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ICAEW - CERTIFICATE LEVEL - ACCOUNTING > Journals and Key Formulas > Flashcards

Journals and Key Formulas Flashcards

1
Q

Journal for disposals given in a part exchange

A

Step 1: Remove cost of disposed asset from cost ledger (as before)
Dr Disposals account £ cost
Cr Non-current cost account £ cost

Step 2: Remove accumulated depreciation from the accumulated depreciation ledger (as before)
Dr Accumulated depreciation account £ accumulated depreciation
Cr Disposals account £ accumulated depreciation

Step 3: Account for the disposal proceeds (replace cash with trade in value)
Dr New asset cost account £ part exchange allowance
Cr Disposals account £ part exchange allowance

The remaining cash paid (after the part exchange allowance) for the new asset is then accounted for in the usual way:
Dr New asset cost account £ cash paid
Cr Cash £ cash paid

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2
Q

Accounting Equation

A

Assets = Liabilities + Equity(Capital)
Assets – liabilities = Equity
Net assets = Equity

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3
Q

Profit Formula

A

Assets - Liabilities - Opening Capital + Drawings

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4
Q

Gross Wage Formula

A

Gross Wage = PAYE + Employee NI + Net Wage

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5
Q

Wages and Salaries Expense/Employees Gross Salary Formula

A

Wages and Salaries Expense/Employees Gross Salary = PAYE + Employee NI + Employers NI + Cash to employees

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6
Q

Wages Cost Formula

A

Wages Cost = Employees gross pay + employers NI

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7
Q

DEAD CLIC

A

Debits INCREASE
Expenses (SOPL) :(
Assets (SOFP) :)
Drawings (SOFP)

Credits INCREASE
Liabilities (SOFP) :(
Income (SOPL) :)
Capital (SOFP)

SOFP = GROSS
SOPL = NET

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8
Q

Sale

A

DR Trade Rec/Cash
CR Sales Income

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9
Q

Sales Returns

A

Dr Sales Returns (or Sales)
Cr Trade receivables

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10
Q

Purchase

A

Cr Trade payables (liability)
Dr Purchase Expense

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11
Q

Purchase returns

A

Dr Trade payables
Cr Purchase returns (or Purchases)

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12
Q

Contra

A

WILL ALWAYS BE THIS, THERE IS NO OPPOSITE
Dr Trade payables
Cr Trade receivables

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13
Q

Refund to customers

A

Dr Trade receivables
Cr Cash

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14
Q

Refund to suppliers

A

Dr Cash
Cr Trade payables

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15
Q

Dishonoured cheque

A

Dr Trade receivables
Cr Cash

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16
Q

Cost of Sales Proforma Layout

Formula

Which financial statement does this affect

A

See FC

Cost of Sales = Opening inventories + Purchases + Carriage Inwards (deliveries) - Closing inventories

So how many did we start with - how many we have left over - how much did it costs us to get everything

We then use this to calculate cost of sales which is in our Statement of Profit or Loss

Page 66 in ICAEW FI WB

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17
Q

Revenue Formula

A

REVENUE = SALES

Sales = Gross profit + Cost of Sales

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18
Q

Sales Formula

A

REVENUE = SALES

Sales = Gross profit + Cost of Sales

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19
Q

Gross Profit Formula

A

Gross profit = Sales (Revenue) - Cost of Sales

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20
Q

Net Profit Formula

A

Net profit = Gross profit - Other expenses

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21
Q

Purchases goods (inventories)

A

Dr Purchase expenses
Cr Trade payables / cash

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22
Q

Year end closing inventories

A

Account for year end closing inventories as follows
Dr Inventories (current asset) account £ closing inventories
Cr cost of Sales expense £ closing inventories

ONLY THESE TWO LEDGER ACCOUNTS ARE TOUCHED FOR YEAR END/OPENING INVENTORY, ANYTHING ELSE IS INCORRECT

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23
Q

Reverse out opening inventories

A

Reverse out opening inventories as follows
Dr Cost of sales expense £ opening inventories
Cr Inventories (current asset) account £ opening inventories

ONLY THESE TWO LEDGER ACCOUNTS ARE TOUCHED FOR YEAR END/OPENING INVENTORY, ANYTHING ELSE IS INCORRECT

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24
Q

Closing Inventory Formula

A

Closing inventory = Quantity (No of units/Stock Count) x Valuation (NRV)

NRV is NET REALISABLE VALUE = Sales price - Cost to complete

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25
Q

NRV Formula

A

Closing inventory = Quantity (No of units/Stock Count) x Valuation (NRV)

NRV is NET REALISABLE VALUE = Sales price - Cost to complete

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26
Q

Mark Up

A

MARK UP is calculated on COSTS
if the markup is on costs
Costs = 100%MARK UP is calculated on COSTS
if the markup is on costs
Costs = 100%MARK UP is calculated on COSTS
if the markup is on costs
Costs = 100%

We then draw out the table for Sales, Cost of Sales and Gross

if the markup was 40%
Sales = 140%
Cost of Sales = 100%
Gross = 40%

we can then work out the £ value from here

Formula: Sales - Cost of Sales = Gross profit

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27
Q

Margins

A

MARGINS is calculated on SALES
if the margins is on sales
Sales = 100%

We then draw out the table for Sales, Cost of Sales and Gross

if the margin was 40%
Sales = 100%
Cost of Sales = 60%
Gross = 40%

we can then work out the £ value from here

Formula: Sales - Cost of Sales = Gross profit

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28
Q

Writing off inventories

A

If inventory is correctly valued at the lower of cost and NRV, no further inventory “write-down” journal entries are needed.
In the rare situation where a material amount of inventory has been stolen or destroyed then then the usual treatment of inventories would unfairly distorted view of the entities gross profitability.

To overcome this, the cost of the goods stolen or destroyed is removed from purchases (COST OF SALES) and shown in other expenses below the gross profit line.
Dr Other expenses £x
Cr Purchases £x
Any insurance the entity has against the loss is recorded as:
Dr Cash/Receivables £x
Cr Other income £x

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29
Q

If an owner takes something from the business as drawings what is the journal entry?

A

Dr Drawings £ cost of items
Cr Purchases £ cost of items (don’t be tempted to credit inventories)

WE DO NOT TOUCH INVENTORIES - Q MIGHT TRY TO TRICK US

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30
Q

Irrecoverable debts

A

Dr Irrecoverable debt expense
Cr Trade receivables

Dr Irrecoverable debt expense (often included as part of other expenses - administrative expenses)

Cr Trade receivables
As they no longer owe us as we have moved it to the debt account -moved off memorandum (individual client) ledger

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31
Q

Irrecoverable debts is paid

A

In the rare situation that an irrecoverable debt subsequently paid, the double entry is:
Dr Cash
Cr Irrecoverable debt expense

If we break it down
- The original writing off the debt is DR Irrecoverable debt expense and then CR Trade rec
- To reverse this we Dr Trade Rec and then Cr Irrecoverable debt
- Then to post the cash we DR cash and Cr Trade Rec

The positing in the trade rec account is a DR then CR so these balance each other out so instead what we do is

32
Q

Allowance receivables Formula

A

So allowance receivables = Trade Rec - Irrecoverable debt

Then we calculate the allowance from that figure

33
Q

Allowance for receivables

A

Dr Irrecoverable debt expense
Cr Allowance for receivables

We Dr Irrecoverable debt expense due to accounting concept of prudence - we want to recognise cost up front of customers not paying

WE NEVER TOUCH TRADE REC - AS WE DON’T WANT TO REDUCE THIS AS WE ARE DOUBTFUL THEY WILL PAY SO WE ARE NOT CERTAIN

CLASSED AS AN ASSET HOWEVER IT DOES NOT FOLLOW THE TRADITIONAL RULES
In our SOFP this would be a negative asset as we would always minus it

If we want to make it bigger we credit it
CREDIT Increases Allowance for Receivables
DEBIT Decreases Allowance for Receivables

Affects my statement of financial position SOFP

34
Q

Increase in Allowance for receivables

A

INCREASE IN ALLOWANCE
Dr Irrecoverable debt expense £ the required increase

Cr Allowance for receivables £ the required increase

35
Q

Decrease in Allowance for receivables

A

DECREASE IN ALLOWANCE

Dr Allowance for receivables £ the required decrease

Cr Irrecoverable debt expense £ the required decrease

36
Q

Final Trade Receivable Figure

A

TR - irrecoverable debt = then calculate the percentage of that i.e. allowance is 2% so 2% of that value which is my figure for allowance TR

  1. Then to get the final TR we do

TR- Allowance TR = Amount to be shown on SOFP (NET FIGURE) = this is my current asset

FINAL FORMULA
TR = TR total at year end - irrecoverable debt written off then PLUS OR MINUS Allowance for Rec

37
Q

Irrecoverable debt expense formula

A

We will be asked to find the Irrecoverable debt expense in the statement of profit or loss. This can be quickly found with the following:

(1) Irrecoverable debts written off in period - DR
(2) Increase/(decrease) in allowance - IF INCREASE ITS A DR, if DECREASE ITS A CR (negative)
(3) Old irrecoverable debts that pay in the period - CR (negative)

This will give us the overall expense Dr (positive) or other income Cr (negative)

38
Q

How do we calculate

a) Allowance Receivable

b) Trade Receivable

c) Net Trade Receivable

A

a) So allowance receivables = Trade Rec - Irrecoverable debt
Then we calculate the allowance from that figure

b) Trade Receivable initial figure - Written off debts

c) Net Trade Receivable = TR (AFTER WRITING OFF DEBTS) - Allowance for Rec

39
Q

Accrued Income

A

Dr Accrued income (an asset in the SoFP)
Cr Revenue/other income (sales)

40
Q

Deferred/Prepaid Income

A

Deferred Income = PREPAID INCOME

Dr Revenue/other income
Cr Deferred income (a liability in the SoFP)

41
Q

Reverse opening accrual

A

Reverse opening accrual
Dr Accruals (SOFP)
Cr Expense (profit or loss)

42
Q

Post closing accrual

A

Post closing accrual
Dr Expense (profit or loss)
Cr Accruals (SOFP)

43
Q

Reverse opening prepayment

A

Reverse opening prepayment
Dr Expense (profit or loss)
Cr Prepayment (SOFP)

44
Q

Post closing prepayment

A

Post closing prepayment
Dr Prepayments (SOFP)
Cr Expense (profit or loss)

45
Q

Purchase of a NCA

A

Dr Non-current asset £ cost
Cr Cash / Trade payables £ cost

(depends how we pay - cash or credit)

46
Q

NCA accumulated depreciation

A

For each period’s calculated depreciation charge:
Dr Depreciation expense (profit or loss)
Cr Accumulated depreciation (statement of financial position)

There is no impact on the non-current asset cost accounts, but in the final statement of financial position the balance on the accumulated depreciation account (Cr) is offset against the cost account (Dr) to derive the carrying amount (carrying value or net book value) of the non-current assets. So the cost - accumulated depreciation = Carry Amount which is the final figure in our SOFP

47
Q

Depreciable Amount formula

A

Depreciable Amount = Cost - Residual Value

48
Q

Carrying Amount/Value (CA) formula

A

Carrying Amount = Cost - Accumulated depreciation

This is the figure that would appear in our SOFP under our NCA

Accumulated depreciation is all the years I have had the asset. Refers to the accumulated reduction in the value of an asset over time. When an asset is first purchased, it’s typically assigned a value reflecting its expected lifespan, gradually reducing over time. Accumulated depreciation is the total of this depreciation to date.
a.g after 1 year would be price per year, after 7 years would be acc depreciation x7 and so on

49
Q

straight line depreciation formula

A

Depreciation Charge/Expense =
Cost - Residual Value
________________________
Useful life (month or years)

It can be expressed as a % of cost (assuming no residual value) or number of years. For example:
 10% OF COST straight line = 10 years (120 months) - REDUCING IT OVER 10 YEARS
 25% straight line = 4 years (48 months)
 20% straight line = 5 years (60 months)
 5% straight line = 20 years (240 months)

100/% = No of years
100/No of years = % of cost

In your exam, straight line depreciation will normally be calculated on a monthly basis.

50
Q

Reducing Balance depreciation formula

A

The annual depreciation charge is a fixed percentage of the brought forward carrying amount (carrying value or net book value) of the asset. It allocates a greater proportion of the cost to the asset’s earlier years, and a lower proportion in its later years and the asset becomes less useful to the business.

(Cost - Accumulated Depreciation) x % given

Carrying Amount = (Cost - Accumulated Depreciation)

Would use a pro forma table in the layout as
Carrying Amount Accumulated depreciation
Asset at cost INITIAL COST
Depreciation Year 1 INTIAL COST X % INITIAL COST x depreciation %
Carrying Amount Year 1 INITIAL COST - ACC DEP
Depreciation Year 2 CA YR 1 X % CA YR 1 x depreciation %
Carrying Amount Year 2 CA YR 1 - ACC DEP YR 2
Depreciation Year 3 CA YR 2 X % CA YR 2 x depreciation %
Carrying Amount Year 3 CA YR 2 - ACC DEP YR 3
Depreciation Year 4 CA YR 3 X % CA YR 3 x depreciation %
Carrying Amount Year 4 CA YR 3 - ACC DEP YR 4
Depreciation Year 5 CA YR 4 X % CA YR 4 x depreciation %
Carrying Amount Year 5 CA YR 4 - ACC DEP YR 5

51
Q

calculate Carrying Amount in Reducing Balance depreciation

A

Carrying Value after n years = Cost × (1 – depreciation rate as a decimal)n

power of n is the years

52
Q

change in depreciation method formula

A

Remaining Useful Life

53
Q

What is a Fall in value (impairment loss)

Outline the PROFORMA

A

Sometimes an asset might suffer a permanent fall in its value (perhaps due to damage) called an impairment loss. The asset should be written down to its new carrying value, called the “recoverable amount” with the difference being expensed to the profit or loss.
To decide the recoverable amount we choose the higher figure out of the “fair value less cost to sell” (SELL) of the asset and its “value in use” (KEEP)

PROFORMA

                                              NCA
                                    Lower               Recoverable Amount Carrying Amount                                              Higher

Cost X Fair value less Value In Use
Acc Dep (X) cost to Sale (KEEP)
___________________ (SELL)
Carrying Amount
___________________
___________________

54
Q

profit or loss on a disposal formula

A

PROFORMA
£
Net disposals proceeds x
(cash when sold)

Less carrying value (x)
(at disposal)
_______________
Profit/loss on disposal x/(x)

Profit would be reported in other income in SPL
Loss would be reported as an expense in SPL

55
Q

What is the journal when we dispose of an asset?

A

SHORT CUT
DR CASH
DR ACC DEPRECIATION (clear to 0)
CR NCA COST (clear to 0)

Step 1: Remove cost of disposed asset from cost ledger
Dr Disposals account £ cost
Cr Non-current cost account £ cost

Step 2: Remove accumulated depreciation from the accumulated depreciation ledger
Dr Accumulated depreciation account £ accumulated depreciation
Cr Disposals account £ accumulated depreciation

Step 3: Account for the disposal proceeds
Dr Cash £ proceeds
Cr Disposals account £ proceeds

56
Q

What is capital called for a company?

A

Share Capital
Share Premium

57
Q

Share Capital

A

No of Shares x Nominal/Par/Face Value

This will be a CR

58
Q

Share Premium

A

No of Shares x (Amount Sold - NV)

This will be a CR

59
Q

Cash in relation to capital shares Formula

A

Cash = No of shares x Amount Sold

This will be a DR

60
Q

Dividends paid during the period - equity/ordinary or irredeemable preference shares

A

Dr Retained earnings(capital)
Cr Cash

61
Q

Dividends paid during the period - redeemable preference shares

A

Dr Finance charge(cost)
Cr Cash

62
Q

Dividends declared before the period ends - equity/ordinary or irredeemable preference shares

A

Dr Retained earnings
Cr Accruals

63
Q

Dividends declared before the period ends - redeemable preference shares

A

Dr Finance charge
Cr Accruals

64
Q

Issuing Shares

A

Dr Cash £ issue proceeds
Cr Share capital £ nominal value of shares issued
Cr Share premium £ the balance

65
Q

No of existing shares formula

A

Share Capital
________________
NV of 1 share

66
Q

No of new shares

A

No of existing shares x 1/(e.g.1 for 4 so = 4)

67
Q

Value of new share

A

No of new shares x price for 1 for (4) etc

68
Q

Rights Issue Journal

A

Dr Cash £ issue proceeds
Cr Share capital £ nominal value of shares issued
Cr Share premium £ the balance

69
Q

Bonus Issue Journal

A

Dr Share premium OR retained earnings £ nominal value of shares
Cr Share capital £ nominal value of shares

70
Q

Accounting for non-current liabilities on issue of debt

A

Dr Cash
Cr Non-current liabilities

71
Q

Accounting for non-current liabilities one repayment of debt

A

Cr Cash
Dr Non-current liabilities

72
Q

Accounting for non-current liabilities interest paid

A

Dr Interest expense (finance cost)
Cr Cash

73
Q

Accounting for non-current liabilities Outstanding interest owed

A

Dr Interest expense (finance cost)
Cr Accrual

74
Q

Provision - Incur expenditure (increase in provision)

A

Dr Provision (SoFP)
Dr Expense (SPL)
Cr Cash

74
Q

Create provision based on best estimate of amounts payable

A

Dr Expense (SPL)
Cr Provision (SoFP)

75
Q

Provision - Remove excess expenditure (decrease in provision)

A

Dr Provision (SoFP) – to clear
Cr Expense (SPL)

76
Q

Tax expense in P or L Formula

A

Tax expense in P or L = Directors estimated tax for the year (given in a note to the trial balance) + (under) or - (over) provision from prior year (tax figure found in the trial balance)

ICAEW - CERTIFICATE LEVEL - ACCOUNTING (17 decks)

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