特许公认会计师ACCAF3财务会计考试讲义

1、Session 1Types of business entityA business can be organized in one of the several ways: Sole trader a business owned and operated by one person.The simple form of business is the sole trader. This is owned and managed by one person, although there might be any number of employees. A sole trader is

2、fully personally liable for any losses that the business might make.Partnership a business owned and operated by two or more people.A partnership is a business owned jointly by a number of partners. The partners are jointly and severely liable for any losses that the business might make. （Traditiona

3、lly the big accounting firms have been partnerships, although some are converting their status to limited liability companies.） Limited Liability Company a business owned by many people and operated by many （ though not necessarily the same） people. Companies are owned by shareholders. Shareholders

4、are also known as members. As a group, they elect the directors who run the business. Companies are always limited companies.In summary, types of business entity should be differentiated in Ownership; Operation right and Liability for the business to undertake. For all three types of entity, the mon

5、ey put up by the individual, the partners or the shareholders, is referred to as the business capital. In the case of a company, this capital is divided into shares. Business Transactions: Main types of business transactions for a business include: Purchase of inventory for resale Sales of goods Pur

6、chase of non-current assets Payment of expenses Introduction of new capital to the business Withdrawal of funds from the business by the owner Cash and credit transactions:Cash transactions: the buyer pays for the item immediately or possibly in advance. Credit transactions: the buyer does not have

7、to pay for the item on receipt, but is allowed some time （ a credit period） before having to make the payment. Definition of accountingRecording : transactions must be recorded as they occur in order to provide up-to-date information for management. Summarizing: the transactions for a period are sum

8、marized in order to provide information about the company to interested parties.Types of accountingFinancial accounting vs management accounting Financial accountingCost and managementaccountingPurposeRecord financial transactionsInformation of costof operationsLegal requirementLimited liability com

9、pany,by law, prepare financialaccountsNo legal requirementto prepare managementaccountsMain userExternalInternalTimeAt the end of periodregularlyInformationhistorichistoric and forecastUsers of financial statementsAccounting reports users include: Management: Need information about the companys fina

10、ncial situation as it is currently and it is expected to be in the future. This is to enable them to managethe business efficiently and to make effective decisions. Investors: The providers of risk, capital and their advisers are concerned with the risk inherent in, and return provided by, their inv

11、estments. They need information to help them determine whether they should buy, hold or sell.Trade payables/ Suppliers: Suppliers and other trade payables. Suppliers and other trade payables are interested in information that enables them to determine whether amounts owing to them will be paid when

12、due. Trade payables are likely to be interested in an enterprise over a shorter period than lenders unless they are dependent upon the continuance of an enterprise as a major customer.Shareholders: Shareholders are also interested in market value of shares as well as information which enables them t

13、o assess the ability of the enterprise to pay dividends.Lenders: Lenders are interested in information that enables them to determine whether their loans, and the interest attaching to them, will be paid when due.Customers: Customers have an interest in information about the continuance of an enterp

14、rise, especially when they have a long term involvement with or are dependent on, the enterprise.Government and their agencies: Governments are their agencies are interested in the allocation of resources and, therefore, the activities of enterprises. They also require information in order to regula

15、te the activities of enterprises, determine taxation policies and as the basis for national income and similar statistics.Employees: Employees and their representative groups are interested in information about the stability and profitability of their employers. They are also interested in informati

16、on which enables them to assess the ability of the enterprise to prove remuneration, retirement benefits and employment opportunities.General public: Enterprises affect members of the public in an variety of ways. For example, enterprises may make a substantial contribution to the local economy in m

17、any ways including the number of people they employ and their patronage of local suppliers. Financial statements may assist the public by providing information about the trends and recent developments in the prosperity of the enterprise and the range of its activities.The business entity conceptThe

18、business entity concept States that financial accounting information relates only to the activities of the business entity and not to the activities of its owner.The business entity is treated as separate from its owners.Session 8 Irrecoverable debts and allowancesMain contents: 1.Irrecoverable debt

19、s2.Allowance for receivables3.Accounting for irrecoverable debts and receivable allowances8.1 Irrecoverable debtsTrade receivables:A trade receivable is a customer who owes money to the business as a result of buying goods or service on credit.Accruals concept:The accruals concept requires a sale to

20、 be included in the ledger accounts at the time that it is made.Credit sales are claimed when the sale is invoiced.The double entry at the invoice date will be:Dr.Cr.Receivables xxSalesxxWhen the customer eventually settles the invoice the double entry will be:Dr.Cr.CashxxReceivablesxxProblems: coll

21、ecting the amounts owing from customersReasons: bankruptcy, fraud or disputesPrudence concept:The prudence concept requires some adjustment to reflect the actual or potential loss arising from unpaid debts.Irrecoverable debt: A debt which is considered to be uncollectible.- Highly unlikely that the

22、amount owed will be received.- Written off by writing it out of the ledger accounts completely.Accounting for irrecoverable debts - It is prudent to remove the irrecoverable debts from the accounts and to charge the amount as an expense for irrecoverable debts to the I.S.- The original sales remains

23、 in the accounts as this did actually take place.Dr.Irrecoverable debts expense xxCr.Receivables control account xxExample:Arctic Co.have total accounts receivable at the end of their accounting period of $45,000.Of these it is discovered that one, Mr.X who woes $790, has been declared bankruptcy, a

24、nd another who gave his name as Mr.Jones has totally disappeared owing Arctic Co.$1,240.Write up the ledger accounts to reflect the writing off these debts as irrecoverable.Solution:Dr.Irrecoverable debts expense 2,030Cr.Receivables control account 2,030Accounting for irrecoverable debts recoveredIr

25、recoverable debts are receivedWhen an irrecoverable debt is recovered, the accounting entry is:Dr.Cash xxCr.Irrecoverable debt expense xxExample: At 1 October 20x6 a business had total outstanding debts of $8,600.During the year to 30 September 20x7: Credit sales amounted to $44,000; Payments from v

26、arious debtors amounted to $49,000; Two debts, for $180 and $420（both including sales tax）were declared irrecoverable.After the debts was written off, the payment is received before the end of the period, now what journal entry to prepare for the recovery of payment?Dr.Cash 600Cr.Irrecoverable debt

27、expense 6008.2 An allowance for receivables:Allowance for receivables is an estimate of the percentage of debts which are not expected to be paid.（a）When an allowance is first made, the amount of this initial allowance is charged as an expense in the income statement, for the period in which the all

28、owance is created.（b）When an allowance already exists, but is subsequently increased in size, the amount of the increase in allowance is charged as an expense in the income statement, for the period in which the increased allowance is made.（c）When an allowance already exists, but is subsequently red

29、uced in size, the amount of the decrease in allowance is credited back to the income statement, for the period in which the increased allowance is made.The value of trade receivable in the statement of financial position must be shown after deducting the allowance for receivables.Example:A business

30、has trade receivables outstanding at 30 June 20x5 and decided to create 5% allowances for receivables.（a）In the income statement, the newly created allowance of $2,500 （5% x 50,000 = 2,500）will be shown as an expense.（b）In the statement of financial position, trade accounts receivables will be shown

31、 as: $Total receivables 50,000Less: allowance for receivables （2,500）47,5008.3 Accounting for irrecoverable debts and receivable allowancesIrrecoverable debts written off- When the irrecoverable debts are written off, the double entry might be:Dr.Irrecoverable debtsCr.Receivable control account- Whe

32、n an irrecoverable debt is subsequently received, the accounting entries are:Dr.CashCr.Irrecoverable debtsAllowance for receivables（a）Open up an allowance accountDr.Irrecoverable debts account （expense）Cr.Allowance for receivables（b）In subsequent years- calculate the new allowance required- compare

33、it with the existing balance on the allowance account- calculate increase or decrease required（only a movement in the allowance is charged to the I.S.）（i）If a higher allowance is required: Dr.Irrecoverable debts expense Cr.Allowance for receivables（ii）If a lower allowance is required: Dr.Allowance f

34、or receivablesCr.Irrecoverable debts expenseExample:A has total receivables outstanding at 31 December 20x2 of $28,000.He believes that about 1% of these balances will not be collected and wishes to make an appropriate allowance.Before now, he has not made any allowance for receivables at all.On 31

35、December 20x3, his trade accounts receivable amount to $40,000.His experience during the year has convinced him that an allowance of 5% should be made.Required: What accounting entries should he make?Solution:At 31 December 20x2, Allowance required= 1% x 28,000 = $280Dr.Irrecoverable debts expense 2

36、80Cr.Allowance for receivables 280In SFP Receivables ledger balances 28,000Less: allowances for receivables 280 27,720At 31 December 20x3Allowance required now（ 5% x 40,000）2,000Existing allowance （280）Additional allowance required 1,720The double entry will be:Dr.Irrecoverable debts expense 1,720Cr

37、.Allowance for receivables 1,720In SFPReceivables ledger balances 40,000Less: allowance for receivables （2,000）38,000Example 2:Irrecoverable debts are $5,000.Trade accounts receivable at the year end are $120,000.If an allowance for receivables of 5% is required, what are the irrecoverable debts in

38、the income statement?A.$5,000B.$11,000C.$6,000D.$10,750Solution: B120,000 X 5% = 6,000$6000+ $5,000 = $11,000 P.S.: The irrecoverable debt expense to be included in I/S should include:Irrecoverable debt written off xx + Allowance （ movement ）for receivables xx= Total irrecoverable debt expense charg

39、ed to I/SSession 2Financial Statements include:- a statement of financial position at the end of the period- a statement of comprehensive income for the period- a statement of changes in equity for the period- statement of cash flows for the period- notes, comprising a summary of accounting policies

40、 and other explanatory notesThe statement of financial position:Statement of Financial Position: showing the financial position of a business at a point of time.The Vertical format of the SFP: （Statement of Financial Position as at 31 December 2007）The top half of the balance sheet shows the assets

41、of the business.The bottom half of the balance sheet shows the capital and liabilities of the business.A Statement of financial position at the end of the period （Balance Sheet）:W Xang Balance Sheet as at December 31 20X6 $Non current assetsMotor Van2,400Current assetsInventory2,390Trade receivables

42、1,840Cash at bank1,704Cash in hand565,990Total assets8,390$Capital accountBalance at 1 January 20X64,200Add net profit for year3,450Increase in capital1,0008,650Less: Drawing for year （2,960）5,690Non current liabilities1,000Current liabilitiesPayable1,700Total 8,390The horizontal format of the SFP:

43、（Statement of Financial Position as at 31 December 2007）The left half of the balance sheet shows the assets of the business.The right half of the balance sheet shows the capital and liabilities of the business.W Xang Statement of Financial Position as at 31 December 20x6$ $ Non-current assetsNon-cur

44、rent liabilities1,000 Motor van2,400 Trade payable1,7002,400 Total liabilities2,700Capital accountCurrent assetsBalance at 1 January 20X64,200 Inventory2,390 Add net profit for year3,450 Trade receivables1,680 Increase in capital1,000 Cash at bank1,704 8,650 Cash in hand56 Less: Drawing for year-2,9

45、60 Total current assets5,9905,690 Total assets8,390Total capital and liabilities8,390The accounting equationFinancial accounting is based upon a very simple idea:The amount of resources supplied by the owner is called capital. The actual resources that are then in the business are called assets. Usu

46、ally, people other than the owner have supplied some, of the assets, for example, a supplier supplies stock of goods on credit. The business is said to owe a liability towards these suppliers. The following accounting equation always holds true:The accounting equation: ASSETS = PROPRITORS CAPITAL +

47、LIABILITIES- Any point in time, the assets of the business will be equal to its liabilities plusthe capital of the business;- Assets less liabilities equal the capital of the business, which is known as net assets.- Each and every transaction that the business makes or enters into has twoaspects to

48、it and have a double effect on the business and the accountingequation. This is known as the duality concept.Duality concept: Each and every transaction that the business makes or enters into has two aspects to it and has a double effect on the business and the accounting equations. This is known as

49、 duality concept.Illustration:1）. Carl sets up in business by opening a coffee shop Carls Coffee. He puts $5,000 into a business bank account.The opening accounting equation is:Assets （Cash in bank）= Capital + Liabilities（$5,000） = （$5,000） + （$0）2）. Carl buys furniture （chairs and tables） for the s

50、hop for $1,500, paying the supplier out of the business bank account.The accounting equation after this transaction is:AssetsCapital + Liabilties（ Cash in bank $3,500） = （$5,000） （$0）（Furniture $ 1,500）3）. Now Carl spends a further $2,000 to buy coffee-making equipment and $800 on crockery and cutle

51、ry, paying cash out of the business bank account.The accounting equation after this transaction is:AssetsCapital + Liabilties（Cash in Bank $700）= （$5,000） （$0）（Equipment $2,000）（Fitting & Fixture $800）（Furniture $1,500）4）. Carl persuades his bank to lend $1,000 to develop the business. The bank

52、loan is accounted for as a liability of the business.The accounting equation is now as follows:AssetsCapital + Liabilties（Cash in Bank $1,700） = （$5,000） （$1,000）（Equipment $2,000）（ Fitting & Fixture $800）（Furniture $ 1,500）5）. Carl now buys coffee, tea, milk, sugar, biscuits and cakes for $700,

53、 and pays in cash from the business bank account.The accounting equation is now as follows:AssetsCapital + Liabilties（Inventory $700） = （$5,000）（$1,000）（Equipment $2,000）（Fitting & Fixture $800）（Furniture $1,500）（Cash in Bank $ 1,000）6）. In his first day of trading, Carl uses up $650 of his inve

54、ntory, and makes sales totaling $1,050. All his sales are in cash.The accounting equation at the end of the day is as follows:AssetsCapital +Liabilities（Inventory $50） = （Beginning $5,000） （$1,000）（Equipment $2,000） （ Profit $400）（Fitting & Fixture $800）（Furniture $1,500）（ Cash in bank $2,050）Classification of Assets and Liabilities Assets: An asset is something owned or controlled by the business that will result in future economic benefits to