Financial Accounting

Users of financial statements and their needs · The IASB, IFRS, and Ind AS regulatory framework · Directors' responsibilities and the role of auditors

Objective of financial reporting and primary users · Fundamental and enhancing qualitative characteristics · Elements, recognition criteria, and measurement bases

Assets = Liabilities + Equity — the foundation of accounting · Debits, credits, and T-accounts (DEAD CLIC) · Recording transactions through the accounting equation

Sales and purchases day books · The general journal for non-routine entries · Nominal ledger, subsidiary ledgers, and control accounts

Two-column cash book and contra entries · Petty cash and the imprest system · Bank reconciliation — timing differences vs errors

The accruals (matching) concept · Accrued and prepaid expenses — journals and balance sheet impact · Accrued income and deferred income

Writing off bad debts and recovering them · Specific and general allowances for receivables · Adjusting the allowance — only the change hits the income statement

Initial recognition at cost (IAS 16) · Straight-line and reducing balance depreciation · Asset disposals and profit or loss on disposal

Research costs expensed vs development costs capitalised (IAS 38) · Goodwill and amortisation of intangibles · Impairment testing — recoverable amount vs carrying amount (IAS 36)

What goes into inventory cost (IAS 2) · FIFO and weighted average cost (LIFO not permitted) · Lower of cost and net realisable value rule

IAS 37 — three criteria for a provision · Contingent liabilities: disclose vs recognise · Contingent assets and the constructive obligation concept

Extracting a trial balance and what it tests · Six types of errors — revealed vs not revealed · Suspense accounts and correction journals

Revenue, cost of sales, and gross profit · Operating expenses and adjustments below gross profit · Drawings are not an expense — they are a capital withdrawal

Format, classification, and ordering of assets and liabilities · Non-current assets, current assets, and their measurement · Equity section — sole trader vs company

Capital comparison method to find profit · Reconstructing sales and purchases via control accounts · Markup vs margin and identifying stolen inventory

Three sections: operating, investing, and financing (IAS 7) · The indirect method — reconciling profit to cash from operations · Interpreting cash flow patterns

Ordinary vs preference shares and share premium · Revenue vs capital reserves — what can be distributed · Bonus issues, rights issues, and dividend accounting

Parent, subsidiary, and associate — control thresholds · Calculating goodwill and non-controlling interest · Equity method for associates and intra-group eliminations

Profitability, liquidity, activity, and gearing ratios · DuPont decomposition — ROCE = margin × asset turnover · Limitations of ratio analysis and historical cost accounts