ACCOUNTING IGCSE 0452 General Revision

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IGCSE – Accounting 0452ACCOUNTING IGCSE0452General RevisionPrepared By:Maryam A. Ghazy1

IGCSE – Accounting 0452Definitions1- Assets & Liabilities Assets : is an item of value owned by a company Liabilities : are creditors’ claims on assets that reflect obligations to provideassets, products or services to others2- Carriage inwards & Carriage outwards. Carriage inwards: is the shipping and handling costs incurred by a company thatis receiving goods from suppliers (appear in income statement as a cost ofPurchases) Carriage outwards: is the shipping and handling costs incurred by a company thatis shipping goods to a customer. (appear in income statement as a otherexpenses )3- Accounting & Bookkeeping Accounting : is an information system – includes the process of recording,classifying, summarizing, reporting, analyzing and interpreting the financialcondition and performance of a business – in order to communicate it tostakeholders for business decision making. Bookkeeping: is the process of recording, in chronological order, the dailytransactions of a business entity. It forms part of the accounting informationsystem.4- Error of principle & Error of Commission. Error of principle : when a transaction is entered using the correct amount and onthe correct side but in the wrong account of the same class. Error of Commission: when a transaction is entered using the correct amount andon the correct side but in the wrong class2

IGCSE – Accounting 04525- Debit Note& Credit note Debit Note: A document sent to a supplier asking for allowance for unsatisfactorygood ( reduction of the amount due ) Credit Note: A document sent to a customer showing allowance given bysupplier in respect of unsatisfactory good ( reduction of the amount due )Supplier (T.P)Customer ( T.R)Debit NoteAsking for all allowanceCredit NoteAccepting the allowance6- Gross Profit & Net Profit. Gross Profit : It’s that profit achieved by the business without taking inconsideration the operating expenses as electricity and rent ( the differencebetween the selling price and the cost price )Gross profit Net Sales – Cost of Sales Net Profit : It’s the final profit that is awarded to the owner of the business at theend of each financial year after deducting all the expenses from all the revenue.Net profit Gross profit other revenue – other expenses.7- Service business & trading business Service business : do not have these inventories. Service firms derive theirrevenue from services which they provide to customers. Trading business : are businesses that buy goods which will be resold to itsbuyers. Trading firms usually have inventories of goods to be resold3

IGCSE – Accounting 04528- Current Liabilities & non- Current Liabilities Current Liabilities : represents amounts payable with in a period of 12 monthsfrom the balance sheet date as ( Bank overdraft – trade payables – owingexpenses ) Non- Current Liabilities: : There are the amounts payable more than 12 monthsafter the balance sheet date as ( Loans )9- Trade payable & Trade Receivables. Trade payable: Is the amount due to the suppliers who provide the company withits needs of inventory , goods , raw materials on credit Trade Receivables: amount owed by customers buying the company's goods oncredit.10- Capital expenditure & Revenue expenditure. Capital expenditure : Money paid to buy /install or improvement Non -Currentassets and legal fees paid to register Non –Current assets . It’s recorded at thestatement of financial position. Revenue expenditure: Money paid to run a business . It’s recorded as expenses atincome statement11- Bad debts & Provision for doubtful debts. Bad debts : Amount of money which the trade receivable won’t be able to pay(Considered as expense) Provision for doubtful debts: It’s an estimate to the amount of money thebusiness won’t be to collect from its trade receivables. ( Varies from each year)12- Bank Statement & bank Reconciliation Statement. Bank Statement : Is a copy of the business as it appears in the books of the bank. Bank Reconciliation Statement: shows the balance on the bank statementadjusted for amounts not yet credited , Cheques not yet presented and any Bankerror . the final figure should agree with the balance in the bank account in theCash book.4

IGCSE – Accounting 045213- Margin & Mark – up Margin : Is the gross profit measured as a percentage of selling price( Gross profit Sales ) 100 Mark – up: Is the gross profit measured as a percentage of cost price( Gross profit cost of sales ) 10014- Partner‟s capital account & Partner‟s Current account. Partner’s capital account : These accounts are kept to record the beginningcontribution of partners in financing the business and any change occur to. Partner’s Current account: These accounts are kept to record either the amountowed by or owed to partner for each year.15- Prime Cost & Cost of production. Prime Cost : The Total of direct labor , direct material and direct expenses Cost of production : Is founding by adding the factory overhead to the primecost.16- Called up share Capital & paid up share capital. Called up share Capital : Total amount of shares the company had requested fromshareholders paid up share capital.: part of called up capital where company had actuallyreceived from shareholders17- Preference shares & Ordinary shares.- Preference shares & Ordinary Shares are a Shares in a company ( equityshares) but the Preference shares give their holders an entitlement to a fixeddividend but which do not usually carry voting rights. The importantdifference between preference and ordinary shares are:1.The dividend on ordinary shares is uncertain and variable (high when thecompany does well, poor or non-existent when it does badly). Preferenceshareholders get a fixed dividend which, if not paid, usually accrues until it can be.2.Each ordinary share usually carries a vote. Preference shares do not usuallycarry a vote unless dividends fall into arrears.5

IGCSE – Accounting 04523.In the event of a winding up, preference shares are usually repayable at parvalue, and rank above the claims of ordinary shareholders (but behind bank andtrade creditors).Preference shares may be issued with the right of conversion into ordinaryshares. These are called convertibles.18- Capital owned &Capital employed. Capital owned : The amount and other resources employed in the business whichbelong to the owner of the business .( Total assets ) Capital employed: Total assets less current liabilities. ( capital non- currentliabilities )19- Current Ratio & quick Ratio Current Ratio : How many times our Current assets cover our Current liabilities quick Ratio : : How many times our Current assets cover our Current liabilitieswithout stock20- Liquidity ratios & profitability ratios & Efficiency ratios Liquidity ratios : Ability of the business to pay its short-term debts whenever dueand to continue its day-to-day operations. Profitability ratios : Ability of the firm to generate profits using its availableresources. Efficiency ratios : Ability to maximize output from a given input.21- Statement of financial position & Income Statement Statement of financial position : final account prepared to measure the finalposition of the business at the end of each financial year at the specific date Income Statement : Final account prepared to show either “ Net Profit “ or “ NetLoss” made by the business at the end of each financial year during the period.22- Trade discount & cash discount Trade discount : A reduction given by the supplier to the customer for bulkpurchases. Are not shown in the double entry account only appear in the invoiceAnd are deducted from the list price of the goods when recording in the daybook.6

IGCSE – Accounting 0452 cash discount : A reduction given by the supplier to the customer to encouragequick payments. It’s consists:a) Discount allowed : A reduction given by the firm to the customer whopay their account within the time allowedb) Cash discount : A reduction given to the firm by the supplier when wepay his account within the time allowedCash discount are shown in the double entry accounts and in the statement ofaccount but not shown in the invoice or the day book7

IGCSE – Accounting 0452Provide a definition of each of the following words or phrases.1.CapitalIt’s the owner investment in the business2.Bank overdraftA credit balance brought down in the bank column of the cash book3.Contra entryThe transaction of Money withdraw from bank to place in cash viceversaEach month to the petty cashier got certain float of money to spend4.Imprest system ofPetty cashfrom and pay day to day expenses at the end of the period the imprestamount is restored so that the petty cashier can start the new periodThe net deference between the current assets and the current5.Net Current assets6.PrudenceliabilitiesNever anticipate a profit but estimate all losses .It’s assumed that the business will continue to operate for an7.Going concernindefinite period of the time and that there is no intention to closedown the business.8.Accrued expenseExpenses incurred but not yet paid ( current Liabilities)9.Prepaid incomeRevenues received in advance .(current Liabilities)10.DepreciationIt’s an estimate of loss in the Non-Current assets11.Bad debt recovered12.Narrative inWhen the Trade receivable is able to pay the amount after writing itoff as a bad debt. ( considered as revenue )A brief explanation of why the entry is being made , this is necessaryconnection with Journalbecause of the great variety transactions which are recorded in theentryjournalIs an account which check the arithmetical accuracy of a ledger is to13.Control Account14.Accumulated fundAll surplus less deficit made by the club since it had arisen15.GoodwillIt is an intangible Non- current assets representing the goodassist in locating errors in the sales ledger and purchase ledger8

IGCSE – Accounting 0452reputation of the firm which equal the difference between the netassets and selling price of the firm.16.Direct expense ofmanufacturing17.AppropriationThere are any expenses which a manufacturer can directly link withthe product begin manufacturedThat account which shows how the profit for the year has been usedaccount18.Collection period fortrade receivables19.Rate of turnoverHow long it takes us to collect our money from trade receivables((debtor) – shorter is better- ( debtors credit sales ) 365How many times the inventory is sold and replaced during a periodof the time – higher is betterProposed by the directors at the year end will not be paid by the20.Dividendsbalance sheet date and must therefore be shown in the balance sheetas a liability.21.22.Authorized – sharecapitalIssued share - capitalMaximum amount of the shared capital the business is allowed toissue.Amount of share capital issued for sale.9

IGCSE – Accounting 0452BOOKS OF ORIGINAL ENTRIESThese are the books of first entry. The transactions are first recorded in thesebooks before being entered in the ledger books. These books are also called asbooks of Prime entry or Subsidiary books. They are six in number.1. Purchases Journal (orPurchases Book)2. Sales Journal (or Sales Book)3. Sales Returns Journal (orReturn Inwards Book):4. Purchases Return Journal (orReturns Outwards Book):5. Cash Book:6. General Journal (or Journal):Is used to record all credit purchases ofgoods. It is written up from invoice.Is used to record all the credit sales of goods.It is written up from the invoice.It is used to record all returns inwards. It iswritten up from the copies of the credit notessend to customers.It is used to record all purchases returns. It iswritten up from the credit notes receivedfrom the suppliers.It is used to record all receipts and paymentsof cash and cheques. It is been given theruling in such a way that it acts both as abook of original entry and ledger accountThis book is used to record all those items ortransactions that can’t be recorded in anyother book of original entry likei.Correction of errorsii.Provision of depreciation &provision of doubtful debtsiii.Opening entriesiv.Purchase or Sale of Assets onCredit etc.- Explain why some transactions are recorded in the Journal before beingentered in the ledger accounts.Journal provides the only prime entry for certain types of transaction e.g.purchases / sales of Non- current assets , error correctionGives explanation also reduces risk of omission , error, fraud10

IGCSE – Accounting 0452- State one advantage of using a book of prime entryReduces the number of entries in the ledgerActs as an aid for posting to the ledgerHelps to gather and summaries accounting information/facilitate preparation ofcontrol accountsGroups together similar types of transactionsAllows work to be divided between several people- State one reason why a business uses a purchases journalReason for using a purchases journal: Fewer transactions recorded in the purchases account Bookkeeping can be spread between several people Can be analyzed into products/areas etc. To identify credit purchases (can be useful for comparison purposes) Provides information for the purchases ledger control account.- Explain two advantages of maintaining accounting records using thedouble entry methodLess risk of errorsLess risk of fraudEasier to refer to previous transactionsFinancial position can be ascertainedEasier to prepare financial statementsEasier to make business decisionsEasier to calculate accounting ratios11

IGCSE – Accounting 0452BOOKS OF FINAL ENTRYLEDGER BOOKSLedger books are the books of final entry which contains the variousaccounts to which the entries made in the Books of Original entry are transferred.DIVISION OF LEDGER :Purchases Ledger Book:Contains all the accounts of Suppliers.Sales Ledger Book:Contains all the accounts of Customers.General Ledger Book:Contains all the rest of the accounts like, Asset

IGCSE – Accounting 0452 9 reputation of the firm which equal the difference between the net assets and selling price of the firm. 16. Direct expense of manufacturing There are any expenses which a manufacturer can directly link with the product begin manufactured 17. Appropriation account That account which shows how the profit for the year has been used 18. Collection period for trade .

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