Summary AC102 exam notes

AC102 Notes

Balance Sheet

- Assets: an economic resource that provides a right to potential economic benefits
o Under control of business, capable of monetary measurement
- Claims: an obligation of the business to provide cash or some other form of benefit
to an outside party
o Equity: claim of owner against business
o Liabilities: claims of other parties

- Non-current assets
o PPE
o Fixtures, fittings
o Office equipment
o Motor vehicles
o Intangibles
- Current assets
o Inventory
o Trade receivables
o Prepaid Expenses (rent payable, insurance, interest payable, licence fee
payable)
o Cash
- Non-current liabilities
o Mortgage
o Long-term borrowings
o Debenture
- Current liabilities
o Trade payables
o Accruals
o Bank overdraft
o Dividends payable
- Equity
o Ordinary shares
o Share premium
o Other reserves
o Revaluation Reserve
o Retained earnings

- Assets – Liabilities = Equity

Income Sheet
- Assets = Equity + (Sales Rev- Expenses) +Liabilities
Sales Revenue
COGS = opening inventories + Purchases – Closing inventories
Gross Profit

, Expenses (wages, rent, heat and light, telephone and postage, insurance, motor
vehicle running expenses, depreciation)
Operating Profit (EBIT)
Non-operating expenses - Interest payable
Loss on disposal
Bad debt
Non-operating income - Interest receivable (ADD BACK)
Profit on disposal
EBT
Tax
Net Profit

- Show full EXPENSE on INCOME SHEET including accruals and prepaid expense;
ACCRUALS and PREPAID EXPENSE go on BALANCE SHEET


- DEPRECIATION and (AMORTISATION—only straight line): INCOME SHEET
o Straight-line method
 Annual depreciation expense= (Cost – Residual Value)/ useful life
 ASSET VALUE on BALANCE SHEET = Cost - Accumulated Depreciation
o Reducing-balance method: fixed percentage rate of depreciation
 High annual depreciation expense in early years, lower in later
yearsfor assets where economic benefits consumed decline over
time
 Depreciation expense= rate*value of previous year
- PPE revaluation; no depreciation


- COGS (INCOME SHEET)
o First in first out
o Weighted average
o Last in first out (not used)
o Expense on income sheet, INVENTORY VALUE reduces on BALANCE SHEET

- Trade receivables
o Bad debt
 BAD DEBT EXPENSE—operating expense INCOME SHEET
 Reduce TRADE RECEIVABLES on BALANCE SHEET
o Doubtful debt
 PROVISION DOUBTFUL DEBT-operating expense INCOME SHEET+/-
 If doubtful debt = 60 in first year but second year irrecoverable
=45, then ADD BACK 15 on INCOME SHEET (add to revenue)
 Reduce TRADE RECEIVABLES on BALANCE SHEET