AccountingQ&A by dot point

Calculation and interpretation of accounting ratios covering profitability (gross profit percentage, profit for the year percentage, return on capital employed), liquidity (current ratio, acid test ratio) and efficiency (rate of inventory turnover, trade receivable and trade payable days).

Interpretation of financial accounting information for different stakeholders, the comparison of performance over time and against other businesses, the reporting of findings with recommendations, and the limitations of accounting information and ratio analysis.

Overview of the use of spreadsheets to prepare, analyse and present accounting information (formulae, functions and presentation), and the requirements of the course assignment that applies these skills to a practical accounting task.

The fundamental accounting concepts and conventions (going concern, accruals, consistency, prudence, materiality, business entity, money measurement, historical cost and matching) and their effect on the preparation of financial accounting information.

Preparation of departmental income statements, including the apportionment of shared expenses between departments on a suitable basis and the calculation of each department's gross and net profit to support decisions about a department.

Calculation and recording of depreciation using the straight-line and reducing-balance methods, the reasons for depreciating non-current assets, and the accounting treatment for the disposal of a non-current asset including any profit or loss on disposal.

Preparation of the income statement and statement of financial position for a limited company, including ordinary and preference share capital, share premium, the general reserve, retained earnings, dividends, debentures and the appropriation of profit.

Preparation of a manufacturing account showing prime cost and the cost of goods manufactured, including direct materials, direct labour, direct expenses, factory overheads and the adjustment for work in progress, and its link to the income statement.

Preparation of the partnership appropriation account and partners' capital and current accounts, including interest on capital, interest on drawings, partners' salaries and the division of residual profit in the agreed profit-sharing ratio.

Preparation of the income statement (trading and profit and loss) and statement of financial position for a sole trader, including adjustments for closing inventory, accruals, prepayments, depreciation, irrecoverable debts and provision for doubtful debts.

Cost-volume-profit analysis, including the calculation of the break-even point in units and in sales value, the contribution to sales (C/S) ratio, the margin of safety, the output required for a target profit, and the assumptions and limitations of break-even analysis.

Preparation of a cash budget showing opening and closing balances, the purpose of budgeting and the difference between cash and profit, and the preparation and use of a flexible budget that is adjusted to the actual level of activity.

Capital investment appraisal using the payback period and the accounting rate of return (ARR), the interpretation of the results to choose between projects, and the advantages and limitations of each method including the treatment of the time value of money.

Valuation of inventory issues and closing inventory using the first in first out (FIFO) and weighted average cost (AVCO) methods, and the effect of the chosen method on the cost of issues, closing inventory value and reported profit.

The allocation and apportionment of overheads to cost centres, the calculation and use of an overhead absorption rate, and the build-up of the total cost of a job from direct materials, direct labour, direct expenses and absorbed overhead.

The distinction between marginal and absorption costing, the calculation and use of contribution, and the application of marginal costing to short-term decisions such as accepting a special order, making or buying, and discontinuing a product.

Standard costing and the calculation of direct material and direct labour cost variances, splitting each into its price (rate) and usage (efficiency) elements, identifying whether each variance is favourable or adverse, and explaining possible causes.