Topic 1 of 6 · Form 5
Financial accounting fundamentals
Double entry, books of prime entry, the ledger, the trial balance, correction of errors and suspense accounts, control accounts, bank reconciliation; accounting principles and IAS/IFRS (IAS 1 presentation, IAS 2 inventories, IAS 16 property, plant and equipment, IAS 37 provisions, IAS 10 events after the reporting period).
Notes for this topic 1 file, in order
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The accounting framework
Double entry, books of prime entry, the ledger, the trial balance, correction of errors and suspense accounts, control accounts, bank reconciliation; accounting principles and IAS/IFRS (IAS 1 presentation, IAS 2 inventories, IAS 16 property, plant and equipment, IAS 37 provisions, IAS 10 events after the reporting period).
Adjustments
Accruals and prepayments; depreciation (straight-line, reducing balance, revaluation); disposals; irrecoverable debts and provision for doubtful debts; inventory valuation (FIFO, AVCO, NRV).
Worked example: Equipment cost US$40 000, residual value US$4 000, life 6 years (straight-line). It is sold after 4 years for US$15 000. Find the profit or loss on disposal.
Annual depreciation = 6 000; NBV = 40 000 − 24 000 = 16 000 → loss on disposal US$1 000
Sole traders and incomplete records
Income statements and statements of financial position; preparing accounts from incomplete records using control accounts, mark-up and margin.
Check yourself
- Which IAS deals with inventories?
- A business uses a mark-up of 25%. What is its margin?
- Where are provisions for doubtful debts shown?
Show answers
- IAS 2.
- 20%
- Deducted from trade receivables in current assets (the change goes to the income statement).
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