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

Emerging issues and trends



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