CA11: FINANCIAL ACCOUNTING

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GENERAL OBJECTIVE

This paper is intended to equip the candidate with knowledge, skills and attitudes that will enable him/her to prepare financial statements for different entities.

LEARNING OUTCOMES

A candidate who passes this paper should be able to:

Prepare books of original entry and basic ledger accounts under double entry system

Prepare basic financial statements of sole traders, partnerships, companies, manufacturing entities and not for profit organisations

Comply with the regulatory framework in the accounting field

Account for assets and liabilities

Analyse financial statements by use of ratios and statement of cash flows.

Course Content

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Topic 1. INTRODUCTION TO ACCOUNTING 13 Topics

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The nature and purpose of accounting

Objectives of accounting

Users of accounting information and their respective needs

The accounting equation

Regulatory framework of accounting (regulatory bodies such as ICPAK, IFAC, IASB, IPSASB, IAESB) – Accounting standards (IASs/IFRSs) (importance and limitations)

Professional ethics

Accounting concepts/principles

Qualities of useful accounting information Recording transactions

Source documents: quotations, purchase orders, statement of account, remittance advice, receipts, petty cash vouchers, sales and purchase invoice, credit notes and debit notes, bank statements

Books of original entry: sales journal, purchases journal, returns inwards journal, returns outward journal, cash book, petty cash book and general journal

Double entry and the ledger; use of T- accounts and double entry aspects (debit and credit), sales ledger and purchases ledger

The trial balance

Computerised accounting systems – role of computers, application and accounting softwares in the accounting process, benefits and challenges of operating computerised accounting systems

Topic 2: ACCOUNTING FOR ASSETS AND LIABILITIES 12 Topics

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Property, plant and equipment – recognition, capital and revenue expenditure, measurement (depreciation and revaluation), disposal and disclosures, property, plant and equipment schedule

Intangible assets – recognition, measurement (amortisation, impairment and revaluation), disposals and disclosures

Financial assets – examples and risks only

Inventory – recognition, measurement and valuation using specific cost method, FIFO and weighted average cost only

Trade receivables – bad debts and allowance for doubtful debts and receivables control accounts

Accrued income and prepaid expenses

Cash at bank – cash book and bank reconciliation statement

Cash in hand – cash book and petty cash books

Bank overdraft – cash book and bank reconciliation statement

Trade payables – control accounts

Loans – accounting treatment of repayment of principal and interest

Prepaid incomes and accrued expenses

Topic 3. CORRECTION OF ERRORS AND SUSPENSE ACCOUNT

Topic 4: FINANCIAL STATEMENTS OF A SOLE TRADER 2 Topics

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Income statement

Statement of financial position

Topic 5:FINANCIAL STATEMENTS OF A PARTNERSHIP 6 Topics

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Partnership agreement

Introduction to partnership accounts

Distinction between current and fixed capital

Income statement

Statement of financial position

Changes in partnership – admission of a new partner, retirement, death and change in profit sharing ratio

Topic 6: FINANCIAL STATEMENTS OF A COMPANY 6 Topics

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Types of share capital – ordinary shares and preference shares

Issue of shares (exclude issue by instalment and forfeiture)

Types of reserves – share premium, revaluation reserve, general reserves and retained profits

Income tax – accounting treatment and presentation (exclude computation)

Financial statements – income statement and statement of financial position

Published financial statements (describe a complete set of published financial statements but not preparation)

Topic 7: FINANCIAL STATEMENTS OF A MANUFACTURING ENTITY 3 Topics

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Features of a manufacturing entity

Classification and apportioning costs between manufacturing, selling and administration

Financial statements-manufacturing account, income statement and statement of financial position

Topic 8: ACCOUNTS FOR INCOMPLETE RECORDS 5 Topics

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Types of incomplete records(pure single entry, simple single entry, quasi single entry)

Ascertainment of profit by capital comparison

Preparation of statement of affairs and profit determination

Techniques of obtaining complete accounting information

Topic 9: FINANCIAL STATEMENTS OF A NOT FOR PROFIT ORGANISATION 5 Topics

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Distinction between not for profit making organisation and profit making organisation

Nature of receipts and payments account

Accounting treatment of some special items

Income and expenditure account

Statement of financial position

Topic 10: ANALYSIS OF FINANCIAL STATEMENTS 2 Topics

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Statement of cash flows (categories of cash, methods of preparing statement of cash flows and the importance)

Financial ratios – definition, categories, analysis and interpretation, application and limitations

Topic 11: INTRODUCTION TO PUBLIC SECTOR ACCOUNTING 6 Topics

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Features of public sector entities (as compared to private sector)

Structure of the public sector (National and county governments, state corporations and other agencies)

Regulatory structures and oversight [IPSASB, PSASB (establishment, mandate and functions), Director of Accounting Services, National Treasury, Parliamentary Committees, Accounting Officers at national and county levels]

Objectives of public sector financial statements

Objectives of IPSAS

Accounting techniques in public sector (budgeting, cash, accrual, commitment and fund) (Preparation of financial statements excluded)

Topic 12: EMERGING ISSUES AND TRENDS