FAF2 financial accounting

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  • Created by: charlie
  • Created on: 07-05-16 17:16
T-Account equation
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what doesn't trial balance account for
depreciation/ accruals/ prepayments/ outstanding invoices for purch or sales end of period
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Incomplete records: Trade receivables
opening balance + credit sales - cash received - bad debts - discounts allowed = closing balance
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Incomplete records: Trade payables
opening balance + credit purchases - cash payments - discounts received = closing balance
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Straight line depreciation equation
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reducing balance depreciation equation
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Sum of digits depreciation equation
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Physical usage depreciation equation
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writing off irrecoverable bad debts
Dr bad debt expense (inc expense/ IS) Cr TR (dec TR/ SOFP)
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provision for doubtful debts: specific/ irrecoverable
Dr doubtful debts inc/dec (inc expense/ IS) Cr bad debt provision (LESS: TR/ SOFP)
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Inventory cost flow assumptions: FIFO +ves/-ves
realistic, easy, actual purchase price, C/I most close to recent price /// COS out of date prices
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Inventory cost flow assumptions: LIFO +ves/-ves
easy, actual purchase price, COS recent price /// unrealistic, C/I out of date prices, when inv falls issues at very out of date prices
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Inventory cost flow assumptions: Weighted average
profits smoothed, logical in all identical items have same value /// valuation not prices which items bought at, COS out of date prices
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Control account: 3 +ves
1) detection of errors (have to equal) 2) Instant info (single account showing total amount owed/owing) 3) Prevention of fraud (2 separate duties in sales/purchase ledger + general ledger control account)
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Controle account: 5 -ves (errors)
1)error of omission (don't enter trans) 2)reverse entries (Dr/Cr) 3)Mispost/error of commission (enter wrong persons a/c) 4)Principle error (entry to wrong class of a/c e.g liab or cost) 5)Original entry error (undercast/overcast/transposition error)
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Statement of cash flows 3 sections
1) operating activities (revenue-producing activity) 2) investing activities (investments by business) 3) financing activities (way business funds operating and investing activities)
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SoCF headings under: operating activities (-ve)/+ve
note 1 / (income tax paid) / (dividends paid*) / (interest paid*)
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SoCF headings under: investing activities (-ve)/+ve
net capital expenditure not incl depreciation NCA / Interest received / investments made (and sold)
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SoCF headings under: financing activities (-ve)/+ve
(interest paid*) / (dividends paid*) / issue of shares / repayment of debentures
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Partnership 6 characteristics
1) no separation of ownership/control 2) financing opportunities (own/bank/new partner - no issue debt/equity) 3) cost of compliance (general) 4) reporting req. (only bank) 5) unlimited liab. (not just own cap.) 6) owners pay tax (not business)
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1890 partnership agreement 5 laws
1) profit/losses shared equally 2) capital contributed equally 3) partners not entitled to interest on cap. (not expense) 4) partners making loans in excess of cap allowed 5% interest 6) all take management/ not entitled to salary (drawn from profit)
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Capital account: definition/ Dr/ Cr
record amount of capital introduced/ Dr (bal c/fwd)/ Cr (bal b/fwd, contribution)
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Current account: definition/ Dr/ Cr
record balance of retained earnings for each partner/ Dr (drawings, bal c/fwd)/ Cr (bal b/fwd, salaries, interest on CAPITAL, share of profits)
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2 ways of adjusting equity for fairness
1) assets c/fwd at new revised value (revalue assets, credit former partners in old PSR) 2) assets c/fwd at old value (revalue assets, credit former in old PSR, write back revaluation debit in new PSR, gives bal c/fwd)
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Partnership adjustments needed when (5 examples)
1) sole trader takes on partner/ incorporates 2) change in PSR 3) partner dies/ leaves/ retires 4) two partnerships amalgamate/ new partner 5) partnership incorporates + converted to limited company
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7 steps of partnership question
1) fill in current a/c 2) fill in equity (SoFP) 3) fill in SoCI 4) fill in partnership appropriation a/c 5) add back profit share into current a/c 6) find gal c/fwd in current a/c 7) add into SoFP for each partner
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Partnership SoCI template
Revenue/ (COS)/ =gross profit/ (operating expenses)/ (interest on LOAN)/ =profit
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Partnership appropriation a/c template (Dr/Cr)
Dr (each partners salaries, each partners interest on capital, each partners share of profit)/ Cr (net profit)
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Goodwill definition
intangible asset arises when buyer acquires existing business/ assets that aren't separately identifiable
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Incorporation definition
purchase of partnership/ sole proprietor as going concern by any business/ assume business operating for future, implies bought for more than goodwill
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Incorporation 6 steps
1) All assets (Dr)+liab. (Cr) to realis. a/c 2) purch consideration (Dr newco /Cr realis.) 3) c/fwd profit on realis. + move to Cap. a/c (b/fwd + POR) *if selling stop* 4) keeping some of business Bank a/c + Cr Cap. 5) remove Newco (Cr) to cap. (Dr)
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Goodwill (intangible asset on purch) - price higher than value
total purch consideration - new asset value = +ve goodwill
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Goodwill (capital reserve on purch) - price lower than value
total purch consideration - new asset value = capital reserve (-ve goodwill)
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VAT characteristics
anyone liable / indirect / chargeable on G+S/ imported goods+acquisition of EU goods/
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VAT: exempt supplies
no tax charged/ not taken into account whether trader is taxable person + input tax not available for credit land, insurance, post, betting, education
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VAT: 0 rated supplies
taxable supply but at rate of 0/ taken into account whether trader is taxable + input tax available for credit (claim back if output tax 0 = difference)/ food, sewerage, water, SSSI, transport
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VAT: standard rate
20% G+S/ 5% gov. funded installation schemes
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Trader registered for VAT
value of taxable supplies > £82,000/annum
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Trader reregistered from VAT
value of taxable suppliers < £80,000/annum
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VAT: accounting for it
extra column in books of prime entry/ separate VAT control a/c for input + output tax / VAT control a/c c/fwd on Dr HM owes you, but c/fwd on Cr you owe HM
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VAT: payment periods for tax
traders pay within 3 months/ repayments 1 month/ tax returns returned 30 days of accounting period with tax due
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VAT on sales
LOWERS revenue = becomes more expensive
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VAT on purchases
LOWERS cost = becomes less expensive
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VAT 3 types of discounts
1)Unconditional discounts (tax=discounted amount) 2) Discounts for prompt payment (tax=discounted amount if not promptly paid, if instalment payments tax=reduced amount) 3) contingent discounts (tax=full amount, if earns discount, issue credit note)
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Input tax when non-deductible (use full amount)
1) private motor cars (not bought for resale 2) only 50% of input tax to leasing of all cars is deductible for VAT purposes 3) motor accessories 4) business entertainment expenses
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debt claims on company (shares but rights to interest and capital repayments)
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Intangible assets
assets which do not have physical substance
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sales ledger
not part of double-entry, keep track of how much is owed by individual customers
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sales ledger control account
part of double-entry (TR), total amount owed to reporting entity by customers
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share capital
face value of shares issued by a company, gives holder part ownership, right to dividends + capital on a winding up
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share premium
difference between face value of shares issued and the value actually received by company at issue,
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Other cards in this set

Card 2


what doesn't trial balance account for


depreciation/ accruals/ prepayments/ outstanding invoices for purch or sales end of period

Card 3


Incomplete records: Trade receivables


Preview of the front of card 3

Card 4


Incomplete records: Trade payables


Preview of the front of card 4

Card 5


Straight line depreciation equation


Preview of the front of card 5
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