CIMA Certificate Level Paper C2 Fundamentals of Financial Accounting Name Telephone Email.
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Transcript of CIMA Certificate Level Paper C2 Fundamentals of Financial Accounting Name Telephone Email.
CIMA Certificate Level Paper C2
Fundamentals of Financial Accounting
Name
Telephone
Slide 2
Fire Safety Procedures
• Fire alarm = continuous bell
• Fire Exits
• Assembly Point
Slide 3
Course Administration
• Start and finish times
• Breaks
• Daily attendance register• The attendance register will shortly be passed round
the class; please ensure that the information you give is correct. Please note if you are a company sponsored student, then your attendance / non-attendance will be reported to your employer.
Slide 4
Facilities
•Toilets
•Canteen/common room
•Drinks machines
•No smoking
•Switch off mobile phones
Slide 5
Classroom Tuition and Home Study
• Classroom tuition– Key areas of the syllabus
• Home study– NEW Course Companion– Homestudy is vital for:
• Reinforcing your knowledge• Practising your skills
• CIMA forum – www.bpp.com/cimaforum• Helpline for queries
Slide 6
Pass Assurance
• Attend all days of the course
• Book and take the CBA at a BPP centre
• If you fail the CBA you can attend another certificate course for that paper free of charge at any BPP centre
Slide 7
Deadline for CBAs
• If you wish to sit managerial papers in May 2010 you must have passed all CBAs by 1st March 2010.
• If you wish to sit managerial papers in November 2010 you must have passed all CBAs by 1st September 2010.
Slide 8
CIMA syllabus progression
Paper C2 FFA
Paper F1 Financial Operations
Paper F2 Financial Management
Slide 9
Syllabus
• Conceptual & regulatory framework (20%)
• Accounting systems (20%)
• Control of accounting systems (15%)
• Preparation of accounts (45%)
Slide 10
Computer Based Assessment
50 objective test questions – 100 marks50 objective test questions – 100 marks
Time allowed – 2 hours
Pass mark – 50%
Chapter 1
The nature and objective of accounting
Slide 12 notes reference - page 13
Introduction
What is accounting?What is accounting?
Recording, analysing & summarising information ……
Who requires this information?
Slide 13 notes reference - page 13
Lecture example 1
• Managers• Owners/shareholders• Providers of finance• Inland Revenue/C&E• Suppliers• Financial Analysts• Government
Slide 14 notes reference - page 14
Financial Records
Maintained for all commercial transactions
Must be complete, accurate and valid
BOOKKEEPING
Slide 15 notes reference - page 14
Types of Business – profit making
• Sole trader
• Companies
• Partnership
Slide 16 notes reference - page 15
Separate identity concept
A business is considered separate from owner
Limited liability company has separate legal identity
Chapter 2
An introduction to final accounts
Slide 18 notes reference - page 19
Lecture example 1
OWN
House 200,000
Car 10,000
Cash 5,000
215,000
OWE
Mortgage (180,000)
Car loan (5,000)
Credit card (5,000)
(190,000)
ASSETSASSETS
LIABILITIESLIABILITIES
Slide 19 notes reference - page 20
$ $ $ ASSETSNon-current assets
Land and buildings 100,000Office equipment 50,000Motor vehicles 30,000Furniture and fixtures 20,000
200,000Current assets
Inventories 50,000Trade receivables 30,000Less: allowance for doubtful debts (2,000)
28,000Prepayments 5,000Cash in hand and at bank 7,000
90,000Total assets 290,000
The Balance Sheet (SOFP)
Slide 20 notes reference - page 20
$ $ $ CAPITAL AND LIABILITIESCapital
Capital 170,000Profit 45,000Less: drawings (25,000)
190,000Non-current liabilities
Bank loans 40,000
Current liabilitiesBank overdraft 16,000Trade payables 40,000Accruals 4,000
60,000Total capital and liabilities 290,000
The Balance Sheet (SOFP)
Slide 21 notes reference - page 20
Key Features
• Always date a balance sheet
• Non-current assets – long-term
• Current assets – not non-current assets!• Capital – what the business owes the owner
• Don’t include nil value items
• Balance sheet = snapshot of the business
Slide 22 notes reference - page 22
Income statement for the year ended 31 December 20X1:
$ $
Sales 200,000Less: Cost of sales
Opening inventories 40,000Purchases 110,000Carriage inwards 20,000
170,000Closing inventories (50,000)
(120,000)Gross profit 80,000
….continued on next slide
The Income Statement
Trading account
Slide 23 notes reference - page 22
$ $
Gross profit (from previous slide) 80,000Sundry income 5,000Discounts receivable 3,000
88,000Less: Expenses
Rent 11,000Carriage outwards 4,000Telephone 1,000Electricity 2,000Wages and salaries 9,000Depreciation 7,000Bad and doubtful debts 3,000Motor expenses 5,000Discounts allowable 1,000
(43,000)Profit for the period 45,000
The Income Statement (cont’d)
Slide 24 notes reference - page 22
Key features
• Headed up with accounting period
• Top part (down to gross profit) is trading account
• Sundry income includes items like bank interest
• Do not include nil value items
• Income statement = video of the period
Slide 25 notes reference - page 23
Balance Sheet & Income Statement
Balance sheet – worth of business at a point in timeBalance sheet – worth of business at a point in time
Income statement –trading activities over periodIncome statement –trading activities over period
Chapter 3
Sources, records and the books of prime entry
Slide 27 notes reference - page 27
Maintaining Records
There are a number and variety of transactions
Sales SalesPurchases PurchasesWagesStationeryAcquisition of non-current
CASH CREDIT
Slide 28 notes reference - page 27
Flow of information
Assorted Transactions A business has lots of detailed data on a day to day basis
Categorised Grouping together of similar transactions e.g. wages payments
Summarised Produce useful information
e.g. monthly sales total
Financial Statements The formal and accepted formatfor a company to report
Slide 29 notes reference - page 28
Main books of prime entry
• Cash book• Sales (Receivables)
Day Book• Purchases (Payables)
Day Book• Petty Cash Book• Journal
Slide 30 notes reference - page 28
Cash Book
• Records receipts and payments into and out of the bank.
• Often assumed to be two books
• Very important record of company’s cash flow position
Slide 31 notes reference - page 28
Cash Book Receipts
Date Narrative Total
$
Capital
$
Sales
$
Receivables
$
2.1.X6
5.1.X6
6.1.X6
F. Bloggs
J. Spalding
J.Smith
4,000
200
500
4,000
500
200
4,700 4,000 500 200
Slide 32 notes reference - page 28
Cash Book Payments
Date Narrative Total
$
Purchases
$
Van
$
Rent
$
Payables
$
Petty
Cash
$
Drawings
$
6.1.X6
6.1.X6
8.1.X6
Manley & Co.
Petty Cash
Digby Co
350
50
1,000 1,000
350
50
1,400 1,000 350 50
Slide 33 notes reference - page 29
Sales Day Book
Date Customer $
3.1.X6
5.1.X6
J.Spalding
G.McGregor
200
400
TOTAL 600
Lists all sales made on CREDIT
Slide 34 notes reference - page 29
Purchases Day Book
Date Supplier $
1.1.X6
4.1.X6
Tewson Co
Manley and Co
400
350
TOTAL 750
Lists all purchases made on CREDIT
Slide 35 notes reference - page 29
Petty Cash Book
Date Narrative
Total
$
Date Narrative Total
$
Stationery
$
Travel
$
6.1.X6
Cheque
cashed
50 7.1.X6
City Stationers
10 10
8.1.X6
F.Bloggs
Metro Fare 2 2
12 10 2
Receipts Payments
Slide 36 notes reference - page 29
Imprest System
•Pre-set limit say $50•Voucher is filled in when money is taken•At any time, vouchers + cash = $50•The petty cash book is filled in from the vouchers•The amount used to restore the pre-set limit = money spent
Slide 37 notes reference - page 30
Journal
Certain transactions do not fit in the main books:
Period end adjustments
Correction of errors
Slide 38 notes reference - page 30
Memorandum Ledgers
Can you identify how much Mr Spalding owes you from thefollowing invoices?
Or how much you owe to Tewson & Co.?
Slide 39 notes reference - page 30
Memorandum Ledgers
Sales (Receivables) ledger
• Shows the total outstanding from each credit customer (receivable)
• Useful for credit control
Purchases (Payables) ledger
• Shows total due to each credit supplier (payable)
• Useful for cash flow
A business has to keep separate ledgers so that it can keep track of individual credit customers and suppliers
Chapter 4
Ledger accounting and double entry
Slide 41 notes reference - page 35
Introduction
Categorise transactions in BOPE
then
Summarise information in nominal ledger
Slide 42 notes reference - page 35
Dual Effect
Any transaction that takes place alwaysaffects 2 items in the accounts.
E.g. A sole trader pays $6,000 into the business bank account
The items in the accounts affected are?
Cash Capital
Slide 43 notes reference - page 35
Ledger accounts
Which side of T- account should entry go?
DEBIT CREDIT
Slide 44 notes reference - page 36
reditsC
General rules
D
E
C
IA
L
D
ebits
xpenses
ssets
rawings apital
ncome
iabilities
Slide 45 notes reference - page 36
Ledger accounts
The amounts are recorded in T- accounts
Each item in the I/S and B/S has an accountEach item in the I/S and B/S has an account
Dr CAPITAL Cr Dr CASH Cr
6,000 6,000
Slide 46 notes reference - page 36
Ledger accounting
A sole trader purchases goods on credit for $400
Which 2 accounts are affected?
Dr PURCHASES Cr Dr PAYABLES Cr
400 400
Slide 47 notes reference - page 36
Lecture example 1
CreditTransaction
LoanCashBorrow money from the bank
CashPayablesPay cash to a payable
ReceivablesCashReceive cash from a receivable
CashHeat & lightPay electricity bill
PayablesPurchasesPurchases on credit
CashPurchasesPurchases for cash
Sales ReceivablesSales on credit
SalesCashSales for cash
Debit
Slide 48 notes reference - page 38
Lecture example 2 - Douglas part (a)
Cash
$ $Capital 5,000Sales 2,100
Rent 500Electricity 200Car 1,000Drawings 300
Capital
$ $Cash 5,000
Slide 49 notes reference - page 38
Payables
$ $
Purchases 2,000
Lecture example 2(a) continued
Purchases
$ $
Payables 2,000
Rent
$ $
Cash 500
Electricity
$ $
Cash 200
Slide 50 notes reference - page 38
Lecture example 2(a) continued
Drawings
$ $
Cash 300
Receivables
$ $
Sales 1,750
Car
$ $
Cash 1,000
Sales
$ $
Rec. 1,750Cash 2,100
Slide 51 notes reference - page 42
Step 2: Balance off the lower side
Step 3: Complete the double entry
Lecture e.g. 3: Balancing off the accounts
Sales 500
Sales 500
Purchases 300
Telephone 50
Cash
How much cash do we have left?How much cash do we have left?
$650
Let’s see this in T-account termsStep 1: Fill in highest total on both sides
1000 1000
c/d 650
b/d 650
Slide 52 notes reference - page 38
Lecture example 2 - Douglas part (b)
RentElectricityCarDrawingsbal c/d
Cash
$ $Capital 5,000Sales 2,100
500200
1,000300
5,100
bal b/d 5,100
7,100 7,100
Capital
$ $Cash 5,000
bal b/d
5,000 5,000
5,000
bal c/d 5,000
Slide 53 notes reference - page 38
Lecture example 2(b) continued
Payables
$ $
Purchases 2,000
2,0002,000
bal b/d 2,000
bal c/d 2,000
Purchases
$ $
Payables 2,000 bal c/d 2,000
2,0002,000
bal b/d 2,000
Rent
$ $
Cash 500 bal c/d 500
500500
bal b/d 500
Electricity
$ $
Cash 200 bal c/d 200
200200
bal b/d 200
Slide 54 notes reference - page 38
Lecture example 2(b) continued
Car
$ $
bal c/d 1,000
1,0001,000
bal b/d 1,000
Cash 1,000
Drawings
$ $
Cash 300 bal c/d 300
300300
bal b/d 300
Receivables
$ $
Sales 1,750 bal c/d 1,750
1,7501,750
bal b/d 1,750
Sales
$ $
bal c/d 3,850 Rec. 1,750
3,8503,850
bal b/d 3,850
Cash 2,100
Chapter 5
From trial balance to financial statements
Slide 56 notes reference - page 47
Example – Miss Smith
Account Debit
$
Credit
$
Cash 720
Capital 500
Sales 2,200
Purchases 1,100
Furniture 500
Electricity 120
Telephone 60
Drawings 200
Total 2,700 2,700
Slide 57 notes reference - page 47
Errors in the trial balance
• Error of Commission C
Omission O
Principle P
Compensating C
Original Entry O
Reversing R
Slide 58 notes reference - page 38
Ch4 - Lecture example 2 - Douglas part (c)
Rent
CapitalCash
PayablesPurchases
CarElectricity
Drawings
Account
ReceivablesSales
1,000
1,750
Trial BalanceDebit
5,000
500200
Credit
2,0002,000
5,100
3,850
300
10,850 10,850
Slide 59 notes reference - page 49
The closing inventory/stock adjustment
Stock
Asset of the business
Dr Inventory (B/S)
COS must match salesRemove unsold inventory from COS
Cr Inventory (IS)
Slide 60 notes reference - page 49
Lecture example 1 – closing inventory adj.
(20 x $30) 600
(50 x $20) 1,000
(30 left @ $20)(600)
(400)
200
Sales
Cost of sales:PurchasesLess: Closing inventories
Gross profit
Slide 61 notes reference - page 50
The income statement …..
…..is part of the double entry system
Rec 1,000
Rec 2,000
Rec 1,500I/S 4,500
Sales I/SSales 4,500
…..all income and expense accounts aretransferred to the I/S T-account.
4,500 4,500
Slide 62 notes reference - page 38
Ch4 - Lecture example 2 - Douglas part (d)
Income Statement
Slide 63 notes reference - page 38
Ch4 - Lecture example 2(d) continued
Sales
$ $
bal c/d 3,850 Rec. 1,750
3,8503,850
bal b/d 3,850
Cash 2,100
Purchases
$ $
Payables 2,000 bal c/d 2,000
2,0002,000
bal b/d 2,000
Rent
$ $
Cash 500 bal c/d 500
500500
bal b/d 500
Electricity
$ $
Cash 200 bal c/d 200
200200
bal b/d 200
I/Statement 3,850
Slide 64 notes reference - page 38
Income statement
Ch4 - Lecture example 2(d) continued
Sales 3,850
Slide 65 notes reference - page 38
Ch4 - Lecture example 2(d) continued
Sales
$ $
bal c/d 3,850 Rec 1,750
3,8503,850
bal b/d 3,850
Cash 2,100
Purchases
$ $
Payables 2,000 bal c/d 2,000
2,0002,000
bal b/d 2,000
Rent
$ $
Cash 500 bal c/d 500
500500
bal b/d 500
Electricity
$ $
Cash 200 bal c/d 200
200200
bal b/d 200
I/statement 3,850
I/Statement 2,000
Slide 66 notes reference - page 38
Income Statement
Ch4 - Lecture example 2(d) continued
Sales 3,850Purchases 2,000
Slide 67 notes reference - page 38
Ch4 - Lecture example 2(d) continued
Sales
$ $
bal c/d 3,850 Rec 1,750
3,8503,850
bal b/d 3,850
Cash 2,100
Purchases
$ $
Payables 2,000 bal c/d 2,000
2,0002,000
bal b/d 2,000
Rent
$ $
Cash 500 bal c/d 500
500500
bal b/d 500
Electricity
$ $
Cash 200 bal c/d 200
200200
bal b/d 200
I/Statement 3,850
I/Statement 2,000
I/St’ment 200I/St’ment 500
Slide 68 notes reference - page 38
Income Statement
Closing inv. 250Gross profit c/d 2,100
Gross profit b/d 2,100
Sales 3,850Purchases 2,000
Rent 500Electricity 200Net profit c/d 1,400
Net profit b/d 1,400
4,100 4,100
2,100 2,100
Ch4 - Lecture example 2(d) continued
Slide 69 notes reference - page 50
b/d 4,500
Balance Sheet…..
…..is not part of double entry system
Sales 1,000
Sales 2,000
Sales 1,500
Receivables
c/d 4,500
…all assets and liabilities are not transferredThey are only listed in the balance sheet
4,500 4,500
Slide 70 notes reference - page 38
Ch4 - Lecture example 2 - Douglas part (e)
Douglas: Income Statement for the month of January$$
Sales 3,850Less Cost of SalesPurchases 2,000Less Closing Invent. (250)
(1,750)
Gross Profit 2,100Less Expenses:RentElectricity
500200
(700)
1,400Net Profit
Slide 71 notes reference - page 38
Ch4 - Lecture example 2(e) continuedDouglas: Balance Sheet as at 31 January $$Non-Current assetMotor Vehicle
Current AssetsInventory
Total Assets
PayablesCurrent Liabilities
ReceivablesCash
CapitalProfitDrawings
5,000
1,000
1,750 250
5,1007,100
8,100
2,000
1,400(300)
6,100
Proprietor’s Interest
8,100
Slide 72 notes reference - page 50
Income statement and Drawings…..
…are cleared to the capital account at the end of the period
Purchases 500
Rent 100
Phone 100
Sales 1,000I/S
Cash 200
Drawings
Cash 4,000
CapitalCapital 300
I/S 300
Capital 200
Drawings 2001,000 1,000
200 200
4,300 4,300
c/d 4,100
b/d 4,100
Slide 73 notes reference - page 38
Ch4 - Lecture example 2 - Douglas part (f)
Profit and drawings are cleared to the capitalaccount at the end of the period
Capital
$ $bal c/d 5,000 Cash 5,000
5,000 5,000
bal b/d 5,000
Slide 74 notes reference - page 38
Ch4 - Lecture example 2(f) continued
Drawings
$ $Cash 300 bal c/d 300
300 300
bal b/d 300
$ $
Income statement
2,0002,100
2,100500200
PurchasesGross profit c/d
3,850250
SalesClosing Inv
4,100 4,100
Gross profit b/dRentElectricity
1,400Net profit c/d
2,100 2,100
1,400Net profit b/dCapital a/c 1,400
Slide 75 notes reference - page 38
Capital
$ $bal c/d 5,000 Cash 5,000
5,000 5,000
bal b/d 5,000
Ch4 - Lecture example 2(f) continued
Net profit 1,400
Slide 76 notes reference - page 38
Ch4 - Lecture example 2(f) continued
Drawings
$ $Cash 300 bal c/d 300
300 300
bal b/d 300
$ $ Income Statement
2,0002,100
2,100500200
PurchasesGross profit c/d
3,850250
SalesClosing inv.
4,100 4,100Gross profit b/dRent
Electricity1,400Net profit c/d2,100 2,100
1,400Net profit b/dCapital a/c 1,400
Capital a/c 300
Slide 77 notes reference - page 38
Capital
$ $bal c/d 5,000 Cash 5,000
5,000 5,000
bal b/d 5,000
Ch4 - Lecture example 2(f) continued
Net profit 1,400
6,4006,400
bal c/d 6,100
Drawings 300
bal b/d 6,100
Chapter 6
The accounting equation
Slide 79 notes reference - page 57
The accounting equation
ASSETS LIABILITIES=
ASSETS PROPRIETOR’S INTEREST
= PAYABLES+
Capital +-Profit
Drawings
ASSETS - PAYABLES PROPRIETOR’S INTEREST
=
Slide 80 notes reference - page 58
The accounting equation
+ - +Drawings PayablesAssets = Capital Profit
Slide 81 notes reference - page 58
Using Douglas Example
$1,000 = $5,000 + $1,400 - $300 + $2,000
$250
$1,750
$5,100
$8,100
+ - +Drawings PayablesASSETS = Capital Profit
Slide 82 notes reference - page 60
Practical definitions
• Assets– Something valuable an entity owns
• Liabilities– Owed to someone else
• Capital as liability– Money owed to the proprietor
• Drawings– Taken out of business by its owner
Slide 83 notes reference - page 58
Rearranging the accounting equation
Assets = (Capital + Profit – Drawings) + Payables
or
Assets - Payables = Capital + Profit – Drawings
Net Assets Proprietor’s interest=
Slide 84 notes reference - page 58
The business equation
Change in net assets = Change in Capital + Profit – Drawings
1 March Net Assets
31 March Net Assets
=
=
6,000
11,700Increase = 5,700
Additional capital introduced = 4,000. Profit = ?
Slide 85 notes reference - page 58
The business equation
4,000
2,000
(300)
Increase in capital
Profit
Less: Drawings
5,700
Rearranging the business equation:
Profit = increase in net assets – increase in capital + drawings
Slide 86
End of day 1 - what to do now…
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