AccountingQ&A by dot point

Calculating and interpreting profitability ratios (gross profit percentage, profit for the year percentage), liquidity ratios (current ratio, acid test) and the efficiency ratio rate of inventory turnover.

Adjusting the income statement and statement of financial position for accrued and prepaid expenses and income at the year end, and writing off bad debts (irrecoverable debts).

Preparing and interpreting business documents - invoices, credit notes and statements of account - including trade discount and Value Added Tax (VAT) calculations.

Identifying the main types of bookkeeping error, recognising which errors a trial balance will not reveal, and correcting errors through the journal and a suspense account.

Calculating depreciation of non-current assets using the straight-line (fixed instalment) method and the reducing balance (diminishing balance) method, and showing its effect on profit and the carrying value of the asset.

The accounting equation, recording financial transactions using double entry in ledger accounts, balancing accounts, and preparing a trial balance to check the entries.

Preparing an income statement (trading, profit and loss account) for a sole trader, calculating cost of goods sold, gross profit, and profit for the year.

The purpose of financial accounting for a business, and the internal and external users of accounting information and the decisions each group makes from it.

Preparing a statement of financial position (balance sheet) for a sole trader, classifying non-current and current assets, current and non-current liabilities, and presenting the capital section with profit and drawings.

Calculating contribution per unit, the break-even point in units and in sales revenue, the margin of safety, and the output required for a target profit, and interpreting a break-even chart.

Preparing a cash budget showing forecast receipts and payments each month, the net cash flow, and the opening and closing bank balances, and interpreting it to manage cash flow.

Classifying costs by behaviour (fixed, variable, semi-variable), by traceability (direct, indirect) and by element (materials, labour, overheads), and calculating total and unit cost.

Costing the three cost elements - materials, labour and overheads - including valuing materials issued, calculating labour cost from rates and hours, sharing overheads, and preparing a cost statement showing prime cost and total cost.

Using management accounting information (contribution, break-even and cost data) to make decisions such as accepting a special order, and the role of spreadsheets and IT in preparing and presenting accounting information.