Financial Accounting

FINANCIAL ACCOUNTING
GENERAL OBJECTIVE
This paper is intended to equip the candidate with knowledge, skills and attitudes that will enable
him/her to prepare financial statements for different entities
LEARNING OUTCOMES
A candidate who passes this paper should be able to:
• Prepare books of original entry and basic ledger accounts under double entry system
• Prepare basic financial statements of sole traders. partnerships, companies and manufacturing
entities and not for profit organisations
• Comply with the regulatory framework in the accounting field
• Account for assets and liabilities
• Analyse financial statements by use of ratios and statement of cash flows
CONTENT
1. Introduction to Accounting
– The nature and purpose of accounting
– Objectives of accounting
– Users of accounting information and their respective needs
– The accounting equation
– Reguratory framework of accounting (regulatory bodies such as ICPAK, IFAC, IASB,
IPSAB
– Accounting standards (IAS/IFRS), (Importance and limitations)
– Professional ethics
– Accounting concepts/principles
– Qualities of useful accounting information
2 Recording transactions
– Source documents (quotations_ purchases order, statement of account. remittance advice,
receipts, petty cash vouchers_ sales arid purchase invoices, credit notes and debit notes, bank
statements)
– Books of original entry: sales journal, purchases journal, returns inward, returns outward
journal, cashbook, petty cashbook and general journal
– Double entry and the ledger; general ledger, sales ledger, purchases ledger
– The trial balance
– Computerised accounting systems- Role of computers, application and accounting softwares
in the accounting process, benefits and challenges of operating computerised accounting
systems

3. Accounting for assets and liabilities
3.1 Assets
– Property, plant and equipment — recognition, capital and revenue expenditure, measurement
(depreciation and revaluation), disposal and disclosures — property, plant and equipment
schedule
– Intangible assets — recognition, measurement (amortisation, impairment and revaluation),
disposals and disclosures
– Inventory – recognition, measurement and valuation using specific. cost method (FIFO and
weighted average cost)
– Trade receivables – bad debts and allowance for doubtful debts and receivables control
accounts
– Accrued income and prepaid expenses
– Cash at bank — cashbook and bank reconciliation statement
– Cash in hand – cash book and petty cash book
3.2 Liabilities
– Bank overdraft – cash book and bank reconciliation
– Trade payables – payables control accounts
– Loans – accounting treatment of repayment of principal and interest
– Prepaid income and accrued expenses
4. Correction of errors and suspense account
5. Financial statements of a sole trader
– Income statement
– Statement of financial position
– Preparing financial statements under incomplete information
6. Financial statements of a partnership
– Partnership agreement
– Distinction between current and fixed capital
– Income statement
– Statement of financial position
– Changes in partnership – Admission of a new partner, retirement and change in profit sharing
ratio
7. Financial statements of a company
– Types of share capital – ordinary shares and preference shares
– Issue of shares (exclude issue by instalment and forfeiture)
– Types of reserves share premium, revaluation reserve, general reserves and retained profits
– Income tax -Accounting treatment and presentation (exclude computation)
– Financial statements – Income statement and statement of financial position
– Published financial statements (describe a complete set of published financial statements but
not preparation)

8. 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
9. Financial statements of a not-for-profit organisation
– Features
– Types of funds and their accounting treatment
– Income and expenditure account
– Statement of financial position
10. Analysing financial statements
– Statement of cash flows (categories of cash, methods of preparing statement of cash flows
and the importance)
– Financial ratios — definition, categories, analysis and interpretation, application and
limitations
11. Introduction to public sector Accounting
– Features of public sector entities (as compared to private sector)
– Structure of the public sector (National and county governments: state corporations and other
agencies)
– Regulatory structures and oversight [IPSASB, PSASB (establishment, mandate and
functions), Director of Accounting Services, National Treasury, Parliamentary Committees.
Accounting Officers at national and county levels]
– Objectives of public sector financial statements
– Objectives of IFSAS
– Accounting techniques in public sector (budgeting, cash, accrual: commitment and fund)
(Preparation of financial statements should be excluded)
12. Emerging issues and trends