AS Unit 2 ACCN2 - Financial and Management Accounting
Exam (elaborations)
ACCN2 REVISION NOTES - FROM A* STUDENT
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AS Unit 2 ACCN2 - Financial and Management Accounting
Institution
AQA
This is the full summary of all relevant theories/ questions from past papers and notebooks. I got A* for ACCN1, 2, 3, 4 and my classmates fully understand these too.
I tried to shorten the summary as much as possible so you have the most focused information you need for the AQA exams.
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AS Unit 2 ACCN2 - Financial and Management Accounting
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1. BUSINESS ORGANISATION
Sole trader
Individual who owns a business by himself
Advantage Disadvantage
Owner keep all profits Limited access to capital (savings,family,..)
Easy to set up Do all tasks
Be his own boss If the owner is sick, the business might stop
Make his own decision trading
Unlimited liability
Partnerships
2 to 20 people working together as a business with a view of point
Advantages Disadvantages
More access to capital If a partner leaves/ retires
Partners share workload Reduce capital
More idea for the business More works for the remaining partners
Partners can specialise in an area of the business Cause the business to do badly or fail
Partners share profit
Partners might argue, decision-making could take
longer
Unlimited liability
Accounting requirements
Partnership Act 1890 Partnership agreement
Share profit/loss equally Division of profit/loss between partners
No partner is entitled to a salary Salaries
Partners – not - receive interest on their capital Interest based on capital or at rate
Interest – not charged – partners’ drawings Interest charged on drawings or at rate
One contribute more -> receive 5% interest/year
Limited company
A separate legal entity, owned by shareholders and run by directors
Advantages Disadvantages
Limited liabilities for shareholders Could lose control of the company if too many
More access to capital (issuing shares,lender) shares are issued
Final accounts must be audited
Final accounts are published . viewed by public
Private limited company Public limited company
Can not offer share to public, only friends/family Can offer shares to the public
Could not sell shares on stock exchange Can sell shares on stock exchange
Limited liability for shareholders Limited liability
At least one shareholder, a director ( can be 1 )
2. ACCOUNTING CONCEPTS
Business entity: differentiate assets, liabilities included(equipment)or not(staff’s belongings) in bus accounts
Materiality: only record items that can mislead the use of account (materials), not low valuable items
Cost: record assets, liabilities at historical costs
Going Concern:business – continue – trade – present form –foreseeable future
Accruals (matching) : Expenditure/income are matched to same time period
Expenses are recorded when taken place , not when paid
Income is recorded when a sale occurs , not when payment is received
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, Consistency : business – adopt accounting policies -> continue that policy unless- good reasons – change
Importance: enable users to compare financial statements over time with confidence as they know that they
have been prepared in similar ways and are reliable. This enables users to make decisions with confidence.
Prudence: final accounts – always – report – conservative(lower)figure for profit and valuation of assets,
profits should never be overstated, losses should be anticipated
Importance: Users of financial statements can be confident that the profits shown are real, true, fair and this
will affect decision-making such as taking drawings or paying dividends
Realisation: business transactions – recorded – final accounts WHEN legal title passes between buyer, seller.
E.g: Credit sales are recorded at –time of sale – not time of payment
Objectivity : account – objective (fact, not opinion)
Money Measurement: Money is used in recording and reporting all business transactions
GENERAL : concepts make final accounts relevant, reliable, comparable and understandable
Buss materi co Going accrual consist prud realisat obje
entity ality st concern s ency ence ion ctivit
y
Accruals of expenses and income
Prepayment of expenses and income
Depreciation of non-current assets
Bad debts
Provision for doubtful debts
Inventory valuation
Asset valuation
Asset revaluation
Business will continue to trade
Accounts prepared on same principles
Business separate from owner
Capital and drawings
Good for own use taken by owner
3. FINAL ACCOUNTS
Income Statement
£
Purchases ( purchases – goods for own use – insurance claims )
Gross profit
+ Income
Rent received / Commission received
Discount received
Bad debts recovered
Decrease in provision for doubtful debts = (trade receivables – bad debts) x (%) – previous PFDD
Profit on sale of _
-Expenses ( - prepayment , + accruals )
Bad debts
Discount allowed
Increase in provision for doubtful debts = (trade receivables – bad debts) x (%) – previous PFDD
Depreciation (increased figure) = straight line = ( at cost – residual value ) : expected year of use
= at cost x (%) x years (or months/year)
= reducing balance = Yr1 = (at cost – provision) x % = D1
Yr2 = (at cost –D1) x % = D2
Yr3= (at cost –D1-D2) x %
Loss on sale of _
Profit from operations
-Finance costs (Loan interest, debentures interest)
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