AS-LEVEL ACCOUNTING (9706)
1. Financial Accounting
1.1 The Accounting Cycle
→ Introduction
● Book-keeping: recording financial information, particularly transactions in a systematic
way
○ Records not maintained → something will be overlooked (prone to errors)
○ Basis: double entry book-keeping
● Accounting: a system of collecting, storing & processing financial information &
accounting data to permit informed judgements & decisions by user of the information
○ To see if business is making P/L
○ Profit: Total revenue exceeds total costs
○ Loss: Total costs exceeds total revenue
● Purpose of maintaining accounting records
○ Information recorded is used to make IS & SOFP
■ Allows for calculation of P/L
■ Understand the progress/growth of the business
■ Base the business future & make decisions based on P/L
→ Double entry system of book-keeping
● A system of recording accounting transactions that recognises that there are 2 sides/aspects (debit &
credit) to every transaction
● Debits = Credits
● Advantages
○ Less risk of errors/fraud
○ Easier to refer to previous transactions
○ Financial position can be ascertained
○ Easier to prepare financial statements & make business decisions
● Income: Money that an individual/business received in exchange for providing a good/service
○ Eg. Sales, rent received, commission
● Expenses: Cost of an asset used by a company in its operations to produce revenues
○ Eg. Advertising, rent, wages, purchases, electricity & water
● Carriage: cost of transporting goods
○ Carriable inwards: cost of bringing the goods to the business
○ Carriage outwards: cost of delivering goods to the customer
● Entries
Sales Purchases
● Dr bank a/c ● Dr purchase a/c
● Cr sales a/c ● Cr bank a/c
→ Accounting Equation
● SOFP: statement of the assets & liabilities of a business on certain date
● Assets = Liabilities + Capital
○ Assets: something which is owned by/owed to a business
○ Net Assets: total assets - total liabilities
○ Net Current asset (working capital) = current assets - current liabilities
Non-current assets (NCA) Current assets
● Assets obtained for use ● Short term assets whose amounts are constantly
(not for resale) which changing
helps the business earn ● Eg. bank, trade receivables, inventory etc.
revenue ● Inventory
● Long term assets ○ Goods a business has available for resale
● Eg. equipment, premises, ● Trade Receivables
motor vehicles, fixtures & ○ Represents the amount owed to the
fittings etc. business by its credit customer
, ■ Liabilities: Amounts owed by the business to others
Non-current liabilities (NCL) Current Liabilities (CL)
● Amounts owed that aren’t due ● Amounts owed that are due for repayment within
for repayment within the next the next year
year ● Eg. trade payable, other payable, bank overdraft
● Eg. long-term loan, mortgage ● Trade payable
etc. ○ The amount the business owes to the
credit supplier
■
Owner’s equity/capital: Total resources provided by the owner
● More available, less need to be borrowed
● ↑ capital = ↑ assets
■ Drawings
● Any value taken from the business by the owner of that business
→ Books of Prime Entry (7)
● A book used to list all transactions of a similar nature before they are posted to the ledger
○ Not part of double entry system (just records) except cashbook & P.cashbook
Benefits Limitations
● Reduces no. of entries in the ledger ● Bulky & voluminous
● Help gather/summarise accounting information/facilitate ● Information in scattered form (not
preparation of control accounts according to acc)
● Time consuming (each entry must
● Groups together similar types of transactions
be posted to individual ledger)
● Allows work to be divided between several people ● May involve repetitive work
● Guard against errors/fraud (business may have similar
● Enables checking transactions through trial balance & control transactions
a/c
● Avoid overpayment (amount details shown)
● Cash book
○ Used to record all transactions concerning money
○ Also acts as ledger
○ Part of the double entry system
○ Impossible to have a credit balance
on a cash a/c
○ 2 column cash book
■ Combines cash & bank together
■ Dr Money received
■ Cr Money paid out
○ 3 column cash book
■ Extra column to record cash discount
● Allowance given to a customer when an account is settled within a time limit
set by the supplier
● Encourages customers to pay promptly
● Not part of double entry system; must be transferred
○ Dr total disc allowed column into disc allowed a/c in nominal ledger
○ Cr total disc received column into disc received a/c in nominal
■ Contra entries
● Appears on both sides of the cash book
● ‘C’ entered in folio column
● Records:
○ Dr a/c receiving money
1. Financial Accounting
1.1 The Accounting Cycle
→ Introduction
● Book-keeping: recording financial information, particularly transactions in a systematic
way
○ Records not maintained → something will be overlooked (prone to errors)
○ Basis: double entry book-keeping
● Accounting: a system of collecting, storing & processing financial information &
accounting data to permit informed judgements & decisions by user of the information
○ To see if business is making P/L
○ Profit: Total revenue exceeds total costs
○ Loss: Total costs exceeds total revenue
● Purpose of maintaining accounting records
○ Information recorded is used to make IS & SOFP
■ Allows for calculation of P/L
■ Understand the progress/growth of the business
■ Base the business future & make decisions based on P/L
→ Double entry system of book-keeping
● A system of recording accounting transactions that recognises that there are 2 sides/aspects (debit &
credit) to every transaction
● Debits = Credits
● Advantages
○ Less risk of errors/fraud
○ Easier to refer to previous transactions
○ Financial position can be ascertained
○ Easier to prepare financial statements & make business decisions
● Income: Money that an individual/business received in exchange for providing a good/service
○ Eg. Sales, rent received, commission
● Expenses: Cost of an asset used by a company in its operations to produce revenues
○ Eg. Advertising, rent, wages, purchases, electricity & water
● Carriage: cost of transporting goods
○ Carriable inwards: cost of bringing the goods to the business
○ Carriage outwards: cost of delivering goods to the customer
● Entries
Sales Purchases
● Dr bank a/c ● Dr purchase a/c
● Cr sales a/c ● Cr bank a/c
→ Accounting Equation
● SOFP: statement of the assets & liabilities of a business on certain date
● Assets = Liabilities + Capital
○ Assets: something which is owned by/owed to a business
○ Net Assets: total assets - total liabilities
○ Net Current asset (working capital) = current assets - current liabilities
Non-current assets (NCA) Current assets
● Assets obtained for use ● Short term assets whose amounts are constantly
(not for resale) which changing
helps the business earn ● Eg. bank, trade receivables, inventory etc.
revenue ● Inventory
● Long term assets ○ Goods a business has available for resale
● Eg. equipment, premises, ● Trade Receivables
motor vehicles, fixtures & ○ Represents the amount owed to the
fittings etc. business by its credit customer
, ■ Liabilities: Amounts owed by the business to others
Non-current liabilities (NCL) Current Liabilities (CL)
● Amounts owed that aren’t due ● Amounts owed that are due for repayment within
for repayment within the next the next year
year ● Eg. trade payable, other payable, bank overdraft
● Eg. long-term loan, mortgage ● Trade payable
etc. ○ The amount the business owes to the
credit supplier
■
Owner’s equity/capital: Total resources provided by the owner
● More available, less need to be borrowed
● ↑ capital = ↑ assets
■ Drawings
● Any value taken from the business by the owner of that business
→ Books of Prime Entry (7)
● A book used to list all transactions of a similar nature before they are posted to the ledger
○ Not part of double entry system (just records) except cashbook & P.cashbook
Benefits Limitations
● Reduces no. of entries in the ledger ● Bulky & voluminous
● Help gather/summarise accounting information/facilitate ● Information in scattered form (not
preparation of control accounts according to acc)
● Time consuming (each entry must
● Groups together similar types of transactions
be posted to individual ledger)
● Allows work to be divided between several people ● May involve repetitive work
● Guard against errors/fraud (business may have similar
● Enables checking transactions through trial balance & control transactions
a/c
● Avoid overpayment (amount details shown)
● Cash book
○ Used to record all transactions concerning money
○ Also acts as ledger
○ Part of the double entry system
○ Impossible to have a credit balance
on a cash a/c
○ 2 column cash book
■ Combines cash & bank together
■ Dr Money received
■ Cr Money paid out
○ 3 column cash book
■ Extra column to record cash discount
● Allowance given to a customer when an account is settled within a time limit
set by the supplier
● Encourages customers to pay promptly
● Not part of double entry system; must be transferred
○ Dr total disc allowed column into disc allowed a/c in nominal ledger
○ Cr total disc received column into disc received a/c in nominal
■ Contra entries
● Appears on both sides of the cash book
● ‘C’ entered in folio column
● Records:
○ Dr a/c receiving money
