lOMoARcPSD|39306338

Mindmap f3 - f3 financial accounting

Financial Reporting (Trường Đại học Ngoại thương)

Scan to open on Studocu

Studocu is not sponsored or endorsed by any college or university

Downloaded by Linh Nguyen Ngoc ([Link]@[Link])
 lOMoARcPSD|39306338

ACCA FA Section A, B & C

Mind Map

1. The context & purpose of financial reporting 2. The qualitative characteristics of financial information
Accounting comprises the recording of transactions, and the summarising of information Fundamental Accounting Concepts:

• Statement of Financial Position (Balance Sheet); (1) Fair presentation; (2) Going concern; (3) Accruals; (4) Consistency; (5) Materiality;
(6) Substance over form; (7) Business entity concept
• Statement of Profit & Loss;
Qualitative characteristics:
• Statement of Cash Flows
i. Relevance;
Types of Business Entity:(1) Sole Proprietor;(2) Partnership;(3) Limited Liability Company ii. Faithful presentation;
International Accounting Standards Board (IASB) is responsible for issuing International iii. Comparability
Financial Reporting Standards (IFRS). iv. Verifiability
v. Timeliness
Exposure Draft: Proposed IFRS for public comments, after considering all comments, vi. Understandability
revisions made where appropriate and final IFRS published.

3. The use of double-entry and accounting systems

Step 1: Understanding T-Account and double-entry Step 2: Balance and close ledger account

Debit Credit
Step 3: Prepare Trial Balance

General Rules of Double Entry

Debit represents Credit represents Step 4: Closing off the accounts & producing financial statements:
1. An increase in an asset 1. An increase in liability • Statement of financial positions (Balance Sheet)
2. A decrease in a liability 2. A decrease in asset
3. An item of expense 3. An item of income • Statement of profit & loss account

Note for learning: Steps 1 & 2 are covered in Section D, Recording transactions and events; Step 3 is covered by Section E, Preparing a trial balance; Step 4 is covered by Section F,
Preparing basic financial statements, and Section G, Preparing simple consolidated financial statements.

Downloaded by Linh Nguyen Ngoc ([Link]@[Link])

 lOMoARcPSD|39306338

ACCA FA Section D Mind Map 1. Sales & Purchase

Key accounting standards & principles:
IAS 18 & IFRS 15 2. Cash
10. Capital Structure &
9. Provisions & Finance Costs Accounting for discounts
Cash transactions booking 3. Inventory
Contingencies Types of capital:
Sales tax Record for petty cash transaction Key accounting standards: IAS 2
Key accounting standards: IAS 37 • Ordinary Shares
Provisions: A liability where the timing or the • Preference Shares Valuation of inventory: Lower of cost and
amount is uncertain. (On Balance Sheet) • Loan Notes net realizable value (NRV)

Contingent liability: Liability that may result, but Cost of inventory should include all costs of purchase,
depends on the outcome of uncertain events. (Off cost of conversions, and other costs incurred in bringing
Balance Sheet) the inventories to their present location and condition.
Probable vs Possible vs Remote Recording Transactions & Closing inventory valuation method: FIFO (First-in-first-out),
AVCO (Average Cost)
Events
8. Receivables & Payables There are 10 types of transactions or 4. Tangible non-current assets
Credit analysis events in Financial Accounting Syllabus in
which you have to understand all of them and Key accounting standards: IAS 16
Aged receivables analysis
how to apply the techniques. • Recognition
Irrecoverable debt vs Doubtful debt
• Capital expenditure vs Revenue expenditure
Specific allowance vs General allowance
7. Accruals & 6. Intangible non- • Asset disposal
5. Depreciation
Prepayments current assets & • Asset revaluation
Matching principle in booking Depreciation is the changing • Disclosure in financial statements
amortisation of the cost of a non-current
accruals & prepayments
It’s about goodwill and Research asset over its useful life
Prepayment is payment in advance & Development (R&D)
(Debit Asset) Methods of calculating depreciation:
Goodwill:
• Straight line method
Purchase vs Non-purchase
Accrual is the name to an amount owing • Reducing balance method
for which invoice not received. R&D: Key accounting standard: IAS 38
Understand how to make journal entries Revaluation of non-current assets
Research: Expensed in P&L depreciation calculation
and booking in ledger
Development: If certain conditions met, it can
be capitalized and amortized over years.

Downloaded by Linh Nguyen Ngoc ([Link]@[Link])

 lOMoARcPSD|39306338

ACCA FA Section E Mind Map

1. Suspense Accounts 2. Correction of errors

If trial balance is not balance, there must be errors that need to be fixed. Major topics in this area:

(1) Types of errors occur;

Suspense account is open to fix the trial balance errors.
(2) Journal entries to correct errors
This is an artificial account that had the double entries all been corrected then there would (3) Error impact on statement of financial position and statement of profit & loss accounts.
be no trial balance difference.

When all errors have been found, the balance of suspense account will fall to zero.

Trial Balance
Balance of each accounts
and to check whether all
4. Bank Reconciliation debit and credit are equal 3. Control Account / Reconciliation
Main reasons for differences between bank statement and
cash book: Purpose of control account
(1) Cash book error; Bank Reconciliation Statement
(2) Bank mistakes Prepare control account reconciliation for AR & AP
Balance per bank statement xxx
(3) Timing differences Add/Less Bank errors xxx • Receivables ledger control account
Terminology: XX
• Payables ledger control account
i. Balance on bank statement;
ii. Cheques; Add: Lodgements not credited xxx Control account reconciliation
iii. Drawer (of cheque); Less: Unpresented cheques (xx)
iv. Unpresented cheque; The balance on the Receivables (Payables) ledger control account should equal the total of
v. Deposits not yet credited; Balance as per cash book XX the list of balances in the Receivables (Payables) ledger.
vi. Dishonoured cheque;
vii. Credit transfer; If the two are not equal, then there must be an error.
viii. Standing orders;
ix. Direct debit

Downloaded by Linh Nguyen Ngoc ([Link]@[Link])

 lOMoARcPSD|39306338

ACCA FA Section F & G Disclosure Note for the following items in FA syllabus:
Mind Map (1) Non-current assets; (2) Provisions; (3) Inventory; (4) Event after
the reporting period.
1. Statement of Financial Position 2. Statement of Profit & Loss
Events after the reporting period (IAS 10):
Accounting equation:(1) Assets = Capital + Liabilities; Sales Revenue xx Events after the reporting period refer to events that occur between
(2) Net Assets = Assets - Liabilities Cost of Sales xx the date of the Statement of Financial Position and the date on which
Gross Profit XX the Financial Statement becomes final.
Assets Other Income xx Adjusting events vs Non-adjusting events
Non-current assets Expenses:
Land and Buildings xx Rent xx Incomplete record for the following situations in FA syllabus:
Plant and Equipment xx Electricity xx (1) Use of accounting equation; (2) Use of ledger accounts to
XX Wages & Salaries xx calculate missing figures; (3) Use of cash and/or bank summaries; (4)
Current assets Depreciation xx Use of profit percentages to calculate missing figures.
Inventories xx Total Expenses XX
Accounts Receivable xx 4. Consolidated Financial Statements
Prepayments xx Net Profit before interest & tax XXX Subsidiary:
Cash xx Interest expense xx Pre-acquisition profits – Profits earned before date of acquisition
XX Taxation xx Goodwill – The excess amount paid by parent company for
Total Assets XXX subsidiary’s net asset value on the Statement of Financial Position
Net Profit after tax XXX Non-controlling interests (NCI) – Parent owned less than 100% while
Capital and Liabilities the net assets shared by non-controlling party
Capital 3. Statement of Cash Flows
Share capital & premium xx Cash flows from operating activities Goodwill Calculation
Retained earnings xx Net profit before taxation xx Fair value of consideration xxx
XX Adjustments for: Fair value of non-controlling interest xxx
Non-current liabilities Depreciation xx Less: Fair value of net asset at acquisition (xx)
Long term bank loan xx Interest expense xx Goodwill XX
Change in working capital * xx
Current liabilities XX Associates:
Accounts Payable xx Cash flows from investing activities An associate is an entity in which the investor has significant influence,
Accruals xx Purchase of fixed assets xx but which is not a subsidiary. (shareholding > 20% but <50%)
XX Interest received xx Key accounting standard: IAS 28, requires the use of equity method of
Total Capital and Liabilities XXX XX accounting for investments in associates, which means
Cash flows from financing activities Consolidated Statement of Profit & Loss –
Repayment of bank loan xx Investing company only add group’s share of associate’s profit after tax
* Working capital represents inventory, accounts Consolidated Statement of Financial Position –
receivable & accounts payable Net increase / (decrease) in cash XXX Show “investment in associates” which include the original cost of
Key accounting standards: IAS 1 investment plus group’s share of post-acquisition earnings of associate

Downloaded by Linh Nguyen Ngoc ([Link]@[Link])

 lOMoARcPSD|39306338

ACCA FA Section H Mind Map

1. Profitability 2. Liquidity
Current ratio
Return on Capital Employed (ROCE) Profit/Sales ratio
Current Assets
Profit before interest & taxation Profit =
= X 100% = X 100% Current Liabilities
Share capital & reserves + Long term debt Sales
Quick ratio (also known as acid test ratio)
Return on shareholder capital
Profit after taxation
Profit after taxation =
= X 100% Share capital & reserves
Share capital & reserves
Higher the ratio, more liquid
Asset turnover ratio of the company
Sales
Interpretation of Financial
=
Share capital & reserves + Long term debt
X 100% Statements
There are 4 Areas:
i) Profitability; ii) Liquidity;
iii) Efficiency; iv) Position (or Gearing)
3. Efficiency 4. Position
Days sales outstanding
Accounts Receivable Gearing (Equity) ratio
= X 365 Days
Sales Long term debt
Inventory turnover days = X 100%
Share capital & reserves
Inventory Higher the ratio,
= X 365 Days company’s
Cost of sales Gearing (Total Capital) ratio
position is weaker
Long term debt
Payable turnover days = X 100%
Accounts Payables Share capital & reserves + Long term debt
= X 365 Days
Cost of Purchases
Interest cover ratio
Cash operating cycle: Profit before interest & tax Higher the ratio, stronger of
Days sales outstanding + Inventory Turnover Days – Payable Turnover Days = company’s position
Interest charges in the year

Downloaded by Linh Nguyen Ngoc ([Link]@[Link])