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Table Of Contents

2.4 The accounting equation and the balance sheet
2.4.1 The contents of a balance sheet
2.4.2 Vertical presentation of a balance sheet
2.5 The income statement
2.5.1 The cost of goods sold
2.6 Profit and cash
2.7 Capital and revenue
2.7.1 Capital transactions
2.7.2 Revenue transactions
2.8 Summary
Solutions to Revision Questions 3
The Accounting System in Action 3
3.1 Introduction
3.2 What is a ledger account?
3.3 What is double-entry bookkeeping?
3.4 Bookkeeping entries for expenses and revenue
3.4.1 Bookkeeping entries for purchases and sales
3.4.2 Nominal ledger accounts
3.5 Balancing the accounts
3.5.1 Calculating the balance on the account
3.6 Summary
Summarising the Ledger Accounts 4
4.1 Introduction
4.2 Preparing the trial balance
4.2.1 Does the trial balance prove the accuracy of the ledger accounts?
4.3 Preparing a statement of profit
4.3.1 The trading account
4.3.2 The income statement
4.3.3 The balance on the income statement
4.3.4 Dealing with drawings
4.4 Preparing the balance sheet
4.5 Balancing off the ledger accounts
4.6 Columnar ledger accounts
4.7 Summary
Solutions to Revision Questions 4
Further Aspects of Ledger Accounting 5
5.1 Introduction
5.2 Accounting for specialised transactions
5.2.1 Carriage costs
5.2.2 Discounts
5.3 Accounting for sales tax
5.3.1 Sales tax on non-current assets and expenses
5.3.2 Sales tax in separate ledger accounts
5.3.3 Non-registered businesses
5.3.4 Zero-rated and exempt supplies
5.4 Accounting for wages and salaries
5.4.1 Gross pay and net pay
5.4.2 Other deductions
5.4.3 Pension contributions
5.5 Accruals and prepayments
5.6 Bad debts and allowance for receivables
5.6.1 Accounting for bad debts
5.6.2 Bad debts recovered
5.6.3 Allowance for receivables
Allowance for receivables 203
Solutions to Revision Questions 5
Accounting for Non-current Assets 6
6.1 Introduction
6.2 Capital and revenue expenditure
6.3 Depreciation
6.4 Calculating depreciation
6.4.1 The straight-line method
6.4.2 The reducing-balance method
6.4.3 The machine-hour method/units of production method
6.4.4 The revaluation method
6.4.5 Depreciation in the year of acquisition and disposal
6.5 Accounting for the disposal of a non-current asset
6.6 A comprehensive example
6.7 Controlling tangible non-current assets
6.8 Accounting for intangible non-current assets
6.8.1 What is goodwill?
6.9 Summary
Solutions to Revision Questions 6
Preparation of Financial Statements with Adjustments
7.1 Introduction
7.2 The trial balance
7.3 The adjustments
7.4 Step 1: Labelling the trial balance
7.5 Step 2: Preparing workings
7.6 Step 3: Preparing the financial statements
7.6.1 Workings
7.7 Summary
Revision Questions
Solutions to Revision Questions 7
Organising the Bookkeeping System 8
8.1 Introduction
8.2 Organising the ledger accounts
8.2.1 Advantages of dividing the ledger
8.3 Supporting books and records
8.3.1 Source documents
8.4 Sales, purchases and returns daybooks
8.4.1 Recording transactions in the daybooks
8.4.2 Making the ledger entries
8.4.3 Extending the use of daybooks
8.5 The cash books
8.5.1 The banking system
8.5.2 The cash book
8.5.3 The petty-cash book
8.6 The journal
8.6.1 The layout of the journal
8.6.2 Using the journal for miscellaneous transactions
8.6.3 Using the journal for end-of-year transactions
8.7 Inventory records and methods of inventory measurement
8.7.1 The process of inventories measurement
8.7.3 Issues and receipts
8.8 Summary
Solutions to Revision Questions 8
Controlling the Bookkeeping System 9
9.1 Introduction
9.2 Preventing errors
9.2.1 Authorisation procedures
9.2.2 Documentation
9.2.3 Organisation of staff
9.2.4 Safeguarding assets
9.3 Detecting errors
9.3.1 Spot checks
9.3.2 Comparison with external evidence
9.3.3 Reconciliations
9.3.4 Carrying out an audit
9.4 Bank reconciliation statements
9.5 Reconciliation of suppliers’ statements
9.6 Control accounts
9.6.1 The status of the control account
9.6.2 Contra entries
9.6.4 The control account and allowance for receivables
9.6.5 Advantages of control accounts
9.6.6 Reconciling control accounts and ledger accounts
9.7 Suspense accounts and the correction of errors
9.8 Computers in accounting
9.8.1 Aspects of computerised accounting systems
9.9 Accounting coding systems
9.10 Summary
Solutions to Revision Questions 9
The Regulatory Framework of Accounting 10
10.1 Introduction
10.2 Accounting conventions
10.2.1 The business entity convention
10.2.2 The money measurement convention
10.2.3 The historical cost convention
10.2.4 The objectivity convention
10.2.5 The dual aspect convention
10.2.6 The realisation convention
10.2.7 The periodicity convention
10.2.8 The accruals and matching conventions
10.2.9 The materiality convention
10.2.10 The stable monetary unit convention
10.2.11 The going concern convention
10.2.12 The consistency convention
10.2.13 The prudence convention
10.3 Accounting policies and estimation techniques
10.4 The historical cost convention and its alternatives
10.4.1 The theory of capital maintenance
10.4.2 Current purchasing power (CPP) accounting
10.4.3 Current cost accounting (CCA)
10.4.4 Fair value
10.4.5 Value to the business (or deprival value)
10.4.6 The valuation of intangible assets
10.5 Regulations in accounting
10.5.1 Company law
10.5.2 The accountancy profession
10.5.3 International accounting standards
10.6 The role of the auditor
10.6.1 Fair presentation or true and fair
10.6.2 The role of the external auditor
10.6.3 The role of the internal auditor
10.6.4 The value-for-money audit
10.7 The role of management
10.8 Summary
11.1 Introduction
11.2 Calculating ‘missing figures’
11.2.1 Sales figures
11.2.2 Purchases figures
11.2.3 Expenses figures
11.2.4 Opening capital
11.2.5 Cash and bank summaries
11.3 Financial statements of non-profit-making bodies
11.3.1 Accounting terminology for non-profit-making bodies
11.3.2 Accounting for membership fees and subscriptions
11.3.3 The financial statements of non-trading organisations
11.4 Summary
12.1 Introduction
12.2 Why is a manufacturing account needed?
12.2.1 Inventories in manufacturing organisations
12.3 Costs to include in the manufacturing account
12.3.1 Other direct costs
12.3.2 Prime cost
12.3.3 Indirect costs
12.3.4 Factory cost of production
12.3.5 Work in progress
12.3.6 Factory cost of goods completed
12.4 Layout of manufacturing and trading accounts
12.5 Income statement for manufacturing organisations
12.6 Balance sheets for manufacturing organisations
12.8 Summary
13.1 Introduction
13.2 Limited companies
13.2.1 The financial statements of companies
13.2.2 Presentation of company financial statements
13.2.3 Taxation in company financial statements
13.2.6 Dividends
13.2.7 Reserves
13.2.8 Statement of changes in equity
13.3 Cash flow statements
13.3.1 What is a cash flow statement?
13.3.5 Cash flows from investing activities
13.3.6 Cash flows from financing activities
13.3.7 Cash flow statements for sole traders
13.4 Summary
The Interpretation of Financial Statements14
14.1 Introduction
14.2 What is meant by ‘interpretation of financial statements’?
14.3 Calculating ratios
14.3.1 Using the ratios
14.4 Types of ratios
14.5 Profitability ratios
14.5.1 Gross profit margin
14.5.2 Gross profit mark-up
14.5.3 Operating profit margin
14.5.4 Return on capital ratios
14.6 Liquidity ratios
14.6.1 The current ratio
14.6.2 The quick ratio
14.7 Efficiency ratios
14.7.1 Asset turnover ratios
14.7.2 Inventories days
14.7.3 Receivables days
14.7.4 Payables days
14.7.5 Total working capital ratio
14.8 Capital structure ratios
14.8.1 The gearing ratio (or leverage ratio)
14.8.2 Interest cover
14.9 Ratio analysis for sole traders
14.10 Summary
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36922745 Fundamentals of Financial Acco

36922745 Fundamentals of Financial Acco

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Published by: enchunuru on Sep 10, 2010
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