Upper secondaryCode 9706
Accounting
33 topics and 164 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
1.1.1Types of business entity4 objectives
- what forms a business entity can take: sole trader; partnership; limited company (including public limited company (plc))
- the benefits and drawbacks of these business entity types
- the sources of finance and ways of funding open to each of these kinds of business entity, including: loans (secured and unsecured); bank overdrafts; paying by instalments; rental/leasing rather than buying; trade credit; and, for limited companies, the sources of finance listed in 1.5.4
- apply an understanding of business entity types when making relevant decisions
1.2.1The accounting system11 objectives
- the principles behind recording business transactions by double entry
- the accounting equation
- what books of prime entry do when a business transaction is recorded, covering each of these books: sales journal; sales returns journal; purchases journal; purchases returns journal; cash book; general journal
- preparation of ledger accounts
- why a trial balance is drawn up
- what a business gains and loses by keeping full accounting records
- the accounting concepts that guide whoever draws up a business's financial statements, which are: business entity, historic cost, money measurement, going concern, consistency, prudence, realisation, duality, materiality, objectivity, matching /accruals and substance over form
- employing computerised accounting systems to record financial transactions
- what a business stands to gain and lose by bringing in a computerised accounting system
- the methods by which data can be kept secure within a computerised accounting system
- Draw on your grasp of the accounting system to evaluate relevant information so as to arrive at informed business decisions
1.3.1Capital and revenue income and expenditure2 objectives
- the distinction in how capital and revenue income, and capital and revenue expenditure, are treated
- the impact on profit or loss and on asset value when capital and revenue expenditure is incorrectly treated
1.3.2Changing asset values8 objectives
- the things that make non-current assets depreciate in value
- the reason for recording depreciation on non-current assets, along with how the relevant accounting concepts are applied to it
- how to work out depreciation by the reducing balance method and by the straight-line method
- which depreciation calculation method is most suitable
- the procedure for valuing non-current assets under the cost model or under the revaluation model
- the way to draw up journal entries and ledger accounts for: acquiring and revaluing non-current assets; charging depreciation and recording disposals (including the entries for a part exchange)
- the method for working out the profit or loss arising when a non-current asset is disposed of
- how to record what a depreciation charge does to a business's statement of profit or loss, as well as to its statement of financial position
1.4.1Reconciliation and verification2 objectives
- why ledger accounts must be reconciled and verified against documents from both internal and external sources
- the advantages and drawbacks of the procedures used for reconciliation and verification
1.4.2Trial balance5 objectives
- the kinds of error that stop a trial balance from agreeing
- the kinds of error that do not stop a trial balance from agreeing: omission; commission; principle; original entry; reversal; compensating
- the procedure for drafting ledger accounts and journal entries that correct errors by means of a suspense account
- how the financial statements change when errors are corrected
- where a trial balance helps and where it falls short
1.4.3Bank reconciliation statements3 objectives
- updating of cash books
- the procedure for drawing up a bank reconciliation statement
- the advantages and drawbacks of drawing up a bank reconciliation statement
1.4.4Control accounts6 objectives
- entries in control accounts
- control accounts kept for the sales ledger and for the purchases ledger
- statements that reconcile control account balances with ledger balances
- the impact on financial statements of putting right errors
- where control accounts help and where they fall short
- draw on what you understand about reconciliation and verification to evaluate relevant information and reach well-informed business decisions
1.5.1Adjustments to draft financial statements1 objective
- for each of these, how to calculate the adjustment required, record it, and show its effect on the financial statements: accruals and prepayments of income and expenses; irrecoverable debts, irrecoverable debts recovered and the allowance for irrecoverable debts; depreciation; inventory valuation; the correction of errors
1.5.2Sole traders1 objective
- how to draw up, from full or incomplete accounting records, a sole trader's statement of profit or loss, along with its statement of financial position, where the sole trader's business may either trade in goods or provide services
1.5.3Partnerships6 objectives
- how to draw up, from full or incomplete accounting records, a partnership's statement of profit or loss, its appropriation account and its statement of financial position, where the partnership's business may either trade in goods or provide services
- the reasons partners might keep distinct capital and current accounts
- how to draw up the capital and current accounts of partners
- what a partnership agreement contains
- the benefits and drawbacks for partners of keeping a partnership agreement
- what the Partnership Act 1890 lays down about partners' salaries, how profit or loss is divided, interest on partners' loans, interest on capital and interest on drawings
1.5.4Limited companies8 objectives
- the characteristics of ordinary shares, bonus issues, rights issues, debentures, dividends and reserves, and how each one is dealt with in the accounts
- what a company and its shareholders each gain and lose when the company makes a bonus issue of shares, as well as when it makes a rights issue of shares
- what a company and its shareholders each gain and lose when the company issues shares and when it issues debentures
- how revenue reserves, meaning retained earnings and the general reserve, differ from capital reserves, meaning the share premium and the revaluation reserve
- how to set up ledger accounts that capture: an issue of ordinary shares, priced at par or above par; a rights issue of shares, priced at par or above par; a bonus issue of shares
- how to draw up a limited company's statement of profit or loss, its statement of financial position and its statement of changes in equity, where the company may either trade in goods or provide services
- the sources of finance that can be used for particular purposes
- apply what you understand about the financial accounts of sole traders, partnerships and limited companies when evaluating relevant information and reaching well-informed business decisions
1.6.1Users of accounting information2 objectives
- how stakeholders differ in the information they need, including: owners; managers; employees; investors; lenders; suppliers; customers; government; public and environmental bodies
- how to analyse the information that each of these stakeholder groups needs and present it to them
1.6.2Calculation and evaluation of ratios5 objectives
- how to calculate the main accounting ratios that show how profitable, liquid and efficient a business is, namely: for profitability, the gross profit margin, the mark-up, the profit margin, the return on capital employed and the expenses to revenue ratio (also known as the operating expenses to revenue ratio); for liquidity, the current ratio and the acid test ratio; for efficiency, the non-current asset turnover, the trade receivables turnover (days), the trade payables turnover (days), the inventory turnover (days) and the rate of inventory turnover (times)
- how to interpret ratios in order to evaluate an organisation's profitability, liquidity and efficiency
- the steps an organisation could take to improve its profitability, liquidity and efficiency
- the ways in which accounting information falls short
- apply what you understand about calculating and evaluating ratios, drawing on relevant information to reach well-informed business decisions
2.1.1Materials and labour6 objectives
- accounting for the costs of materials and labour
- the way to recognise and work out the fixed, variable, semi-variable and stepped types of cost
- how to identify the elements that make up direct costs and indirect costs, and calculate each one
- how to calculate what closing inventory is worth by the first in first out (FIFO) method and by the weighted average cost (AVCO) method, under both perpetual and periodic inventory systems
- the principles behind managing inventory on a just in time (JIT) basis
- apply what you understand about accounting for materials and labour when you evaluate relevant information and reach well-informed business decisions
2.2.1Costing applications1 objective
- how to use traditional costing methods to draw up costing statements, drawing on unit, job and batch costing principles across manufacturing and service firms alike where relevant
2.2.2Absorption costing8 objectives
- the distinction drawn between cost centres and cost units
- how to share overhead expenditure out among production and service departments by allocation and apportionment
- how to choose a suitable basis and use it to calculate overhead absorption rates
- the reasons for, and the working out of, under-absorbed and over-absorbed overheads
- the process of drawing up costing and profit statements by means of absorption costing
- the applications and shortcomings of absorption costing
- how far absorption cost data assists managers in decision-making
- non-financial factors and why they matter
2.2.3Marginal costing9 objectives
- how to work out a product's contribution
- how to read and make sense of a break-even chart
- how to work out the break-even point, the contribution to sales ratio, how much must be produced or sold to reach a target profit, and the margin of safety
- what break-even analysis is put to use for, and its limitations
- how to use marginal costing to draw up statements of cost and profit
- how to compile a statement that reconciles reported profit under marginal costing with reported profit under absorption costing
- what marginal costing can be used for, and its limitations
- how helpful marginal costing data is in supporting decision-making by managers, including make-or-buy, special orders, closure of business unit, limiting factors, target profit
- non-financial factors and the significance they carry
2.2.4Cost–volume–profit analysis5 objectives
- what cost–volume–profit analysis can offer, and where it falls short
- the value of cost–volume–profit data in aiding managerial decision-making
- how to use costing concepts, backed by supporting data, to reach business decisions and make recommendations
- non-financial factors and how significant they are
- apply what you understand about costing when you evaluate relevant information and reach well-informed business decisions
3.1.1Financial statements1 objective
- why particular types of business need financial statements, and what those statements are for
3.1.2Partnerships4 objectives
- the concept of goodwill, and how purchased goodwill differs from inherent goodwill
- how to write up the partners' capital and current accounts to enter the changes needed for goodwill and for revaluing assets when the partners' profit-sharing ratio changes, a new partner is admitted, an existing partner retires, or the partnership is dissolved
- how to draw up a partnership's appropriation account and statement of profit or loss, together with its statement of financial position, including any change to the partnership that happens before an accounting year is over
- the method for drawing up a realisation account alongside a revaluation account
3.1.3Clubs and societies6 objectives
- how receipts and payments accounts differ from income and expenditure accounts
- how to define the accumulated fund and work out its value
- working from records that are either full or incomplete, how to produce: a receipts and payments account; an account for each trading or revenue-generating activity; a subscriptions account; an income and expenditure account; a statement of financial position
- how to deal with other kinds of receipt in the accounts, including life memberships and donations
- how to adjust financial statements in the ways set out in 1.5.1
- how to assess the sources of finance and the fundraising methods that could be used
3.1.4Manufacturing businesses4 objectives
- the procedure for compiling a manufacturing account, telling apart direct and indirect expenses, and bringing factory profit into the account
- how to draw up the statement of profit or loss of a manufacturing business, together with its statement of financial position
- how to deal with manufacturing profit in the accounts and remove the unrealised profit contained in unsold inventory
- why a business might include a manufacturing profit in its accounts
3.1.5Limited companies2 objectives
- how to produce the following for a limited company so that they meet both the law and the international accounting standards that apply: the statement of profit or loss; the statement of financial position; the statement of cash flows; the statement of changes in equity; the schedule of non-current assets
- Students must apply their grasp of the accounts kept by partnerships, clubs and societies, manufacturing businesses and limited companies, so that they can assess relevant information and reach well-informed business decisions
3.2.2Ethical considerations4 objectives
- why accounting needs an ethical framework
- what is meant by each of the fundamental principles, which are: integrity; objectivity; professional competence and due care; confidentiality; professional behaviour
- the effect that the ethical conduct of accountants and auditors has on a business and on its other stakeholders
- the social implications arising from the process of making decisions
3.2.3Auditing and stewardship of limited companies6 objectives
- what an auditor does and is responsible for
- the ways in which an external audit differs from an internal one
- how a qualified audit report differs from an unqualified one
- stewardship, and the job directors perform along with the obligations they owe to shareholders
- why it matters that financial statements give a true and fair view
- apply your grasp of ethical considerations and of auditing so that you can evaluate relevant information and reach informed business choices
3.3.1Business acquisition and merger6 objectives
- the purpose behind, and the character of, combining different kinds of businesses into one new business entity
- how to write the journal entries, and post them to the right ledger accounts, that record: two or more sole trader businesses merging into a partnership or a limited company; a sole trader's business merging with an existing partnership to create a new partnership; a limited company acquiring a sole trader's business or a partnership
- how to work out the amount of goodwill when one entity takes over another business
- how to draw up, after the acquisition or merger, the newly formed business entity's statements of profit or loss as well as its statements of financial position, for example where the limited company has acquired the partnership
- what is gained and what is lost through the acquisition or merger
- draw on what you understand about business acquisition and merger to evaluate relevant information and reach well-informed business decisions
3.4.1Computerised accounting systems2 objectives
- the procedure involved in moving a business's accounts across into a computerised accounting system
- methods of protecting the integrity of accounting data while it is being moved into a computerised accounting system
3.5.1Analysis and communication of accounting information5 objectives
- the way to work out each of these ratios: the length of the working capital cycle, counted in days; the ratio of net working assets to revenue, or sales; interest cover; the gearing ratio; earnings per share; the price/earnings ratio; dividend per share; dividend yield; dividend cover
- the method for analysing and evaluating what the outcomes of the ratios show, and then drawing conclusions from them
- the way to produce suitable recommendations for stakeholders, based on the analysis carried out
- the interrelationships between ratios
- use what you understand about how ratios are calculated and evaluated to reach well-informed business decisions from relevant information
4.1.1Activity based costing6 objectives
- how activity based costing (ABC) is applied
- what ABC is used for and what its limitations are
- the meaning of the term cost driver
- the way ABC is applied to: pinpoint the right cost driver; apportion and allocate overheads; work out the overall cost of a unit and its selling price
- the impact that alternative overhead absorption approaches have on cost and profit
- the way to employ ABC costing techniques when reaching business decisions and recommendations from supporting data
4.2.1Standard costing7 objectives
- what is meant by a standard costing system used within an organisation
- what a standard costing system offers and where it falls short
- the ways in which standard costing may serve as a tool for raising a firm's performance
- how to work out, for each item below, its variance figures: price and usage for direct material; rate and efficiency for direct labour; expenditure and volume for fixed overheads; capacity and efficiency sub-variances for fixed overheads; price and volume for sales
- the likely reasons behind favourable or adverse variances, and how these variances connect to one another
- how to use supporting data to reach business decisions and make recommendations
- why non-financial factors matter
4.3.1Budgeting and budgetary control13 objectives
- what an organisation gains and loses by running a budgetary control system
- the benefits and drawbacks of using spreadsheets to prepare budgets
- the meaning of a master budget
- how to draw up a budget for each of sales, production, purchases, labour, trade receivables, trade payables and cash, and to draw up the statement of profit or loss and the statement of financial position in budgeted form
- the effect that limiting factors have on budget preparation
- what flexible budgeting offers that fixed budgeting does not
- the method for drawing up a flexible budget statement
- possible causes of differences that arise when actual data is set against flexible budgeted data
- how to draw up a statement that reconciles actual production cost with the production cost shown in the flexible budget
- the way of setting out a statement that reconciles flexible budgeted profit against actual profit
- how to reach business decisions and give recommendations on the basis of supporting data
- how budgeting influences, and is influenced by, people's behaviour, including targets, incentives and motivation
- why non-financial factors matter
4.4.1Investment appraisal5 objectives
- the net cash inflows and outflows the project is expected to generate in the years ahead
- how to use each of these techniques of capital investment appraisal: payback; the accounting rate of return (ARR), where ARR = (average profit / average investment) × 100; the net present value (NPV) method; the internal rate of return (IRR) method
- what each of these capital investment appraisal techniques does well and where it falls short
- how to arrive at investment choices and advice drawing on supporting data
- how much non-financial factors matter
Kindred builds your map from these, so you can see what you've covered and what's still to do.