YPIP Accounting and Finance Fundamentals Syllabus

How is the expanded accounting equation written?

Assets = Liabilities + Capital + Revenues − Expenses − Drawings.

If assets are 500,000 and liabilities are 200,000, what is the owner's equity?

Owner's Equity = 500,000 − 200,000 = 300,000.

What is the purpose of an income statement (profit and loss account)?

To measure a business's financial performance over a period by reporting revenues earned and expenses incurred, arriving at net profit or loss.

How is gross profit calculated?

Gross Profit = Net Sales − Cost of Goods Sold (COGS).

How is Cost of Goods Sold (COGS) calculated?

COGS = Opening Inventory + Purchases − Closing Inventory.

How is net profit derived from gross profit?

Net Profit = Gross Profit + Other Income − Operating and Other Expenses.

What is the purpose of a balance sheet (statement of financial position)?

To show the financial position of a business at a specific point in time by listing its assets, liabilities, and owner's equity.

Distinguish current assets from non-current (fixed) assets.

Current assets are expected to be converted to cash or used within one year (e.g., cash, receivables, inventory); non-current/fixed assets are held long-term for use in the business (e.g., property, plant, equipment).

Distinguish current liabilities from non-current liabilities.

Current liabilities are due within one year (e.g., trade payables, short-term loans); non-current liabilities are due after more than one year (e.g., long-term loans, debentures).

What are the three sections of a cash flow statement?

Cash flows from operating activities, investing activities, and financing activities.

Which cash flow activity includes the purchase and sale of fixed assets and investments?

Investing activities.

Which cash flow activity includes issuing shares, raising/repaying loans, and paying dividends?

Financing activities.

Under the indirect method, what is the starting point for the operating activities section?

Net profit before tax, which is then adjusted for non-cash items (e.g., depreciation) and changes in working capital.

What are adjusting entries and when are they made?

Entries made at the end of an accounting period to record accruals, prepayments, depreciation, and provisions so revenues and expenses are reported in the correct period under the accrual concept.

How is an accrued expense (outstanding expense) adjusted?

Debit the expense account and credit a liability (accrued expenses/payable), recognizing an expense incurred but not yet paid.

How is a prepaid expense adjusted at period end?

Debit a prepaid expense (asset) account and credit the expense account, removing the portion paid in advance that relates to a future period.

What are closing entries?

Entries that transfer the balances of temporary accounts (revenues, expenses, drawings) to a permanent account (capital/retained earnings) at period end, resetting temporary accounts to zero.

Which accounts are NOT closed at the end of the period?

Permanent (real) accounts — assets, liabilities, and capital — carry their balances forward and are not closed.

How is the current ratio calculated and what does it measure?

Current Ratio = Current Assets / Current Liabilities; it measures short-term liquidity (ability to meet current obligations). A ratio around 2:1 is often considered satisfactory.

How is the quick (acid-test) ratio calculated?

Quick Ratio = (Current Assets − Inventory) / Current Liabilities; an ideal benchmark is about 1:1.

How is gross profit margin calculated?

Gross Profit Margin = (Gross Profit / Net Sales) × 100.

How is the debt-to-equity ratio calculated and what does it indicate?

Debt-to-Equity = Total Debt / Total Equity; it indicates financial leverage — how much the business is financed by debt relative to owners' funds.

How is inventory turnover ratio calculated?

Inventory Turnover = Cost of Goods Sold / Average Inventory; it shows how many times inventory is sold and replaced in a period.

How is return on equity (ROE) calculated?

ROE = (Net Profit after Tax / Shareholders' Equity) × 100; it measures the return generated on owners' investment.

What is working capital and how is it calculated?

Working capital is the funds available for day-to-day operations; Working Capital = Current Assets − Current Liabilities.

What is the operating cycle (working capital cycle)?

The time taken to convert resources into cash: from buying inventory, to selling it, to collecting cash from receivables (Inventory days + Receivable days − Payable days).

What is the break-even point?

The level of sales (in units or value) at which total revenue equals total costs, so there is neither profit nor loss.

How is the break-even point in units calculated?

Break-even (units) = Fixed Costs / Contribution per Unit, where Contribution per Unit = Selling Price per Unit − Variable Cost per Unit.

What is the contribution margin?

Contribution = Sales − Variable Costs; per unit it is Selling Price − Variable Cost. It first covers fixed costs and then contributes to profit.

What is the time value of money concept?

The principle that a sum of money today is worth more than the same sum in the future because money today can be invested to earn a return.

State the future value formula for a single sum under compound interest.

FV = PV × (1 + r)^n, where PV is present value, r is the interest rate per period, and n is the number of periods.

State the present value formula for a future single sum.

PV = FV / (1 + r)^n, where FV is the future value, r is the discount rate per period, and n is the number of periods.