Chartered Institute of Public Finance and Accountancy (CIPFA) Financial Accounting Syllabus

Financial Accounting syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Financial Accounting in Chartered Institute of Public Finance and Accountancy (CIPFA), not a summary of it.

1. 1

   Foundations of Double-Entry Bookkeeping

   4 topics

   • The Accounting Equation and Recording Transactions
     • Assets, liabilities and capital relationships
     • Debit and credit rules across account types
     • Books of prime entry and the general ledger
   • The Trial Balance and Error Correction
     • Extracting and balancing a trial balance
     • Errors not revealed by the trial balance
     • Suspense accounts and journal corrections
   • Control Accounts and Reconciliations
     • Receivables and payables control accounts
     • Bank reconciliation statements
     • Reconciling control accounts to subsidiary ledgers
   • Accruals, Prepayments and the Matching Concept
2. 2

   Preparation of Financial Statements

   5 topics

   • Statement of Profit or Loss and Comprehensive Income
   • Statement of Financial Position Structure
   • Statement of Cash Flows
     • Operating activities under the indirect method
     • Investing and financing cash flows
     • Reconciling profit to cash generated from operations
   • Statement of Changes in Equity
   • Adjustments at the Reporting Date
3. 3

   Accounting for Assets and Liabilities

   5 topics

   • Property, Plant and Equipment and Depreciation
     • Cost model versus revaluation model
     • Depreciation methods and component accounting
     • Derecognition and disposal gains or losses
   • Intangible Assets and Impairment
   • Inventories and Cost Formulas
   • Provisions, Contingent Liabilities and Contingent Assets
   • Accounting for Leases
4. 4

   Regulatory and Conceptual Framework

   3 topics

   • The IASB Conceptual Framework
     • Qualitative characteristics of useful information
     • Recognition and measurement bases
     • Underlying assumptions and prudence
   • International Financial Reporting Standards Overview
   • Standard-Setting and Regulatory Bodies

Financial Accounting flashcards for Chartered Institute of Public Finance and Accountancy (CIPFA)

24 of 51 cards from the Financial Accounting deck — real questions with worked answers.

1. State the basic accounting equation and explain what it represents.

   $$\text{Assets} = \text{Liabilities} + \text{Equity}$$ It shows that everything a business owns (assets) is financed either by amounts owed to outsiders (liabilities) or by the owners' interest (equity). The two sides must always balance after every transaction.

2. In double-entry bookkeeping, which side increases assets and expenses, and which side increases liabilities, equity and income?

   Debits increase assets and expenses (and decrease liabilities, equity, income). Credits increase liabilities, equity and income (and decrease assets and expenses). Every transaction has equal total debits and credits.

3. What is the dual aspect (duality) concept in recording transactions?

   Every transaction has two equal and opposite effects on the accounting records — at least one debit and one matching credit of the same total amount — keeping the accounting equation in balance.

4. What is a trial balance and what is its primary purpose?

   A trial balance is a list of all ledger account balances (debits in one column, credits in another) at a point in time. Its purpose is to check the arithmetical accuracy of double-entry postings; total debits should equal total credits.

5. Name three types of error that a trial balance will NOT reveal.

   Errors of omission, errors of commission, errors of principle, errors of original entry, errors of complete reversal, and compensating errors. None disturb the debit/credit equality, so the trial balance still agrees.

6. What is a suspense account and how is it eventually cleared?

   A suspense account is a temporary account opened to make a trial balance balance when there is an unexplained difference. It is cleared by journal entries once the errors causing the imbalance are identified and corrected.

7. Distinguish an error of principle from an error of commission.

   An error of principle records a transaction in the wrong class of account (e.g. capital expenditure posted to an expense account). An error of commission posts to the wrong account of the same class (e.g. wrong customer's receivable account).

8. What is the purpose of a control account such as the receivables (sales) ledger control account?

   It is a memorandum total account summarising all entries in the subsidiary ledger. It provides an arithmetic check on the subsidiary ledger, allows the trial balance to be prepared from totals, and helps detect fraud and errors.

9. List the main entries on the debit and credit sides of a receivables control account.

   Debit: opening balance, credit sales, dishonoured cheques, interest charged. Credit: cash/cheques received, discounts allowed, sales returns, irrecoverable debts written off, contra with payables, closing balance.

10. What is the purpose of a bank reconciliation statement?

    To reconcile the balance per the cash book with the balance per the bank statement, explaining differences caused by timing items (unpresented cheques, outstanding lodgements) and errors/omissions in the cash book (bank charges, direct debits, standing orders).

11. In a bank reconciliation, how are unpresented cheques and outstanding lodgements treated?

    Starting from the bank statement balance: deduct unpresented (uncleared) cheques and add outstanding lodgements (deposits not yet credited) to arrive at the corrected cash book balance.

12. State the matching (accruals) concept.

    Revenue and the expenses incurred in earning that revenue are recognised in the period to which they relate, regardless of when cash is received or paid. Income and expenses are matched in the same accounting period.

13. Define an accrued expense and a prepaid expense.

    An accrued expense is an expense incurred but not yet paid or invoiced at the reporting date (a liability). A prepaid expense is an amount paid in advance for benefit received in a future period (an asset).

14. How is an accrued expense adjusted in the accounts at the year end?

    Debit the relevant expense account (increasing the expense for the period) and credit accruals (a current liability) in the statement of financial position.

15. What are the main components of a statement of profit or loss?

    Revenue, cost of sales, gross profit, other income, distribution and administrative expenses, operating profit, finance costs, profit before tax, tax expense, and profit for the period.

16. What is 'other comprehensive income' (OCI) and give two examples.

    OCI comprises items of income and expense not recognised in profit or loss as required/permitted by IFRS. Examples: revaluation surplus on PPE (IAS 16), remeasurements of defined benefit pension plans, foreign operation translation differences, and certain financial asset (FVOCI) gains/losses.

17. Distinguish gross profit from profit for the year.

    Gross profit = Revenue − Cost of sales. Profit for the year = gross profit plus other income, less all operating expenses, finance costs and tax. Gross profit measures trading margin; profit for the year is the bottom-line result.

18. What is the basic structure of a statement of financial position?

    Assets (non-current + current) = Equity + Liabilities (non-current + current). Equity comprises share capital, reserves and retained earnings; the statement is presented at a single point in time (reporting date).

19. Distinguish a current asset from a non-current asset under IAS 1.

    A current asset is expected to be realised, sold or consumed within the normal operating cycle or within 12 months, or is cash/cash equivalents. All other assets are non-current (held for long-term use, e.g. PPE, intangibles).

20. What criteria classify a liability as current under IAS 1?

    A liability is current if it is expected to be settled in the normal operating cycle, is held primarily for trading, is due within 12 months, or the entity has no unconditional right to defer settlement beyond 12 months. Otherwise it is non-current.

21. What are the three sections of a statement of cash flows under IAS 7?

    Operating activities, investing activities and financing activities. The statement reconciles the movement between opening and closing cash and cash equivalents.

22. Under the indirect method, how is cash from operating activities calculated?

    Start with profit before tax, add back non-cash items (depreciation, amortisation, impairment) and finance costs, adjust for working capital changes (inventory, receivables, payables), then deduct interest paid and tax paid.

23. Give two examples each of investing and financing cash flows.

    Investing: purchase/sale of PPE, purchase/sale of investments, interest/dividends received. Financing: proceeds from issuing shares or loans, repayment of borrowings, dividends paid to shareholders.

24. How does an increase in trade receivables affect operating cash flow under the indirect method?

    An increase in receivables reduces operating cash flow (it is deducted), because revenue has been recognised in profit but the cash has not yet been collected.

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