Institute of Chartered Accountants in England and Wales (ICAEW) ACA Certificate Level: Accounting and Assurance Syllabus

Certificate Level: Accounting and Assurance syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Certificate Level: Accounting and Assurance in Institute of Chartered Accountants in England and Wales (ICAEW) ACA, not a summary of it.

1. 1

   Accounting Fundamentals and the Double-Entry System

   4 topics

   • The accounting equation and the role of financial statements
     • Assets, liabilities and capital relationships
     • Users of financial information and their needs
     • The statement of financial position and income statement
   • Recording transactions through double entry
     • Debits and credits and the duality concept
     • Ledger accounts, the journal and day books
     • Balancing accounts and extracting a trial balance
   • Cash, bank and petty cash records
     • Cash book and the imprest system
     • Bank reconciliation statements
   • Accounting for sales, purchases and VAT
     • Sales and purchase ledger control accounts
     • Output and input VAT entries
2. 2

   Period-End Adjustments and Final Accounts

   5 topics

   • Accruals and prepayments
     • The accruals (matching) concept
     • Adjusting income and expenses at the period end
   • Non-current assets and depreciation
     • Straight-line and reducing-balance methods
     • Disposals and the asset register
   • Irrecoverable debts and allowances for receivables
   • Inventory valuation and the lower of cost and net realisable value
   • Correction of errors and suspense accounts
3. 3

   Financial Statements for Sole Traders, Partnerships and Companies

   4 topics

   • Preparing accounts for sole traders
   • Partnership accounts
     • Appropriation of profit and current accounts
     • Admission and retirement of partners
   • Company financial statements
     • Share capital, reserves and dividends
     • Format of company income statement and statement of financial position
   • Incomplete records and the use of margins and mark-ups
4. 4

   Principles and Process of Assurance

   4 topics

   • The concept and value of assurance engagements
     • Reasonable versus limited assurance
     • The assurance engagement elements and the five-party relationship
     • The expectation gap
   • Internal controls in an assurance context
     • Components of an internal control system
     • Tests of controls and substantive procedures
   • Gathering and documenting assurance evidence
     • Sufficiency, relevance and reliability of evidence
     • Procedures: inspection, observation, enquiry, recalculation, analytical procedures
   • Professional ethics and the assurance provider
     • Fundamental principles and threats
     • Confidentiality and conflicts of interest

Certificate Level: Accounting and Assurance flashcards for Institute of Chartered Accountants in England and Wales (ICAEW) ACA

23 of 55 cards from the Certificate Level: Accounting and Assurance deck — real questions with worked answers.

1. State the accounting equation in its basic form.

   $$\text{Assets} = \text{Capital} + \text{Liabilities}$$ This expresses that the resources controlled by a business (assets) are financed by the owner's investment (capital) plus amounts owed to third parties (liabilities).

2. How is the accounting equation expanded to include profit and drawings during a period?

   $$\text{Assets} = \text{Capital} + (\text{Profit} - \text{Drawings}) + \text{Liabilities}$$ Profit increases capital and drawings reduce it, so closing capital = opening capital + profit − drawings.

3. Name the five elements of financial statements and the two statements they appear in.

   Assets, liabilities and equity appear in the statement of financial position; income (revenue) and expenses appear in the statement of profit or loss.

4. What is the purpose of financial statements according to the IASB Conceptual Framework?

   To provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity.

5. State the dual effect (duality) concept underlying double entry.

   Every transaction has two equal and opposite effects, so total debits always equal total credits and the accounting equation stays in balance.

6. Give the debit/credit rules: which side increases assets, liabilities, capital, income and expenses?

   Debits increase assets and expenses (and decrease liabilities, capital, income). Credits increase liabilities, capital and income (and decrease assets and expenses). Mnemonic: DEAD CLIC — Debit Expenses, Assets, Drawings; Credit Liabilities, Income, Capital.

7. What is the journal entry to record a credit sale of goods?

   Debit Trade receivables (asset increases); Credit Sales/Revenue (income increases). If applicable, the VAT element is credited to the VAT control account.

8. Define a trial balance and state its main limitation.

   A trial balance is a list of all ledger account balances with debits in one column and credits in another, used to check that total debits equal total credits. Limitation: it does not detect errors that leave the totals equal (e.g. errors of omission, commission, principle, original entry, compensating errors, complete reversal).

9. What is the double entry to record cash received from a credit customer?

   Debit Cash/Bank (asset increases); Credit Trade receivables (asset decreases). No income is recorded because the sale was already recognised when made on credit.

10. What is the purpose of a bank reconciliation, and what two figures does it reconcile?

    To agree the balance per the cash book (business records) with the balance per the bank statement, explaining differences caused by timing (unpresented cheques, outstanding lodgements) and items not yet recorded by the business (bank charges, interest, direct debits, dishonoured cheques).

11. How does the imprest system of petty cash work?

    A fixed float (the imprest amount) is set. As cash is spent, vouchers are kept so that at any time vouchers + remaining cash = imprest amount. The fund is periodically topped up by the exact value of vouchers to restore the float.

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

    They are adjustments to the bank statement balance: unpresented (uncleared) cheques are deducted from the bank balance and outstanding lodgements (deposits not yet credited) are added, to arrive at the corrected cash book balance.

13. What is the double entry to record a credit purchase of goods including recoverable VAT?

    Debit Purchases (net amount) and Debit VAT (input tax recoverable); Credit Trade payables (gross amount = net + VAT).

14. How is VAT calculated when given a VAT-inclusive (gross) amount at a standard rate of 20%?

    Multiply the gross amount by the VAT fraction $\frac{1}{6}$, i.e. $\frac{20}{120}$. For example, VAT in a gross figure of £120 is $£120 \times \frac{1}{6} = £20$.

15. Explain the difference between input VAT and output VAT and what determines the amount paid to HMRC.

    Output VAT is charged on sales; input VAT is suffered on purchases. The amount payable to HMRC = output VAT − recoverable input VAT. If input exceeds output, a refund is due.

16. Define an accrued expense and give its year-end double entry.

    An accrued expense is an expense incurred in the period but not yet invoiced/paid. Double entry: Debit the relevant expense (P/L); Credit Accruals (current liability in the SOFP).

17. Define a prepayment and give its year-end double entry.

    A prepayment is an amount paid in advance for goods/services relating to a future period. Double entry: Debit Prepayments (current asset in the SOFP); Credit the relevant expense (P/L), reducing the period's charge.

18. Which accounting concept underpins accruals and prepayments, and what does it require?

    The accruals (matching) concept: income and expenses are recognised in the period to which they relate, regardless of when cash is received or paid, matching costs against the revenues they generate.

19. State the formula for the annual straight-line depreciation charge.

    $$\text{Depreciation per year} = \frac{\text{Cost} - \text{Residual value}}{\text{Useful life (years)}}$$ This gives an equal charge in each year of the asset's life.

20. State the formula for reducing-balance depreciation and how the charge changes over time.

    $$\text{Depreciation} = \text{Carrying amount at start of year} \times \text{rate (\%)}$$ where carrying amount = cost − accumulated depreciation. The charge is higher in early years and falls each year.

21. What is the double entry to record the annual depreciation charge on a non-current asset?

    Debit Depreciation expense (P/L); Credit Accumulated depreciation (a contra-asset reducing the asset's carrying amount in the SOFP).

22. Distinguish capital expenditure from revenue expenditure.

    Capital expenditure is spending to acquire or improve non-current assets, giving long-term benefit (capitalised in the SOFP and depreciated). Revenue expenditure is day-to-day running cost benefiting only the current period (expensed in the P/L).

23. How is the profit or loss on disposal of a non-current asset calculated?

    $$\text{Profit/(loss) on disposal} = \text{Sale proceeds} - \text{Carrying amount}$$ where carrying amount = cost − accumulated depreciation. Proceeds above carrying amount give a profit; below it, a loss.

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