Financial Elements

Session Objectives
Topic 2
Explain the main elements of financial
Elements of Financial statements
Statements Describe the purpose of financial
statements
Identify the main types of business
transactions
© accountingclassroom.com 2008 Student Notes for ACCA F3-Financial Accounting © accountingclassroom.com 2008 Student Notes for ACCA F3-Financial Accounting
Session Objectives What are Financial Statements
Describe the accounting equation “Reports that quantitatively summarize

Explain the matching convention and the financial status of an organization for
duality concept a stated period of time. They include an
Draft simple financial statements income statement and balance sheet
describing the flow of resources, profit or
loss, and the distribution or retention of
profits.”
Primary Financial Statements Balance Sheet
Balance sheet Describes where the enterprise stands at

Income Statement a specific date. It can be shown in two
Statement of Cash Flows formats:
Horizontal
Vertical
Example of a Horizontal Example of a Vertical Balance

Balance Sheet Sheet
Income Statement Example of Income Statement
Depicts the revenue and expenses for a

designated period of time.
Net income (or net loss) is simply the
difference between revenues and
expenses.
Statement of Cash Flows Balance Sheet Equation
Depicts the ways cash has changed Assets – Liabilities = Proprietor's Capital
during a designated period of time. Horizontal format balance sheet is an
expansion of this form of the accounting
equation
Assets = Proprietor's Capital + Liabilities
Assets Assets
Assets are economic resources that are

owned by the business and are expected
to provide positive future cash flows.
Types of Assets Types of Assets
Fixed Assets Current Assets

Any tangible or intangible asset acquired on Assets which are expected to be realised in
a long-term basis to be used in providing a the normal course of trading
service to the business Disclosed in the balance sheet with least
Not held for resale in normal course of liquid asset first e.g. Stock, debtors
business e.g. land and buildings, plant and
machinery
Liabilities Liabilities
Liabilities are debts that represent

negative future cash flows for the
enterprise.
Types of Liabilities Owners’ Equity
Long-term liabilities Owners’ equity represents the owner’s

Payable more than 12 months after the claim to the assets of the business.
balance sheet date e.g. loan
Current liabilities
Payable within 12 months of the balance
sheet date e.g. creditors, bank overdraft
Owners’ Equity Changes in Owners’ Equity
Understanding Income The Concept of the Business

Statement Entity
According to this concept, a business
entity is separate from the personal
affairs of its owner..
Revisiting Accounting Relationships Among Financial
Equation Statements
Accounting Year
Financial Accounting Scenario involves a company ABC Ltd.
Double Entry Bookkeeping (The company sells clothing items)
12 months, but not necessarily coinciding with calendar

year.
Define a period for which accounting books are maintained

and summarized for yearly financial statements.
© SmartClasses.com 2007 Student Notes for Financial Accounting © SmartClasses.com 2007 Student Notes for Financial Accounting
Financial Statements Scenario involves ABC LTD.

A company is into clothing business
Trading and Profit & Balance Sheet Assets: Owned by ABC Liabilities: Owed by ABC
Loss Account Fixed Assets Long-term liabilities
• Material things owned • Loans taken by ABC
Summary of Income A snapshot of the by ABC Ltd. that gives Ltd. that are repayable
(Sales plus any other Assets, Liabilities and it benefit in a period in more than one
income) and Capital exceeding one accounting period
Expenses accounting period Short-term liabilities
Confirm to Accounting
Current Assets • Overdraft
Highlight Profit or equation:
• Cash • Accruals: Unpaid bills
Loss generated for an
• Stock or inventory • Creditors: Businesses
accounting period
• Debtors: Businesses to whom ABC Ltd.
that owe money to owes money
ABC Ltd.
Accounting Equation
Assets = Liabilities + Capital
Duality Concept in recording

Recording of a transaction
accounting transactions
Monetary transaction in day to day Recorded in ledgers – that are accounts
business at ABC Ltd. would involve: created for each of the asset, liability,
Buying of assets for cash or credit income and expense
Selling of assets for cash or credit
A ledger has two sides for accounting entry
Creates a two-sides to a transaction in
any of the four combinations: Each transaction will either impact its Debit
Side or its Credit Side
Assets increase Assets decrease
Cash decreases Cash increases Left Side Right Side
Assets increase Assets decrease
Debit Side Credit Side
Creditors increase Debtors increase
(expressed as Dr) (expressed as Cr)
1
A typical ledger format Impact on ledger
Debit side is Credit side is

Dr Name of the account Cr impacted when impacted when
For example: Cash; Plant & Machinery; Sales increase in: increase in:
Date Details £ Date Details £
Assets Liability
Expenses Income
Drawings (money Capital (money
withdrawn by owner invested by the owners
from the business for into the business at the
personal reasons. The start or during the
action decreases course of business)
Capital)
Recording a cash transaction Recording a cash transaction

TRANSACTION ONE: On 1 Jan 2008: ABC Ltd. was incorporated with investment TRANSACTION TWO: On 1 Jan 2008: ABC Ltd. purchased computers
of £ 50000.00 from its owner. Money deposited into company bank account. by paying cheque of £ 4750.00
Account Ledger impacted: Bank Account of ABC Ltd. Account Ledger impacted: Bank Account
Dr Bank Account Cr Dr Bank Account Cr
£ £
Increase in cash (current assets) Decrease in cash (current assets)
01-01-08 Capital 50000.00 01-01-08 Computers 4750.00
hence debit entry hence credit entry
Account Ledger impacted: Capital Account of Owner Account Ledger impacted: Computer Account
Dr Capital Account Cr Dr Computer Account Cr
£ £
Increase in capital hence credit entry 01-01-08 Bank 50000.00 Bank 4750.00
01-01-08 Increase in fixed assets hence debit entry
Recording a cash transaction Recording a cash transaction

TRANSACTION THREE: On 5 Jan 2008: ABC Ltd. purchased stationery items TRANSACTION FOUR: On 6 Jan 2008: ABC Ltd. sold clothing items
by paying cheque of £ 250.00 to their supplier. And received cash of £ 2500.00
Account Ledger impacted: Bank Account Account Ledger impacted: Bank Account
Dr Bank Account Cr Dr Bank Account Cr
£ £
Decrease in cash (current assets) Increase in cash (current assets)
05-01-08 Stationery 250.00 06-01-08 Sales 2500.00
hence credit entry hence debit entry
Account Ledger impacted: Office Stationery Account Account Ledger impacted: Sales Account
Dr Office Stationery Account Cr Dr Sales Account Cr
£ £
Bank 250.00 Increase in expenses hence debit entry Increase in income (sales) hence credit entry 06-01-08 Bank 2500.00
05-01-08
2
Recording a credit transaction Recording a credit transaction
TRANSACTION FIVE: On 10 Jan 2008: ABC Ltd. purchased fabric (raw material) TRANSACTION SIX: On 12 Jan 2008: ABC Ltd. sold clothing items
worth £ 4500.00 from its regular supplier Joe Ltd. Payment to be made in 60 days. worth £ 1750.00 to their regular client Malcolm Ltd. Payment due in 30 days.
Account Ledger impacted: Purchases Account Account Ledger impacted: Sales Account
Dr Purchases Account Cr Dr Sales Account Cr
£ £
Increase in stock (current assets)
10-01-08 Joe Ltd. 4500.00 Increase in income hence credit entry 12-01-08 Malcolm Ltd. 1750.00
hence debit entry
Account Ledger impacted: Joe Ltd. Account Account Ledger impacted: Malcolm Ltd. Account
Dr Joe Ltd. Account Cr Dr Malcolm Ltd. Account Cr
£ £
Increase in creditors (current liabilities) 4500.00 Increase in debtors (current assets)
hence credit entry
10-01-08 Purchases 12-01-08 Sales 1750.00
hence debit entry
Balancing the ledger accounts Balances – The Importance

END OF MONTH: All ledgers are balanced by making the Debit and the Credit
sides EQUAL in the particular ledger account on last day of the month. Balance c/f Balance b/f
Balancing the Bank Account ledger Is an asset or a Is an asset or a
Dr Bank Account Cr liability at the END liability at the
£ £ of the accounting beginning of the
01-01-08 Capital 50,000.00 01-01-08 Computers 4,750.00
period. NEXT accounting
05-01-08 Stationery 250.00
06-01-08 Sales 2,500.00 31-01-08 Balance c/f 47,500.00
period.
Total 52,500.00 Total 52,500.00
01-02-08 Balance b/f 47,500.00
Balance carried forward (c/f) is the amount that makes the smaller side
(debit OR credit) equal to the larger side.
Balance brought forward (b/f) is the starting balance on the first day
of the new month.
Opening Balances Other accounts & transactions
Asset account Liability account Debit Side Credit Side

Will always have a Will always have a Sales returns - Purchases returned –
DEBIT entry CREDIT entry inwards (loss) outwards (gain)
Discounts allowed Discounts received
Expense account Income account
Carriage Inwards VAT (Unpaid tax received
Will always have a Will always have a Overheads as component of Gross
DEBIT entry CREDIT entry (expenses paid such Selling Price)
as salaries; utilities; Sales (cash or credit)
advertising, carriage Creditors
outwards)
Debtors
3
Session Objectives
Topic 8 Define non-current assets
Recognise the difference between current and non-
current assets
Non-current Assets Explain the difference between capital and revenue
items
Classify expenditure as capital or revenue
expenditure
Prepare ledger entries to record the acquisition and
disposal of non-current assets
Session Objectives Session Objectives

Record profits or losses on disposal of non-current Explain the purpose and function of an asset
assets in the income statement including part register
exchange transactions Understand and explain the purpose of depreciation
Record the revaluation of a non-current asset in Calculate the charge for depreciation using straight
ledger accounts, the statement of comprehensive line and reducing balance methods
income and in the statement of financial position Identify the circumstances where different methods
Calculate the profit or loss on disposal of a revalued of depreciation would be appropriate
asset Illustrate how depreciation expense and
Illustrate how non-current asset balances and accumulated depreciation are recorded in ledger
movements are disclosed in financial statements accounts
Characteristics of Non-current
Session Objectives
Assets
Calculate depreciation on a revalued non-current
asset including the transfer of excess depreciation Long term in nature
between the revaluation reserve and retained
earnings Not normally acquired for resale
Calculate the adjustments to depreciation necessary Could be tangible or intangible
if changes are made in the estimated useful life Used to generate income directly or
and/or residual value of a non-current asset
indirectly
Record depreciation in the income statement and
statement of financial position Not normally liquid asset
Capital Expenditure Revenue Expenditure
Expenditure on acquisition of Non- Expenditure incurred for carrying on the

current assets for use in business day-to-day operations of the
Expenditure on increasing the earning organisation.
capacity of existing assets. Expenditure on current assets
Expenditure incurred for a long term that Expenses for maintaining the earning
creates an asset with value capacity
Examples: New machineries purchased, Examples : Salaries paid to employees,
renovation of buildings, purchase of furniture expenditure on rent incurred, interest
and fixtures, purchase of computer payments, administrative expenses, sales
equipment and office vehicles commissions etc.
Non-current Assets Registers Non-current Assets Registers
Records of individual tangible Non- The details include:

current assets held by the business. Cost, Date of Purchase
Function of the Register is to control Description of Asset, Serial / reference
Non-current assets and keep a track of number
them Location of asset
Depreciation method, Expected useful life
Net book value
Acquisition of Non-current Acquisition of Non-current

Assets Assets
Cost of Non-current asset = Amount Entry to record purchase of asset:
incurred to acquire the Non-current asset Dr. Non-current asset
and bring it to working condition (Non-current Asset = Real account: Debit what
Cost includes: comes in)
Purchase price + Delivery cost + Legal fees Cr. Bank / Cash / Creditors
+ Subsequent expenditure which enhances
(Bank and Creditors: Personal account: Credit
the asset
the giver)
Cost DOES NOT include revenue
expenditure such as repairs or renewals or A separate account should be kept for
repainting cost each category of Non-current asset.
Subsequent Expenditure which
Depreciation
Enhances the Asset
This expenditure can only be recorded According to IAS 16, depreciation is
as a part of the cost or capitalised if it
enhances the benefits of the asset. “the measure of the cost or revalued
Example includes: extension to a shop amount of the economic benefits of the
building. However, repair work does not form
a part of this expenditure. tangible non-current asset that has been
consumed during the period”
Methods of Calculating
Causes of Depreciation
Depreciation
Use Straight line method
Physical wear and tear Reducing balance method
Passing of time
Obsolescence through technology and
market changes
Depletion
Straight Line Method Straight Line Method
Depreciation charge is the same each Depreciation charge = (Cost – Residual

year as the assumption is that the value) / Useful economic life
benefit is consumed evenly over the life Residual value or scrap value or salvage
of the asset value = Estimated disposal value of the
Useful for assets which provide equal asset. Often this value is zero
benefit each year e.g. machinery Useful economic life = Estimated number
of years during which the business will
use the asset
Reducing Balance Method Accounting for Depreciation
Reducing amount of depreciation is Dr Depreciation Expense

charged each year Cr Accumulated depreciation
Useful for assets which provide more
benefit in the earlier years e.g cars Reduce the balance sheet value of the Non-
Depreciation charge = X% x Net Book current asset by cumulative depreciation to
reflect the wearing out.
Value (NBV)
Record the depreciation charge as an
NBV = original cost – accumulated expense in the income statement to match
depreciation the revenue generated by the Non-current
asset.
Consistency and Subjectivity
Disposal of Non-current
When Accounting for
Depreciation Assets
IAS 16 Property, Plant and Equipment Profit / loss on disposal
requires the following: An accounting profit or loss will arise on the
• Depreciation method should be reviewed disposal of Non-current asset.
at each year end and changed if the If:
method used no longer reflects the • Proceeds > NBV (at disposal date) PROFIT
pattern of use of the asset • Proceeds < NBV (at disposal date) LOSS
• Residual value and useful economic life • Proceeds = NBV (at disposal date) NEITHER
should be reviewed at each year end and PROFIT NOR LOSS
changed if expectations differ from
previous estimates
Disposal for Cash Disposal for Cash

Consideration Consideration
Step 1: Remove the original cost of the Non- Step 2: Remove Accumulated depreciation on
current asset from the Non-current asset the Non-current asset from accumulated
account depreciation account.
Dr. Disposals (Original cost) Dr. Accumulated Depreciation
Cr. Non-current assets (Original cost) Cr. Disposals
Step 3: Record the cash proceeds

Dr. Cash (proceeds)
Cr. Disposals (proceeds)
Disposal for Part-Exchange
Agreement
Step 1: Remove the original cost of the Non-
current asset from the Non-current asset
account
Dr. Disposals (Original cost)
Cr. Non-current assets (Original cost)
Step 2: Remove Accumulated depreciation on
the Non-current asset from accumulated
depreciation account.
Dr. Accumulated Depreciation
Cr. Disposals
Disposal for Part-Exchange

Agreement
Step 3: Record the part-exchange
allowance (PEA) as proceeds:
Dr. Non-current assets (Part of cost of new
asset)
Cr. Disposal (Sale proceeds of old asset)
Step 4: Record the cash paid for new
asset
Dr. Non-current assets (Cash)
Cr. Cash (Cash)
Revaluation of Non-current Depreciation of a Revalued
Assets Asset
Business may need to revalue assets The charge for depreciation should be
to present the revalued amounts in the based on the revalued amount and the
balance sheet. remaining useful life of the asset
The difference between the NBV and This charge will be higher than
the revalued amount is shown as depreciation prior to the revaluation
revaluation reserve in the balance
sheet
The gain is not recorded in the income
statement as it is unrealised gain
Depreciation of a Revalued
Asset
The excess of the new depreciation
charge over the old depreciation charge
should be transferred from the
revaluation reserve to the accumulated
profits
This is done within the capital section of
the balance sheet
Dr. Revaluation reserve
Cr. Accumulated profits
© accountingclassroom.com 2008 Student Notes for ACCA F3-Financial Accounting

Session Objectives
Topic 10 Identify and explain the function of the main data
sources in an accounting system
Books of Prime Entry and Outline the contents and purpose of different types
Control Accounts of business documentation
Understand the basic function and form of
accounting records in a typical manual system
Understand the purpose of control accounts for
accounts receivable and accounts payable
Understand how control accounts relate to the
double-entry system
© SmartClasses.com 2007 Student Notes for ACCA F3-Financial Accounting © SmartClasses.com 2007 Student Notes for ACCA F3-Financial Accounting

Prepare ledger control accounts from given Understand the need for a record of petty cash
information transactions
Perform control account reconciliations for accounts Describe the features and operation of a petty cash
receivable and accounts payable imprest system
Identify errors which would be highlighted by Account for petty cash using imprest and non-
performing a control account reconciliation imprest methods
Identify and correct errors in control accounts and Understand the importance of, and identify controls
ledger accounts and security over the petty cash system
Record cash transactions in ledger accounts
Business Documentation Business Documentation
Quotation: Asking price. Used for establishing price Delivery Note (Goods Delivery Note): A written
from various suppliers document from the seller to the buyer that
Purchase order: A written authorization prepared accompanies a delivery of goods and specifies type
by a buyer for the purchase of goods or services at of goods and quantity.
a specified price. Purchase Invoice: Produced by company receiving
Sales order: An order received by a business from the goods as a proof of receipt.
a customer. A sales order may be for products Credit Note: A monetary instrument issued by a
and/or services. seller that allows a buyer to purchase an item or
service from that seller on a future date.
Business Documentation Books of Prime Entry

Debit Note: Note to a person or a company Sales Day Book – Recording credit sales
signifying an amount owed. Although it is very Purchases day book - Recording credit purchases
similar to an invoice, the invoice always represents
sales, whereas a debit note is used for deducting Sales returns day book – Recording sales returns
money without a sale being made. Purchases returns day book - Recording
Remittance Advice: A statement sent to providers purchases returns
showing that claims were processed and the Cash book - All cash / bank transactions
amount for which the beneficiary is responsible. If Petty cash book – All small cash transactions
denied, an explanation of denial is provided. Journal – All transactions not recorded elsewhere
Receipt: Details of payments received
Ledger Accounts Sales Day Book Format
General ledger – Contains all accounts or a
summary of all accounts necessary to produce the
trial balance and financial statements
Accounts receivables ledger- Contains an
account for each credit customer. An account to
summarise this information , Sales ledger control
account, is normally contained in the General ledger
Accounts payable ledger- Contains an account for
each credit supplier. An account to summarise this
information , Purchase ledger control account, is
normally contained in the General ledger
Sales Day Book Double Entry Sales Day Book Double Entry
Double entry will depend on whether individual Sales Ledger Control Account part of double
accounts are maintained in individual ledger or entry:
sales ledger control account in general ledger Dr. Sales Ledger Control Account $14,500
Cr. Sales $14,500
Individual accounts part of double entry:
Dr. Sam $4500 Each entry also posted to individual memorandum
Dr. John $10,000 accounts in accounts receivable ledger
Cr Sales $14,500
(Total sales posted to sales ledger control account)
Purchases Day Book, Sales
Returns Day Book, Purchases Sales Returns Day Book
Returns Day Book
Individual accounts Control accounts
Format is similar to that of sales day book. part of double entry part of double
Individual accounts Control accounts entry
part of double entry part of double Sales returns Dr Sales Returns Dr Sales Returns
entry day book Cr Individual accounts in Cr Sales ledger control
Dr. Purchases Dr. Purchases accounts receivables ledger account
Purchases Day
Book Cr. Individual Accounts in Cr. Purchase ledger
accounts payable ledger control account Total returns posted to
sales ledger control account Each entry posted to
Total purchases posted Each entry also posted individual memorandum
to purchases ledger control to individual accounts in accounts
memorandum accounts receivable ledger
account
in accounts payable
ledger
Purchases Returns Day Book Control Accounts
Individual accounts Control accounts Sales Ledger Control Account

part of double entry part of double
entry Purchases Ledger Control Account
Purchases Dr. Individual accounts in Dr. Purchase ledger
accounts payable ledger control account
returns day
Cr. Purchases returns Cr. Purchases returns
book
Total returns posted to Each entry posted to
purchases ledger control individual memorandum
account accounts in accounts
payable ledger
Sales Ledger Control Account Purchases Ledger Control
Format Account Format
Contra Entries Cash Book
These are entries made when a All transactions involving cash and bank
customer is also a supplier. are recorded in cash book.
Many businesses may have separate
books for cash receipts and cash
Dr. Purchase ledger control account
payments
Cr. Sales ledger control account
A note of cash discounts is also made in
the cash book
Individual receivables and payables Businesses generally use a columnar
must also be updated to reflect this. format of cash book
Petty Cash Book Imprest System
All transactions involving small amounts are Step 1: Business decides on an amount to be held
as a float
recorded in the petty cash book Dr. Petty Cash
Cr. Bank
Petty cash is maintained using Imprest
Step 2: As petty cashier makes payments he
System records them in the petty cash book. All
expenditure must be evidenced by an expense
receipt
Step 3: Cheque is drawn to return the petty cash to
the original float level
Float = Cash in petty cash box + Sum total of expense
vouchers since last disbursement
Session Objectives
Topic 9 Identify the purpose of a trial balance
Extract ledger balances into a trial balance
From Trial Balance to
Prepare extracts of an opening trial balance
Financial Statements Identify and understand the limitations of a trial
balance
Illustrate process of adjusting the financial
statements for accruals and prepayments,
depreciation, irrecoverable debts and allowances for
receivables
Trial Balance Purpose of Trial Balance

Trial balance is a statement of general Check that for every debit entry there is an
ledger accounts that enables an accountant equal credit entry
to confirm whether amounts debited equal It is the first step towards preparation of
amounts credited. financial statements
Limitations of Trial Balance Adjustments Required
Trial balance does not identify all the errors. Closing inventory
It does not identify where those errors have Depreciation
been made or what those errors are Accruals
Prepayments
Irrecoverable Debts
Allowance for Receivables
Adjustments Entry for Closing Adjustments Entry for

Inventory Depreciation
Dr. Depreciation Expenses (Income Statement)
Dr. Inventory (Balance Sheet) Cr. Accumulated Depreciation (Balance Sheet)
Cr. Cost of Sales (Income Statement)
Adjustments Entry for Adjustments Entry for
Accruals Prepayments
Dr. Expenses (Income Statement) Dr. Prepayments (Balance Sheet)
Cr. Accrual (Balance Sheet) Cr. Expenses (Income Statement)
Adjustments Entry for Adjustments Entry for

Irrecoverable Debts Allowance for Receivables
Dr. Irrecoverable debt (Income Statement) Dr. Irrecoverable debt (Income Statement)
Cr. Receivables (Balance Sheet) Cr. Allowance for Receivables (Balance Sheet)
Session Objectives
Topic 7 Identify the benefits and costs of offering
credit facilities to customers
Irrecoverable Debts and Understand the purpose of an aged
Allowances for Receivables receivables analysis
Understand the purpose of credit limits

Prepare the bookkeeping entries to write off a bad Prepare the bookkeeping entries to create and
debt adjust an allowance for receivables
Record a bad debt recovered Illustrate how to include movements in the
Identify the impact of bad (irrecoverable) debts on allowance for receivables in the income statement
the income statement and on the statement of and how the closing balance of the allowance
financial position sheet should appear in the statement of financial position
Provision of Credit Facilities Aged Receivables Analysis
Benefits: It is an analysis usually in the form of a

Enable businesses to enter new markets list, ordered by name, showing how
Possibility of increased sales much each customer owes and how old
Encourages customer loyalty their debts are
Costs It is used for keeping track of
Can prove costly to the business outstanding debts and follow up any that
May adversely affect the business cash flow is overdue
Potential risk of irrecoverable debts
Important Terms Associated

Accounting Entries: Cash Sale
with Debts
Irrecoverable debt: Debt unlikely to be When the sale is made
received from the customer Dr. Cash account
Doubtful debt: Debt where there is Cr. Sales account
some doubt whether a customer can or
will pay his debt
Allowance for receivables: An
allowance created on doubtful debts
Accounting Entries: Credit Accounting for Irrecoverable
Sale Debts Recovered
When the sale is made When the debt is written off
Dr. Receivables account Dr. Irrecoverable debt or Bad debt
Cr. Sales account Cr. Receivables account
On settlement of amount due When recoverable debt is recovered
Dr. Cash account Dr. Cash account
Cr. Receivables account Cr. Irrecoverable debt or Bad debt
If amount becomes irrecoverable
Dr. Irrecoverable debt or Bad debt
Cr. Receivables account
Accounting for Allowance for

Allowance for Receivables
Receivables
Specific allowance: For Setting up allowance
Allowance for debts where the customer is
known to be in financial difficulties and is Dr. Irrecoverable debts expense account
disputing their invoice or is refusing to pay
Cr. Allowance for receivables account
General Allowance:
A general allowance for receivables expected to
be irrecoverable.
Movement in the Allowance Movement in the Allowance
for Receivables for Receivables
Write irrecoverable debts Multiply the remaining receivables balance
Calculate receivables balance as adjusted by general allowance percentage
for write offs Thus,
Ascertain specific allowance % (Closing receivables – Irrecoverable debts –
Specific allowance)
Deduct debt specifically allowed for
Add the specific and general allowances
Compare with brought forward allowance
Account for change in allowance
In Case of Existing
Allowance
• Charge only the movement in the profit to
the profit and loss account
closing allowance – opening allowance
© accountingclassroom.com 2008 Student Notes for ACCA F3-Financial Accounting

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Financial Elements

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Session Objectives

Session Objectives What are Financial Statements

Describe the accounting equation “Reports that quantitatively summarize

Balance sheet Describes where the enterprise stands at

Example of a Horizontal Example of a Vertical Balance

Depicts the revenue and expenses for a

Statement of Cash Flows Balance Sheet Equation

Assets are economic resources that are

Types of Assets Types of Assets

Fixed Assets Current Assets

Liabilities are debts that represent

Types of Liabilities Owners’ Equity

Long-term liabilities Owners’ equity represents the owner’s

Understanding Income The Concept of the Business

12 months, but not necessarily coinciding with calendar

Define a period for which accounting books are maintained

Financial Statements Scenario involves ABC LTD.

Duality Concept in recording

Debit side is Credit side is

Recording a cash transaction Recording a cash transaction

Recording a cash transaction Recording a cash transaction

Dr Office Stationery Account Cr Dr Sales Account Cr

Balancing the ledger accounts Balances – The Importance

01-02-08 Balance b/f 47,500.00

Opening Balances Other accounts & transactions

Asset account Liability account Debit Side Credit Side

Session Objectives Session Objectives

Capital Expenditure Revenue Expenditure

Expenditure on acquisition of Non- Expenditure incurred for carrying on the

Records of individual tangible Non- The details include:

Acquisition of Non-current Acquisition of Non-current

Depreciation charge is the same each Depreciation charge = (Cost – Residual

Reducing Balance Method Accounting for Depreciation

Reducing amount of depreciation is Dr Depreciation Expense

Disposal for Cash Disposal for Cash

Step 3: Record the cash proceeds

Disposal for Part-Exchange

© accountingclassroom.com 2008 Student Notes for ACCA F3-Financial Accounting

Session Objectives Session Objectives

Business Documentation Books of Prime Entry

(Total sales posted to sales ledger control account)

Purchases Returns Day Book Control Accounts

Individual accounts Control accounts Sales Ledger Control Account

Contra Entries Cash Book

Trial Balance Purpose of Trial Balance

Adjustments Entry for Closing Adjustments Entry for

Adjustments Entry for Adjustments Entry for

Session Objectives Session Objectives

Benefits: It is an analysis usually in the form of a

Important Terms Associated

Accounting for Allowance for

closing allowance – opening allowance

© accountingclassroom.com 2008 Student Notes for ACCA F3-Financial Accounting

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