International Stream Preparing Financial Statements

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Accounting is a practical subject and there is no real substitute for practising the skills you learn on this course. As you eventually sit an exam we have included quite a few questions in the course so that you can practice the skills utilising the method used in the exam. However, anything you do at work will also help in developing the skills which form the foundation of future papers.

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Nội dung Text: International Stream Preparing Financial Statements

International Stream Preparing Financial Statements Part 1 Paper 1.1 Study Text Edition June 2005 AH05 –1.1 INTERNATIONAL © BPP Professional Education 2005 FOR EXAMS IN DECEMBER 2005 AND JUNE 2006
We want to help you pass. Your BPP team for Paper 1.1 Preparing Financial Statements (International Stream) Mary Maclean Katy Hibbert Janice Ross We are here to answer the technical and study queries that you have as you progress through the course. We will always reply to you promptly. E-mail us on accaqueries@bpp.com or fax us on 020 8740 2293. Alternatively call us during working hours on 020 8740 2242 or 020 8740 2245, or leave a voice message on our overnight message service. Please help us to save both you and BPP time by giving us details of which paper you are studying, which piece of material you are using, such as Study Text, Revision Kit or Passcards, and which page or question number you are looking at. Give us details of who you are and your work and home numbers. Tell us if there are any times we will not be able to reach you. If you have any course administration queries, such as amending exam submission dates, then please call 020 8740 2233. We look forward to seeing you progress through the course.
Study Text Edition: June 2005 PREPARING FINANCIAL STATEMENTS 1 Introduction This Home Study course will guide you through the June 2005 edition of the BPP Study Text. This June 2005 edition is for exams in December 2005 and June 2006. If your Study Text does not have that date on the back cover, please contact BPP. 2 Using the BPP Home Study (a) The Study Programme is made up of 27 Study Periods, which BPP has graded as high, medium or low priority, based upon guidance from ACCA and the examiners. Each Study Period consists of the following elements. (i) Exam Guidance This gives an introduction to each Study Period by explaining the emphasis that the examiner has placed on the topics to be covered on the basis of the pilot paper, past exams and discussions with BPP authors and tutors. (ii) Guidance through the Study Text Here you are given important instructions on how to work through the BPP Study Text. You must follow the guidance in this table for time effective study, as you will be told which areas of each chapter must be worked through in detail and which can be skimmed over. The table contains essential points, summarising the most vital areas of the Study Period. (iii) Were you awake? These are brief questions on the essential points, designed to test whether you were concentrating. You MUST get these questions right! If not you'll need to go back and study the material again. There is space for you to add your own notes as you study the Text. (iv) Common Pitfalls To help your question practice and revision, we give you guidance on the most common mistakes made by students on key areas. (v) Learning Resource Centre For further help with study and revision, we refer you to the relevant sections on BPP's i-Pass CD-ROM and BPP's i-Learn CD-ROM. Each Study Period should take about 2½ hours. There is an overview of all Study Periods, on page (v), which can be used to set up a timetable. The annotated Study Programme will become a key document in your revision phase. (i)
Study Text Edition: June 2005 (b) Some of the Study Periods are 'progress tests' which assess the work done on a limited number of Study Periods. You should mark the tests yourself using the solutions at the end of the Study Programme. (c) You also have two Course Examinations. These should be attempted at the point suggested within the Study Programme (they cover all preceding Study Periods) and sent to BPP for marking. You will receive a detailed analysis of your performance, together with suggested solutions, which should help your exam technique as well as pointing out strengths and weaknesses in your understanding. To help you plan your study time, BPP will send you separately an Exam Timetable with recommended dates for submission of the exams. Should these dates prove impractical, please feel free to amend them to suit your own planned schedule. However the date given for Course Exam 2 is the latest date by which we can guarantee to get the scripts back in time for the exams. To gain the greatest benefit from the exams, you must set aside a period of three hours during which you will have no interruptions. By submitting these exams, you will increase your chances of passing the real exams by 30%. (d) If you have any difficulty with your studies, e-mail us at accaqueries@bpp.com. Alternatively, please telephone, fax or write to the Customer Services Administrator at BPP who will pass your query to one of our authors and tutors. Please help us to save both your time and BPP time by giving us the following details about your query. • Paper name/number • Material reference and version (eg Study Text 2005, Revision Kit 2006) • Page or question number • A brief description of your query Remember to include your name, student number and a contact number if necessary. Please make your query as specific as possible. 3 BPP's i-Pass CD ROM Your home study course includes BPP's i-pass CD-Rom, which is designed to test knowledge and perfect exam technique. It enables you to attempt tests, making it an ideal revision tool. Paper 1.1 and 1.2 computer-based exams. BPP i-Pass for these two papers provides an exam-like environment with testing against the clock. Regular practice will ensure you're ready for the real thing. BPP i-Pass for 1.3 and Part 2 papers provides an opportunity to test and revise your knowledge of important syllabus areas. BPP i-Pass for Part 3 papers enable you to test and revise your knowledge - and your ability to apply this knowledge. (ii)
Study Text Edition: June 2005 i-Pass queries To help us answer any BPP i-Pass queries you have quickly and effectively, please follow the steps below. (This procedure is necessary as questions appear in a different order each time the CD is used). Step 1. With the question you wish to query on-screen, push the Print Scrn (Print Screen) button on your keyboard (usually located to the right of the F12 key). This will copy the image of the question to your computer's 'clipboard'. Step 2. Start Microsoft Word. (You can do this while i-Pass is running – click on the start button, then select Microsoft word from the programs option.) Step 3. Paste the image from the clipboard into a new Word document. Do this by selecting Edit, Paste – or by using the Paste button on the Word toolbar. Step 4. Save the document with a meaningful name, eg iPass_Paper1.2_query.doc (or better still use the number referred to in Step 5 below in the document name, excluding the /s). Step 5. E-mail the document, with details of your query, to accaqueries@bpp.com. If you make contact by phone, the person dealing with your query will ask you to e-mail or post a copy of the document to them. If possible, in the detail of your query please include the reference number that appears very faintly on-screen in the white area below the 'Exit' option - for example 02/CO/0134. 4 Learning to Learn Accountancy Whether you are about to start your studies or continuing them, BPP's Learning to Learn Accountancy will help you learn efficiently and effectively. It also provides essential guidance on dealing with your exam. If you did not request this when ordering your Home Study Course you should contact Customer Services on 0845 0751 100 (UK only, local rate) or +44 (0)20 8740 2233 if calling from outside the UK. (Only one copy per student – it can be used again and again throughout your course.) 5 Revising with the BPP Home Study Course For your revision phase, your Home Study Course includes the following. (a) The BPP Practice and Revision Kit, which contains past paper questions and other useful practice questions. The Kit also contains Revision Guidance which highlights the key questions to attempt to maximise your chances of exam success. (b) The Study Programme, where the Essential Points and Common Pitfalls will serve as a reminder of the work you did in each Study Programme. (c) The BPP Passcards, which give short summaries of the content of each chapter of the Text. Revision should not start until you have completed your second course examination. (iii)
Study Text Edition: June 2005 6 Feedback The success of BPP's courses has been built on what you the students tell us. Towards the end of your course you will be sent a feedback form to complete and return. If you have any issues or ideas before you are given the form to complete, please contact the course administrator, on 0845 0751 100 (UK only, local rate) or +44(0)20 8740 2233 (overseas) or via e-mail at accaqueries@bpp.com. 7 Overview of Preparing Financial Statements The paper aims to test your ability to: • Describe the role and function of external financial reports and identify their users • Explain the accounting concepts and conventions present in generally accepted accounting principles • Record and summarise accounting data • Maintain records relating to fixed asset acquisition and disposal • Prepare basic financial statements for sole traders, partnerships, incorporated enterprises and simple groups • Appraise financial performance and the position of an organisation through the calculation and review of basic ratios • Demonstrate the skills expected in Part 1 How to use your Study Text The cornerstone of your studies is the BPP Study Text. The front pages give essential guidance on how to use the Text and vital information on study skills. Before you go any further, look at the front pages of your Study Text. They are there to help. Step 1 Read the section: Help yourself study for your ACCA exams. Read and apply the study skills section. Consider your style of learning and try to develop a personal study plan. Step 2 Look at the syllabus, to see what you're up against. Step 3 Look at the topics that have been examined in the past, in our analysis of past papers. (iv)
Study Text Edition: June 2005 STUDY PERIOD PLANNER Use this schedule and your exam timetable to plan the dates on which you will complete each study period. The letters 'H' ‘M’ and 'L' tell you whether the topic is high, medium or low priority. Detailed guidance and prioritisation of each study period begins on page 2. Study Topic Due Date Study Topic Due Date Period Period 1 Introduction to H 17 Accounting H accounting conventions and standards 2 The accounting M equation 18 Incomplete records H 3 Basic financial H 19 Limited liability H statements companies 4 Sources, records and M 20 Progress Test 2 H the books of original entry COURSE EXAM 1 5&6 Ledger accounting H and double entry A practice exam covering Study Periods 1–20. 7 From trial balance to H financial statements Study Topic Due Date 8 The cost of goods H Period sold, accruals and prepayments 21 Partnership accounts M 9 Bad debts and H 22 Cash flow statements H allowances 23 & 24 Interpretation of H 10 Accounting for H financial statements inventories 25 The IASB and M 11 Non-current assets H financial reporting and depreciation 26 Group accounts H 12 Progress Test 1 H 27 Progress Test 3 H 13 Bank reconciliations M 14 Control accounts H COURSE EXAM 2 15 Correction of errors M A mock exam covering the whole syllabus. 16 Computer L applications in accounting REVISION PHASE Your revision, using the questions and revision guidance in the BPP Passcards and the BPP Practice and Revision Kit, will begin when Course Exam 2 is complete. This should, at the latest, be four weeks before the final exam. (v)
Study Text Edition: June 2005 (vi)
APPROACHING PREPARING FINANCIAL STATEMENTS The paper develops the foundations of accounting techniques and places particular emphasis on: • The operation of financial accounting systems • Preparing simple financial statements • Understanding the main components of company accounts • Preparing a simple consolidated balance sheet The subject areas which are most frequently examined include, the preparation of final accounts, particularly limited companies, application and explanation of accounting standards and the usefulness of financial reporting. It is important that, even at this stage, you keep up to date with developments in financial reporting. The Student Accountant magazine provides a good source of articles on developments and current issues, some of which may be written by this subject’s examiner. Accounting is a practical subject and there is no real substitute for practising the skills you learn on this course. As you eventually sit an exam we have included quite a few questions in the course so that you can practice the skills utilising the method used in the exam. However, anything you do at work will also help in developing the skills which form the foundation of future papers. 50% of the marks available on this paper are for 25 multiple choice questions (MCQs) which will cover the whole syllabus. The remaining 50% of the total marks are for 5 compulsory questions. There will be an element of computation but knowledge will also be tested using discursive questions. The examiner has specifically said that candidates perform less well on these types of question so make sure you spend time practising these as well as computational questions. For the computational style questions concentrate on presentation, learn all the relevant proformas and always remember to cross reference your working to the solutions. Examination dates The cross references to the examination dates are to the ten mark compulsory questions only. You can assume that every topic has been examined via MCQs in the Pilot Paper and examinations set to date. 1
Study Period 1 Introduction to accounting Priority = High Date due: Exam Guidance This Study Period covers some basic background information to set you up in your studies, together with important knowledge for any written questions. Exam focus point This chapter covers basic background knowledge. It may be examined by a MCQ or as part of a ten mark written question eg users of financial statements and their needs. Guidance through the Study Text These topics are covered in Chapter 1 Introduction to accounting. Section Approach Essential points Purpose of accounting Definition of accounting; 1 Read through carefully. information users of financial statements The main financial Pay particular attention, as it is Composition of published 2 statements essential background information. financial statements Nature, principles and 3 Work through quickly. scope of accounting The desirable qualities Learn the desirable features 4 Read through carefully. of accounting of useful accounting information information Work through quickly, we will 5 The regulatory system study this in detail in Chapter 24. Capital and revenue Difference between capital 6 Read through carefully. expenditure expenditure and revenue expenditure Try Questions 1 and 3 in the Exam Question Bank of your Study Text 2
Study Period 1 continued Were you awake? If you've been concentrating, you should be able to answer some key questions. Who are the users of financial information? What are the main financial statements? What are the desirable qualities of good accounting information? Expenditure on a desk is revenue expenditure. True or false? Common Pitfalls • Ignoring the needs of the different user groups • Confusing capital and revenue expenditure Any problems? Email (accaqueries @bpp.com) fax (020 8740 2293) or phone us (020 8740 2242/2245) Learning Resource Centre What do you want to do? How to do it! Reference Session 1: Intro and the Test your knowledge BPP i-Pass * regulatory framework Learn interactively BPP i-Learn/BPP Virtual Campus Module 1 BPP's Learning to Learn Improve your study skills Accountancy book * * Included within your Home Study course If you want any of these products, visit: www.bpp.com/acca 3
Study Period 2 The accounting equation Priority = Medium Date due: Exam Guidance The accounting equation may be needed for incomplete records questions (see Study Period 18). Exam focus point This equation will never form the basis of a whole exam question, but will form the background to most accounting problems. Guidance through the Study Text These topics are covered in Chapter 2 The accounting and business equations. Section Approach Essential points Assets and Definitions of assets and 1 Read through carefully. liabilities and the liabilities; business entity business entity convention The accounting Work through quickly, paying particular The accounting equation; 2 equation (or attention to the examples. nature of capital and balance sheet drawings (withdrawals on equation) account of profit) Payables and Learn the definitions of 3 Make sure you understand this receivables receivables and payables Try Question 2 in the Exam Question Bank of your Study Text 4
Study Period 2 continued Were you awake? If you've been concentrating, you should be able to answer some key questions. A business is always treated separately from its owners for accounting purposes. True or false? State the accounting equation. What are drawings (withdrawals of profit) and how are they treated? Give one example each of an asset, a liability, a receivable and a payable. Common Pitfall • Just learning the accounting equation, without knowing how to apply it in practice Any problems? Email (accaqueries @bpp.com) fax (020 8740 2293) or phone us (020 8740 2242/2245) Learning Resource Centre What do you want to do? How to do it! Reference Session 1: Intro and the Test your knowledge BPP i-Pass * regulatory framework Learn interactively BPP i-Learn/BPP Virtual Campus Module 1 BPP's Learning to Learn Improve your study skills Accountancy book * * Included within your Home Study course If you want any of these products, visit: www.bpp.com/acca 5
Study Period 3 Basic financial statements Priority = High Examined: 6/05 Date due: Exam Guidance You will usually be asked to produce an income statement or a balance sheet for a limited liability company (see Study Period 19). Therefore this study period is extremely important for your future studies. Exam focus point The June 2005 exam required the preparation of a balance sheet for a limited liability company. Guidance through the Study Text These topics are covered in Chapter 3 Basic financial statements. Section Approach Essential points 1 The balance sheet Read through carefully. Layout of the balance sheet The income statement Read through carefully. 2 Layout of the income statement 6
Study Period 3 continued Were you awake? If you've been concentrating, you should be able to answer some key questions. Give examples of current and non-current liabilities. What is a non-current asset? Give examples of three current assets. Common Pitfalls • Failure to learn the proforma layouts of the balance sheet and income statement • Failing to appreciate the differences between current and non-current assets, and current and non-current liabilities Any problems? Email (accaqueries @bpp.com) fax (020 8740 2293) or phone us (020 8740 2242/2245) Learning Resource Centre What do you want to do? How to do it! Reference Session 1: Intro and the Test your knowledge BPP i-Pass * regulatory framework Learn interactively BPP i-Learn/BPP Virtual Campus Module 2 BPP's Learning to Learn Improve your study skills Accountancy book * * Included within your Home Study course If you want any of these products, visit: www.bpp.com/acca 7
Study Period 4 Sources, records and the books of original entry Priority = Medium Date due: Exam Guidance Books of original entry form one of the bases of double entry bookkeeping and so you should gain a thorough understanding of this topic as background knowledge for your future studies. Exam focus point Books of original entry are often examined in MCQs. Guidance through the Study Text These topics are covered in Chapter 4 Sources, records and the books of original entry. Section Approach Essential points The role of source 1 Skim through quickly. documents The need for books 2 Work through quickly. of original entry Sales and purchase Format of sales and 3 Work through this very carefully. day books purchases day books 4 Cash books Pay particular attention to this section. Format of the cash book Try Questions 4 and 5 in the Exam Question Bank of your Study Text 8
Study Period 4 continued Were you awake? If you've been concentrating, you should be able to answer some key questions. What use are books of original entry? List the books of original entry and the transactions recorded in each. All sales are recorded in the sales day book. True or false? What is recorded in the cash book? Common Pitfall • Using the sales and purchase day books to record all sales and purchases. Only credit sales and purchases should be recorded Any problems? Email (accaqueries @bpp.com) fax (020 8740 2293) or phone us (020 8740 2242/2245) Learning Resource Centre What do you want to do? How to do it! Reference Session 2: Double entry, Test your knowledge BPP i-Pass * assets and liabilities Learn interactively BPP i-Learn/BPP Virtual Campus Module 3 BPP's Learning to Learn Improve your study skills Accountancy book * * Included within your Home Study course If you want any of these products, visit: www.bpp.com/acca 9
Study Periods 5 & 6 Ledger accounting and double entry Priority = High Date due: Exam Guidance Double entry is an essential topic to understand for the exam. For example, control accounts questions require the use of double entry in the answer. Two study periods have been scheduled for this section. Exam focus point The examiner likes to test double entry principles. Be prepared for questions that ask you to 'journalise' transactions to illustrate the double entry involved. Guidance through the Study Text These topics are covered in Chapter 5 Ledger accounting and double entry. Section Approach Essential points Why do we need 1 Read through this quickly. ledger accounts? The nominal 2 Skim read this section. ledger Double entry Work very carefully though this The dual effect behind double 3 bookkeeping section and make sure you entry bookkeeping: debits and understand the examples. credits 4 The journal Read through carefully. The use of the journal 5–6 Skim read these sections. The receivables Use of the receivables and payables 7 Read this carefully. and payables ledgers to show what each ledgers individual customer owes and what is owed to each individual supplier Accounting for a Work though this section slowly The accountancy treatment of 8 sales tax and make sure you understand input and output sales tax the principles involved. Try Questions 6. 7 and 8 in the Exam Question Bank of your Study Text 10
Study Periods 5 & 6 continued Were you awake? If you've been concentrating, you should be able to answer some key questions. What do debits and credits represent? What is the basis of the double entry system? Summarise the double entry for output sales tax. Summarise the double entry postings from the sales day book. Common Pitfalls • Confusing the receivables account in the nominal ledger with the memorandum receivables ledger (and similarly for the payables account/payables ledger) • Not appreciating that the receivables and payables ledgers are not part of the double entry system • Confusing input and output sales tax • Lack of understanding of the treatment of sales tax in the income statement and the balance sheet Any problems? Email (accaqueries @bpp.com) fax (020 8740 2293) or phone us (020 8740 2242/2245) Learning Resource Centre What do you want to do? How to do it! Reference Session 2: Double entry, Test your knowledge BPP i-Pass * assets and liabilities Learn interactively BPP i-Learn/BPP Virtual Campus Module 2 BPP's Learning to Learn Improve your study skills Accountancy book * * Included within your Home Study course If you want any of these products, visit: www.bpp.com/acca 11
Study Period 7 From trial balance to financial statements Priority = High Date due: Exam Guidance This is very important as exams at all levels in Financial Accounting involve preparation of final accounts from the trial balance. This chapter continues the fundamental principles of accounting and introduces you to the techniques you will employ in exam questions. Exam focus point Most accounts preparation questions will start with a trial balance or draft statements, which need to be adjusted for publication. There are usually several MCQs on the correction of errors. Guidance through the Study Text These topics are covered in Chapter 6 From trial balance to financial statements. Section Approach Essential points Read through this section very How to balance off accounts and 1 The trial balance carefully. prepare a trial balance The income Pay particular attention to this Learn the entries made to the 2 statement section. income statement Pay particular attention to this Pay particular attention to the 3 The balance sheet section. drawings and capital accounts Balancing accounts Work though the questions very Make sure that you understand 4 and preparing carefully. the answer to Question 3 and can financial statements reproduce the answer yourself without looking at the book. Try Questions 15, 19, and 20 in the Exam Question Bank of your Study Text 12