PACIFIC SENIOR SECONDARY CERTIFICATE







Contents







Page


Rationale




1


General Aims







1









General Objectives
1





Specific Objectives
1



Course Context
2


Course Structure


2






Section I
The Conceptual Basis of Accounting

3

Section II
Processing
4

Section III
Accounting Reports
5

Section IV
Analysis, Interpretation and Making Decisions
7

Section V
Accounting Systems
9


Assessment







13

- External Assessment
13


- Internal Assessment
15


Moderation
16


Mark Schemes
19 – 28


Appendix A
29


Appendix B
32


Appendix C
39
Accounting
Effective as from January 2003




ACCOUNTING

Rationale

Accounting is the study of the language of business and allows information to be gathered,
processed and reported on for users to make informed financial decisions.

This prescription defines the requirements for assessment for the PSSC Accounting and is
designed to assess a one year course of study at this level.

It is assumed that students have studied accounting at School Certificate level.


General Aims

The aims of accounting are to:

• allow students to understand the role of accounting in society
• promote knowledge and understanding of accounting as a financial language for trading and
service businesses, and community organisations
• apply financial knowledge and skills to practical situations
• provide a basis for further study in accounting and a background to assist students should
they decide to work in an accounting environment.


General Objectives

To achieve these aims, students will, within the specified contexts:

• recall and use relevant accounting knowledge
• examine, understand and apply the assumptions, principles and concepts on which
accounting is based
• process financial data into meaningful information
• develop a knowledge and understanding of the systems and controls required to ensure
financial data is processed accurately and efficiently
• prepare financial reports which meet user needs
• analyse and interpret financial reports
• make informed decisions based on financial and non-financial information
• develop skills in communication, numeracy, information and problem solving.


Specific Objectives

Each part of the prescription is written in the form of specific objectives, i.e. the skills students
are expected to acquire and the ways they can be expected to use those skills.




1



Course Context

The context of study are:

1. sole proprietors who:
• are trading or service businesses
• record transactions on the accrual basis
• buy and sell inventory or services for cash or on credit
• maintain either a physical or perpetual inventory

2. community organisations who:
• provide a service to the community e.g. sports/social/recreation club, church, Red
Cross and other volunteer organisations
• motive is non-profit.


Course Structure

The prescription is divided into five sections:

I
The Conceptual Basis of Accounting
II
Processing
III
Accounting Reports
IV
Analysis, Interpretation and Making Decisions
V
Accounting Systems.

2


Section I
The Conceptual Basis of Accounting


Students should develop an understanding of the principles/concepts on which accounting is
based.

Students should be able to:

1. define accounting

2. explain the functions of accounting

3. explain how interested parties make use of accounting

4. identify, describe and apply the qualitative characteristics of accounting information

Coverage:
relevance, reliability, understandability, comparability, timeliness, neutrality, verifiability,
objectivity

5. define, recognise and apply accounting concepts

Coverage:
accounting entity, monetary measurement, going concern, accounting period, matching,
accrual basis, historical cost, materiality, prudence (conservatism), consistency, disclosure

6. describe the relationship between any of the accounting concepts

7. define, recognize and apply the financial elements

Coverage: assets, liabilities, owner’s equity, revenues, expenses

8. use the accounting equation OE = A – L, to show the relationship between owner’s equity,
liabilities (sources of funds), and assets (uses of funds)

9. describe how OE is affected by contributions/withdrawals by the owner and profit/loss as
measured by R – E

10. distinguish between capital and revenue transactions



3

Section II
Processing

Students should be able to record and process financial transactions.

Students should be able to:

1. describe the input, process and output components of an accounting cycle for the entity

2. compare manual and computer processing methods that can be used for recording,
processing, storing and reporting accounting data

3. prepare and use a chart of accounts for an entity

4. describe and analyse transactions in terms of their effects on the accounting equation

Coverage:
• the accounting equation may show expenses and revenue separate for owners equity
• the purchase/sales of inventory can be treated as for a perpetual system i.e. directly
affecting the balance of inventory or as an expense/revenue respectively

5. explain and apply the debit and credit rules for processing accounting transactions

6. identify source documents used for recording transactions


Coverage:
source documents include: invoices, credit notes, statements, petty cash vouchers, receipts,
cheques

7. record transactions on source documents

8. prepare accounting records

Coverage:
• general journal
• lists of credit sales, credit purchases and returns (which may be in the form of journals)
• cash receipts journal
• cash payments journal
• general ledger accounts including control accounts
• subsidiary ledgers for accounts receivable and accounts payable
• trial balance

NOTE: ledger accounts will be examined in 3 column form only

9. prepare accounting records for balance day adjustments

Coverage:
• accrued expenses
• accrued revenue
• prepayments
• revenue in advance
• depreciation
• bad and doubtful debts

10. explain the need for and prepare accounting entries for closing and reversing entries

4

Section III Accounting Reports

Students should be able to report financial information for:
• business organisations
• community organisations.

Business Organisations

Students should be able to:

1. describe functions, features and limitations of financial statements listed in 3 below

2. prepare a ten column worksheet incorporating the balance day adjustments

3. prepare financial statements in vertical form incorporating balance day adjustments for a sole
proprietor business

Coverage:
Financial statements to include:

• Statement of Accounting Policies, limited to:
– identification of the entity reporting by name and nature of its business
– the measurement system adopted (to be Historical Cost)
– reliance on going concern and use of accrual basis
– policies for the measurement of depreciation, accounts receivable and inventory

• Statement of Financial Performance (Revenue Statement) with classification of expenses
appropriate to the business activities

• Statement of Financial Position (Balance Sheet) with:
− classification of assets into current and non-current (investments, fixed assets,
intangible assets)
− classification of liabilities into current and non-current
− owner’s equity to show opening capital, net profit/loss, drawings, closing capital

• Statement of Changes in Cash Position
− cash movements to be shown as cash receipts and cash payments
− the difference to be shown as net increase/decrease for the period, which is added to
the opening bank balance to give closing bank balance
− the statement to be prepared from a summary list of transactions

NOTE: Financial statements will be examined in vertical form only


5


Community Organisations

Students should be able to:

1. identify and describe the nature and features of community organizations

Coverage:
- community organizations to be limited to sports/social/recreation clubs, churches or other
volunteer organizations

2. prepare financial statements in vertical form incorporating balance day adjustments for a
community organisation

Coverage:
(i) Balance day adjustments limited to:

• subscriptions in arrears
• subscriptions in advance
• accrued expenses including purchases
• straight line depreciation

(ii) Financial statements to include:

• Statement of Accounting Policies, limited to:
– identification of the entity reporting by name and nature of its activity
– the measurement system adopted (to be Historical Cost)
– reliance on going concern and use of accrual basis
– policies for the measurement of depreciation, accounts receivable and inventory

• Statement of Changes in Cash Position (Statement of Receipts and Payments)

– cash movements to be shown as cash receipts and cash payments

– the difference to be shown as net increase/decrease for the period, which is
added to the opening bank balance to give closing bank balance

– the statement to be prepared from a summary list of transactions

• Supplementary trading and activity statements (Canteen, Refreshments, Raffle)

• Statement of Financial Performance (Statement of Income and Expenditure) -
classification of expenses is not needed

• Statement of Financial Position (Balance Sheet) with:
– classification of assets and liabilities into current and non-current
– members’ funds to show opening balance, net surplus/deficit, closing balance.

NOTE: Financial statements will be examined in vertical form only



6

Section IV Analysis, Interpretation and Making Decisions

Students should be able to analyse, interpret and evaluate financial and non-financial
information of sole proprietors to make informed decisions.

Students should be able to:

A Explain and calculate ratios and percentages for a business entity from given data

1.
explain the purpose of analyzing financial information

2.
identify, explain and calculate ratios and percentages appropriate for the entity which
measures profitability, financial stability, liquidity and management effectiveness

Coverage:
ratios and percentages to include:
• percentage changes
• measures of profitability:
- mark-up percentage
- gross profit percentage
- expense percentage
- net profit percentage
- return on average owner’s equity percentage
- return on average total assets percentage
• measurement of liquidity:
- working capital amount
- current ratio
- liquid ratio
• measurement of financial stability
- equity ratio
- debt ratio
• measures of management effectiveness
- accounts receivable collection period
- inventory turnover

B Analyse, interpret and make recommendations about a businesses financial
performance, position and managerial effectiveness and present the information in a
written report.


1.
calculate ratios and percentages covering at least a 3 year period for a business from given
data

2.
explain and interpret the ratios and percentages calculated

3.
identify and explain the relationships between the ratios and percentages calculated

4.
identify trends and explain the possible reasons for the trends





7

5.
use comparative figures, industry averages, and the results of analysis to comment on a
entity’s performance, financial position and management effectiveness

6.
interpret the Statement of Changes in Cash Position for the entity and comment on the
entity’s management of its cash resources

7.
make recommendations of the measures needed to improve the financial performance,
financial position, managerial effectiveness and comment on the possible consequences of
measures to be taken

8.
prepare a written report, including graphs, tables and other non-written material, to cover
the analysis, interpretation and recommendations required.




8

Section V
Accounting Systems

Students should be able to identify and understand an accounting system, including documents,
accounting records and appropriate control measures.

Accounting subsystems to be assessed are:
• Cash receipts/payments
• Inventory
• Accounts Receivable/Sales
• Accounts Payable/Purchases
• Fixed Assets
• Payroll

Internal Control

Students should be able to:

1. explain the principles and objectives of internal control

For each subsystem:

2. explain the objectives and procedures for internal controls

3. identify the input, process and output elements

4. identify and describe the essential information and control features recorded on the
appropriate source documents

5. prepare the accounting entries

6. identify internal control weaknesses from given situations (case studies) which could be in
written or document flowchart form

7. make recommendations for improvements

8. identify the links between related subsystems


Cash Subsystem

Students should be able to:

1. explain the need for internal control over cash

2. identify and explain the internal control procedures for cash receipts and cash payments

3. describe the purpose of a petty cash imprest system

4. prepare a petty cash book

5. describe the purpose of a bank reconciliation


9

6. complete the bank reconciliation procedures including preparing a Bank Reconciliation
Statement

Coverage:
the reconciliation can include: direct credit/debit, automatic payments, dishonoured
cheques, correction of errors.


Inventory Subsystem

Students should be able to:

1. explain the need for internal control over inventory

2. identify and explain internal control procedures for purchase, receipt, storage stock-take and
sale of inventory

3. describe the importance of maintaining appropriate inventory levels and of stock turn
policies

4. explain the significance of the conservatism concept in relation to inventory valuation

5. distinguish between periodic and perpetual inventory systems in calculating cost of goods
sold and closing inventory

6. record transactions in the ledger using the perpetual inventory system

7. understand the purpose of a stock ledger card in calculating cost of goods sold and closing
inventory

8. record transactions on a stock ledger card using FIFO, weighted average and actual cost
methods of valuation and describe the effects of each method on cost of goods sold and
gross profit

9. identify and record inventory gains/losses (Inventory Adjustments).


Accounts Receivable/Sales Subsystem

Students should be able to:

1. explain the need for control over credit sales

2. identify and explain the internal control procedures for accounts receivable

3. describe the purpose for keeping an accounts receivable subsidiary ledger and control
account

4. prepare the accounts receivable subsidiary ledger, control account and list of accounts
receivable

5. prepare general journal entries relating to accounts receivable


10

Coverage:
- bad debts
- creating/adjusting provision for doubtful debts
- discount allowed
- off setting contra accounts
- interest charged
- bad debts recovered
(Note: it is assumed that provision for doubtful debts is not closed off)

6. explain the relationship between the conservatism concept and providing for doubtful debts

7. describe the need to prepare a schedule of age of accounts receivable.


Accounts Payable/Purchases Subsystem

Students should be able to:

1. explain the need for internal control over credit purchases

2. identify and explain internal control procedures for accounts payable

3. describe the need for the accounts payable subsidiary ledger

4. prepare the accounts payable subsidiary ledger, control account and list of accounts
receivable

5. prepare general journal entries relating to accounts payable

Coverage:
-
discount received
-
off setting contra accounts
-
interest charged


Fixed Assets Subsystem

Students should be able to:

1. explain the need for internal control over fixed assets

2. identify and explain the internal control procedures for purchase, storage and sale of fixed
assets

3. define depreciation and explain the purpose of depreciating assets

4. calculate depreciation expense

Coverage:
− straight line
− diminishing returns
− units of use


11

5. prepare accounting entries for depreciation expense and accumula ted depreciation

6. distinguish between capital and revenue expenditure

7. prepare accounting records for the purchase and disposal (including trade ins) of fixed
assets

8. prepare a fixed assets register with the details of each asset, annual depreciation,
accumulated depreciation and book value

9. describe the limitations of the historic cost concept and the need to revalue assets.


Payroll Subsystem

Students should be able to:

1.
explain the need for internal control over payroll

2.
identify and explain internal control procedures for payroll

3.
calculate net pay

4.
interpret source documents used for a payroll

5.
prepare wage sheets to calculate gross pay

6.
distinguish between different ways of paying payroll

Coverage:
cash, cheque, direct credit

7.
prepare accounting entries for the payroll.





12

Assessment

The assessment of this prescription is in two parts (internal and external assessment), and is
made up of the following assessment components:

External Assessment (60%)
External Examination

Internal Assessment (40%)
Major Task – Analysis, interpretation and report (20%)
Minor Task 1 – Full set of books (10%)
Minor Task 2 – Case study of an accounting system (5%)
Minor Task 3 – Inventory/fixed assets (5%)


External Assessment

The Examination

The end-of-year examination will be in written form and will test a range of and skill objectives
specified in this prescription. All sections will be represented in the examination.

The examination will be one three hour paper and be marked out of 200 marks.

The examination will contain no essays or reports, but may require paragraphs of 3 – 5 lines.

The weightings in the examination on the externally assessed parts of the prescription shall be as
follows:

Section I
10 – 15%
Section II
15 – 20%
Section III
25 – 30%
Section IV
10 – 12%
Section V
25 – 30%

The examination will be made up of two parts:

Part A
(10 questions of 2 marks each = 20 marks)
Questions in this part will be 10 multiple choice questions testing the range of skills specified in
any section of the prescription.

Part B
(180 marks)
Questions in this part will be in the form of paragraphs (3-5 lines), short answer and accounting
exercise type testing analytical skills.










13


The examination will not include any objectives which have been assessed as in ternal
assessment with some exceptions. The exceptions are as follows and could be included in
the examination:


The Internal Assessment tasks will be taken from the following sections of the prescription;

Section II
The full set of books including preparation and use of a chart of accounts.


The preparation of journal and ledger entries.

Section III
The preparation of a ten-column worksheet incorporating the balance day
adjustments.

Section IV
Part B Analyse, interpret and make recommendations about a businesses financial
performance, financial position and managerial effectiveness and present the
financial information in a written report.

Section V
Preparation of Stock ledger cards and Fixed Asset Register and the studies of
accounting subsystems which require identifying of weaknesses and making
recommendations for improvement.


Describing internal control.







14



Internal Assessment

Students will be required to complete one major and three minor internal assessment tasks.
These tasks allow for some flexibility of approach but must follow the specified rules of
structure and content. Teachers will assess student material resulting from these tasks using
detailed marking schedules as provided in this prescription. The tasks, mark allocations and
suggested class-time are as follows:

Task
Final Mark
Suggested
Value (%)
Class-time
Major Task – Analysis, interpretation and reporting

20

10-12 hours
Minor Tasks


1. Full set of books
10
8-10 hours
2. Case study of accounting systems
5
3-4 hours
3. Inventory/fixed assets
5
3-4 hours

Schools that intend enrolling students in PSSC Accounting must submit for approval a
completed “PSSC Internal Assessment Summary Form” by March 1st in the year of enrolment.
These forms will be provided by the SPBEA.

A PSSC Accounting Internal Assessment Programme must include details of the assessment
tasks and procedures, the marking schedules for the tasks and descriptions of within school
moderation of internal assessments if there are more than one class and more than one school
involved.

Clear records and documentation regarding the school’s approved PSSC Internal Assessment
programme must be kept. All students’ work that has been assessed under this programme must
be available for verification by moderators and SPBEA officers during any one school year.

Students who will be enrolled in PSSC Accounting must be given a copy of the school’s Internal
Assessment programme for the subject. A copy of the marking scheme for each task should also
be available so students know the standard of work required and how their work will be
assessed. Each student must be informed of when assessment tasks are to be given, and be
notified of the assessment result as soon as it is marked. Students should also be advised that
such results are subject to further changes as a result of moderation.

Schools must submit a mark for each of the four assessment components:

Major Task – Analysis, interpretation and report
out of 60
Minor Task 1 – Full set of books
out of 60
Minor Task 2 – Case study of an accounting system
out of 15
Minor Task 3 – Stock Cards/Fixed Asset Register
out of 15




15



Moderation

Moderation is a process to ensure fair, valid and consistent assessment. It is to ensure assessment
of students’ performance in the same subject is comparable between classes (if there are more
then one class in a school) and between schools.

The moderation process is subject to the requirements and procedures of the Board.

The three minor tasks will be statistically moderated against a combination of the external
examination and the major task.

The Major Task – Analysis, interpretation and report will be sample moderated by country
moderators. This will be entirely moderated by an external moderator. The sample for
moderation will be taken from a list of students covering a range of marks. SPBEA will provide
the procedure for selecting the sample.



16

Internal Assessment Components

Major Task – Analysis, Interpretation and Report

Students are required to carrying out a financial investigation of a trading business which is
owned by a sole proprietor.

The investigation is to include the following stages:
− planning
− sorting and processing of data
− analysis, interpretation and evaluation of data
− recommendations and consequences in the form of a written report.

The purpose of this task is to assess the student’s understanding of the analysis, interpretation
and evaluation of financial information and being able to draw conclusions and make reasoned
recommendations. Teachers must ensure that this major task is completed by end of July and
samples sent to country moderator by August 16.

Students will be provided with the following information:

1.
A set of financial statements for a trading entity including:
− Statement of Accounting Policies
− Statement of Changes in Cash Flow
− Statement of Financial Performance
− Statement of Financial Position

2.
The financial statements are for three consecutive years with the calculations of the ratios
and percentages made for the first year of the three

3.
Industry averages for appropriate ratios and percentages

4.
Other information (at least four items) about the business that will assist in the
investigation

Examples: to be an increase in staff, a major advertising campaign, expansion of the
business, increase in interest rates, etc.


Students are required to present the investigation in the form of a report

PART A

1.
Describe the entity and the nature of the business as an opening page

2.
Calculate all the ratios and percentages (as listed in the prescription) for the second and
third years including percentage changes where appropriate. The ratios and percentages
cover financial performance (profitability), financial position (liquidity and financial
stability) and management effectiveness.

This is to be in the form of a table showing the 3 years of business activities.



17


PART B


Analyse, interpret and evaluate the results covering financial performance (profitability),
financial position (liquidity and financial stability), management effectiveness and the cash flow
position of the entity by commenting on the three years of business activity including the other
information.

The analysis, interpretation and evaluation is to include:

commenting on the money values of items in the financial statements

explaining the purpose of the ratios and percentages

explaining the results of the ratios and percentages

comparing the three years business activities and with industry averages

commenting on the cash flow position

identifying the trends and changes with possible reasons over the three years.

This is to be in the form of a written report with data appropriately provided such as pie charts,
graphs and other forms of non-written material.

PART C

Make possible alternative recommendations to improve the financial performance, financial
position, managerial effectiveness and cash position of the business and comment on the
consequences of these recommendations on the future of the business.

This is to be in the form of a written report with any other form of non-written material which
may be appropriate.

Teachers need to:


Prepare a set of financial statements as specified for three consecutive years of trading
including other information

Mark PART A before the students write the report for PARTS B and C

PART A in to be completed as an in-class task. PARTS B and C to be completed as an
unsupervised assignment

Sight and sign off the student work at the end of each part

Prepare a time-line for the completion of the task

Mark Allocation
(a)
Describing the entity and nature of the business
3 marks
(b)
Calculating the ratios and percentages
15 marks
(c)
Analysing, interpreting and evaluating the results

21 marks
(e)
Making possible recommendations and commenting on the consequences
16 marks
(f)
Overall presentation
5 marks


Total :
60 marks



Danger of task being in 3 parts but not so on mark allocation specially parts B and C.



18


PART A: (18 marks) Mark Scheme – Analysis, Interpretation and Report


a. Describing the entity and the nature of the business (3 marks)
3 marks
Excellent
- entity and nature clearly described
0
None
- entity and nature not described appropriately

b. Calculating the ratios and percentages (15 marks)
15 marks
Excellent
- all ratios and percentages calculated with only minor errors, and with
formulas clearly stated
12 marks
Very Good - all ratios and percentages calculated with less than five errors, and
with formulas clearly stated
8 marks
Good
- most ratios and percentages calculated with less than eight errors,
some formulas not given
6 marks
Adequate
- ratios and percentages calculated with less than twelve errors, some
formulas not given
3 marks
Limited
- some ratios and percentages calculated
0
None
- little effort made

PART B: (21 marks)

c.
Analysing, interpreting and evaluating the results (21 marks)

Analysing Financial Performance (6 marks)
6 marks
Excellent
- analysis clearly explains the financial performance over the three
years, with comparisons clearly made. Trends and changes clearly
stated.
3 marks
Good
- analysis explains the financial performance over the three years with
some comparisons made. Trends and changes not stated.
2 marks
Adequate
- analysis explains the financial performance over the three years with
few comparisons made
1 mark
Limited
- some analysis made
0
Poor
- no effort made

Analysing Financial Position (6 marks)
6 marks
Excellent
- analysis clearly explains the financial position over the three years,
with comparisons clearly made. Trends and changes clearly stated.
3 marks
Good
- analysis explains the financial position over the three years with
some comparisons made. Trends and changes not stated.
2 marks
Adequate
- analysis explains the financial position over the three years with few
comparisons made
1 mark
Limited
- some analysis made
0
Poor
- no effort made

Analysing Managerial effectiveness (3 marks)
3 marks
Excellent
- analysis clearly explains managerial effectiveness over the three
years, with comparisons clearly made. Trends and changes clearly
stated.
1 mark
Good
- analysis explains managerial effectiveness over the three years with
some comparisons made. Trends and changes not stated.
0
None
- little effort made


19




Analysing Cash Flow Position (3 marks)
3 marks
Excellent
- analysis clearly explains the cash flow position over the three years,
with comparisons clearly made. Trends and changes clearly stated.
1 mark
Good
- analysis explains the cash flow position over the three years with
some comparisons made. Trends and changes not stated.
0
None
- little effort made

Presentation of the analysis (3 marks)
3 marks
Excellent
- the presentation is well organized with good use of graphs and other
non-written material
2 marks
Good
- the presentation is organized with some use of graphs and other non
written material
1 mark
Limited
- the presentation is organized with no use of graphs and other non
written material
0
None
- little effort made

PART C: (21 marks)

d. Making recommendations and commenting on their consequences (16 marks)

Making recommendations (7 marks)
7 marks
Excellent
- appropriate alternative recommendations made, related to the results
of the analysis
4 marks
Good
- appropriate recommendations made with no alternatives given,
related to the results of the analysis
2 marks
Limited
- some recommendations made
0
Poor
- little effort made

Commenting on consequences (6 marks)
6 marks
Excellent
- consequences of recommendations are clearly explained.
3 marks
Good
- consequences of some recommendations are clearly explained
1 mark
Limited
- few consequences given
0
None
- little effort made

Presentation of the recommendations and consequences (3 marks)
3 marks
Excellent
- well presented
1 mark
Adequate
- adequately presented.
0
None
- little effort made

e. Overall Presentation of Investigation (5 marks)
5 marks
Excellent
- the overall presentation is very well organized and presented
showing clear and logical structure, very good use of non-written
material and a proper list of contents
3 marks
Good
- the overall presentation is adequately organized and presented with
good use of non-written material and a proper list of contents
1-2 mark
Limited
- adequate to limited overall presentation
0
Poor
- disorganized and poorly presented



20

Minor Tasks

Minor Task 1 – Full Set of Books

Students are required to prepare a full set of books for a sole proprietor which is a trading
business.

The purpose of this task is to assess the student’s understanding of the accounting process as
being made up of a series of stages and their ability to prepare the necessary accounting entries
for each stage.

The full set of books is to include:

Part A
Collecting, analysing and preparation of source documents

Part B
Preparing the accounting entries for the business entity
1. Description of the entity and nature of the business
2. Preparation of the Chart of Accounts
3. Preparation of the Journals
4. Posting to the Ledger
5. Prepare a Trial Balance
6. Prepare a Worksheet including Balance Day Adjustments

Teachers will be required to prepare a task for a chosen entity which must follow the specific
criteria as set out below.

Part A of the task can be completed as a homework assignment. Part B is to be completed in a
supervised class environment over a number of periods for each of the sections 1-6 with the
student work being collected by the teacher at the end of each period.

Students will be required to:

PART A

Collect, analyse and prepare source documents

(a) Students are to collect four different examples of prepared source documents from their
own environment (from a business or their own household) which could include: invoices,
receipts, statements, credit notes, etc.

(b) Answer four questions related to source documents similar to the following:
(i)
What details are common to all the source documents collected?
(ii) What transactions does each of the documents represent?
(iii) Which Journal would each of the documents be recorded?
(iv) Explain the importance of the documents’ serial number.

(c) Design two source documents from given data (teacher supplied) for an imaginary
business showing the details of a transaction. The source documents must include all the
necessary details that are required for internal control purposes.


21


PART B


Prepare accounting entries for the business entity

1.
Describe the entity and the nature of business from given data

2.
Prepare a Chart of Account for the entity

The Chart of Accounts must include the following coded ledger accounts:

Assets:
Bank, Inventory, Accounts Receivable (Individuals), Fixed Assets
appropriate to the business
Liabilities:
Accounts Payable (Individual), Loan
Owner’s Equity:
Capital, Drawings
Revenue:
Sales, Sales Returns, Discount Received, Other revenue appropriate to
the business
Expenses:
Purchases, Purchase Returns, Discount Allowed, five expenses
appropriate to the business

NOTE: Students will be given a jumble of ledger account names without labelling them
assets, liabilities, etc to prepare the Chart of Accounts.

3.
Prepare Journals, Ledgers and Trial Balance from a list of transactions

The list of transactions must include:
-
setting up the business with the introduction of capital in the form of cash and other
assets and the purchase of fixed assets and taking out a loan
-
one month’s transactions (minimum 25) covering a range of business activities
including:
-
sales of goods for cash and on credit
-
purchase of goods for cash and on credit
-
sales and purchase returns
-
other receipts
-
cash expenses including interest
-
purchase of further Fixed Assets
-
further capital introduced by the owner
-
drawings of cash and goods for the owner’s own use
-
writing off Bad Debts

(a) Prepare the following Journals: Sales, Sales Returns, Purchases, Purchase Returns, Cash
Receipts, Cash Payments, General

(b) Post to the Ledger accounts as set out in the Chart of Accounts

The teacher should mark the Journals before the students attempt the postings to the
ledger. The students should use a correct version of the Journals to avoid continuing
errors.

(c) Prepare a Trial Balance




22

4.
Prepare a worksheet from the prepared Trial Balance

The student should use a correct version of the Trial Balance to avoid continuing errors.

The worksheet must include:
- columns for Trial Balance, Balance Day Adjustments, Adjusted Trial Balance, Profit
and Loss, Balance Sheet
- Balance Day Adjustments for: Accrued Expenses, Prepayments, Accrued Income,
Income in Advance, Closing Inventory.

Teachers need to:

• Prepare details for PART A for students to prepare source documents
• Prepare a jumbled list of ledger accounts for the Chart of Accounts
• Prepare a list of transactions for the full set of books
• Prepare a correct Trial Balance for the preparation of the Worksheet
• Prepare a template for the preparation of the Worksheet
• Set PART B as a supervised class room task over a number of class periods
• Mark the student work at the end of each part
• Prepare a time-line for the completion of the task.


Mark Allocation
PART A
Collecting, analyzing and preparing source documents
10 marks
PART B
Describing the entity and nature of the business
2 marks
Preparing a Chart of Accounts
8 marks
Preparing Journals

10 marks
Posting to the ledger
10 marks
Preparing a Trial Balance
5 marks
Preparing a Worksheet
10 marks
Overall presentation
5 marks
Total
60 marks


Mark Scheme for the Full Set of Books

a. Collecting, analysing and preparing source documents (10 marks)

Collecting source documents (2 marks)
2 marks
Excellent
- 3-4 appropriate source documents are collected
1 mark
Adequate
- at least 2 source documents are collected
0
None
- less than 2 source documents are collected

Analysing source documents (4 marks)
4 marks
Excellent
- all questions for four source documents are answered correctly with
minor errors accepted
2 marks
Good
- most questions for at least two source documents answered correctly
with minor errors
1 mark
Limited
- some questions have been answered correctly
0
None
- little effort made



23

Preparing source documents (4 marks)
4 marks
Excellent
- two source documents have been prepared with most required details
correctly shown
2 marks
Good
- two source documents have been prepared with some required
details correctly shown
1 mark
Limited
- only one source document prepared
0
Poor
- little effort made

b. Describing the entity and nature of the business (2 marks)
2 marks
Excellent
- the entity and nature of the business are described
0
None
- the entity and nature of the business are not described

c. Preparing a chart of accounts (8 marks)

Classification of accounts (4 marks)
4 marks
Excellent
- all required classification is done correctly (no more than two errors)
2 marks
Good
- some required classification is done correctly (no more than five
errors)
1 mark
Adequate
- few classifications done correctly
0
None
- no classification

Coding of ledger accounts (4 marks)
4 marks
Excellent
- an ordered numbering system used with allowance for new accounts
2 marks
Good
- an ordered numbering system used with no allowance for new
accounts
1 mark
Adequate
- any indication of an ordered numbering system used
0
None
- no indication of an ordered numbering system used

d. Preparing Journals (10 marks)

Designing Journals (2 marks)
2 marks
Excellent
- appropriate journals designed, including all required details
0
None
- journals are not properly designed

Use of folio numbers (2 marks)
2 marks
Excellent
- correct use of most folio numbers linked to the chart of accounts
0 marks
None
- no use of folio numbers

Entries into the Journals (6 marks)
6 marks
Excellent
- most transactions were entered correctly in the journals and totalled
4 marks
Good
- many transactions were entered correctly in the journals and totalled
2 marks
Average
- few transactions were entered correctly in the journals and totalled
1 mark
Adequate
- at least three correct transactions entered in the journals and totalled
0
None
- no correct entrie s

e. Posting to the Ledgers (10 marks)

Folio Numbers and Codes (2 marks)

2 marks
Excellent
- most entries have folio numbers with correct codes
1 mark
Good
- few entries have folio numbers with codes
0
None
- no indication of using folio numbers/codes



24

Entries (5 marks)
5 marks
Excellent
- most entries are entered correctly (no more than 2 errors)
4 marks
Good
- some entries are entered correctly (no more than 4 errors)
2 marks
Adequate
- few entries are entered correctly (no more than 6 errors)
0
None
- no entries are entered correctly

Format (1 mark)
1 mark
Excellent
- all ledgers in 3 column format
0
None
- 3 column format not used

Balancing (2 marks)
2 marks
Excellent
- most accounts are correctly balanced
1 mark
Good
- few accounts are correctly balanced

f. Preparing a Trial Balance (5 marks)
5 marks
Excellent
- Trial Balance prepared correctly with correct figures
2 marks
Good
- Trial Balance prepared correctly with minor errors
1 mark
Adequate
- Trial Balance prepared with significant errors
0
None
- little effort made

g. Preparing a Worksheet (10 marks)

Balance Day Adjustments (4 marks)

4 marks
Excellent
- all Balance Day Adjustments entered correctly with no more than
one error
2 marks
Good
- Balance Day Adjustments entered correctly with no more than four
errors
1 mark
Adequate
- some Balance Day Adjustments entered
0
None
- no adjustments entered

Complete Profit and Loss and Balance Sheet Columns (4 marks)
4 marks
Excellent
- all entries correctly made with no more than one error
2 marks
Good
- entries correctly made with no more than six errors
1 mark
Adequate
- few entries correctly made
0
None
- little effort made

Balancing Worksheet (2 marks)
2 marks
Excellent
- balancing of worksheet correct
1 mark
Adequate
- balancing of worksheet with errors
0
None
- no balancing attempted

h. Overall Presentation (5 marks)
5 marks
Excellent
- excellent presentation of work with clear headings and
understanding, dates and folio numbers correct
3 marks
Good
- good presentation of work with most dates and folio numbers correct
1 mark
Adequate
- some effort has been made to present work neatly
0
None
- little effort made.


25

Minor Task 2 – Case Study of Accounting Systems

The purpose of this task is to assess the student’s understanding of accounting systems.

Students are required to prepare an analysis of existing accounting systems, identify weaknesses
and recommend any improvements.

The task will be based on a case study supplied by the teacher that covers at least two accounting
subsystems. The case study can be in a written form or a document flow chart or a combination
of both.

Students are required to:

1.
Describe the existing internal control procedures
2.
Identify any weakness in the existing internal control procedures of the business
3.
Make recommendations to improve the identified weaknesses.

Teachers need to:


Prepare an appropriate case study

Set this task as a supervised classroom activity over two 1 hour periods

Mark Allocation
Describe the existing procedures
3 marks
Identification of weaknesses
5 marks
Suggestion of valid recommendation for improvement
5 marks
Appropriate format of report submitted
2 marks
Total
15 marks

Mark Scheme for the Case Study

Describe existing control procedures (3 marks)
3 marks
Excellent
- the existing procedures are described correctly with no more than
one error
1 marks
Limited
- the existing procedures are described with no more than three errors
0
None
- no effort made

Identification of weaknesses (5 marks)
5 marks
Excellent
- all weaknesses clearly identified with no more than one error
3 marks
Good
- a few weaknesses identified with no more than two errors
1 mark
Limited
- one weakness described
0
None
- no effort made

Suggestions of valid recommendations (5 marks)
5 marks
Excellent
- valid practical recommendations made with no more than one error
3 marks
Good
- some valid practical recommendations made
2 marks
Limited
- one valid practical recommendation made
0
None
- no effort made

Format of report (2 marks)
2 marks
Excellent
- report clearly presented
0
None
- no effort made to present the report


26


Minor Task 3 – Inventory/Fixed Assets

Students are expected to:


select and visit a local trading entity

describe the nature of business activities conducted by the selected business entity

identify and describe the inventory of the business

identify and describe at least two fixed assets of the business

complete the stock cards (using FIFO, Weighted Average valuation methods) to record the
inventory transactions from given data

complete a fixed asset register for one asset from given data to include:
- date of purchase
- cost price/historic cost
- depreciation rate
- depreciation, accumulated depreciation and book value for a three year period using two
depreciation methods.

Teachers need to:


Set up a visit to a local business

Prepare an appropriate activity for the preparation of the inventory cards and fixed asset
register the students

Prepare templates for inventory cards and fixed asset register for students to use

Set this task as a supervised classroom activity

Mark Allocation
Selecting and describing the entity and the nature of the business
2 marks
Identifying and describing the inventory and fixed assets
3 marks
Recording of data - stock card
5 marks
Recording of data - fixed asset register
5 marks
Total
15 marks


Mark Scheme for Inventory and Fixed Asset (15 marks)

Explanation of the nature of a business (2 marks)
2 marks
Excellent
- appropriate explanation of the nature of the selected business
1 mark
Adequate
- adequate explanation of the nature of the selected business
0

None
- unclear and/or no effort made

Collection of the required data (3 marks)
3 marks
Excellent
- inventory and fixed assets identified and clearly described
2 marks
Good
- inventory and fixed assets identified and some features described
1 mark
Limited
- inventory and fixed assets identified
0

None
- no effort made







27

Recording of inventory data (5 marks)
5 marks
Excellent
- all required data recorded appropriately with only minor errors
2 marks
Good
- some required data recorded appropriately with no more than four
errors
1 mark
Limited
- little of required data recorded
0

None
- no effort made

Recording of fixed asset (5 marks)
5 marks
Excellent
- all required data recorded appropriately with only minor errors
2 marks
Good
- some required data recorded appropriately
1 mark
Limited
- little of required data recorded appropriately
0

None
- no effort made

28


APPENDIX A

Accounting terms

Users of accounting information can include:

Ø The entities
Ø Other entities
Ø Owners
Ø Managers
Ø Investors
Ø Creditors
Ø Government
Ø Customers
Ø Unions

Functions of accounting can include:

Ø Communication
Ø Aids decision-making
Ø Accountability
Ø Control devices
Ø Aid to interested parties

Accounting Elements

Ø Assets are service potential or future economic benefits controlled by the entity as a result of
a past transaction e.g. Delivery Van
Ø Liabilities are the future sacrifices of assets that the entity is presently obliged to make as a
result of a past transaction e.g. Mortgage
Ø Owner’s Equity is assets minus liabilities
Ø Revenues are increases in assets or reductions in liabilities, other than contributions by the
owner, which increase owner’s equity
Ø Expenses are reductions in assets or increase in liabilities, other than drawings, which
decrease owner’s equity.

Accounting Cycles include:

Ø Cash based business: receipt of cash, payment of cash
Ø Credit based business: purchase of goods, sale of goods, receipt of cash, payment of cash

Debit/Credit analysis is applied by:

Ø A + E (Increase Debit, Decrease Credit)
Ø L + OE + R (Increase Credit, Decrease Debit)

29


Features of a good accounting system:

Ø Provides useful information
Ø Allows planned objectives to be achieved
Ø Adheres to established procedures
Ø Institutes adequate controls
Ø Allows accurate and complete records to be kept
Ø Allows delegation of duties
Ø Allows for sharing of workload

The major objectives of each sub-system to be in terms of:

Ø The importance of sub-systems within the entity
Ø The consequences of not having an adequate sub-system in place

Financial documents used for sub-systems:

Ø Cash receipts: bank deposit slips, register tape, cash sales docket, receipt, bank statement,
credit cards
Ø Cash payments: cheque butt, bank statement, petty cash voucher, direct credits, payment
vouchers
Ø Payroll: employment contracts, tax tables, details of deductions, time records
Ø Sales/accounts receivable: sales order, packing slip, invoice, credit note, receipt, customer
statement
Ø Purchase/accounts payable: purchase requisition, purchase order, packing slip, invoice,
credit note, cheque, receiving report, suppliers statement
Ø Fixed Assets: invoice, ownership papers

Document essential information:

Ø pre-numbered, date, business name/address, customer name/address, details of transactions,
amount, sales tax, copies

System document flowcharts to include:

Ø documents
Ø departments
Ø personnel involved
Ø appropriate flows
Ø appropriate flowchart symbols

The objectives of internal control are to:

Ø Provide accurate and reliable accounting data
Ø Encourage efficiency
Ø Safeguard assets
Ø Ensure management policies are followed






30



The principles of internal control include:

Ø Reliable personnel
Ø Verification
Ø Authorisation
Ø Responsibility
Ø Separation of duties
Ø Serialisation of documents

Features of financial statements include:

Ø Clear headings, accuracy, simplicity, consistency, clear presentation, compliance with law
and financial reporting standards and concepts

Limitations of financial statements:

Ø Use of historical cost, estimations in the calculation of depreciation and doubtful debts,
valuation of inventory, not accounting for price-level changes

Purpose of analysing financial statements includes:

Ø Communication
Ø Comparison
Ø Decision making
Ø Control




31



APPENDIX B

Financial Statements Templates

For a Sole Proprietor
1
Statement of Accounting Policies
2
Statement of Financial Performance for a Service Business
3
Statement of Financial Performance for a Trading Business
4
Statement of Financial Position
5
Statement of Changes in Cash Position

For Community Organisation
6
Statement of Accounting Policies
7
Statement of Changes in Cash Position
8
Statement of Activity
9
Statement of Trading Activities
10
Statement of Financial Performance
11
Statement of Financial Position


Financial Statements for a Sole Proprietor

1
Statement of Accounting Policies


A Statement of Accounting Policies to include:
• identification of the entity reporting by name and nature
• the measurement system adopted (to be historical cost)
• reliance on going concern and use of accrual basis
• policies for the measurement of depreciation, accounts receivable and inventory
• a statement of changes (or no changes) in accounting policy


32


2

Statement of Financial Performance for a Service Business


BUSINESS NAME

STATEMENT OF FINANCIAL PERFORMANCE

for year ended ……



Income

Service Income
xx

Less Expenses
Group One’ Expenses

List these
xx


xx


xx
0


---------------


Administration Expenses

List

xx



xx



xx

0


---------------

Financial Expenses

List

xx


xx



xx

0


-------------------------------

Total Expenses





0






---------------------

NET PROFIT





$0






---------------------



Note:
1
The ‘Group One’ expenses will be appropriate to the service firm, for example a
courier might have Vehicle Expenses, a plumber might have Plumbing and Vehicle
Expenses, a hairdresser might have Cutting and Styling Expenses.

33


3
Statement of Financial Performance for a Trading Business


BUSINESS NAME

STATEMENT OF FINANCIAL PERFORMANCE

for year ended ……



Sales



xx

Less Sales Returns
xx


--------------
Net Sales

0

Less Cost of Goods Sold

Inventory at …..
xx

Plus Purchases
xx

Less Purchases Returns
xx

Net Purchases

0

Freight In and Customs Duty

xx



----------------

Good Available for Sale


0

Less Inventory at …..


xx



----------------

Cost of Goods Sold




0




--------------

Gross Profit




0



Add Other Revenue

List
xx


xx
0


------------------

Less Expenses

Selling and Distribution Expenses

List
xx

xx

xx
0

---------------

Administration Expenses
List

xx


xx


xx
0

---------------
Financial Expenses
List

xx


xx
0

---------------
Other Expenses
List

xx
0

---------------------------------------
Total Expenses





0






---------------------
Net Profit





$0






---------------------




34

4



BUSINESS NAME

STATEMENT OF FINANCIAL POSITION

as at ……….



Owner’s Equity


Capital



xx

Add Net Profit
xx
Less Drawings
xx


--------------



$0


--------------

This is represented by

Current Assets

List
xx


xx


xx


xx
0


----------------

Less Current Liabilities
List
xx


xx

0


-------------------------------------

Working Capital












Add Non-Current Assets

Investments

List




xx





---------------






0
Fixed Assets
Asset Name
xx
Less Accumulated Depreciation
xx
0
Asset Name
xx
Less Accumulated Depreciation
xx
0
0

------------------------------------------



0
Intangible Assets
List


xx


---------------


0
Less Non Current Liability
List

xx






---------------






$0






---------------







35

5


BUSINESS NAME

STATEMENT OF CHANGES IN CASH POSITION

for the year ended ……



Cash was received from:

List Receipts
x


x


x
0


----------------

Cash was applied to:
List Payments

x


x


x


x
0




---------------------------------------

Net Increase/decrease in cash




0

Add Bank balance at …….




x






---------------------

Bank balance at …….





$0






---------------------


6
Financial Statements for Community Organisation

STATEMENT OF ACCOUNTING POLICIES

Statement of Accounting Policies to include:
• identification of the entity reporting by name and nature
• the measurement system adopted (to be historical cost)
• reliance on going concern and use of accrual basis
• a policy for depreciation (to be straight-line)

7

COMMUNITY ORGANISATION NAME

STATEMENT OF CHANGES IN CASH POSITION (Receipts and Payments)
for the year ended ……



Cash was received from:

List Receipts
x


x


x
0


----------------

Cash was applied to:

List Payments

x


x


x


x
0



---------------------------------------

Net Increase/decrease in cash




0

Add Bank balance at …….




x






---------------------
Bank balance at …….





$0





---------------------

36

8
Statement of Activities such as socials, raffles


COMMUNITY ORGANISATION NAME

RAFFLE ACTIVITY STATEMENT

for the year ended ……


Ticket Sales

xx

Less Expenses

Printing Tickets
xx

Prizes
xx
0

Surplus/Deficit on raffles





$0


9
Statement of Trading Activities such as refreshments, restaurant


COMMUNITY ORGANISATION NAME

REFRESHMENT TRADING STATEMENT
for the year ended ……



Refreshment Sales


xx

Less Cost of Goods Sold

Opening Inventory
xx

Plus Refreshment Purchases
xx


----------------



0

Less Closing Inventory

xx


----------------

Cost of Refreshments Sold
0




----------------
Gross Surplus
0

Less Other Expenses

Refreshment Wages
xx

Refreshment Expenses
xx
0




---------------------------------------

Surplus/Deficit





$0






-----------------------


10


COMMUNITY ORGANISATION NAME

STATEMENT OF FINANCIAL PERFORMANCE (Income and Expenditure)
for the year ended ……

Income
Subscriptions
xx
Surplus on raffle
xx
Surplus on refreshments
xx
Donations
xx
0

--------------------------------------


0
Less Expenditure

Affiliation Fees
xx
Secretary’s Honorarium
xx
Deficit on social
xx
etc
xx
0



---------------------------------------
Surplus/Deficit





$0





-----------------------

37

11



COMMUNITY ORGANISATION NAME

STATEMENT OF FINANCIAL POSITION

as at ……….



Accumulated Fund


Balance


xx

Add Surplus/Deficit
xx
0

----------------------------------



$0


-----------------

Represented by

Current Assets

Bank

xx

Subscriptions in Arrears

xx

0




----------------

Less Current Liabilities

Subscriptions in Advance


xx

Accrued Expenses


xx

0




-----------------------------------





0








Add Non-Current Assets

Fixed Assets

Club Equipment
xx



Less Accumulated Depreciation
xx

0


-----------------

Other Assets

xx

Less Accumulated Depreciation
xx
0
0


------------------------------------------



0
Less Non Current Liabilities
Debentures/Loan

xx






---------------






$0






---------------











38


APPENDIX C


FORMULAE FOR ANALYSIS O F FINANCIAL INFORMATION


FOR SOLE PROPRIETORS AND PARTNERSHIPS



GrossProfit
100
Mark Up Percentage
x

of
Cost
Sales

1

Gross Profit

Gross Profit Percentage
100
x

Sales
Net
1

Expenses
Expenses Percentage
100
x

Sales
Net
1
Profit
Net

100
Net Profit Percentage
x

Sales
Net
1

Profit
Net
100
Return on Owners Equity
x

Equity

Owners

Average
1

Profit
Net
Return on Average Total Assets
100
x


Total

Average
Assets
1
• Working Capital Amount
Current Assets – Current Liabilities
• Current Ratio

Current Assets

Current Liabilities

• Liquid Ratio

Current Assets –
(Inventories & Prepayments)

Current Liabilities –

(Secured Bank Overdraft)
• Equity Ratio
Owners Equity
Total Assets

Total Liabilities
Debt Ratio
Total Assets

Cost of Goods Sold
Inventory Turnover
Average Inventories
Receivable

Accounts

Average
• Accounts Receivable Collection Period
365
x


Sales
Credit
Net
+ GST

1






39


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