Quick revision notes for O level POA

1)Final A/c with adjustments

A) Drawings during the year ( not yet recorded)
Drawings of goods
Adjustment required:
Add to existed drawings (Dr)
Less from Purchases

Drawings of money
Adjustment required
Add to existed drawings
Less from cash/bank

B) Additional New Capital (not yet recorded)

a)in the form of cash
Add to existing capital (Cr)
Add to cash account

b) in the form of fixed asset eg

furniture
Add to existing capital (Cr)
Add to fixed asset eg
furniture a/c

APPLICABLE FOR
CLOSING BALANCE
( BAL C/D ) ONLY.

C) CHECK FOR ACCRUAL AND PREPAYMENT :

Expenses

Revenue
1

Balance
Profit &
Sheet
loss

Current
accrued
Add
(+)
Liabilities

Current
Deduct
prepaid
(-)
Assets

accrued
Add (+)

Deduct
prepaid(-)

Current
asset

Current
liabilities

Expenses A/c
Balance b/d prepaid

Balance b/d accrued

Bank

Income statement

Balance c/d accrued

Balance c/d prepaid

Ways to remember : PAPA

D)Check for bad debts and provision for doubtful

debts
2

Bad debt: is the amount of debts that are definitely

irrecoverable and must be written of
If bad debts has not been recorded yet, adjust:
Bad debts Profit and Loss (Dr)
Balance sheet ( Current asset less Bad debts)

Provision for doubtful debt: is the amount set aside for debts,
which may or may not be recovered.
i)

ii)

New creation of PFDD

a. Income statement record under expenses (Dr)
b. Balance sheet (Current assets: Less from debtors)
*must show*
If last year and this year PFDD given, COMPARE the
diferences AND RECORD THE DIFFERENCES ONLY FOR
INCOME STATEMENT.
In Income statement,
Increase in PFDD, record the increase under income.
Decrease in PFDD, record the decrease under expenses
In Balance sheet, whether increase or decreases,
record the new provision of the year only. (Debtor-PFDD)
under current assets.

E) Check for Depreciation

Depreciation = amount of cost written of in one year.
3

Accumulated depreciation ( Provision for depreciation)=

The total cost that has been written of at a particular point in
time
Net book value = Cost of asset- accumulated provision for
depreciation
Three methods of depreciation :
Straight line method
It is an equal amount of cost is written of each year
Depreciation formula :
Depreciation = Cost of fixed asset-scrap value
Life span (No. of years)
Depreciation : % x cost of fixed assets
Reducing balance method/ Diminishing method
A reducing amount of cost is written of in each year
Depreciation = % x (cost- provision for last year)

Revaluation method
If the fixed assets is revalued downward at year end, the diference
between value the beginning of the year and value at the end of the year
amounts to depreciation
Depreciation : Cost (at beginning ) + additions cost (at the end)

How do you record depreciation?

Depreciation of fixed assets Profit and Loss A/c (Dr)
Accumulated depreciation (LAST year provision + This year provision)
Balance sheet (Less from Non Current asset) to get Net book value of an
assets.

F) Sales of Fixed assets

i) By cash/ bank :
In Balance sheet, less from non current assets
Add cash/bank balance.
ii)On credit :
In Balance sheet, less from non current assets
Add from trade receiveable

G) Purchases of Non Current assets

i) By cash/ bank:
In balance sheet, add from non current assets
Less cash/bank balance
ii)

On credit
In balance sheet, add from non current assets
Add to creditors.

Income statement for the year.

$
Opening inventory
(+)Purchases
(xx)

$
xxx
xx

$
Sales

xxx
(-) Sales Return

(-) Purchases returns

(-)Drawing of goods

(xx)

Net sales

xxx

(xx)

Net purchases

xxx

(+) Carriage inwards

xxx

(+)Duty on purchases

xxx

(+) Wages on purchases

xxx

(+) Packaging expenses

xxx

xxx

Cost of goods available for sale

xxx

(-)Closing inventory

(xxx)

Cost of sales

xxx

Gross profit

xxx

Expenses

Income

All expenses items

xxx

xxx

All revenue items

**Add expenses accrued

xxx

xxx

**Add revenue accrued

**Less prepaid expenses

xxx

xx

**less prepair revenue

**Increased in PFDD

xxx

**Decrease in PFDD

*Loss on disposal of fixed assets

disposal of NCA
xxx
*provision for depreciation
Net profit

xxx

xxx

xxx

**Gain on
xx

xxx

xxx

Should be

Zaras Ltd (Balance sheet as at..)

recorded

net book value

Cost

Accumulated

in the

Depn

Bank
Fixed Assets :
reconciliati

Motor Vehicle
onFixtures and Fitting

Current Assets
statement

Closing stock
Trade Receiveables (xx-bad debts)
Aryan

Liana

(-) provision for doubtful debts

Cash at bank
Accrued revenue
Prepaid expenses
Cash at hand
Less : Current liabilities
Trade Payables
Accrued expenses
Prepaid revenue
Net Current Assets
Less:Non Current Liabilities
5 % Debentures
Long term loan

Financed by :
Capital at first
+ Net profit
(-) Drawings
Capital at the end

Cash book and Bank Reconciliation

a)

Entries in the cash book but NOT in the bank statement

7

- Unpresented cheques (money paid)

Cheques issued by the trader have NOT been
presented to the bank for payment

Uncredited cheques (money received)

Cheques received and lodged with the bank
have not been credited by the bank

b)Entries in the bank statement but not in the cash book

Should
be

- Direct deposits
Eg : Dividends reveived, credit transfer and interest on
debenture
- Direct payment
Eg : Bank charges, interest on overdraft, giro deduction,
credit card payment and standing order

recorded
in the
Updated
Steps :

Cash
Book

1) Check the balance c/d in both : Cash book and bank

statement.
2) Identify where thediscrepancies : either in cash book or bank
statement
3) If not recorded in bank statement :
SHOULD BE RECORDED IN CASH BOOK (Update)
Dr Cash Book if money received
Cr Cash Book If money paid.
Then, balance cash book.
New balance b /d should be transferred to Bank reconciliation
statement.
4) In NOT RECORDED in Cash Book : should be recorded in Bank
Reconciliation Statement.
Dr side in Cash Book Uncredited Cheque
Cr side in cash book unpresented cheque

Money
received
(uncredited
cheque)

Money paid

Cash Book (Bank column)

Jan 1 Bal b/d

xx Ariana
8

(unpresented
cheque)

xx

Danial
Saadah

xx
Afiah

xx

Dividend

xx

Balance b/d

Alai

xx
xx

Balance c/d

xx

xx

Bank reconciliation statement as at

Balance as per Cash Book
+Unpresented cheque
-

xx
xx
xxx

Uncredited Cheque
xx
Balance as per Bank Statement

xx
Same amount in
the bank
statement

CONTROL ACCOUNTS
Trade Receiveables Control A/c
Sales Ledger Control A/c
Date
Balance b/d

$
xx

Date
Cash/Bank
9

$
xx

Credit sales
Any Changes

Balance b/d

xx
xx

Return Inwards
Discount allowed
Bad debts
Contra/Transfer
Balance c/d

xx
xx
xx
xx
xx

xx

Total Sales : Cash Sales + Credit sales

Trade Payables control a/c

Purchases Ledger Control A/c
Date
Cash/Bank
Return Outwards
Discount received
Contra/Transfer
Balance c/d

$
xx
xx
xx
xx
xx

Date
Balance b/d
Credit purchases
Any charges

$
xx
xx
xx

Balance b/d

xx

Total purchases : cash purchases + credit purchases.

MANUFACTURING ACCOUNT
Manufacturing account is prepared to
determined the total manufacturing of
production cost of goods completed during
accounting period.
10

Manufacturing account for the year ended

$
Cost of raw materials
Opening stock (1 Jan)

xx

Add : Carriage inwards

xx
xxx

Cost of raw material

available
Less: closing stock
Cost of raw material
being used
Direct labour
(wages)
Direct expenses

Cost of production

$
XXX

Xx
xx

Depreciation of plants

Xx
Xx
xx

Work in progress
Opening
Less : closing

xx
(xx)

Indirect expenses

(xx)
Xxx

PRIME COST
FACTORY OVERHEADS

$
Xx

xx
xx

Xx
x

Xx
x

xx
x

Income Statement for the year ended.

11

xx
x

Finished goods

Sales of finished goods

Opening stock

xx

Purchases

xx

Add: COST OF
PRODUCTION

xx

Add : carriage inwards

xx

Less: closing stock

(xx
)

COST OF
FINISHED GOODS
Gross Profit c/d

xxx

xx
x

??
x

OFFICE
EXPENSES

Gross profit b/d

OFFICE
REVENUE

Discount allowed

Xx

Discount received

xx

Office rent

Xx

Comission received

xx

Depreciation on motor
vehicles
Office salaries

Xx
Xx

Net profit

??
x

$
Current assets
Stock: Raw material
Work in progress
Finished goods
Debtors

xx
xx
xx

xx
xx

$
Sales of finished
goods

xx

Incomplete Records
12

What to find/calculate?
I.
II.
III.
IV.
V.

Total purchases
Total sales
Depreciation of fixed asset
Capital : initial or final
Cash or bank balance at the end

To find total purchases for trading account:

Purchases Ledger Control A/c
Date
Cash/Bank
Return Outwards
Discount received
Contra/Transfer
Balance c/d

$
xx
xx
xx
xx
xx

Date
Balance b/d
Credit purchases
Any charges

$
xx
xx
xx

Balance b/d

xx

Total purchases : cash purchases + credit purchases. (record in trading

account)

To find total sales for trading account

Trade Receiveables Control A/c
Sales Ledger Control A/c
Date
Balance b/d
Credit sales
Any Changes

$
xx
xx
xx

Date
Cash/Bank
Return Inwards
Discount allowed
Bad debts
Contra/Transfer
Balance c/d

xx
Balance b/d

xx

Total Sales : Cash Sales + Credit sales

Find depreciation for non current assets

Equipment a/c
13

$
xx
xx
xx
xx
xx
xx
xx

$
Xxx
xxx

Balance b/d
Cash/Bank (if new equipment
bought)

$
??
xx

Depreciation
Balance c/d

xxx

xxx

Find the capital

1) Capital =
(opening)

all assets all liabilities

(at beginning)

2) Capital = using backwards method by balance sheet format

Will be
recorded in
balance
sheet

Find the cash or bank balance at the end of period

Cash or Bank a/c
$
xx
xx
xx
x
xx

Balance b/d
Total Receipts

Balance b/d

$
xx
?
xx
x

Total Payments
Balance c/d

NON PROFIT MAKING ORGANISATION

Receipts and Payment account
Balance b/d
Receipts

$
xx
xx

Payments
Balance c/d
14

$
xx
xx

xxx

xxx

Subscription account (income account)

$
xxx
xxx

Balance b/d owing

Income and
expenditure
Bal c/d prepaid

Balance b/d Prepaid

Bank

xxx
xxx

Bal c/d owing

$
xxx
xxx
xxx
xx

Refreshment Trading account

Opening stock
+purchases
+refreshment wages
-closing inventory
Cost of refreshment sold
Refreshment profit

$
xx
xx
xx
xxx
(xx)
xxx
xxx

$
xx

sales

Income and expenditure account

$
Revenue expenses
Prizes and trophies
Honorium
Rates
Wages
Depreciation

Refreshment profit
(from Trading)
Revenue receipts
Subscriptions
Locker fees
Entrance fees

xx
xx
xx
xx
xx
xx

$
xxx

xx
xx
xx
xx

Balance sheet as at
$
FIXED ASSETS
Equipment (cost-prov
for dpn)

ACCUMULATED FUND
xx Opening (*need to calculate)
x
+ surplus

CURRENT ASSETS
15

xx
xxx
xxx

Cash in hand
Cash at bank
Subscriptions in arrear

xx +capital receipts
xx (**for specific purpose**)
xx
CURRENT LIABILITIES
Subscription in advance
LONG TERM LIABILITIES
xx
x

ACCUMULATED FUND

xxx

xxx
xxx
xxx
xxx

ALL ASSETS- ALL LIABILITIES

(AT BEGINNING)

LIMITED COMPANIES
FORMED UNDER COMPANIES ACT
OWNERS CALLED SHAREHOLDERS
COMPANY IS RUN BY BOARD OF DIRECTORS

16

DIVIDENDS DECLARED BY THE BOARD OF DIRECTOR

LEGAL INTITY : CAN SUE AND BE SUED

THE DIFFERENCES BETWEEN SOLE TRADER, PARTNERSHIP &

LIMITED CO.
FEATURES

SOLE TRADER

PARTNERSHIP

LIMITED CO

OWNERSHIP

ONE PERSON

MIN 2, MAX 2O

CAPITAL
INVESTED

CAPITAL
CONTRIBUTED
BY OWNER

CAPITAL
CONTRIBUTED
BY PARTNERS

PUBLIC : MIN 7,
NO MAXIMUM
PRIVATE : MIN
2, MAX 50
CAPITAL
CONTRIBUTED
BY INVESTORS
BUYING
SHARES IN THE
COMPANY

DISTRIBUTION
OF PROFIT

ALL PROFITS
AND LOSS
GOES TO THE
OWNER, AFTER
DEDUCTING
DRAWINGS.

LIABILITIES

UNLIMITED

PROFITS
SHARING
AMONG
PARTNERS
AFTER
DEDUCTION OF
INTEREST
CAPITAL, AND
PARTNERS
REMUNERATIO
N
UNLIMITED

DIVIDENDS ARE
PAID FROM
PROFITS TO
THE
SHAREHOLDER
S

LIMITED

DIFFERENCES BETWEEN PUBLIC COMPANY AND PRIVATE COMPANY

PUBLIC COMPANY
Maximum number of
shareholders is seven and

PRRIVATE COMPANY
Minimum number of
shareholders is one and
17

maximum limited to number of

shares issued
Company name must end with
the word
Limited
Financial statements must be
printed containing prescribed
information
Must have two or more
directors
Shares are issued to the public
Shares are freely traded

maximum are 50
Company name must be end by
Proprietary LTD (Sendirian
Berhad)
Financial Statements are not
printed for non shareholders
Must have one or more
directors
Shares are issued to founders
Shares may only be transferred
with directors approval

CLASSIFICATION OF CAPITAL
AUTHORISED CAPITAL / REGISTERED/NOMINAL CAPITAL
The maximum amount of capital a company is allowed to raise
from the public by the issue of shares
ISSUED SHARE CAPITAL
That part of the authorized capital that is offered to the public for
subscription
RESERVE SHARE CAPITAL
That part of authorized capital which is not issued is the reserve
share capital

CLASSES OF
CAPITAL

Preferrence
Shares
Ordinary Shares

DIFFERENCES BETWEEN DEBENTURES, PREFERRENCE SHARES

AND ORDINARY SHARES
Rate dividend
Claiming rights

debentures

preferrence

ordinary

FIXED
MUST BE PAID NO
MATTER GAIN OR

FIXED
FIRST CLAIMING
BEFORE ORDINARY

NOT FIXED
CLAIMED AFTER
PREFERENCE

18

Voting rights

LOSS, FIRST BEFORE

PREFERRENCE
none

none

yes

Theory:
What is general reserves?
The funds that are set aside by a financial institutions for the sole
purpose of covering possible losses that have not yet been
specifically identified
Functions?
A general reserves separate retained profits which shareholders
might expect to be distributed from those which are likely to be
kept long term in the company
By transferring funds to a general reserve the company indicates
retained profits are being reinvested long term

19

FORMAT OF FINAL ACCOUNTS OF LTD CO.

Trading account
Profit and loss a/c

EXPENSES

$
xxx

Gross Profit

Directors remuneration

xxx

REVENUES

Auditors fees
Interest on debentures
Corporation Tax
Net profit

xxx
xxx
xxx
xxx
xxx
x

Transfers to General Reserve

Dividends:
Preference shares
-interim
Final
Ordinary shares
-interim
-final
Unappropriated (Retained)
profits
Name of

$
xx
x
xx
x

xx
xx

$
xxx

Net profit (this year)

Unappropriated (retained
profits)from last year

$
xxx
xxx

Xxx
Xxx
Xxx
xxx
???
A companyLtd

Profit and Loss Appropriation A/c

xxx

xx
x

20
Transfer to
balance sheet

Name of CompanyLtd

Balance sheet as at.

FIXED ASSETS

$
xx
x

$
AUTHORISED SHARE CAPITAL
Preference shares
Ordinary shares

CURRENT ASSETS

xxx
xxx
xxx

xx
x
ISSUED SHARE CAPITAL
Preference Shares
Ordinary Shares
RESERVES
General Reserves (Old+New transfer)
Unnappropriated Profit
Share Premium
Staf Welfare
Special Reserves ;
Debentures Redemption

xxx
xxx

xxx
xxx
xxx
xxx

Total Shareholders fund

xxx

LONG TERM LIABILITIES

debentures
CURRENT LIABILITIES
Preference Share Dividend
Ordinary Share Dividend

xxx
xxx

Debenture Interest Due

xxx

Creditors

xxx

xx
x

xxx

xxx

xxx

21

PARTNERSHIP
-

o
o
o
o
o
o
o
o

Theres no limited liability in partnerships except for

limited partners
Formed by atleast 2 to 20 people with intention to
make profit
Mostly, partner prefer to have written agreement.
Eventhough its unnecessary. But it helps to avoid the
possibility of disputes or arguments in future
Agreement signed between partners are called Deed
of Partnership contents:
Amount of capital subscribed by partner
Rate of interest, if any, on partners loan on firm.
Rate of interest, if any, charged on partners drawing
Rate of interest, if any, to be allowed on partners
capital
Amounts of partners salary (if any)
Ratio in which profits and losses are to be shared
between the partners
Arrangement for new partners admission
Procedure to be carried out if partners retires and
died.

If the business agreement doesnt have previous content,

therefore Partnership Act 1890 will be applied contents :
No interest on capital
No interest is charged on drawings
No salaries are allowed
Profits and losses are to be shared equally
5 % of interest on loan are to be entitled made to firm in excess
of agreed capital

22

Advantages of partnership :
A partnership is usually able to raise more capital than a sole
trader
Partners may contribute a diversity of knowledge,experience and
expertise in management of business
Partners can cover for each other during holidays or sickness
Any risks or losses involved would be shared by partners
Disadvantages of partnership:
Partners are not able to act as sole trader
All decisions and strategies have to be agreed both by partners
Ordinary partners have unlimited liabilities

Special features of partnership

It is actually similar to Profit and Loss, but theres some section
added, in which shows distribution of profits by adding net profit
with interest on drawing (if any) and deduct them with interest
on capital and salaries

Interest paid on loans from partners are normal expenses,

because its just the same as interest on bank loan and therefore
debited to P&L before calculation of net profit
Therefore, NP-Int on loan = NP after int on loan
A/c to be opened :
Capital A/c, Drawing A/c, Current A/c

Uses of :
Capital A/c To records the initial capital that they contributed
and any additional capital they decides to bring in

23

Current a/c separate a/c that is drawn when the partners want
to maintain the actual capital contribution of each partner in the
capital a/c, thus capital a/c wil remain fixed and the other entries
such as interest on capital, salaries to partners, share of profits
(Dr) and losses, drawing and the interest on drawings (cr) will be
entered into current a/c. by the end of financial year, the balance
of current a/c will represent undrawn/ withdrawn profits of
parners.

Dr (balance b/d at beginning)

Will shows drawings in excess of which profits to which partners
entitled.
Cr (balance b/d at beginning is undrawn profits)

What is the purpose of :

i)
ii)

iii)
iv)

v)

Preparing profit and loss? To find net profit

Preparing Profit loss appropriation a/c? To show net profit of
business and share profits of partners. It is a bit similar to normal
P&L but with additional section. NP will be added to interest on
drawing and will be deducted with salaries and interest on capital
Why interest is allowed on capital? To overcome the difficulty of
compensating for the investment of capital
Why interest charged on drawings?To deters the partners from
taking out the cash unnecessarily. (The more cash in the business
the more expansion can be financed)
Why interest charged on drawings?To deters the partners from
taking out the cash unnecessarily. (The more cash in the business
the more expansion can be financed)
HOW TO RAISE CAPITAL IN THE BUSINESS?
ADD IN NEW PARTNER :
Adv: raise business capital and eases workload
Dis: Share of profits shall decrease
FORMING PRIVATE LTD CO:
Adv: No workload
Dis: Profits getting lesser
SAVE UP OWN MONEY :
Adv : No need to loan or borrow money
Dis: It takes time.
SALE THEIR FIXED ASSETS, LEASED BACK.
Adv : able to limit expenses
24

Dis : the machine might broke down.

AMALGAMATION 0F PARTNERSHIP MERGE OF TWO BUSINESS
INTO A PARTNERSHIP
STEPS :
o Consider the goodwill
o Revalue the assets
o Disclose all liabilities or bring them into partnership
i)

ii)
iii)

Goodwill and an increase in the value of assets will

increase the capital of the owner. A decrease in the
value of the assets will decrease his capital
If a liability is discharged by additional cash brought in
by the owner, his capital will increase
Goodwill, the adjusted capitals, existing liabilities and
the new values of the assets of the partners are
combined in the balance sheet of new partnership.

25

Format of partnership account

Profit and loss appropriation a/c for year ended..
$
Net profit
+ interest on drawing :
A
B

$
xx
xx

-Interest on capital
A
B

xx
xx

xxx

-Salaries
A
B

xx
xx

xxx

Share of profits
A (y/a x ABC)
B(y/a x ABC)
C(guaranteed profits)

$
xx
xx
xxx

xx
xx
xxx

xxx

xxx

xxx

Current a/c
A

Balance b/d
Drawings
Interest on drawings
Share of loss
Balance c/d

Balance b/d
Interest on capital
Salary
Interest on loan
Share of profits
xxx

xxx
Balance b/d

Balance sheet as at.

Non Current Assets
Current assets
(-) Current liabilities

xx
xxx
(xx)

(-) Non current liabilities

26

xxx
xxx
(xx)
xxx

*Financed by :
Capital A
-B
Current A/c- A
-B

Xx
Xx
Xx
xx

Xxx
xxx

Xxx

DEPARTMENTAL A/C
Business can have two or more departments so in order to reveal
the profits or losses of each department, we have to prepare
separate trading profit and loss.

Departmental a/c is necessary for particular purposes:

calculating managers commission
Staff bonuses
To show contribution of each department to either improve
or face closure

Separate records must be kept for sales and purchases for each
department in departmental trading accounts whereas overheads
in the departmental profit and loss a/c should be apportioned on
equitable basis between the department.
Factors to be considered before closing department:

Loss : making department may in fact be attracting

customers for other departments
The possibility of using the space freed by closure for the
benefit of the other departments for a new department
Cost of closing department
Closure may have social consequences the department may
be providing only source of supply or service to the local
community
Other department may suffer id the loss making
department, the lesser the department, the higher
overheads must the department pay.
A profitable department may appear to be making a loss
because the apportionment of overheads between the
department is unfair on not equitable.

27

CONCEPTS :

28

29

30

Ratio

The Types of ratios are classified into the following:

Liquidity Ratios
Profitability Ratios
Stock turnover Ratios

Liquidity Ratios

31

We interpret the liquidity ratios based on the following:

32

33

34

PROFITABLITY RATIOS

35

36

37

STOCK TURNOVER RATIO

Stock should be valued on the basis of the lower of either cost or net
realisable value (market price).

38