Level 3 Advanced Bookkeeping Revision Cards

Accounting Principles

  • Accounting aims: see performance, value of the assets/liabilities, cashflow position, communicate to users of accounts 
  • Cash sale: settled immediately 
  • Credit sale: given a period of time to settle 
  • DEAD: debits are, expenses, assets, drawings 
  • CLIC: credits are, liabilities, income, capital
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Accounting Concepts

  • Statement of profit or loss: shows income and expenses
  • Statement of financial position: shows assets and liabilities 
  • Going concern: assume the business is trading for the forseeable future (1 year)
  • Accruals concept: costs and revenues should be matched to the period they relate to 
  • Consistency: treat items the same in different accounting periods 
  • Prudence: being cautious, not over stating revenues 
  • Materiality: statements are required to show a true/fair view
  • Qualitative characteristics: comparability, verfiability, timeliness, understandability 
  • Relevance: financial information is capable of making a difference 
  • Materiality: difference if you don't include
  • Faithful representation: neutral, free from error 
  • Comparability: comapred with other accounting records
  • Verifiability: represents economic reality of the transactions
  • Timeliness: information is availiable to decision makers 
  • Understandability: presenting information clearly 
  • Intergrity: straight foward and honest doing work 
  • Objectivity: fair 
  • Professional competence and due care: don't do work not competenant of doing, standard
  • Confidentiality: respect information given, don't disclose information about clients
  • Professional behaviour: consistent, good reputation 
  • Transparency and fairness: prepare the accounts in a fair transparent way 
  • Valid transactions: only include valid business transactions
  • Pressure: do the right thing despite pressures 
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Purchase of Non Current (Fixed) Assets

  • Capital expenditure: purchase of a non current asset DR non current asset CR cash 
  • Revenue expenditure: purchasing items essential for the business to trade DR expense CR cash 
  • Cash purchase: assets purchased for cash DR non current asset CR cash 
  • Credit purchase: asset purchased on credit DR non current asset CR trade payable 
  • Borrowing from the bank: DR cash CR bank loan, DR non current asset CR cash 
  • Finance lease: legal title does not transfer -the asset still belongs to the finance company 
  • Hire purchase: final payment legal title will transfer to the business 
  • Whats included in capital expenditure: purchase price, alteration costs, legal fees, non refundable taxes, site preparation costs, delivery/installation costs, testing 
  • Sales taxes: for VAT registered businesses VAT isn't included in costs of non current asset - this isn't a real cost as its reclaimed 
  • Non current asset register: lists all assets the business owns e.g. description, acquisition date, original cost, depreciation, net book value, disposal date/proceeds
  • Reconciling non current asset registers: 1) physical reconciliation - using NCAR and finding the physical asset, 2) reconciling to the general ledger - checking costs and depreciation figures are correctly recorded in the general ledger and NCAR
  • Tangible asset: assets with a physical form 
  • Goodwill: intangible asset, people would pay more than what the business is worth on paper due to good reputation etc 
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Depreciation of Non Current (Fixed) Assets

  • Net book value: original cost paid less any depreciation charges 
  • Straight line depreciation: depreciation charge is the same in every year, cost - residual value / useful economic life = annual depreciation charge 
  • Reducing balance deprecation: depreciation charge is higher at the start of an assets life, net book value x depreciaiton rate = annual depreciation charge 
  • Units of production depreciation: depreciation is spread over the number of units the asset produces, cost / amount made x units in a year 
  • Depreciation is calculated at the end of the period 
  • Depreciation: DR depreciation expense (P&L) CR accumulated depreciation (BS)
  • Accumulated depreciation = provision for depreciation 
  • P&L - cleared to nil
  • Balance sheet - balances brought down/carried down 
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Disposal of Non Current (Fixed) Assets

  • If proceeds are greater than NBV = profit on disposal 
  • If proceeds are less than NBV = loss on disposal 
  • Profit on disposal = charged too much depreciaiton
  • Loss on disposal = charged too little depreciation
  • Dealing with disposal: 1) transfer the cost DR disposal CR non current asset cost, 2) remove accumlated depreciation DR accumulated CR disposal, 3) post sales proceeds DR cash CR disposal 
  • Part exchage allowance: DR non current asset cost CR disposal account, 1) transfer the cost to disposal DR disposal account CR non current asset, 2) remove accumulated depreciation DR accumulated depreciation CR disposal, 3) DR non current asset cost (New asset) CR disposal, 4) post additional cash paid DR non current asset CR cash 
  • Proceeds > NBV = DR disposal CR profit and loss
  • Proceeds < NBV = DR profit and loss CR disposal 
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Accruals and Prepayments

  • Accruals - include expenses in the correct period, match to the period they relate to 
  • Prepayments -paid for an item of expense before we have used it 
  • Accrual - DR expense CR accrual 
  • Prepayment - DR prepayment CR expense 
  • Reverse accrual - DR accrual CR expense
  • Reverse prepayment - DR expense CR prepayment 
  • Deffered income - money received for goods/services that haven't been delivered DR sales CR deferred income 
  • Accrued income - income earned not received DR accrued income CR sales 
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Inventory (Stock)

  • Purchase inventory: DR purchases CR cash/payables 
  • Sells inventory: DR cash/receivables CR sales 
  • Closing inventory: DR inventory CR closing inventory 
  • Cost of sales = opening inventory + purchases - closing inventory 
  • Opening inventory: DR opening inventory CR inventory 
  • Iventory = quantity x valuation 
  • Inventory is valued at the lower of cost and net realisable value 
  • First in first out: first items in inventory are the first ones sold 
  • Last in first out: last items in inventory are the first ones sold 
  • Average cost: calculating the average cost
  • Errors: incorrect quanities entered in inventory record, inventory damaged but not recorded as damaged, inventory being stolen, inventory sold not despatched 
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Irrecoverable and Doubtful Debts

  • Sale on credit: DR receivables CR sales 
  • Customer pays: DR cash CR receivables/SLCA
  • Bad debts: debt that wont be recovered, DR irrecoverable debt expense CR receiables/SLCA 
  • Doubtful debt: possibility recovereable, DR doubtful debts expense CR allowance for doubtful debts
  • Allowance for doubt debt - allowance account of statement of financial position
  • Allowance for doubtful debt adjustment: expense in the P&L 
  • Receivables - SLCA
  • General allowance - write off any bad debts, make specific allowances, calculate general allowances DR doubtful debt expense CR allowance for doubtful debts 
  • Specific allowance goes bad: DR allowance for doubtful debts CR receivables 
  • Specific allowance is recovered: DR cash, CR receivables, DR allowance for doubtful debts CR bad and doubtful debt expense 
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Bank Reconciliations

  • Bank reconciliation- compare cash account to figure on bank statement 
  • Unpresented cheques - written a cheque, not presented to the bank
  • Oustanding lodgements - received a cheque and paid into the bank, not cleared
  • Unrecorded transactions - not a timing difference, transactions gone through the bank that we aren't aware of e.g. bank charges 
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Control Account Reconciliations

  • Memorandum/subsidiary ledgers - show individual amounts owed 
  • Sales returns - DR sales returns CR receivables 
  • Purchase returns - DR payables CR purchase returns 
  • Trade discount - DR receivables CR sales
  • Settlement discount - DR receivables CR sales 
  • Allowed customer to take discount - DR discounts allowed CR receivables 
  • Received settlement discount - DR payables CR discounts received 
  • Payroll wages control account - wages expense, pension fund, voluntary deductions, HMRC 
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The Trial Balance, Errors and Suspense Accounts

  • Debits = credits 
  • Suspense account = temporary account that identifies if an error has been made, never appears in final accounts 
  • THINK - what double entry did they post? What double entry should've been posted?What double entry is required to correct the error?
  • Single sided entry - requires suspense account, CR suspense 
  • Both sides of the double entry posted to the same side - requires suspense account, DR suspense, double 
  • Unequal double entry posted - requires suspense account, DR suspense, take away differences 
  • Error of ommission - transactions has been missed
  • Error of commission - transaction posted to wrong expense account 
  • Error of principle - complete wrong account posted to
  • Reversed double entry - both sides of the double entry are on the wrong side, double 
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The Extended Trial Balance

  • Put through adjustments - put on DR/CR P&L or DR/CR balance sheet
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Value Added Tax

  • Output VAT - VAT charged on sale of goods/services
  • Input VAT - reclaim VAT paid 
  • Output VAT > input VAT = payable to HMRC
  • Input VAT < output VAT = reclaimable from HMRC 
  • VAT sales - DR receivables CR VAT CR sales 
  • VAT purchases - DR purchases DR VAT CR payables 
  • VAT on cars - only claim back VAT if car is pool car - no personal use, DR non current asset CR cash
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