AIMS
To
develop knowledge and understanding of the techniques
used to maintain accounting records and prepare
final accounts of unincorporated entities.
OBJECTIVES
On
completion of this paper candidates should be
able to:
- understand,
describe and apply relevant accounting concepts,
policies and standards
- maintain
records relating to capital acquisition and
disposal
- prepare
reconciliations for the preparation of final
accounts
- identify,
calculate and record appropriate adjustments
- prepare
and complete the extended trial balance
- prepare
final accounts for a sole trader
- prepare
final accounts for a partnership.
POSITION
OF THE PAPER IN THE OVERALL SYLLABUS
Before
commencing this paper, a thorough knowledge of
Paper 1, Recording
Financial Transactions, is required. Paper
3 builds on the knowledge acquired in Paper 1,
enabling students to prepare final accounts for
a sole trader and for partnerships. This knowledge
is further developed in Paper 6, Drafting Financial
Statements which will enable students to prepare
final accounts for limited liability companies.
SYLLABUS
CONTENT
1
Basic bookkeeping
(a)
The nature and confidentiality of business transactions
(b)
Double entry bookkeeping
(c)
Capital and revenue expenditure
(d)
Assets, liabilities, revenue and expenses
(e)
Initial trial balance
(f)
Format of simple final accounts
(i)
income statement
(ii)
balance sheet
(g)
The organisation’s policies, regulations and timescales
in the preparation of final accounts
2
Accounting standards, principles and policies
(a)
Accounting standards (IASs and IFRSs)
(b)
Accounting principles
(i)
going concern
(ii)
accruals
(ii)
consistency
(iv)
prudence
(c)
Accounting policies
(i)
relevance
(ii)
reliability
(iii)
comparability
(iv)
understandability
3
Non-current assets and depreciation
(a)
Non-current assets
(i)
acquisition
(ii)
asset register
(iii)
accounting treatment
(iv)
disposal
(v)
part exchange
(vi)
authorisation
(vii)
maintenance of capital records
(b)
Depreciation
(i)
straight line
(ii)
reducing balance
4
Control accounts, reconciliations and errors
(a)
Reconciliations
(i)
payables ledger reconciliation
(ii)
receivables ledger reconciliation
(iii)
bank reconciliation
(b)
Identification of errors
(i
) incorrect double entry
(ii)
missing entries
(iii)
numerical errors
(iv)
insufficient information
(c)
Correction of errors
(i)
suspense account
(ii)
journal entries
5
Adjustments to the trial balance
(a)
Accruals and prepayments
(b)
Depreciation
(c)
Bad and doubtful debts
(d)
Closing inventory (and inventory valuation)
(e)
Extended trial balance
(f)
Provisions
6
Final accounts
(a)
Incomplete records
(b)
Sole trader accounts
(i
) income statement
(ii)
balance sheet
(c)
Partnership accounts
(i
) income statement
(ii)
appropriation of profit
(iii)
balance sheet
(iv)
partners’ capital and current accounts
EXCLUDED
TOPICS
The
following topics are specifically excluded from
Paper 3:
- club
accounts
- manufacturing
accounts
- detailed
knowledge of sales tax
- tax
computations
- foreign
currency transactions
- goodwill
arising on admission of a new partner
- cash
flow statements.
KEY
AREAS OF THE SYLLABUS
The
key topic areas are as follows:
- accounting
concepts, policies and standards
- non-current
assets and depreciation
- control
accounts and bank reconciliations
- correction
of errors
- post
trial balance adjustments
- incomplete
records
- final
accounts for sole traders and partnerships.
APPROACH
TO EXAMINING THE SYLLABUS
The
examination is a two-hour paper. It can be taken
as a written paper or as a computer based exam.
The questions in the computer based exam are objective
test questions – multiple choice, number entry
and multiple response.
The
written exam consists of three sections structured
as follows:
No.
of marks
Section
A – 20 compulsory 40 - multiple choice questions
of two marks each
Section
B – compulsory short 15 - from questions of between
two and five marks each
Section
C – three compulsory 45 - written questions of
15 marks each
Total
100
ADDITIONAL
INFORMATION
Accounting
standards will not be examined until six months
after they have been published. The cut off date
for the June examination is 30 November preceding
the June examination. The cut off date for the
December examination is 31 May preceding the December
examination.
RELEVANT
TEXTS
There
are a number of sources from which you can obtain
a series of materials written for the ACCA CAT
examination. These are listed below:
Candidates
may also find the following texts useful, although
they should be aware that these are based on UK
accounting standards:
Cox,
D. Business Accounts (Osborne Books)
Giles,
R. A Complete Course in Business Accounting
(Stanley Thornes) ISBN: 0748761594
Wood,
F and Sangster, A. Business Accounting 1 (Pitman
Publishing) Wider reading is also desirable, especially
regular study of relevant articles
in ACCA’s student accountant magazine.
STUDY
SESSIONS
1
Recording transactions
(a)
Understand the nature of business transactions,
including the need to maintain confidentiality
(b)
Explain the basis of double entry bookkeeping
(c)
Explain and illustrate the dual aspect convention
(d)
Apply the accounting equation (and derivatives
thereof)
(e)
Distinguish between assets, liabilities, revenue
and expenses
(f)
Prepare journal entries to record transactions
(g)
Prepare ledger accounts
(h)
Understand how the structure of accounting records
contributes to providing useful accounting information
and
complies with organisational policies and deadlines
2
The trial balance
(a)
Initial trial balance
(i)
explain the purpose of the trial balance
(ii)
identify the limitations of the trial balance
(iii)
extract the ledger balances to form a trial balance
(b)
Errors in the initial trial balance
(i
) distinguish between errors which will be detected
by extracting a trial balance and those which
will not
(ii)
undertake correction of errors detected in the
initial trial balance, using the journal and /
or suspense account
3
Introduction to final accounts
(a)
Explain the format and purpose of the income statement
(b)
Explain the format and purpose of the balance
sheet
(c)
Explain the influence of organisational structure
on accounting systems
(d)
Identify the users of final accounts and their
needs
4
Basic framework of accounting
(a)
Principles of accounting
(i)
explain and apply the basic principles of accounting:
–
business entity
–
double entry
–
historic cost
–
materiality
–
going concern
–
accruals
–
prudence
–
consistency
(ii)
discuss the overriding need for the fair presentation
of financial information
(b)
Accounting policies
(i
) define the term ‘accounting policies’
(ii)
distinguish between accounting policies, accounting
estimates and measurement bases
(iii)
explain and discuss accounting policies and their
objectives:
–
relevance
–
reliability
–
comparability
–
understandability
(c)
Regulation
(i
) explain the role of International Accounting
Standards
and International Financial Reporting
Standards
5
Assets
(a)
Capital and revenue expenditure
(i
) distinguish between capital expenditure and
revenue expenditure
(ii)
calculate and explain the effect of incorrectly
classifying capital expenditure as revenue expenditure,
and vice versa, on the final accounts
(b)
Current assets
(i
) define current assets
(ii)
report current assets in the final accounts
6
Non-current assets I
(a)
Non-current assets
(i)
define non-current assets
(ii)
account for the acquisition of non-current assets
(iii)
report non-current assets in the final accounts
(b)
Non-current asset records
(i)
explain the purpose and function of an asset register
(ii)
record data in an asset register
(iii)
explain the purpose of data recorded in an asset
register
(iv)
explain how to identify and resolve any discrepancy
between the asset register and the physical presence
of assets
(v)
explain the need for authorisation of acquisition,
disposal and part exchange of non-current assets
7
Non-current assets II
(a)
Depreciation
(i)
define depreciation
(ii)
explain the purpose of depreciation
(iii)
calculate the charge for depreciation using the
straight line and reducing balance methods
(iv)
account for depreciation
(b)
Changes in non-current assets
(i)
account for the disposal or scrapping of a non-current
asset
(ii)
account for the part exchange of a non-current
asset
(iii)
calculate the profit or loss arising on the disposal,
scrapping or part exchange of a non-current asset
8
Errors
(a)
Identify and correct errors in the accounting
records, including:
–
incorrect double entry
–
missing entries
–
numerical errors
–
insufficient information
(b)
Explain the nature and purpose of control accounts
(c)
Explain how control accounts relate to the double
entry system
9
Correction of errors
(a)
Identify and explain the action required to correct
errors
(b)
Prepare correcting journal entries
(c)
Record correcting entries in the ledgers
(d)
Demonstrate how the income statement and balance
sheet are affected by the correction of errors
(e)
Use of a suspense account
(i)
explain the purpose of a suspense account
(ii)
record entries in a suspense account
(iii)
explain the treatment of any remaining balance
on a suspense account
10
Payables ledger reconciliation
(a)
Explain the purpose of a payables ledger reconciliation
(b)
Identify errors in the ledger accounts and list
of balances
(c)
Make correcting entries in the ledger accounts
(d)
Prepare a reconciliation of the list of balances
to the corrected ledger balance
(e)
Identify the payables ledger balance to be reported
in the final accounts
(f)
Report the payables ledger balance in the final
accounts
11
Receivables ledger reconciliation
(a)
Explain the purpose of a receivables ledger reconciliation
(b)
Identify errors in the ledger accounts and list
of balances
(c)
Make correcting entries in the ledger accounts
(d)
Prepare a reconciliation of the list of balances
to the corrected ledger balance
(e)
Identify the receivables ledger balance to be
reported in the final accounts
(f)
Report the receivables ledger balance in the final
accounts
12
Bank reconciliation
(a)
Explain the purpose of a bank reconciliation
(b)
Identify errors and omissions in the ledger account
and bank statement
(c)
Identify timing differences
(d)
Make correcting entries in the ledger account
(e)
Prepare a reconciliation of the statement balance
to the corrected ledger balance
(f)
Identify the bank balance to be reported in the
final accounts
(g)
Report the bank balance in the final accounts
13
Accruals and prepayments
(a)
Describe the nature and purpose of accruals
(b)
Describe the nature and purpose of prepayments
(c)
Calculate accruals
(d)
Calculate prepayments
(e)
Account for accruals
(d)
Account for prepayments
(e)
Report accruals in the final accounts
(f)
Report prepayments in the final accounts
14
Bad and doubtful debts
(a)
Define, and distinguish between, bad debts and
doubtful debts
(b)
Explain the need to provide for bad and doubtful
debts
(c)
Calculate the allowance for bad and doubtful debts
(d)
Account for the write off of bad debts
(e)
Report the write off of bad debts in the final
accounts
(f)
Account for the allowance for bad and doubtful
debts
(g)
Account for the movement in the allowance for
bad and doubtful debts
(h)
Report the movement in the allowance for bad and
doubtful debts in the final accounts
(i
) Report the allowance for bad and doubtful debts
in the final accounts
15
Closing inventory
(a)
Explain the application of accounting concepts
to the valuation of inventory
(b)
Explain the methods of valuing inventory when
items have been purchased at different prices
(FIFO – first in first out; LIFO – last
in first out; Periodic weighted average and Continuous
weighted average)
(c)
Explain the impact of inventory valuation methods
on profit and assets
(d)
Calculate the value of closing inventory
(e)
Report closing inventory in the final accounts
16
Provisions and liabilities
(a)
Explain the nature of provisions and liabilities
(b)
Distinguish between a current liability and a
non-current liabilies
(c)
Calculate provisions and liabilities
(d)
Account for provisions and liabilities
(e)
Account for movements in provisions and liabilities
(f)
Report provisions, non-current liabilities and
long term liabilities in the final accounts
17
Extended trial balance (etb)
(a)
Record the correction of errors on the etb
(b)
Record post trial balance adjustments on the etb
(i)
accruals and prepayments
(ii)
depreciation
(iii)
provisions (including allowances for bad and doubtful
debts)
(iv)
closing inventory
(c)
Extension and completion of the etb
(i
) extend and complete the etb
(ii)
calculate and record the net profit or loss for
the period
18
Sole trader accounts
(a)
Close off ledger accounts for preparation of final
accounts
(b)
Prepare the final accounts (income statement and
balance sheet) for a sole trader
(c)
Record the profit or loss for the period and drawings
in the capital account
(d)
Prepare the opening trial balance for the next
accounting period
19
Partnerships
(a)
Define a partnership
(b)
Explain the purpose of a partnership agreement
(c)
Explain and account for appropriations of profit
–
salaries of partners
–
interest on capital
–
interest on drawings
–
share of residual profit
(d)
Explain the difference between partners’ capital
accounts and partners’ current accounts
(e)
Close off ledger accounts for preparation of final
accounts
(f)
Prepare the final accounts (income statement,
appropriation account and balance sheet) for a
partnership
(g)
Prepare the partners’ capital and current accounts
(h)
Prepare the opening trial balance for the next
accounting period
20
Incomplete records
(a)
Describe the circumstances which lead to incomplete
records
(b)
Calculate the net assets and profit or loss for
a sole trader who has incomplete records
(c)
Prepare and complete ledger accounts to derive
missing figures
(d)
Calculate missing figures using margin or mark
up percentages
(e)
Construct final accounts for a sole trader who
has incomplete records.
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