Summary - Introduction to Financial Accounting (LUBS1915)
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Course
Introduction to Financial Accounting (LUBS1915)
Institution
University Of Leeds (UoL)
Notes compressed from lengthy sentences (from revision books) into short sentences to help revision. It includes examples and answers from each subtopics.
Accounting:
A way of recording, analysing, and summarising the transactions of an entity
Accounting Equation:
Assets = Liabilities + Capital
Capital = Capital Invested + Profit OR – Loss – Drawings
Extended Equation: Assets + Expenses = Capital + Liabilities + Income
Debits = Uses Credits = Sources of Finance
ALICE:
Debit to Increase, Credit to Decrease Credit to Increase, Debit to Decrease
Assets: resources that you own Liabilities: obligations that you have
Current Assets: < 1 year: short-term Current Liabilities: < 1 year: long-term
arising from daily activities uses, tangible assets and intangible
Examples: inventory, trade assets
receivables, prepayments, cash at Examples: trade payables, accruals,
bank, cash in hand bank overdraft, bank loan < 1 year
Non-Current Assets: > 1 year Non-Current Liabilities: > 1 year
Examples: premises, fixtures and Examples: bank loans, debentures,
fittings, machinery, motor vehicles mortgages
Expenses: a cost that businesses incur Income: money coming into the
in running their operations business
Examples: wages, rent, insurance, Examples: discount received, sales,
discount allowed, carriage inwards, rental income from property, profit on
carriage outwards, bank fees, disposal
purchases, loss on disposal, audit fee,
irrecoverable debt Capital: the amount that the entity
owes to its owners, the money put in
2 Categories: by the owner(s)
Distribution Costs Example: owner’s savings, share
Administrative Costs capital
,Layouts:
Analysis of Expenses:
Cost of Sales: Distribution Admin
Costs: Expenses:
Purchases XXX
Opening Inventory XXX
Distribution Costs XXX
Administrative Costs XXX
Directors’ Remuneration XXX
Audit Fee XXX
Irrecoverable Debt XXX
Allowance for Irrecoverable Debt XXX
Closing Inventory XXX
Prepayments XXX XXX
Accruals XXX XXX
Depreciation XXX XXX
Motor Expenses XXX
Rates and Insurance XXX
Carriage Inwards XXX
Closing Inventory XXX
Total: XXX XXX XXX
Administrative Costs = Cost incurred that is not directly related to
manufacturing, production, or sale of goods or services
Includes:
- Rent and Rates
- Depreciation of Office Equipment, Furniture, and Fittings
- Insurance
- Wages and Salaries
Distribution Costs = The cost of transporting your products to your customers
Includes:
- Carriage Outwards
- Shipping Costs
- Motor Expenses (Maintenance of Transport Vehicles)
- Depreciation of Delivery Vehicles
- Cost of Warehouses
, [Company Name]
Statement of Profit or Loss for the year ended [Date]
£ £
Revenue XXX
Cost of Sales (XXX)
Gross Profit XXX
Other Income XXX
XXX
Less: Expenses
Distribution Costs XXX
Administrative Expenses XXX XXX
Operating Profit XXX
Finance Costs (XXX)
Profit Before Tax XXX
Tax (XXX)
Profit After Tax XXX
Other Income includes:
- dividends on investments
- interest on savings
- rent received
- proceeds of insurance
- claims
- profit of non-current assets
Finance Costs includes:
- interest expense on bank loans
- interest expense on bank overdrafts
- interest expense on debt securities
Cost of Sales = Opening Inventory + Purchases + Carriage Inwards – Purchase
Returns – Goods For Own Use – Closing Inventory
, Retained Earnings
Ordinary Dividend Paid XXX Balance B/D XXX
Preference Dividend Paid XXX Net Profit For The Period XXX
Preference Dividend Unpaid XXX
Net Loss for The Period XXX
Transfer to General Reserve XXX
Balance C/D XXX
XXX XXX
Retained Earnings: accumulated profit that has not been paid out as dividends
or transferred to other reserve
Reserve: amounts attributable to equity shareholders other than share price
e.g. retained earnings, share premium, other reserves
Ordinary Dividend Paid: comes from the Trial Balance OR calculated from
dividend of __p per share X the number of shares
Preference Dividend Paid: % of the irredeemable preference X the number of
preference shares
Example: 10% irrecoverable preference £1 share, total £30,000,000
Preference dividend paid £1,500,000
The final preference dividend has not yet been paid
What is the adjustment for this?
Adjustment: £30,000,000 X 10% = £3,000,000
£3,000,000 – £1,500,000 = £1,500,000
Debit Retained Earnings £1,500,000, Credit Bank £1,500,000
Final Preference Dividend: Debit Retained Earnings £1,500,000,
Credit Dividend Payable (Current Liabilities) £1,500,0000
Journal for Interim Dividend Payment Made:
Debit Retained Earnings
Credit Bank
Journal for Final Dividend That Has Not Been Paid:
Debit Retained Earnings
Credit Dividend Payable
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