SecondaryCode 7707
Accounting
27 topics and 142 objectives, each one something you should be able to do.
Written by Kindred in its own plain words. Your syllabus is still the official list, so check it for anything exact.
What this subject asks you to be able to do
1.1The purpose of accounting3 objectives
- the distinction separating book-keeping from accounting
- the aims behind calculating business profit and loss
- the part played by accounting in supplying data used to track progress and inform decision-making
1.2The accounting equation2 objectives
- the accounting equation
- how the accounting equation is put to use
2.1The double entry system of book-keeping8 objectives
- the system of book-keeping known as double entry
- how to draw up ledger accounts
- the procedure for posting transactions onto the ledger accounts
- the method for working out ledger account balances and carrying them across to the financial statements
- how to interpret a ledger account and the balance it shows
- ledger accounts which can be shown in a three-column format that carries a running balance
- the way the ledger is split into a sales ledger, a purchases ledger and a nominal (general) ledger
- how a business can keep its ledger accounts in digital form
2.2Business documents3 objectives
- the paperwork known as business documents, namely an invoice, a debit note, a credit note, a cheque counterfoil, a paying-in slip, a receipt, a bank statement and a statement of account
- the ways in which these business documents serve as sources of information
- the creation and logging of these business documents, whether by hand or electronically
2.3Books of prime entry10 objectives
- how to handle accounting data in each of the books of prime entry: the general journal, the cash book and petty cash book, the sales journal and sales returns journal, and the purchases journal and purchases returns journal
- the procedure for posting ledger entries that originate in the books of prime entry
- what trade discount and cash discount are, and how each is dealt with in the accounts
- how the cash book fulfils two roles together: it records transactions as a book of prime entry and it also works as a ledger account for bank and cash
- the way to record receipts and payments, whether they are made in cash, by cheque, by debit or credit card, or by online or bank transfer
- why the imprest system is used for petty cash
- the way to run petty cash using the imprest system
- the benefits and limitations, for a business, of holding cash on its own premises
- the benefits and limitations of recording business transactions by hand at the point of original entry
- the benefits and limitations of recording business transactions with digital methods at the point of original entry
3.1The trial balance3 objectives
- the aims of a trial balance and its limitations
- the method for drawing up a trial balance from a supplied set of balances, and for correcting one that has mistakes in it
- the sorts of error that do not put the trial balance out of agreement: commission, compensating, complete reversal, omission, original entry, principle
3.2Corrections of errors5 objectives
- how errors are corrected through journal entries
- how a suspense account is used for a short time to make the two sides of the trial balance agree
- the procedure for putting right mistakes with a suspense account
- how the profit or loss of an accounting period is adjusted once errors have been corrected
- the impact that correction of errors has on the statement of financial position
3.3Bank reconciliation4 objectives
- how a bank statement is used and what it is for
- how to bring the cash book up to date by entering standing orders, direct debits, credit transfers, bank charges, bank interest paid and received, and corrections of errors
- why a bank reconciliation statement is drawn up and how it is put together, including bank errors, uncredited deposits and unpresented cheques
- how digital business transactions affect the bank reconciliation process
3.4Control accounts4 objectives
- the reasons for keeping control accounts for the purchases ledger and for the sales ledger
- the way the books of prime entry supply the data that goes into control account entries
- how to draw up control accounts for the sales ledger and the purchases ledger, entering opening and closing balances (both debit and credit, in each account), credit sales and purchases, receipts and payments, cash discounts, returns, refunds, irrecoverable debts, dishonoured cheques, contra entries and interest on overdue accounts
- the effect that recording business transactions digitally has on how control accounts are produced and used
4.1Capital and revenue expenditure and receipts6 objectives
- how capital expenditure is told apart from revenue expenditure
- the procedure for recording capital expenditure and revenue expenditure
- the difference that sets capital receipts apart from revenue receipts
- the method for recording capital receipts and revenue receipts
- how to identify an incorrect treatment and calculate how it changes the profit
- how to identify an incorrect treatment and calculate how it changes the valuation of assets
4.2Accounting for depreciation and disposal of non-current assets8 objectives
- the meaning of depreciation
- why depreciation must be recorded in the accounts
- the way to work out depreciation by each of three methods: straight-line, reducing balance and revaluation
- the suitable depreciation methods for different kinds of non-current assets
- how to draft the journal entries and ledger accounts in which depreciation is recorded
- how to draw up journal entries that record the buying and selling of non-current assets
- how to draw up the ledger accounts that record buying and selling non-current assets, namely the disposal of non-current asset account, the provision for depreciation account and the non-current asset account
- how to work out the profit or loss made when a non-current asset is disposed of
4.3Other payables and other receivables4 objectives
- why it matters that costs and revenues are matched
- how accruals and pre-payments are used to put the matching / accruals concepts into practice
- the steps for drawing up journal entries and ledger accounts that capture accrued and prepaid expenses
- the process of producing journal entries and ledger accounts that book accrued and prepaid incomes
4.4Irrecoverable debts and allowance for irrecoverable debts5 objectives
- what is meant by irrecoverable debts and by irrecoverable debts recovered
- how to draw up ledger accounts and journal entries in order to book irrecoverable debts
- how to draw up ledger accounts and journal entries in order to book irrecoverable debts recovered
- the reason it is necessary to keep up an allowance for irrecoverable debts
- how to draw up ledger accounts and journal entries in order to book the creation of an allowance for irrecoverable debts, along with the adjustments made to it
4.5Valuation of inventory3 objectives
- valuing inventory at cost or at net realisable value, whichever is lower
- the way to work out the figure at which inventory is valued
- the impact that a mistaken inventory valuation has on gross profit, profit for the year, equity and asset valuation
5.1Sole traders12 objectives
- the advantages and disadvantages involved in running a business as a sole trader
- the ways in which a sole trader may operate as a trading, service or manufacturing business, or a mix of these
- why it is significant to draw up the statements of profit or loss, as well as the statements of financial position
- how to prepare a statement of profit or loss for a business that trades, provides services or manufactures, or does a mix of these
- why it matters to produce statements of financial position as a record of a business's assets and liabilities at a particular date
- how to define what goes into a statement of financial position, under the headings capital, non-current assets, intangible assets, current assets, non-current liabilities and current liabilities
- how altering one account's balance flows through to the balances of other accounts in the financial statements
- how to prepare a statement of financial position for a business that trades, provides services or manufactures, or does a mix of these
- how to adjust the accounts for accumulated depreciation by each method: revaluation, reducing balance or straight line
- the way to adjust for expenses that are accrued or prepaid and for income that is accrued or prepaid
- the way to adjust the accounts for irrecoverable debts and for the allowance for irrecoverable debts
- the way to adjust for drawings, both where the owner takes goods or other assets and where the business pays the owner's private expenses
5.2Partnerships9 objectives
- the ways in which a partnership may operate as a trading, service or manufacturing business, or a mix of these
- the benefits and drawbacks of setting up a partnership
- why a partnership agreement matters and what it includes
- the reason for having an appropriation account
- the method for drawing up statements of profit or loss, appropriation accounts and statements of financial position
- how to record partners' salaries, interest on capital, interest on drawings and interest on partners' loans, and how the remaining profit or loss is shared out
- how to adjust financial statements in the ways set out in 5.1 (sole traders)
- what partners' capital and current accounts are for and how they differ
- the method for drawing up partners' capital and current accounts as ledger accounts and within a statement of financial position
5.3Limited companies8 objectives
- the ways in which a limited company can take the form of a trading, service or manufacturing business, or some combination of these
- the advantages and disadvantages linked to running a business as a limited company
- the term ‘limited liability’
- the term ‘equity’
- how a limited company's capital is structured: ordinary share capital, preference share capital, retained earnings and general reserve
- the characteristics that ordinary share capital has, and those of loan capital (debentures)
- the method for drawing up the statement of profit or loss, the statement of changes in equity and the statement of financial position
- the method for applying adjustments to financial statements as covered for sole traders in 5.1
5.4Manufacturing accounts5 objectives
- direct and indirect costs
- the way to adjust for work in progress
- the method for working out the factory cost of production
- the procedure for drawing up manufacturing accounts, statements of profit or loss and statements of financial position
- the way to adjust financial statements, as set out in 5.1 (sole traders)
5.5Clubs and societies5 objectives
- the method for drawing up receipts and payments accounts
- the way of compiling accounts covering revenue-generating activities, e.g. refreshments, subscriptions
- the procedure for drawing up income and expenditure accounts together with statements of financial position
- how to adjust financial statements in the ways set out in 5.1 (sole traders)
- the way to define and work out the accumulated fund
5.6Incomplete records8 objectives
- the reasons businesses maintain several kinds of accounting records instead of applying the full double entry system
- the benefits and drawbacks of not keeping an entire set of accounting records
- how to draw up statements of affairs at the beginning and at the end of a period
- the way to work out the profit or loss for a year by looking at how capital has changed over the period
- the way to work out trade payables, trade receivables, purchases, sales, gross profit and other figures when the information is incomplete
- how to draw up a statement of profit or loss and a statement of financial position working from incomplete records
- how to adjust financial statements in the ways set out in 5.1 (sole traders)
- how to find missing figures by using mark-up, margin and inventory turnover
6.1Calculation and understanding of accounting ratios9 objectives
- gross profit margin
- mark-up
- profit margin
- current (working capital) ratio
- acid test (liquid) ratio
- inventory turnover rate measured in times
- inventory turnover (days)
- trade receivables turnover (days)
- trade payables turnover (days)
6.2Interpretation of accounting ratios7 objectives
- how to draw up statements that compare one year's results with another's, and how to comment on them
- the way to interpret the ratios that were calculated in 6.1
- make proposals and recommendations on how profitability, liquidity and working capital could be improved
- the gross profit margin and the profit margin as signs of how profitable a business is
- how the valuation of inventory, the quantity of sales, and shifts in selling and purchasing prices can influence gross profit for the year
- how movements in gross profit, other income and expenses can shift the profit for the year
- why a business's cash and its profit differ
6.3Inter-business comparison2 objectives
- what may influence the ratios of two businesses when they are compared
- the difficulties that arise with inter-business comparison
6.4Interested parties1 objective
- the ways in which each of these interested parties may use accounting information to make decisions: owners; managers; employees; club members; banks; investors and lenders; suppliers; customers; governments / tax authorities; and others, e.g. public and environmental bodies
6.5Limitations of accounting statements1 objective
- the ways accounting statements are limited by historic cost, by how accounting policies are applied, and by non-financial aspects, for example the skill of the workforce, the location of the business and the economic climate
7.2Ethical considerations2 objectives
- the necessity of an ethical framework within accounting
- the importance, for stakeholders and the wider community, of using an ethical framework
7.3Technology and sustainability5 objectives
- digital applications being used to maintain either the entire set or just a portion of the accounting records
- the requirement that accounting data be stored safely and sustainably
- the risks that come about when accounting data is not stored safely and sustainably
- the range of ways accounting information can be kept, namely manual, data storage devices, cloud services, other digital services
- the advantages and disadvantages associated with the various kinds of storage system
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