AAT Level 3 - FAPS

2 Fundamental qualitative characteristics

Faithful representation and Relevance

Sales daybook records what?

credit sales

Sales returns daybook records what?

sales credit notes

Purchases daybook

credit purchases

D/E for Accruing Expenses (Accruals)

Dr Expense account (expenses increases P/L)

Cr Accrued expenses (Liability increases SFP)

D/E for Prepaid Expenses

Dr Prepaid Expenses (Assets Inc SFP)

Cr Expense a/c (Expenses Dec P/L)

Equation for Straight line depreciation

(Cost - Residual Value) / Useful economic life

Diminishing Balance Equation

Depreciation charge = Carrying amount x %

Accounting Equation

Assets - Liabilities = Capital

Gross Profit Margin

(Gross Profit / Sales Revenue) x 100%

Gross Profit calculations

Gross Profit = Sales Revenue - Cost of Sales

Cost of Sales calc….

Cost of Sales = Opening Inv + Purchases - Closing Inv

Net Profit Margin calc…

(Net Profit / Sales Revenue) x 100%

Mark Up calc….

Cost of Sales = 100% (sale e.g. 130% and gross profit e.g. 30%)

Margin calc…

Sales = 100% (Gross profit 60% + C. of Sales 40%)

Net Profit calc…

Gross Profit + Other Income - Expenses

Net Assets calc

Net Assets = Total Assets - Total Liabilities

Closing Capital calc….

Opening Capital + Profit - Drawings = Closing Capital

Net Assets equates to…

Net Assets = Closing Capital

D/E for Depreciation

Dr Depreciation Expense (Exp Inc P/L)

Cr Accumulated Depreciation (Asset Dec SFP)

D/E for Contra

Dr Payables

Cr Receivables

Purchases returns daybook contains…

purchase credit notes

Discounts allowed daybook includes…

prompt payment discounts that customers have taken.

Discounts received daybook contains

prompt payment discounts that have been taken from suppliers

Cash book contains

payments in and out of the bank account. This may be split into a separate cash payments book and cash receipts book.

Petty cash book contains

payments in and out of petty cash

Journal book contains…

journal entries

Statement of financial position (SFP) is..

a financial statement that summarises the assets, liabilities, and capital of a business at a specific point in time.

Statement of profit or loss (SPL):

a financial statement that summarises the income and expenses of a business for a specified period, showing the overall profit or loss

Fixtures and Fittings? A, L, I or E?

Asset

Discounts Allowed - E, I, A or L?

Expense

Discounts Received - E, I, A or L?

Income

Petty Cash - E, I, A or L?

Asset

Sales returns - E, I, L, A?

Expense

Purchase returns - E, I, L or A?

Income

What makes up the trading account on the SPL?

Sales Revenue - Cost of Sales = Gross Profit

Closing Capital equates to….

Closing Capital = Net Assets

Sales/revenue/Turnover is…

INCOME generated from goods/services

Accounting Concepts/Principles:

Money Management….

This principle states that only transactions that can be measured in monetary terms should be recorded in the final accounts.

This principle states that only transactions that can be measured in monetary terms should be recorded in the final accounts.

What Accounting Concept/Principle:

Materiality Concept, Business Entity, Money Management or Going Concern?

Money Management

Accounting Concepts/Principles:

Materiality….

all material information should be included in the final accounts. Information is material if omitting, misstating or obscuring it could reasonably be expected to influence the decisions of users. TRUE FAIR Picture, not 100% accurate.

All material information should be included in the final accounts. Information is material if omitting, misstating or obscuring it could reasonably be expected to influence the decisions of users. TRUE FAIR Picture, not 100% accurate.

What concept/principle?

Accruals, Consistency, Business Entity, Going Concern, Materiality, Money Measurement, or Prudence?

Materiality

What is the accounting principle/concept for Going Concern?

the entity has neither the intention nor the need to enter liquidation or to cease trading. If such an intention or need exists, the financial statements may have to be prepared on a different basis. Continue trading, 12 months foreseeable.

The entity has neither the intention nor the need to enter liquidation or to cease trading. If such an intention or need exists, the financial statements may have to be prepared on a different basis. Continue trading, 12 months foreseeable.

What concept/principle?

Accruals, Consistency, Business Entity, Going Concern, Materiality, Money Measurement, or Prudence?

Going Concern

What does this accounting principle/concept mean?

Consistency

refers to the use of the same methods for the same items, either from period to period within a reporting entity or in a single period across entities.

refers to the use of the same methods for the same items, either from period to period within a reporting entity or in a single period across entities.

What concept/principle?

Accruals, Consistency, Business Entity, Going Concern, Materiality, Money Measurement, or Prudence?

Consistency?

What does this accounting principle/concept mean?

Business Entity

this principle states that a business is separate from its owners, and therefore needs to keep separate records.

this principle states that a business is separate from its owners, and therefore needs to keep separate records.

What concept/principle?

Accruals, Consistency, Business Entity, Going Concern, Materiality, Money Measurement, or Prudence?

Business Entity

What does this accounting principle/concept mean?

Accruals Accounting

this depicts the effects of transactions in the periods in which those effects occur, even if the resulting cash receipts and payments occur in a different period

this depicts the effects of transactions in the periods in which those effects occur, even if the resulting cash receipts and payments occur in a different period.

What concept/principle?

Accruals, Consistency, Business Entity, Going Concern, Materiality, Money Measurement, or Prudence?

Accruals

What does the concept/principle mean?

Prudence

the exercise of caution when making judgements under conditions of uncertainty. The exercise of prudence means that assets and income are not overstated and liabilities and expenses are not understated. Equally, the exercise of prudence does not allow for the understatement of assets or income or the overstatement of liabilities or expenses

the exercise of caution when making judgements under conditions of uncertainty. The exercise of prudence means that assets and income are not overstated and liabilities and expenses are not understated. Equally, the exercise of prudence does not allow for the understatement of assets or income or the overstatement of liabilities or expenses

What concept/principle?

Accruals, Consistency, Business Entity, Going Concern, Materiality, Money Measurement, or Prudence?

Prudence

What does RELEVANCE mean?

it is capable of making a difference in the decisions made by users. The information may have predictive value, meaning it can be used to predict future outcomes, or confirmatory value, meaning it can be used to confirm something that happened in the past.

What does FAITHFUL REPRESENTATION mean?

it is complete, neutral and free from error.

Relevance and Faithful Representation is what characteristics?

QUALITIVE characteristics

What are the enhancing qualitive characteristics?

Comparability, verifiability, timeliness and understandability

Define Enhancing Qualitive Characteristics:

Comparability

it enables users to identify and understand similarities in, and differences among, items.

Define Enhancing Qualitive Characteristics:

Verifiability

different knowledgeable and independent observers could reach consensus, although not necessarily complete agreement, that a particular depiction is a faithful representation.

Define Enhancing Qualitive Characteristics:

Timeliness

having information available to decision-makers in time to be capable of influencing their decisions.

Define Enhancing Qualitive Characteristics:

Understandability

classifying, characterising and presenting information clearly and concisely makes it understandable.

It enables users to identify and understand similarities in, and differences among, items.

Which enhancing Qualitive Characteristic?

Comparability, Verifiability, Timeliness or Understandability?

Comparability

having information available to decision-makers in time to be capable of influencing their decisions.

Which enhancing Qualitive Characteristic?

Comparability, Verifiability, Timeliness or Understandability?

Timeliness

classifying, characterising and presenting information clearly and concisely makes it understandable.

Which enhancing Qualitive Characteristic?

Comparability, Verifiability, Timeliness or Understandability

Understandability

different knowledgeable and independent observers could reach consensus, although not necessarily complete agreement, that a particular depiction is a faithful representation.

Which enhancing Qualitive Characteristic?

Comparability, Verifiability, Timeliness or Understandability

Verifiability