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Lse Ac100 Financial Accounting Notes

Accounting Notes > Financial Accounting Notes

This is an extract of our Lse Ac100 Financial Accounting document, which we sell as part of our Financial Accounting Notes collection written by the top tier of London School Of Economics And Political Science students.

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AC100 Elements of Accounting and Finance - Financial
Accounting Notes
Table of Contents
Section 1: Statement of Financial Positions (elements and template)...................3
Section 2: Income Statement (elements and templates).......................................4
Section 3: Double-entries for Adjusted Accounts...................................................5
Accrued expense........................................................................................................5
Bad debts written off.................................................................................................5
Bonus shares..............................................................................................................5
Cost of goods sold......................................................................................................5
Depreciation...............................................................................................................5
Disposal......................................................................................................................5
Dividends...................................................................................................................6
Goodwill.....................................................................................................................6
Impairment loss.........................................................................................................6
Interest.......................................................................................................................7
Inventory write-downs (when NRV < initial cost)......................................................7
Long-term borrowings................................................................................................7
Prepayments..............................................................................................................7
Provision for doubtful debt.........................................................................................7
Follow-up of provision for doubtful debt....................................................................7
Release of provision for doubtful debt.......................................................................8
Retained earning........................................................................................................8
Revaluations..............................................................................................................8
Shares........................................................................................................................8
Tax expense...............................................................................................................8
VAT (primarily borne by the ultimate consumer)......................................................8

Section 4: Cash Flow Statement..........................................................................10
Section 5: Consolidated Balance Sheet...............................................................11
Section 6: Financial Ratios calculations...............................................................14
Section 7: Theory Notes - Financial Accounting...................................................17 1

AC100 2017-2018; leoniedong@hotmail.com Differences between financial accounting and management accounting...............17
Different entities......................................................................................................17
Advantages and Disadvantages of limited liability..................................................17
Sources of accounting rules.....................................................................................18
Usefulness of accounting information......................................................................18
Enhancing qualitative characterises........................................................................18
Accounting conventions...........................................................................................18
From inventory to cost of sales................................................................................18
Regular expenses v.s. provisions.............................................................................18
Intangible non-current assets..................................................................................19
Depreciation, amortisation and impairment............................................................19
Valuation of inventory..............................................................................................19
Types of shares........................................................................................................19
Types of reserves.....................................................................................................19
Bonus shares............................................................................................................19
Long-term borrowings..............................................................................................19
Importance of financial gearing...............................................................................20
Cash flow and lifecycle of a business.......................................................................20
Cash flow analysis....................................................................................................20
Identifying the growing firm....................................................................................21

2 AC100 2017-2018; leoniedong@hotmail.com Section 1: Statement of Financial Positions (elements and template)
Title: Statement of Financial Position as at (Date)
Non-current assets
Cost

Less: Acc.Dep/allowances for depreciation

Land/PPE/Vehicles
Current assets
Cash and equivalents
Trade and other receivables (accounts receivable)
Less: Provision for doubtful debt
Less: other provisions
Inventory
Prepayments
Non-current liabilities
Debentures
Notes payables (loan)
Current-liabilities
Trade and other payables (accounts payables)
Accrued expense
Net assets (total assets - total liabilities)
Equity
Share capital
Share premium
Retained earnings
Revaluation reserves
Capital Account
Partner 1 Partner 2

Partner 3

Total

Opening capital
Profit share

Net income

Drawings
Closing capital 3

AC100 2017-2018; leoniedong@hotmail.com

Total

NBV equity
!!! Check: Total equity = net assets

4 AC100 2017-2018; leoniedong@hotmail.com Section 2: Income Statement (elements and templates)
Sales (Less: return inwards)
Less: Cost of goods sold
Opening inventory
+ Purchases
+ purchase returns inwards
- return outwards
- Closing inventory
= Cost of goods sold
Gross profit (sales - cost of goods sold)
Less: operating expense
Depreciation expenses
Bad debts written off
Doubtful debt expense
(Provision on doubtful debt release)
Rent, insurance, heat and light, electricity, etc.
Wages
SG&A (Selling, General and Administration Costs)
Operating profit
Less: Interest, gains and loses
Interests
Gain/Loss on disposal
Profit before tax
Less: Tax
Income tax
Profit after tax
Less: dividend
Preference dividend
Net income

5 AC100 2017-2018; leoniedong@hotmail.com Section 3: Double-entries for Adjusted Accounts
Accrued expense
New accrued expense
Dr Expense (I/S)
Cr Accrued expense (SOFP)
Reversal of old
Dr Accrued expense (SOFP)
Cr Expense (I/S)

Bad debts written off
Dr Bad debt written off (I/S)
Cr Trade receivables (SOFP)

Bonus shares
Dr Reserve
Cr Share capital

Cost of goods sold
Dr Cash (SOFP)
Cr Sales revenue
Dr Cost of sales
Cr Inventory (SOFP)

Depreciation
Dr Depreciation (I/S)
Cr Accumulated depreciation (SOFP)

Straight-line method:

Depreciation charge=

Depreciationamount Initial cost−Residual value
=
Useful economic life
Useful economic life

Reducing balance:

√ Residual value of the asset

useful life of the asset

Depreciationrate=1−

Cost∨Fair value of the asset

R
D=1− √
C
n

Disposal

Gain∨loss on disposal=Cashreceived ( proceeds¿ sale )−NBV of PPE=Proceeds ¿ sale−(Cost of PPE −Accu
Simplified method:
 Calculate accumulated depreciation of disposed asset 6

AC100 2017-2018; leoniedong@hotmail.com 

Less cost of disposed PPE (SOFP)
 Initial asset - disposed asset

Less accumulated depreciation of disposed PPE (SOFP)
 Initial accumulated depreciation - accumulated depreciation of disposed

Add proceeds from sale to cash (SOFP)

Add gain/loss on disposal (I/S)
 Proceeds from sale - (Disposed at cost - accumulated depreciation of disposed)

Calculate deprecation for remaining asset
 Calculate the value of remaining asset
Dr Depreciation (I/S)
Cr Accumulated depreciation (SOFP)

Double entry method:

1. Write-off the cost of disposed PPE
Dr Disposal account (I/S)
Cr Non-current asset (SOFP)

2. Write-off the accumulated depreciation
Dr Accumulated depreciation (SOFP)
Cr Disposal account (I/S)

3. Proceeds from sale
Dr Cash (SOFP)
Cr Disposal account (I/S)

4. Move from disposal account to gain/loss on disposal
Dr Disposal account (I/S)
Cr Gain/loss on disposal (I/S)
Notes on gain/loss on disposal:

Initial cost = accumulated depreciation + proceeds from sale + loss on disposal

Dividends
Dr Dividends paid --> Retained earnings (SOFP)
Cr Cash (Current Assets, SOFP) / Dividends payable (Current Liabilities, SOFP)

Goodwill
Dr Net asset acquired (SOFP)
Dr Goodwill Account (SOFP) (recognised as an asset only after an acquisition)
Cr Cash paid/shares issued (SOFP)

Impairment loss
Dr Impairment loss (I/S) = Recoverable amount - carrying amount (if recoverable amount
< carrying amount)
Cr Asset (SOFP)

7 AC100 2017-2018; leoniedong@hotmail.com

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