Essential Things To Remember

Question 1

Purpose of financial reporting

Answer 1

Providing useful financial information to investors, lenders and other creditors in making decisions about providing resources to the entity

Question 2

Users of financial information (7)

Answer 2

Investors
Employees
Lenders
Suppliers
Customers
Government 
Public

Question 3

Business entity concept

Answer 3

A business is considered to be a separate entity from its owner

Question 4

Two fundamental characteristics of financial statements

Answer 4

Relevance 
Faithful representation (complete)

Question 5

Four enhancing characteristics of financial information

Answer 5

Verifiability
Timeliness
Understandability
Comparability

Question 6

Material

Answer 6

Omissions/misstatements that could influence economic decisions of users

Question 7

IAS1 objective

Answer 7

Provide information about the financial position, financial performance and cash flows of an entity

Shows results if managements stewardship over resources
Assists predicting entity’s future cash flows

Question 8

Accrual basis of accounting

Answer 8

Items are recognised as assets, liabilities, equity, income and expenses when they satisfy the definitions and recognition criteria for those elements in the conceptual framework

Question 9

Historical cost

Answer 9

Transactions are recorded at their cost when they occurred

Question 10

ICAEW code of ethics (5)

Answer 10

Integrity 
Objectivity 
Professional competence and due care 
Confidentiality 
Professional behaviour

Question 11

ICAEW code of ethics is ______ based

Answer 11

Principles

Question 12

Accounting equation

Answer 12

Assets= capital + liabilities

Question 13

Source document

Answer 13

Business transactions involving sales or purchases, receiving or paying money, or owing or being owed money, which are usually recorded on a source document

Question 14

Gross pay to employees (4)

Answer 14

PAYE
Employees’ NI contributions
Employees’ pensions contributions
Net pay (amount paid to employees)

Question 15

Total payroll cost to employer = ?

Answer 15

Gross pay + Employer NI + Employer pension

Question 16

Standing data

Answer 16

Reference data that doesn’t change regularly

Question 17

Real time processing vs batch processing

Answer 17

1) transactions entered the point at which they take place

2) processing transactions together in a group

Question 18

Three types of ledger

Answer 18

Nominal ledger
Receivables ledger
Payables ledger

Question 19

Purpose of receivables ledger and payables ledger?

Answer 19

To show individual transactions, which the nominal ledger doesn’t

Question 20

First step in preparing statement of profit or loss?

Answer 20

Create a profit and loss ledger account

Question 21

Cost of sales= ?

Answer 21

Opening inventory + purchases + delivery inwards - closing inventory

Question 22

Gross profit= ?

Answer 22

Revenue - cost of sales (cos)

Question 23

Cost of delivery _____ is added to the cost of purchases

Answer 23

Inwards

Question 24

NRV equation

Answer 24

Estimated selling price - estimated costs of completion - estimated selling and distribution costs

Question 25

FIFO will tend to give ____ inventory values and _____ profits

Answer 25

Higher | Higher

Question 26

Margin= ?

Answer 26

Profit/sales * 100

Question 27

Mark-up= ?

Answer 27

Profit/cost * 100

Question 28

When to write off inventories?

Answer 28

If worthless | NRV is less than original cost

Question 29

Reversing accruals and prepayments formula

Answer 29

Plus opening payments Less closing payments Less opening accruals Plus closing accruals

Question 30

Accrued income

Answer 30

When income has been earned during the accounting period but not invoiced or received

Question 31

Deferred income

Answer 31

Income received in advance of it being earned

Question 32

Four steps for accrued income and deferred income

Answer 32

1. Reverse opening income in arrears/advance 2. Post cash received during the year 3. Post closing income in arrears/advance 4. Balance off the accounts

Question 33

Capital expenditure

Answer 33

Acquisition of long-term assets | Improvement of earning capacity

Question 34

Revenue expenditure

Answer 34

For trade purposes | Maintenance of existing warning capacity of long-term assets

Question 35

Capital income

Answer 35

Profits from sale of non-current assets

Question 36

Revenue income

Answer 36

Everyday income (selling inventory provision of services, dividends)

Question 37

Asset register

Answer 37

List of all non-current assets owned by the organisation

Question 38

Cost of non-current asset (2)

Answer 38

Purchase price | Directly attributable costs to bring the asset to its intended location and ready for use

Question 39

Depreciation

Answer 39

(Cost or valuation of asset - residual value) / useful life

Question 40

When a non-current asset is depreciated, two things must be accounted for:

Answer 40

Charge for depreciation Reducing statement of financial position cost

Question 41

Carrying amount

Answer 41

Cost - accumulated depreciation

Question 42

Impairment

Answer 42

Unscheduled depreciation

Question 43

If the recoverable amount is lower than the carrying value, do nothing or impairment?

Answer 43

Impairment

Question 44

Impairment loss= ?

Answer 44

Carrying amount - recoverable amount

Question 45

Sales proceeds > carrying amount => ? | Sales proceeds < carrying amount => ?

Answer 45

Profit in disposal | Loss on disposal

Question 46

Part exchange allowance journal entry?

Answer 46

DR new asset cost | CR disposal account

Question 47

Disclosures are not required if the information they provide is _____

Answer 47

Immaterial

Question 48

Items are material if….

Answer 48

Omitting, misstating or obscuring them could influence the economic decisions of users taken on the basis of the financial statements