Topic 1 :

①
Conceptual Framework

Accounting entity concept

The accounting entity assumption asserts that for accounting purposes, an entity is treated as a
separate economic unit, distinct from its owners and other entities. This means that the entity's
financial transactions are recorded and reported independently from those of its owners and any
other entities. It assumes that the entity has control over its assets and is responsible for its
liabilities. This assumption is crucial because it forms the basis for the accounting equation, which
is fundamental in accounting for the entity's financial position and performance.

Period
-

Accounting
The assumption that an entity's life can be divided into equal time intervals forms the basis for
financial reporting. This assumption allows for the determination of financial performance and
position for specific periods. Accordingly, income is recognized and expenses are deducted for
the same period, following the accrual basis of accounting. This necessitates making end-of-
period adjustments on the last day of the reporting period to ensure accurate financial reporting

- Accrual Basis
Under the accrual basis of accounting, transactions and events are recorded when they occur,
regardless of when cash is received or paid. This means that financial statements reflect not
only cash transactions but also future obligations to pay cash and resources representing
future cash receivables. The Conceptual Framework argues that accrual basis accounting
provides better information for decision-making compared to cash basis accounting, as it
captures the economic reality of transactions and events more accurately over time, thus
enhancing the usefulness of financial statements to users.

-Going Concern

The going concern assumption, as per the Conceptual Framework, posits that an entity is
expected to continue its operations into the foreseeable future. This assumption underpins
financial statement preparation, presuming that assets will not be sold off in a forced liquidation.
Therefore, liquidation values of assets are not typically reported in financial statements. However,
if management intends to sell or liquidate the entity, the going concern assumption is set aside,
and financial statements are prepared based on estimated sales or liquidation values. The
importance of the going concern assumption lies in how it impacts the valuation of assets in
financial statements, clearly indicating whether values are based on a going concern or liquidation
basis.
The two fundamental characteristics of financial information are:
⑳ relevance
Relevance means that the information contained in financial statements is able to
influence the economic decisions made by users. For example, the information may help users to
predict future events, such as future cash flows, from alternative courses of action under
consideration. Also, information is relevant if it is able to help decision makers evaluate past decisions.
The information may confirm that a previous decision was correct, or it could show that the results of a
previous decision were undesirable and that a new decision is necessary. Thus, relevant information is
said to play a predictive role and a confirmatory or feedback role.
· faithful representation
Faithful representation is attained when the depiction of an economic event is complete (i.e. all
information necessary to represent the event are included), neutral (i.e. free from bias), and accurate
(i.e. free from material error). In addition, financial information that faithfully represents an economic
phenomenon should depict the economic substance of the underlying transaction, event or
circumstances, rather than its legal form.
The four enhancing characteristics of financial information are:
⑳ comparability
Comparability is the quality of information that enables users to identify similarities in and
differences between two sets of economic data. For financial information to be comparable, users
need to be able to compare information of an entity over time, and between entities at one time and
over time.
⑳ verifiability

If financial information is verifiable, it means that different independent observers would reach general
agreement that the information represents economic event it purports to represent without material
error or bias.
. timeliness
To be relevant for decision-making, financial information must be available in a timely
manner. If there is undue delay in reporting the information to users, then the
information will lose its capacity to influence decisions (i.e. no longer relevant).
⑳ understandability
The Conceptual Framework defines understandability as the quality of information that
enables users who have a reasonable knowledge of business and economic activities and financial
accounting, and who study the information with reasonable diligence, to comprehend its meaning.
Topic 2 :

①
Accounting Equation
Pr4A " PE "4L
=
+

②- Analyse each transaction in terms of its effects on the accounts.

Enter transaction information in a journal.
Transfer (POST) journal information to appropriate accounts in the ledger.
-

↳ chronological
record
transfer entries
Posting
- :

A trial balance is a list of all the accounts and their balances at a given time listed in
order as they appear in general ledger.
It proves the mathematical equality of debits and credits after posting.
Errors not detected in a trial balance:
– A transaction is not journalised.
– A correct journal entry is not posted.
– A journal entry is posted twice.
– Incorrect accounts used in journalising or posting.
– Offsetting errors made in recording the amount of a transaction.
Topic 3 :

④ Both accrual basis and cash basis provide useful information. However, it can
be argued that the accrual basis of accounting provides more useful
information about performance for decision makers because it recognises the
impact of accounting transactions or events on specific accounting periods.
The cash basis of accounting only recognises cash transactions. The accrual
basis of accounting provides a more comprehensive picture of the business
activities in the records. For example, accrued basis profit takes account of all
revenues and expenses for a period whether or not cash is received or paid
(provided recognition criteria are met). It also takes account of internal events,
such as the consumption of supplies or the depreciation of plant assets.
However, cash basis accounting is also useful. For example, the statement of
cash flows shows how much cash is generated from ordinary operating
activities (which will invariably be greater or less than accrual basis profit).

entries
③ Types of adjusting
Prepaid expenses (A)
(2)] Prepayment
-

-
Revenue received in advance

-Accrued revenue2n 3 Acas i

④ Temporary account >

only given accounting period
-

Permanent account >

-
carried forward to future

>
- Balance sheet effect & Income Statement
understated or
overstated
The two categories of adjusting entries are prepayments and accruals.
Prepayments are either revenues received in advance or prepayments of
amounts that provide economic benefit for more than one period, e.g. prepaid
rent. Accruals consist of revenues and expenses earned or incurred but which
have not been recorded through daily recording of transactions.
In this text, we teach you to recognise a transaction which affects more than 1
reporting [period as an asset. Therefore, in a prepaid expense adjusting entry,
expenses are debited and assets are credited, to reflect the expiry of the asset.
In a revenue received in advance adjusting entry liabilities are debited and
revenues are credited.
If closing entries
mean
clear already
>
- Retained earning account
>
-
Income summary
 Topic 4 :
Inventories.

① Differences between service and

merchandising business

merchandising service.

-buy inventory and resell

,
main - don't sell good
source of income [Sales Revenue]
Revenue

costofsas e expenses
expenses
-
-

= Profit and Loss .

Sales Revenue -
Cost of Sales
·
gross profit -

expenses
=
Net Profit (Loss)
I

② Inventory systems
-

Perpetual Periodic
Records
-

continuosly. -records
only at end

-
When sale occurs
of
accounting period.
,

need to record cost of

sales
-
should be on hand
 Purchases
returna
credit
Archases
on

⑦ Inventory
④ GST Receivable/Paid · GST Receivable
⑦ Account Payable E Inventory
Freight
eightouta
in / Inwards Freight
↳ add to cost of sales sellers
(buyes)

Trade Discount ( %) Discount within ...

↳ no need record (direct minus) ⑦ Account Payable
E discount Received

Sales
⑦ Cash
ash/Account
E
E GST Receivable
Receivablee

① E GST collected
· Sales Sales return

E
⑦ Cost of Sales ④ Sales return
④ GST Collected
E
Inventory O
⑦ Account Receivable
Sales discount
⑦ Inventory
# Cash · cost of sales
⑦ Discount allowed
⑦ GST collected
⑦ Account receivable

GST Ori GST Rate

retas ate price
= x
& ori p :