financing activities
method
indirect method
Cash flows from operating activities
profit before taxation
Adjustment for
Income taxes paid
Cash flows fom investing activities
direct method
CH23 Introduction to consolidated financial statements Overview of Consolidated Reports
types of investments
Subsidiary (>50%)
An entity that is controlled by another entity
Consolidate
Associate (20% to 50%)
An entity over which the investor has significant influence
Equity account
Trade investment (0% to 20%)
A simple entity hat is not two another
Investment in SOFP and investment income in SPLOCI
Accounting tratment
Consolidation method for SOFP
Accounting tratment for an associate
Equity method
CH24 The consolidated statement of financial position Prepare consolidated balance sheet
Working
Group structure
Goodwill
Consideration (investment) X FV non-controlling interest X - FV net assets at acquisition represented by: Share capital X Retained earings X =Goodwill arising on acquisition X
Non-controlling intrest
fVNCI NCI share of post-acquisition reserves -PUP on sales made by S =NCI at year end
Retained earnings
Per question PUP on sales made by P/S (X) (X) Pre-acquisition retained earnings (X) Group share of post-acquisition earnings X subsidiary(%) X =X
Povision for unrealisted profit (PUP)
=Total selling price
Margin
Mark-up
CH25 The consolidated statement of profit or loss Prepare consolidated income statement
Revenue
P′revenue S′revenue - internal transaction selling price
Cost of sales
P′COS S′COS - Internal transaction price PUP
Gross profit
P'profit S'profit - PUP
Working
Group structure
P—S DD.MM.YY shares
NCI
FV NCI Share of post-acquisition RE PUP on sales made by S (X) =NCI
Unrealized profit
S—P pup