Foundations of Accounting – KASNEB Syllabus

PAPER NO.10 FOUNDATIONS OF ACCOUNTING

GENERAL OBJECTIVE

This paper is intended to equip the candidate with knowledge, skills and attitudes that will enable him/her to account for various basic financial transactions, prepare and analyse financial statements.

LEARNING OUTCOMES

A candidate who passes this paper should be able to:

Apply accounting concepts in preparation of financial statements
Apply the double entry aspects of accounting
Account for assets and liabilities
Prepare financial statements of a sole trader, partnership and company
Analyse financial

CONTENT

Introduction to accounting

The nature and purpose of accounting
Objectives of accounting
Users of accounting information and their respective information needs
The accounting equation
Regulatory framework of accounting, regulatory bodies such as ICPAK, IFAC, IASB, IAESB
Accounting standards (IAS/IFRS) development, importance and limitation of accounting standards and professional ethics
Accounting concepts/principles
Qualities of useful accounting information

Recording transactions

Source documents; quotation, purchases order, 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 cashbook and general
Double entry and the ledger; Use of T accounts and double entry aspects (debit and credit), sales ledger, purchases ledger and purchases ledger
The trial balance
Manual versus computerised accounting systems

Year-end procedures and adjustments

Assets
- Property, plant and equipment – recognition, capital and revenue expenditure, measurement
- Financial assets – examples and risks only
- Inventory – recognition, measurement and valuation using specific cost method, FIFO and weighted average cost
- Accrual accounting; accrued and prepaid incomes, Accrued and prepaid expenses
- Depreciation and amortisation
- Debtors aging schedule, bad debts and allowance for doubtful debts

Extracting financial statements from adjusted trial balance
Cash at bank – cash book and bank reconciliation statement
Cash in hand – cash book and petty cash books

Liabilities

Bank overdraft – cash book and bank reconciliation
Trade payables – control accounts
Loans – accounting treatment of repayment of principal and interest
Prepaid income and accrued expenses

Correction of errors and suspense account

Financial statements of a sole trader

Income statement
Statement of financial position

Financial statements of a company

Types of share capital – ordinary shares and preference shares
Types of reserves – share premium, revaluation reserve, general reserves and retained profits
Other liabilities – loan stocks ,debenture
Financial statements – income statement and statement of financial position
Published financial statements – definition and a description of a complete set of published financial statements but not their preparation

Financial statements of a not for profit organisation

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

Financial statements of a manufacturing entity

Features of a manufacturing entity
Classification and apportioning costs between manufacturing and selling and administration
Financial statements – manufacturing account, income statement and statement of financial position

Analysing financial statements

Statement of cash flows (categories of cash, methods of preparing statement of cash flows and their importance)
Financial ratios – definition, categories, analysis and interpretation, application and limitations