2023 POA Cheat Sheet N level

1 POA Cheat Sheet GCE N LEVEL CONTENT PAGE CHAPTER TOPIC PAGE 1 INTRODUCTION TO ACCOUNTING ……………………………………………………………... 2 2 ACCOUNTING INFORMATION SYSTEM ………………………………………………………. 5 3 ELEMENTS OF FINANCIAL STATEMENTS AND ACCOUNTING EQUATION …… 7 4 DOUBLE-ENTRY RECORDING ……………………………………………………………………. 9 5 TRIAL BALANCE AND FINANCIAL STATEMENTS ……………………………..………… 12 6 REVENUE AND OTHER INCOME ………………..………………………………………………. 18 7 COST OF SALES AND OTHER EXPENSES …………………………………….………………. 22 8 CASH ………………..……………………………………………………………………………………….. 26 9 INVENTORIES ……………..…………………………………………………………………………….. 30 10 TRADE RECEIVABLES ……………………….………………………………………………………. 34 11 NON-CURRENT ASSETS …………….………………………………………………………………. 38 12 TRADE PAYABLES ………………..…………………………………………………………………… 44 13 LONG-TERM BORROWINGS ……………………………………………………………………….. 46 14 EQUITY ……………………....…………………………………………………………………………….. 49 15 CORRECTION OF ERRORS ……………………..…………………………………………………… 53 17 SCENARIO-BASED QUESTIONS ………………………………………………………………….. 56 With love by West Spring Sec POA Unit ☺ (Updated June 2023) © All rights reserved. This set of notes, specially compiled for students’ revision, or any portion thereof may not be reproduced or used in any manner whatsoever. It is meant as supplementary reading material. Kindly alert Mrs Juliet if you spot typo error.

2 CHAPTER 1: INTRODUCTION TO ACCOUNTING • Trading business buys from suppliers and sells goods to customers. Service business provides services to customers. • Stakeholders are groups of people who will make use of information about the business to make decisions. • Role of accounting is to provide accounting information for stakeholders to make informed business decisions. • Role of accounting: businesses require accounting information for decision-making. Accounting is an information system that provides accounting information for stakeholders to make informed decisions regarding the management of resources and performance of businesses. • Role of accountant: accountants prepare and provide accounting information for decision making. Accountants set up an accounting information system and become stewards of businesses.

3 • Stewards are responsible for managing the resources of the business on behalf of the owner(s). • Two professional ethics in accounting: integrity (straightforward and honest in all professional relationships) and objective (not let bias, conflict of interest or undue influence of others override his or her professional judgement). • It is important for accountants to uphold professional ethics as stakeholders rely on them to prepare and provide accurate accounting information for informed decision-making. They will not misled users into making poor decisions. • Stakeholders rely on both accounting and non-accounting information that are not shown on financial statements for decision-making. Non-accounting information refers to qualitative factors that may reflect current or future trends and fundamentals of a business but are not captured by the accounting information. • Forms of business ownership will determine how the owner(s) of business set up the business. There are 3 common forms of business ownerships. These are (1) sole proprietorship, (2) limited liability partnership and (3) private limited company. In N Level syllabus, we focus on sole proprietorship. • Features of sole proprietorship 1 owner, known as sole proprietor (ownership) Sole proprietor has full control over running of business (level of control) Sole proprietor gets all profits. On the other hand, sole proprietor is also obliged to pay debts and losses using personal assets (risk) Easier and less expensive to set up and maintain (formalities and procedure) Banks may be less willing to lend to a sole proprietorship (access to funds)

4 • Accounting theories: when accountants rely on sound accounting theories, the accounting information produced will (1) present a true and fair view of business activities; and (2) allow stakeholders to make reliable and informed decisions. • Accounting theory Definition 1. Accounting entity The business is a separate entity from its owner, and all transactions are recorded from point of view of the business. 2. Monetary Only business activities that can be measured in monetary terms are recorded. 3. Historical cost Transactions should be recorded at their original cost. 4. Objectivity Accounting information recorded must be supported by reliable and verifiable evidence so that financial statements will be free from opinions and biases. 5. Going concern Assumes the business will operate forever, unless there is credible evidence that it may close down. 6. Accounting period Business has to prepare financial statements at regular intervals, such as the end of each half year or each year. 7. Accrual basis of accounting Business transactions should be recorded in the relevant accounting period, regardless of whether cash is paid or received. OR Income earned and expenses incurred should be recorded in the relevant accounting period, regardless of whether it is received or paid. 8. Matching Expenses incurred must be matched against income earned in the same period to determine the profit for that period. 9. Consistency Once an accounting method is chosen (e.g. straight-line method or reducing balance method), this method should be applied to all future accounting periods to enable meaningful comparison. 10. Materiality A capital expenditure may be recorded as a revenue expenditure if its value is considered insignificant, as compared to the size of the business in terms of income, profit, assets or equity, and does not make a difference in decision-making. 11. Prudence The business should not overstate assets and profits. 12. Revenue recognition Revenue is earned when goods have been delivered or services have been provided.

5 CHAPTER 2: ACCOUNTING INFORMATION SYSTEM 2 types of transactions • Cash transaction → immediate payment is made at point of purchase/sale • Credit transaction → payment is made at a later date after purchase/sale Accounting cycle: the accounting cycle is the processing of accounting transactions through the accounting information system. • The stages of accounting cycle are: (details given below) (i) identifying and recording - daily (ii) adjusting – end of year (iii) reporting – end of year (iv) closing of accounts – end of year The accounting cycle comprises of 4 stages: • Stage 1 – Identify and record → source documents are used to record transactions in the journal and the journal entries are posted to the ledger. Transactions are recorded daily. • Stage 2 – Adjust → the ending balances of ledger accounts are listed in a trial balance. Any adjusting entries are recorded in the journal and posted to the ledger. Accounts are adjusted at least once in a financial year. • Stage 3 – Report → based on the adjusted trial balance, the financial statements are prepared. Reports are prepared at least once in a financial year. • Stage 4 – Close → after the financial statement are finalised, income, expenses, income summary, drawings and dividends accounts are closed by first passing journal entries before posted to the ledger. Accounts are closed once at the end of the financial year. Order in which each type of transaction is processed through the accounting information system Accounting information system comprises of Step 1 - Source documents Provide proof that the transactions have taken placed; contains details of transaction. Follow objectivity theory Purpose of each type of source documents No Source Document Purpose of source document 1 Invoice Infor