CERTIFICATE LEVEL. SUBJECT BA3 Fundamentals of Financial Accounting CIMA OFFICIAL REVISION CARDS

Transcription

1 CERTIFICATE LEVEL SUBJECT BA3 Fundamentals of Financial Accounting CIMA OFFICIAL REVISION CARDS

2 FUNDAMENTALS OF FINANCIAL ACCOUNTING British library cataloguing-in-publication data A catalogue record for this book is available from the British Library. Published by:kaplan Publishing UK Unit 2 The Business Centre Molly Millars Lane Wokingham Berkshire RG41 2QZ ISBN Kaplan Financial Limited, 2017 The text in this material and any others made available by any Kaplan Group company does not amount to advice on a particular matter and should not be taken as such. No reliance should be placed on the content as the basis for any investment or other decision or in connection with any advice given to third parties. Please consult your appropriate professional adviser as necessary. Kaplan Publishing Limited, all other Kaplan group companies, the International Accounting Standards Board, and the IFRS Foundation expressly disclaim all liability to any person in respect of any losses or other claims, whether direct, indirect, incidental, consequential or otherwise arising in relation to the use of such materials. Printed and bound in Great Britain. Printed and bound in Great Britain. 2

3 FUNDAMENTALS OF FINANCIAL ACCOUNTING Acknowledgements This Product includes propriety content of the International Accounting Standards Board which is overseen by the IFRS Foundation, and is used with the express permission of the IFRS Foundation under licence. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of Kaplan Publishing and the IFRS Foundation. The IFRS Foundation logo, the IASB logo, the IFRS for SMEs logo, the Hexagon Device, IFRS Foundation, eifrs, IAS, IASB, IFRS for SMEs, IFRS, IASs, IFRSs, International Accounting Standards and International Financial Reporting Standards, IFRIC and IFRS Taxonomy are Trade Marks of the IFRS Foundation. Trade Marks The IFRS Foundation logo, the IASB logo, the IFRS for SMEs logo, the Hexagon Device, IFRS Foundation, eifrs, IAS, IASB, IFRS for SMEs, NIIF IASs IFRS, IFRSs, International Accounting Standards, International Financial Reporting Standards, IFRIC, SIC and IFRS Taxonomy. Further details of the Trade Marks including details of countries where the Trade Marks are registered or applied for are available from the Foundation on request. This product contains material that is Financial Reporting Council Ltd (FRC). Adapted and reproduced with the kind permission of the Financial Reporting Council. All rights reserved. For further information, please visit or call +44 (0)

4 FUNDAMENTALS OF FINANCIAL ACCOUNTING How to use Revision Cards The concept Revision Cards are a new and different way of learning, based upon research into learning styles and effective recall. The cards are in full colour and have text supported by a range of images, making them far more effective for visual learners and easier to remember. Unlike a bound text, Revision Cards can be rearranged and reorganised to appeal to kinaesthetic learners who prefer to learn by doing. Being small enough to carry around means that you can take them anywhere. This gives the opportunity to keep going over what you need to learn and so helps with recall. The content has been reduced down to the most important areas, making it far easier to digest and identify the relationships between key topics. Revision Cards, however you learn, whoever you are, wherever you are... 4

5 FUNDAMENTALS OF FINANCIAL ACCOUNTING How to use them Revision Cards are a pack of approximately 52 cards, slightly bigger than traditional playing cards but still very easy to carry and so convenient to use when travelling or moving around. They can be used during the tuition period or at revision. They are broken up into 4 sections. An overview of the entire subject in a mind map form (orange). A mind map of each specific topic (blue). Content for each topic presented so that it is memorable (green). Practice questions and answers (purple). Each one is a different colour, allowing you to sort them in many ways. Perhaps you want to get a more detailed feel for each topic, why not take all the green cards out of the pack and use those. You could create your own mind maps using the blue cards to explore how different topics fit together. If at the revision phase why not take all the purple cards and work through the past questions identified. And if there are some topics that you understand, take those out of the pack, leaving yourself only the ones you need to concentrate on. There are just so many ways you can use them. 5

6 FUNDAMENTALS OF FINANCIAL ACCOUNTING Contents Accounting principles, concepts and regulations Prepare accounting records Prepare accounting reconciliations Prepare accounting entries for specific transactions Prepare manufacturing accounts Prepare financial statements for a single entity Interpretation of financial statements This document references IFRS Standards and IAS Standards, which are authored by the International Accounting Standards Board (the Board), and published in the 2016 IFRS Standards Red Book. 6

7 FUNDAMENTALS OF FINANCIAL ACCOUNTING Exam guidance Format of exam The assessment for Fundamentals of Financial Accounting (BA3) is a two hour computer based exam consisting of 60 compulsory questions, each with one or more parts. A variety of objective test question styles and types will be used within the assessment, such as: Multiple choice, multiple response, number entry, drag and drop, drop down and hot spot. Some items might relate to a short common scenario (2-4 questions). Core areas of the syllabus The syllabus comprises of: A Accounting Principles, concepts and regulations 10% B Recording Accounting Transactions 50% C Preparation of Accounts for Single Entities 30% D Analysis of Financial Statements 10% 7

8 FUNDAMENTALS OF FINANCIAL ACCOUNTING Quality and accuracy are of the utmost importance to us so if you spot an error in any of our products, please send an to with full details. Our Quality Co-ordinator will work with our technical team to verify the error and take action to ensure it is corrected in future editions. 8

9 overview fundamentals of financial accounting RevisionCards

10 FUNDAMENTALS OF FINANCIAL ACCOUNTING Accounting Principles, concepts and regulations 10% Recording Accounting Transactions 50% Interpretation of financial statements Analysis of Financial Statements 10% Fundamentals of financial accounting Incomplete records and nonprofit making organisations Non-current assets Preparation of Accounts for Single Entities 30% Adjustments to the trial balance Preparing financial statements 10

11 accounting principles, concepts and regulations fundamentals of financial accounting RevisionCards

12 Legislation User groups Accounting codes Accounting Standards Regulatory framework Accounting principles, concepts and regulations Accounting records Principles and Concepts Underlying assumptions Integrated report Financial Accounting vs Management Accounting The Accounting Equation Elements 12

13 Assets Liabilities Income Expenses Equity User groups Codes Elements Financial Accounting vs Management Accounting Principles and Concepts The Accounting Equation Accruals Going concern Underlying assumptions Qualitative characteristics Policies and estimates Historic cost convention Integrated Report Accounting records 13

14 Going concern Accruals Underlying assumptions Policies and estimates Fundamental Qualitative characteristics Historic cost convention Enhancing 14

15 The Conceptual Framework for Financial Reporting splits qualitative characteristics into two categories: (i) Fundamental qualitative characteristics Relevance; Faithful representation (ii) Enhancing qualitative characteristics Comparability; Verifiability; Timeliness; Understandability. 15

16 Underlying assumptions Accruals Going concern concept Income and expenditure should be matched to the period in which it relates rather than when cash is received or paid. A business will continue for the foreseeable future. 16

17 Accounting policies Accounting estimates Accounting policies are the principles bases, conventions, rules and practices applied by an entity which specify how the effects of transactions and other events are reflected in the financial statements. When preparing financial statements, inherent uncertainties result in estimates having to be made and subsequently, these estimates may need to be revised. A common accounting estimate is the estimated useful life of an asset. 17

18 The elements of financial statements Assets An asset is a resource controlled by the enterprise as a result of a past event and from which economic benefits are expected to flow to the enterprise. Liability A liability is a present obligation arising from past events, the settlement of which is expected to result in an outflow of resources from the enterprise. Equity Equity is the residual interest in the assets of the enterprise after deducting all its liabilities. Also referred to as capital. Income Income is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants. Expenses Expenses are decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrence s of liabilities that result in decreases in equity, other than those relating to distributions to equity participants. 18

19 Recognition of the elements of financial statements In order to recognise items in the statement of financial position or statement of profit or loss, the following criteria should be satisfied: It meets the definition of an element of financial statements. It is probable that any future economic benefit associated with the item will flow to or from the enterprise. The item has a cost or value that can be measured with reliability. Measurement of the elements of financial statements Measurement is the process of determining the monetary amounts at which the elements of financial statements are to be recognised and carried in the statement of financial position and statement of profit or loss. There are a number of different ways of measuring the elements including: Historical cost Current cost Realisable (settlement) value Present value 19

20 Historic cost convention The historic cost convention is an accounting technique that values an asset for Statement of Financial Position purposes at the price paid for the asset at the time of its acquisition i.e. its historical cost. This applies to both non-current assets, such as buildings or vehicles, or current assets such as inventory. By their nature, historical costs are out of date and might not reflect the current value of the asset to the organisation. Framework for Integrated Reporting One of the weaknesses of historical cost reporting is that it reports transactions and events that have already occurred. Whilst this information is useful, users of financial statements are often more interested in what may happen in the future. The Integrated Reporting Framework establishes guiding principles and content elements that govern the overall content of an integrated report. This will help organisations to report their value creation in ways that are understandable and useful to the users. 20

21 Who uses financial statements? User groups: Existing and potential shareholders Existing and potential lenders Employees Analysts Customers Suppliers Government General public Management 21

22 What is the difference between financial and management accounting? Financial accounting is generally: External rather than internal information. Produced on an annual basis, although large companies will produce half-yearly and sometimes quarterly information. Subject to precise layouts and legislation. Summarised to produce useful information to users. Management accounting is generally: Processing of information to facilitate planning, control and decision making. Internal rather than external information. 22

23 Separate entity concept For accounting purposes the business is treated as a separate entity from the owner(s) of it. Thus the accounting information reflects the activities of the business only. The accounting equation states: Assets = Capital + Liabilities This fundamental statement forms the basis for the preparation of accounting records and financial statements. 23

24 The need for accounting records Accounting records are used to record transactions entered into by a business. This information can then be used to meet a range of needs such as preparation of management/financial accounts, legal obligations or purely just to help management more easily locate information. Types of accounting records: Sales Quotation, sales order, goods dispatched note, sales invoice, etc. Purchases Quotation, purchase order, goods received note, purchase invoice, etc. Payroll Payslips, PAYE records, NI records, etc. 24

25 Accounting Standards Regulatory Framework Legislation 25

26 Regulatory Framework There is a need for regulation to ensure that the financial statements can be relied upon by users. Regulation promotes consistency and so helps users when interpreting statements. Elements of regulation are: Local law. Local accounting standards. International accounting standards. Conceptual frameworks. Requirements of international bodies. 26

27 Exam questions 1. Which of the following are aims of bookkeeping? (A) maintain ledger accounts for every transaction (B) produce a trial balance (C) provide financial information to users of such information (D) maintain the books of prime entry 2. The main aim of financial accounting is to: (A) calculate the profit (B) provide management with budgets (C) present the financial results of the organisation by means of recognised financial statements (D) record cash inflow and cash outflow 3. Which ONE of the following statements is TRUE with regard to the distinction between financial statements and management accounts? (A) Financial statements are primarily for external users and management accounts are primarily for internal users (B) Financial statements are more accurate than management accounts (C) Financial statements are produced annually and management accounts are produced monthly (D) Financial statements are audited by an external auditor and but management accounts are not audited 27

28 Exam questions 4. Match the following users with their information requirements 1. Investors A Profit levels and tax liability and statistics 2. Lenders B Firm s ability to pay wages, cash resources, future prospects, pay pensions 3. Employees C Data re carbon emissions 4. Environmental lobbyists 5. Government departments D Firm s ability to pay interest lobbyists and repay loans, the value of secured assets E Performance, profitability, departments dividends 5. Which of the following is NOT an enhancing qualitative characteristic? (A) Comparability (B) Timeliness (C) Relevance (D) Understandability

29 Solutions to exam questions 1. A, B, D 2. C 3. A 4. IE, 2D, 3B, 4C, 5A 5. C 29

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