POA GO Contents O-Level (Combined)

Name: ______________________________( ) Class: ________ Principles of Accounts Serangoon Secondary School (2023) POA GO (Pink Booklet) Revision Notes Content Ch 1 – 16 Formula list Revision Practices Adjusted Financial Statements Schools’ Prelim Papers 2015 to 2020 O-Level questions modified from previous syllabus 7175 (Orange Booklet)

Revision Notes Content Chapter Topic Page 1 Introduction to accounting 2 Accounting information system 3 Elements of financial statements and the accounting equation 4 Double-entry recording 5 Trial balance and financial statements 6 Revenue and other income 7 Cost of sales and other expenses 8 Cash 9 Inventories 10 Trade receivables 11 Non-current assets 12 Trade payables 13 Long-term borrowings 14 Equities 15 Correction of errors 16 Financial statements analysis

Formula List 7087 O-Level 1 Profitability Ratios Gross profit margin (%) Gross profit Net sales revenue × 100% Mark-up on cost (%) Gross profit Cost of sales × 100% Profit margin (%) Profit Net sales revenue × 100% Return on equity (%) Profit Average equity × 100% Average equity = Equity (start) + Equity (end) 2 • Sole proprietorship: owner’s equity • Private limited company: shareholders’ equity Liquidity Ratios Working capital ($) Current assets − Current liabilities Current ratio (no units) Current assets Current liabilities Quick ratio (no units) Current assets − Inventory − Prepaid expense Current liabilities OR Cash + Receivables Current liabilities

Formula List 7087 O-Level 2 Efficiency Ratios Rate of inventory turnover (times) Cost of sales Average inventory Average inventory = Inventory (start) + Inventory (end) 2 Days sales in inventory (days) Average inventory Cost of sales × 365 days OR 1 rate of inventory turnover × 365 days Rate of trade receivables turnover (times) Net credit sales or service fee revenue Average net TR Average net TR = Net TR (start) + Net TR (end) 2 Net TR = TR – Allowance for impairment of TR Trade receivables collection period (days) Average net TR Net credit sales or service fee revenue × 365 days OR 1 rate of TR turnover × 365 days

Formula List 7087 O-Level 3 Basic accounting equation Assets = Liabilities + Equity Expanded accounting equation (sole proprietorship) Assets = Liabilities + Owner’s equity Assets = Liabilities + Capital + Profit (or – Loss) – Drawings Assets = Liabilities + Capital + (Income – Expenses) – Drawings Capital Beginning capital + Additional capital + Profit (or – Loss) – Drawings Expanded accounting equation (private limited company) Assets = Liabilities + Shareholders’ equity Assets = Liabilities + Share capital + Retained earnings Assets = Liabilities + Share capital + Profit (or – Loss) – Dividends Assets = Liabilities + Share capital + (Income – Expenses) – Dividends Share capital Total number of shares issued × Issued price per share ($) Dividends Total number of shares issued × Declared dividends per share ($) Discount Invoice price = List price – Trade discount Amount paid = Invoiced price – Cash discount (allowed / received) Allowance for impairment of trade receivables Ending allowance = Estimated % × Ending TR balance (after written off) Impairment loss on trade receivables (Reversal of) Beginning allowance (given) – Debts written off + / - changes in allowance (+) Impairment loss on TR (-) Reversal of impairment loss on TR = Ending allowance

Formula List 7087 O-Level 4 Depreciation expense (Straight line method) Cost − Scrap value Estimated useful life OR Rate of depreciation (%) × (Cost − Scrap value) Scrap value: amount that the business can receive at the end of the estimated useful life of the non-current asset Depreciation expense (Reducing balance method) Rate of depreciation (%) × Net book value Net book value = Cost – Accumulated depreciation Gain (or loss) on sale of non-current asset Sales proceeds – Net book value Cost of inventory purchased Purchase price + Other costs incurred to bring in goods Transport, custom duties, insurance on goods, packing materials, wages for employees to repack goods Impairment loss on inventory Cost – Net realisable value – Insurance claim receivable Interest expense incurred Interest rate per annum (%) × Principal sum borrowed Expense incurred + Prepaid expense (reverse) + Expense paid – Prepaid expense (adjust) – Expense payable (reverse) + Expense paid + Expense payable (adjust) Income earned – Income receivable (reverse) + Income received + Income receivable (adjust) + Income received in advance (reverse) + Income received – Income received in advance (adjust)

Ch 1 Notes Introduction to accounting 1 [TB Pg 14] Summary

Ch 1 Notes Introduction to accounting 2 Types of businesses 1. Explain the difference between a trading business and a service business. TB Pg 3 Trading business buys from suppliers and sells goods to customers while service business provides services to its customers. Forms of business ownerships 2. State two features (advantages) of being a sole proprietor. • A sole proprietor is the only owner of the business and has absolute control over it. • The sole owner can easily update the particulars of the new owner to notify the corporate regulatory authority of the transfer of ownership. • The sole proprietorship has minimal administrative duties to adhere to. • The sole owner is entitled and has access to all business profits. 3. State two features (advantages) of being a limited liability partnership. • It is more likely for banks and other lenders to lend money to the LLP as there are more sources of personal assets from partners and business assets to serve as collaterals. • When the LLP incurs debts and losses, the partners are not personally liable for them. They are not affected unless it is caused by their wrongful actions. • The LLP has few regulatory duties to comply with. 4. State two features (advantages) of being a private limited company. • It is more likely for banks and other lenders to lend money to the PLC as there are more business assets of high value to serve as collaterals. • When the company incurs debts and losses, shareholders are not obliged to pay them using their personal assets. • Shareholders can pay a stamp duty to the tax authority to give their shares to another person or organisation. 5. State three differences between a shareholder in a private limited company and a sole proprietor in a business. TB Pg 4 to 5 Table 1.1 • The shareholders have no control over the running of the business, unless they are part of the management team while the only owner usually runs the business by himself or herself and has absolute control over it. • The company exists forever until wound up or struck off while the SP exists as long as the owner is alive and desires to continue operation. • The PLC must comply with statutory requirements and file its annual financial reports while the SP has minimal administrative duties to adhere to.

Ch 1 Notes Introduction to accounting 3 • The shareholders receive a portion of the profits when the PLC declare dividends while the only owner is entitled and has access to all profits made by the SP. • When the business incurs debts and losses, shareholders suffers limited liabilities while the only owner is obliged to pay them using his or her personal assets. Stakeholders and their decision needs 6. Name two stakeholders and the decision that they might make by using a business’ accounting information. TB Pg 8 Table 1.2 • Owners and shareholders will decide whether to continue to invest in the business or sell the business, depending on the risks and returns related to the