Elements of Financial Statements

Session Objectives
Topic 2
Elements of Financial
Statements
accountingclassroom.com 2008
Student Notes for ACCA F3-Financial Accounting
Session Objectives

Describe the accounting equation

Explain the matching convention and
duality concept
Draft simple financial statements
Explain the main elements of financial

statements
Describe the purpose of financial
statements
Identify the main types of business
transactions
What are Financial Statements

Reports that quantitatively summarize
the financial status of an organization for
a stated period of time. They include an
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
Income Statement
Statement of Cash Flows
Balance Sheet
Describes where the enterprise stands at

a specific date. It can be shown in two
formats:

Example of a Horizontal
Balance Sheet
Horizontal
Vertical
Example of a Vertical Balance

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

Depicts the ways cash has changed

during a designated period of time.
Balance Sheet Equation

Assets Liabilities = Proprietor's Capital

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
Fixed Assets
Types of Assets
Any tangible or intangible asset acquired on

a long-term basis to be used in providing a
service to the business
Not held for resale in normal course of
business e.g. land and buildings, plant and
machinery
Current Assets

Assets which are expected to be realised in

the normal course of trading
Disclosed in the balance sheet with least
liquid asset first e.g. Stock, debtors
Liabilities
Liabilities
Liabilities are debts that represent

negative future cash flows for the
enterprise.
Types of Liabilities
Long-term liabilities
Owners Equity
Payable more than 12 months after the

balance sheet date e.g. loan
Owners equity represents the owners

claim to the assets of the business.
Current liabilities
Payable within 12 months of the balance

sheet date e.g. creditors, bank overdraft
Owners Equity
Understanding Income
Statement
Changes in Owners Equity
The Concept of the Business

Entity
According to this concept, a business

entity is separate from the personal
affairs of its owner..
Revisiting Accounting
Equation
Relationships Among Financial

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
Financial Statements
Trading and Profit &

Loss Account
Summary of Income
(Sales plus any other
income) and
Expenses
Highlight Profit or
Loss generated for an
accounting period
Balance Sheet
Scenario involves ABC LTD.

A company is into clothing business
Assets: Owned by ABC

Fixed Assets
Material things owned
by ABC Ltd. that gives
it benefit in a period
exceeding one
accounting period
A snapshot of the
Assets, Liabilities and
Capital
Confirm to Accounting
equation:
Current Assets
Cash
Stock or inventory
Debtors: Businesses
that owe money to
ABC Ltd.
Accounting Equation
Liabilities: Owed by ABC

Long-term liabilities
Loans taken by ABC
Ltd. that are repayable
in more than one
accounting period
Short-term liabilities
Overdraft
Accruals: Unpaid bills
Creditors: Businesses
to whom ABC Ltd.
owes money
Assets = Liabilities + Capital

Duality Concept in recording

accounting transactions
Monetary transaction in day to day

business at ABC Ltd. would involve:

Buying of assets for cash or credit

Selling of assets for cash or credit
Creates a two-sides to a transaction in

any of the four combinations:
Assets increase
Cash decreases
Assets decrease
Cash increases
Assets increase
Creditors increase
Assets decrease
Debtors increase
Recording of a transaction

Recorded in ledgers that are accounts

created for each of the asset, liability,
income and expense
A ledger has two sides for accounting entry
Each transaction will either impact its Debit
Side or its Credit Side
Left Side
Right Side
Debit Side
(expressed as Dr)
Credit Side
(expressed as Cr)
A typical ledger format
Impact on ledger
Name of the account
Dr
Cr
For example: Cash; Plant & Machinery; Sales
Date
Details
Date
Details
Debit side is
impacted when
increase in:
Credit side is
impacted when
increase in:

Assets
Expenses
Drawings (money
Liability
Income
Capital (money

withdrawn by owner
from the business for
personal reasons. The
action decreases
Capital)
Recording a cash transaction

TRANSACTION ONE: On 1 Jan 2008: ABC Ltd. was incorporated with investment
of 50000.00 from its owner. Money deposited into company bank account.
Account Ledger impacted: Bank Account of ABC Ltd.
Dr
01-01-08
50000.00
Capital
Increase in cash (current assets)

hence debit entry
Account Ledger impacted: Capital Account of Owner
Dr
Cr
01-01-08
50000.00
Bank

TRANSACTION THREE: On 5 Jan 2008: ABC Ltd. purchased stationery items
by paying cheque of 250.00 to their supplier.
Account Ledger impacted: Bank Account
Dr
Cr
05-01-08
250.00
Stationery
05-01-08
Office Stationery Account

Bank
250.00
TRANSACTION TWO: On 1 Jan 2008: ABC Ltd. purchased computers

by paying cheque of 4750.00
Dr
Bank Account
Cr
01-01-08
4750.00
Decrease in cash (current assets)

hence credit entry
Computers
Dr
01-01-08
Cr
Computer Account
Bank
4750.00
Increase in fixed assets hence debit entry

TRANSACTION FOUR: On 6 Jan 2008: ABC Ltd. sold clothing items
And received cash of 2500.00
Dr
Bank Account
06-01-08
2500.00
Sales
Cr
Increase in cash (current assets)
hence debit entry
Account Ledger impacted: Sales Account
Account Ledger impacted: Office Stationery Account
Dr
Bank Account
Decrease in cash (current assets)

hence credit entry
Account Ledger impacted: Computer Account
Capital Account
Increase in capital hence credit entry
Cr
Bank Account
invested by the owners

into the business at the
start or during the
course of business)
Cr
Increase in expenses hence debit entry
Dr
Sales Account
Cr
06-01-08
2500.00
Increase in income (sales) hence credit entry
Bank
Recording a credit transaction

TRANSACTION FIVE: On 10 Jan 2008: ABC Ltd. purchased fabric (raw material)
worth 4500.00 from its regular supplier Joe Ltd. Payment to be made in 60 days.
Account Ledger impacted: Purchases Account
Dr
10-01-08
Joe Ltd.
Increase in stock (current assets)

hence debit entry
Account Ledger impacted: Joe Ltd. Account
Dr
10-01-08
Dr
Purchases
4500.00
Balancing the ledger accounts

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.
Dr
01-01-08
Capital
06-01-08
Sales
Total
01-02-08
Balance b/f
47,500.00
12-01-08
Malcolm Ltd.
Computers
Stationery
Balance c/f
Total
Malcolm Ltd. Account

Sales
12-01-08
1750.00
Cr
Increase in debtors (current assets)

hence debit entry
Balances The Importance

Cr
Bank Account
50,000.00 01-01-08
05-01-08
2,500.00 31-01-08
52,500.00
Cr
1750.00
Increase in income hence credit entry
Balancing the Bank Account ledger
Dr
Sales Account
Account Ledger impacted: Malcolm Ltd. Account
Cr
Joe Ltd. Account
Increase in creditors (current liabilities)

hence credit entry
TRANSACTION SIX: On 12 Jan 2008: ABC Ltd. sold clothing items

worth 1750.00 to their regular client Malcolm Ltd. Payment due in 30 days.
Account Ledger impacted: Sales Account
Cr
Purchases Account
4500.00
Recording a credit transaction
4,750.00
250.00
47,500.00
52,500.00
Balance c/f
Is an asset or a
liability at the END
of the accounting
period.
Balance b/f
Is an asset or a
liability at the
beginning of the
NEXT accounting
period.
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
Asset account
Will always have a
DEBIT entry
Expense account
Will always have a
DEBIT entry
Other accounts & transactions
Liability account
Will always have a
CREDIT entry
Income account
Will always have a
CREDIT entry
Debit Side

Sales returns inwards (loss)

Discounts allowed
Carriage Inwards
Overheads
(expenses paid such
as salaries; utilities;
advertising, carriage
outwards)
Debtors
Credit Side

Purchases returned
outwards (gain)
Discounts received
VAT (Unpaid tax received
as component of Gross
Selling Price)
Sales (cash or credit)
Creditors
Session Objectives
Topic 8

Non-current Assets
Define non-current assets

Recognise the difference between current and noncurrent 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
Record profits or losses on disposal of non-current

assets in the income statement including part
exchange transactions
Record the revaluation of a non-current asset in
ledger accounts, the statement of comprehensive
income and in the statement of financial position
Calculate the profit or loss on disposal of a revalued
asset
Illustrate how non-current asset balances and
movements are disclosed in financial statements
Session Objectives

Explain the purpose and function of an asset

register
Understand and explain the purpose of depreciation
Calculate the charge for depreciation using straight
line and reducing balance methods
Identify the circumstances where different methods
of depreciation would be appropriate
Illustrate how depreciation expense and
accumulated depreciation are recorded in ledger
accounts
Session Objectives
Calculate depreciation on a revalued non-current

asset including the transfer of excess depreciation
between the revaluation reserve and retained
earnings
Calculate the adjustments to depreciation necessary
if changes are made in the estimated useful life
and/or residual value of a non-current asset
Record depreciation in the income statement and
statement of financial position
Characteristics of Non-current
Assets

Long term in nature

Not normally acquired for resale
Could be tangible or intangible
Used to generate income directly or
indirectly
Not normally liquid asset
Capital Expenditure
Expenditure on acquisition of Noncurrent assets for use in business

Expenditure on increasing the earning
capacity of existing assets.
Expenditure incurred for a long term that
creates an asset with value
Examples: New machineries purchased,

renovation of buildings, purchase of furniture
and fixtures, purchase of computer
equipment and office vehicles
Revenue Expenditure

Expenditure incurred for carrying on the

day-to-day operations of the
organisation.
Expenditure on current assets
Expenses for maintaining the earning
capacity
Examples : Salaries paid to employees,

expenditure on rent incurred, interest
payments, administrative expenses, sales
commissions etc.
Non-current Assets Registers

Records of individual tangible Noncurrent assets held by the business.

Function of the Register is to control
Non-current assets and keep a track of
them
Non-current Assets Registers

The details include:

Acquisition of Non-current
Assets
Cost of Non-current asset = Amount

incurred to acquire the Non-current asset
and bring it to working condition
Cost includes:
Purchase price + Delivery cost + Legal fees
+ Subsequent expenditure which enhances
the asset
Cost DOES NOT include revenue
expenditure such as repairs or renewals or
repainting cost
Cost, Date of Purchase

Description of Asset, Serial / reference
number
Location of asset
Depreciation method, Expected useful life
Net book value
Acquisition of Non-current
Assets
Entry to record purchase of asset:

Dr. Non-current asset
(Non-current Asset = Real account: Debit what
comes in)
Cr. Bank / Cash / Creditors
(Bank and Creditors: Personal account: Credit
the giver)
A separate account should be kept for

each category of Non-current asset.
Subsequent Expenditure which

Enhances the Asset
This expenditure can only be recorded

as a part of the cost or capitalised if it
enhances the benefits of the asset.
Depreciation
the measure of the cost or revalued

amount of the economic benefits of the
tangible non-current asset that has been
consumed during the period
Example includes: extension to a shop

building. However, repair work does not form
a part of this expenditure.

Use
Physical wear and tear
Passing of time
Obsolescence through technology and
market changes
Depletion
Methods of Calculating
Depreciation
Causes of Depreciation
According to IAS 16, depreciation is

Straight line method

Reducing balance method
Straight Line Method

Depreciation charge is the same each

year as the assumption is that the
benefit is consumed evenly over the life
of the asset
Useful for assets which provide equal
benefit each year e.g. machinery
Reducing Balance Method

Reducing amount of depreciation is

charged each year
Useful for assets which provide more
benefit in the earlier years e.g cars
Depreciation charge = X% x Net Book
Value (NBV)
NBV = original cost accumulated
depreciation
Straight Line Method

Depreciation charge = (Cost Residual

value) / Useful economic life
Residual value or scrap value or salvage
value = Estimated disposal value of the
asset. Often this value is zero
Useful economic life = Estimated number
of years during which the business will
use the asset
Accounting for Depreciation

Dr Depreciation Expense
Cr Accumulated depreciation
Reduce the balance sheet value of the Noncurrent asset by cumulative depreciation to
reflect the wearing out.
Record the depreciation charge as an
expense in the income statement to match
the revenue generated by the Non-current
asset.
Consistency and Subjectivity

When Accounting for
Depreciation
IAS 16 Property, Plant and Equipment

requires the following:
Depreciation method should be reviewed
at each year end and changed if the
method used no longer reflects the
pattern of use of the asset
Residual value and useful economic life
should be reviewed at each year end and
changed if expectations differ from
previous estimates
Disposal of Non-current
Assets
Profit / loss on disposal

An accounting profit or loss will arise on the

disposal of Non-current asset.
If:
Disposal for Cash

Consideration
Step 1: Remove the original cost of the Noncurrent asset from the Non-current asset
account
Dr. Disposals (Original cost)
Cr. Non-current assets (Original cost)
PROFIT
LOSS
NEITHER
Disposal for Cash

Consideration
Proceeds > NBV (at disposal date)

Proceeds < NBV (at disposal date)
Proceeds = NBV (at disposal date)
PROFIT NOR LOSS
Step 2: Remove Accumulated depreciation on

the Non-current asset from accumulated
depreciation account.
Dr. Accumulated Depreciation
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 Noncurrent 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
Assets
Business may need to revalue assets

to present the revalued amounts in the
balance sheet.
The difference between the NBV and
the revalued amount is shown as
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
Depreciation of a Revalued
Asset
The charge for depreciation should be

based on the revalued amount and the
remaining useful life of the asset
This charge will be higher than
depreciation prior to the revaluation
Session Objectives
Topic 10
Books of Prime Entry and

Control Accounts
Identify and explain the function of the main data

sources in an accounting system
Outline the contents and purpose of different types
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
Session Objectives
Prepare ledger control accounts from given

information
Perform control account reconciliations for accounts
receivable and accounts payable
Identify errors which would be highlighted by
performing a control account reconciliation
Identify and correct errors in control accounts and
ledger accounts
Record cash transactions in ledger accounts
Session Objectives
Understand the need for a record of petty cash

transactions
Describe the features and operation of a petty cash
imprest system
Account for petty cash using imprest and nonimprest methods
Understand the importance of, and identify controls
and security over the petty cash system
Business Documentation
Quotation: Asking price. Used for establishing price

from various suppliers
Purchase order: A written authorization prepared
by a buyer for the purchase of goods or services at
a specified price.
Sales order: An order received by a business from
a customer. A sales order may be for products
and/or services.
Delivery Note (Goods Delivery Note): A written

document from the seller to the buyer that
accompanies a delivery of goods and specifies type
of goods and quantity.
Purchase Invoice: Produced by company receiving
the goods as a proof of receipt.
Credit Note: A monetary instrument issued by a
seller that allows a buyer to purchase an item or
service from that seller on a future date.
Debit Note: Note to a person or a company

signifying an amount owed. Although it is very
similar to an invoice, the invoice always represents
sales, whereas a debit note is used for deducting
money without a sale being made.
Remittance Advice: A statement sent to providers
showing that claims were processed and the
amount for which the beneficiary is responsible. If
denied, an explanation of denial is provided.
Receipt: Details of payments received
Books of Prime Entry

Sales Day Book Recording credit sales

Purchases day book - Recording credit purchases
Sales returns day book Recording sales returns
Purchases returns day book - Recording
purchases returns
Cash book - All cash / bank transactions
Petty cash book All small cash transactions
Journal All transactions not recorded elsewhere
Ledger Accounts
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 Format
Double entry will depend on whether individual

accounts are maintained in individual ledger or
sales ledger control account in general ledger
Sales Day Book Double Entry

Sales Ledger Control Account part of double
entry:
Dr. Sales Ledger Control Account
Cr. Sales
$14,500
$14,500
Individual accounts part of double entry:

Dr. Sam
Dr. John
Cr Sales
Each entry also posted to individual memorandum

accounts in accounts receivable ledger
$4500
$10,000
$14,500
(Total sales posted to sales ledger control account)

Purchases Day Book, Sales

Returns Day Book, Purchases
Returns Day Book
Sales Returns Day Book
Format is similar to that of sales day book.
Purchases Day
Book
Individual accounts
part of double entry
Control accounts
part of double
entry
Dr. Purchases
Cr. Individual Accounts in
accounts payable ledger
Dr. Purchases
Cr. Purchase ledger
control account
Total purchases posted

to purchases ledger control
Each entry also posted

to individual
memorandum accounts
in accounts payable
account
Sales returns
day book
Individual accounts
Control accounts
part of double
entry
Dr Sales Returns
Cr Individual accounts in
accounts receivables ledger
Dr Sales Returns
Cr Sales ledger control
account
Total returns posted to

sales ledger control account
Each entry posted to

individual memorandum
accounts in accounts
receivable ledger
ledger
Purchases Returns Day Book
Purchases
returns day
book
Individual accounts
Control accounts
part of double
entry
Dr. Individual accounts in

accounts payable ledger
Cr. Purchases returns
Dr. Purchase ledger

control account
Cr. Purchases returns
Total returns posted to

purchases ledger control
account
Each entry posted to

individual memorandum
accounts in accounts
Control Accounts

Sales Ledger Control Account

Purchases Ledger Control Account
payable ledger
Sales Ledger Control Account

Format
Purchases Ledger Control

Account Format
Contra Entries
These are entries made when a

customer is also a supplier.
Cash Book

Dr. Purchase ledger control account

Cr. Sales ledger control account
Individual receivables and payables

must also be updated to reflect this.

All transactions involving cash and bank

are recorded in cash book.
Many businesses may have separate
books for cash receipts and cash
payments
A note of cash discounts is also made in
the cash book
Businesses generally use a columnar
format of cash book
Petty Cash Book

All transactions involving small amounts are

recorded in the petty cash book
Petty cash is maintained using Imprest
System
Imprest System
Step 1: Business decides on an amount to be held

as a float
Dr. Petty Cash
Cr. Bank
Step 2: As petty cashier makes payments he

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
From Trial Balance to

Financial Statements

Trial Balance
Trial balance is a statement of general

ledger accounts that enables an accountant
to confirm whether amounts debited equal
amounts credited.
Identify the purpose of a trial balance

Extract ledger balances into a trial balance
Prepare extracts of an opening trial balance
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
Purpose of Trial Balance

Check that for every debit entry there is an

equal credit entry
It is the first step towards preparation of
financial statements
Limitations of Trial Balance

Trial balance does not identify all the errors.

It does not identify where those errors have
been made or what those errors are
Adjustments Required

Adjustments Entry for Closing

Inventory
Dr. Inventory
Cr. Cost of Sales
(Balance Sheet)
(Income Statement)
Closing inventory
Depreciation
Accruals
Prepayments
Irrecoverable Debts
Allowance for Receivables
Adjustments Entry for

Depreciation
Dr. Depreciation Expenses
Cr. Accumulated Depreciation
(Income Statement)
(Balance Sheet)

Accruals
Dr. Expenses
Cr. Accrual
(Income Statement)
(Balance Sheet)

Irrecoverable Debts
Dr. Irrecoverable debt
Cr. Receivables
(Income Statement)
(Balance Sheet)

Prepayments
Dr. Prepayments
Cr. Expenses
(Balance Sheet)
(Income Statement)

Dr. Irrecoverable debt
Cr. Allowance for Receivables
(Income Statement)
(Balance Sheet)
Session Objectives
Topic 7
Irrecoverable Debts and

Allowances for Receivables
Identify the benefits and costs of offering

credit facilities to customers
Understand the purpose of an aged
receivables analysis
Understand the purpose of credit limits
Session Objectives

Prepare the bookkeeping entries to write off a bad

debt
Record a bad debt recovered
Identify the impact of bad (irrecoverable) debts on
the income statement and on the statement of
financial position sheet
Session Objectives
Prepare the bookkeeping entries to create and

adjust an allowance for receivables
Illustrate how to include movements in the
allowance for receivables in the income statement
and how the closing balance of the allowance
should appear in the statement of financial position
Provision of Credit Facilities

Benefits:

Enable businesses to enter new markets

Possibility of increased sales
Encourages customer loyalty
Costs

Can prove costly to the business

May adversely affect the business cash flow
Potential risk of irrecoverable debts
Important Terms Associated

with Debts
Aged Receivables Analysis
Irrecoverable debt: Debt unlikely to be

received from the customer
Doubtful debt: Debt where there is
some doubt whether a customer can or
will pay his debt
Allowance
for
receivables:
An
allowance created on doubtful debts
It is an analysis usually in the form of a

list, ordered by name, showing how
much each customer owes and how old
their debts are
It is used for keeping track of
outstanding debts and follow up any that
is overdue
Accounting Entries: Cash Sale

When the sale is made
Dr. Cash account
Cr. Sales account
Accounting Entries: Credit

Sale
Accounting for Irrecoverable

Debts Recovered
When the sale is made
When the debt is written off
Dr. Receivables account

Cr. Sales account
Dr. Irrecoverable debt or Bad debt

Cr. Receivables account
On settlement of amount due

Dr. Cash account
When recoverable debt is recovered

Dr. Cash account
Cr. Irrecoverable debt or Bad debt
If amount becomes irrecoverable

Dr. Irrecoverable debt or Bad debt

Specific allowance:
Accounting for Allowance for

Receivables
For Setting up allowance
Allowance for debts where the customer is

known to be in financial difficulties and is
disputing their invoice or is refusing to pay
General Allowance:
Dr. Irrecoverable debts expense account

Cr. Allowance for receivables account
A general allowance for receivables expected to

be irrecoverable.
Movement in the Allowance

for Receivables

Write irrecoverable debts

Calculate receivables balance as adjusted
for write offs
Ascertain specific allowance
Deduct debt specifically allowed for
Movement in the Allowance

for Receivables
Thus,
% (Closing receivables Irrecoverable debts
Specific allowance)

In Case of Existing
Allowance
Charge only the movement in the profit to

the profit and loss account
closing allowance opening allowance
Multiply the remaining receivables balance

by general allowance percentage
Add the specific and general allowances

Compare with brought forward allowance
Account for change in allowance

Elements of Financial Statements

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Elements of Financial Statements

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Session Objectives

Student Notes for ACCA F3-Financial Accounting

Describe the accounting equation

Student Notes for ACCA F3-Financial Accounting

Explain the main elements of financial

Student Notes for ACCA F3-Financial Accounting

What are Financial Statements

Student Notes for ACCA F3-Financial Accounting

Primary Financial Statements

Describes where the enterprise stands at

Student Notes for ACCA F3-Financial Accounting

Student Notes for ACCA F3-Financial Accounting

Student Notes for ACCA F3-Financial Accounting

Example of a Vertical Balance

Student Notes for ACCA F3-Financial Accounting

Example of Income Statement

Depicts the revenue and expenses for a

Student Notes for ACCA F3-Financial Accounting

Statement of Cash Flows

Depicts the ways cash has changed

Balance Sheet Equation

Student Notes for ACCA F3-Financial Accounting

Student Notes for ACCA F3-Financial Accounting

Assets Liabilities = Proprietor's Capital

Student Notes for ACCA F3-Financial Accounting

Assets are economic resources that are

Student Notes for ACCA F3-Financial Accounting

Any tangible or intangible asset acquired on

Student Notes for ACCA F3-Financial Accounting

Student Notes for ACCA F3-Financial Accounting

Assets which are expected to be realised in

Student Notes for ACCA F3-Financial Accounting

Liabilities are debts that represent

Student Notes for ACCA F3-Financial Accounting

Payable more than 12 months after the

Student Notes for ACCA F3-Financial Accounting

Owners equity represents the owners

Payable within 12 months of the balance

Student Notes for ACCA F3-Financial Accounting

Student Notes for ACCA F3-Financial Accounting

Student Notes for ACCA F3-Financial Accounting

Changes in Owners Equity

The Concept of the Business

Student Notes for ACCA F3-Financial Accounting

Student Notes for ACCA F3-Financial Accounting

According to this concept, a business

Student Notes for ACCA F3-Financial Accounting

Student Notes for ACCA F3-Financial Accounting

Relationships Among Financial

Student Notes for ACCA F3-Financial Accounting

Scenario involves a company ABC Ltd.

Double Entry Bookkeeping

(The company sells clothing items)

12 months, but not necessarily coinciding with calendar

Student Notes for Financial Accounting

Trading and Profit &

Scenario involves ABC LTD.

Assets: Owned by ABC

Student Notes for Financial Accounting

Liabilities: Owed by ABC

Assets = Liabilities + Capital

Student Notes for Financial Accounting

Duality Concept in recording