CMA (Cost & Management Accountancy) Foundation: Fundamentals of Financial and Cost Accounting Syllabus

Foundation: Fundamentals of Financial and Cost Accounting syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Foundation: Fundamentals of Financial and Cost Accounting in CMA (Cost & Management Accountancy), not a summary of it.

1. 1

   Accounting Fundamentals

   4 topics

   • Accounting Concepts and Conventions
     • Accrual, going concern and consistency
     • Accounting standards overview
   • Double Entry System and Accounting Cycle
     • Journal, ledger and trial balance
     • Subsidiary books and cash book
   • Capital and Revenue Transactions
   • Rectification of Errors
2. 2

   Preparation of Financial Statements

   4 topics

   • Trading and Profit & Loss Account
     • Adjustments: outstanding, prepaid, depreciation
     • Provisions and reserves
   • Balance Sheet of a Sole Proprietor
   • Bank Reconciliation Statement
   • Depreciation Accounting
     • Straight line and written down value methods
3. 3

   Accounting for Special Transactions

   4 topics

   • Bills of Exchange Accounting
   • Consignment Accounts
   • Joint Venture Accounts
   • Accounts of Non-Profit Organisations
     • Receipts and payments account
     • Income and expenditure account
4. 4

   Fundamentals of Cost Accounting

   4 topics

   • Meaning, Scope and Objectives of Costing
     • Cost concepts and classification
     • Cost centre and cost unit
   • Elements of Cost
     • Material, labour and expenses
     • Direct and indirect costs
   • Preparation of Cost Statement
     • Cost sheet and tender/quotation
   • Overheads: Basic Concepts

Foundation: Fundamentals of Financial and Cost Accounting flashcards for CMA (Cost & Management Accountancy)

19 of 56 cards from the Foundation: Fundamentals of Financial and Cost Accounting deck — real questions with worked answers.

1. What is the Business Entity (Separate Entity) Concept in accounting?

   It treats the business as a separate and distinct unit from its owners. Business transactions are recorded from the firm's point of view, so the owner's personal assets and liabilities are kept apart from those of the business.

2. State the Money Measurement Concept and its key limitation.

   Only transactions measurable in monetary terms are recorded in the books. Its limitation is that qualitative factors (e.g., staff morale, management quality, customer loyalty) and the effect of changing price levels are ignored.

3. What does the Dual Aspect (Duality) Concept state, and what accounting equation does it produce?

   Every transaction has two equal and opposite aspects — a debit and a credit. It produces the accounting equation: $$\text{Assets} = \text{Liabilities} + \text{Capital}$$

4. Define the Going Concern Concept.

   It assumes the business will continue its operations for the foreseeable future and has no intention or necessity to liquidate or curtail the scale of operations. This justifies recording assets at cost and charging depreciation over their useful life rather than at break-up value.

5. What is the Accrual Concept (basis of accounting)?

   Revenues and expenses are recognized in the period in which they are earned or incurred, regardless of when cash is actually received or paid. It records outstanding, prepaid, accrued and unearned items.

6. Explain the Consistency Concept and why it matters.

   Accounting policies and methods should be applied uniformly from one period to the next so that financial statements are comparable over time. A change should be made only when required by law or for better presentation, and the effect must be disclosed.

7. What is the Conservatism (Prudence) Convention? Give its guiding rule.

   It requires anticipating no profits but providing for all possible losses. Rule: "Anticipate no profit, but provide for all losses." Examples include valuing stock at lower of cost or net realisable value and creating a provision for doubtful debts.

8. Distinguish the Matching Concept from the Realisation Concept.

   Matching Concept: expenses of a period are matched against the revenues of that same period to determine profit. Realisation Concept: revenue is recognized only when it is earned/realised (when ownership of goods or services is transferred), not when cash is merely received.

9. What are the three fundamental accounting assumptions per AS-1?

   Going Concern, Consistency, and Accrual. If these are followed, no specific disclosure is required; if any is not followed, the fact must be disclosed.

10. What is the purpose of Accounting Standards?

    They are written policy documents issued by a recognized authority (in India, ICAI/ICMAI) that standardize the recognition, measurement, presentation and disclosure of accounting transactions, reducing variation and improving comparability, reliability and transparency of financial statements.

11. Distinguish between a debit and a credit under the Double Entry System for the three account types (Personal, Real, Nominal).

    Personal A/c: Debit the receiver, Credit the giver. Real A/c: Debit what comes in, Credit what goes out. Nominal A/c: Debit all expenses and losses, Credit all incomes and gains.

12. List the main steps of the Accounting Cycle in order.

    1) Identify and record transactions in the Journal, 2) Post to the Ledger, 3) Prepare the Trial Balance, 4) Pass adjusting entries, 5) Prepare the Trading and Profit & Loss Account, 6) Prepare the Balance Sheet, 7) Pass closing entries.

13. What is a Journal and what is the process of recording entries in it called?

    The Journal is the book of original (prime) entry in which transactions are first recorded chronologically with debit and credit aspects and a narration. The process of recording in the journal is called journalising.

14. What is a Ledger and what is posting?

    The Ledger is the principal book containing all the accounts (personal, real, nominal) where transactions are classified. Posting is the process of transferring entries from the journal (or subsidiary books) to their respective ledger accounts.

15. What is a Trial Balance and its main purpose?

    A Trial Balance is a statement listing the closing debit and credit balances of all ledger accounts on a particular date. Its main purpose is to check the arithmetical accuracy of the books — total debits must equal total credits.

16. List the main subsidiary books (books of original entry).

    Purchases Book, Sales Book, Purchases Returns (Returns Outward) Book, Sales Returns (Returns Inward) Book, Bills Receivable Book, Bills Payable Book, Cash Book, and Journal Proper.

17. What is a three-column Cash Book and which three columns does it contain on each side?

    It is a cash book that records cash, bank and discount transactions together. Each side (Dr and Cr) has three amount columns: Discount, Cash, and Bank.

18. What is a contra entry in the cash book and how is it marked?

    A contra entry records a transaction affecting both cash and bank columns simultaneously (e.g., cash deposited into or withdrawn from bank). It is marked by writing the letter "C" in the Ledger Folio (L.F.) column, and is not posted again as it is already recorded on both sides.

19. What is an Imprest (Petty Cash) System?

    A system where the petty cashier is given a fixed amount (the imprest) for a period to meet small expenses. At the end of the period the amount spent is reimbursed, restoring the petty cash balance to the original imprest amount.

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