WAC11 The Accounting System and Costing

Lessons in WAC11

1. Double entry and the accounting equation
   Assets = Capital + Liabilities. Debit assets and expenses up; credit liabilities, capital and income up.
2. The purpose of accounting and its users
   Accounting records, analyses and communicates financial information. Different users want different things; managers use it to plan, control and decide.
3. Ledger accounts and balancing off
   Balance c/d goes on the smaller side; Balance b/d comes down on the other side. Debit balances are assets, expenses or drawings; credit balances are liabilities
4. Books of prime entry
   Day books list credit transactions; the cash book records cash and bank; the journal records everything else. Trade discount is never recorded; cash discount is
5. End-of-period transfers, accruals and prepayments in the ledger
   Charge = amount for the period, whatever was paid. Accrued expenses and income in advance are credit balances (liabilities); prepaid expenses and accrued income
6. Irrecoverable debts and the allowance for irrecoverable debts
   Write off known irrecoverable debts first. Only the change in the allowance affects profit; the whole allowance is deducted from receivables.
7. ICT in accounting
   Software makes both entries and produces ledgers, control accounts, trial balances and statements instantly, but it cannot stop errors in the data entered.
8. Accounting concepts and conventions
   Know all nine: going concern, prudence, accruals, consistency, historic cost, materiality, money measurement, realisation, business entity. Name, explain, apply
9. International Accounting Standards
   IAS and IFRS give common rules for measurement and presentation. They improve comparability and credibility but still allow choices and cost money to apply.
10. Capital and revenue expenditure
    Buying or improving a non-current asset (and getting it ready) is capital; running and maintaining it is revenue.
11. Depreciation: causes, reasons and methods
    Straight line: same charge each year. Reducing balance: % of carrying value, high early. Revaluation: opening + purchases - closing. Method changes timing of pr
12. Non-current asset accounts, disposals and the schedule
    Disposal account: debit cost; credit accumulated depreciation and proceeds; the balancing figure is the profit or loss. Follow the depreciation policy for the y
13. The trial balance and its limitations
    A trial balance checks arithmetic, not accuracy. Omission, commission, principle, original entry, complete reversal and compensating errors are not revealed.
14. Control accounts for trade receivables and trade payables
    Control accounts use totals from the books of prime entry. Cash sales, trade discount and the allowance for irrecoverable debts never appear in them.
15. Correcting errors: the journal and the suspense account
    Journal: debit, credit, amount, narrative. Only errors that upset the trial balance go through suspense; a wrong-side posting needs double the amount.
16. Statements of revised profit and correcting control accounts
    Revised profit: add errors that understated profit, subtract those that overstated it; errors affecting only assets and liabilities do not change profit. Contro
17. Statement of profit or loss for a sole trader
    Cost of sales = opening inventory + net purchases (including carriage inwards) - closing inventory. Drawings are not expenses.
18. Statement of financial position for a sole trader
    Total assets = capital + liabilities. Closing capital = opening capital + profit + capital introduced - drawings.
19. Year-end adjustments and provisions in the final accounts
    Every adjustment hits both statements. Provisions (depreciation, allowance for irrecoverable debts) are prudent estimates charged to profit and deducted from as
20. Departmental statements of profit or loss
    Allocate what belongs to one department; apportion shared costs on a fair basis. Judge a department by the costs that would really be saved, not by apportioned
21. Incomplete records
    Profit = change in capital + drawings - capital introduced. Credit sales and purchases are balancing figures in total receivables and payables accounts. Mark-up
22. Losses of inventory or cash
    Expected inventory = opening + purchases - cost of sales (from the margin). Insured losses are receivables; uninsured losses are expenses.
23. Partnerships: the appropriation account and the Partnership Act
    Appropriation order: profit, add interest on drawings, less interest on capital and salaries, share the residue in the profit-sharing ratio. With no agreement,
24. Partners' capital and current accounts
    Fixed capital: profit shares, salaries, interest and drawings go to current accounts. Fluctuating capital: they go to the capital account. A debit current accou
25. Admission and retirement of a partner, and goodwill
    Goodwill and revaluation gains belong to the old partners in the old ratio. If goodwill is not kept, write it off in the new ratio. A retiring partner's balance
26. Clubs: receipts and payments, subscriptions and life membership
    Subscriptions income = received - opening arrears + opening in advance + closing arrears - closing in advance. Life fees are spread over the membership period,
27. Clubs: trading accounts and the income and expenditure account
    Activities have their own trading accounts; their profit is income of the club. Surplus or deficit replaces profit; the accumulated fund replaces capital.
28. Manufacturing accounts
    Prime cost = direct materials + direct labour + direct expenses. Production cost = prime cost + factory overheads + opening WIP - closing WIP. Shared costs are
29. Factory profit and unrealised profit on manufactured goods
    Provision for unrealised profit = finished goods at transfer price x mark-up/(100 + mark-up). Only the change hits profit; inventory is shown at cost.
30. Inventory valuation: FIFO, LIFO and net realisable value
    FIFO: closing inventory at recent prices. LIFO: at old prices (not allowed by IAS 2). Always the lower of cost and NRV. In rising prices FIFO gives higher profi
31. Perpetual inventory records: FIFO and LIFO
    Perpetual: price each issue when it happens. FIFO uses the oldest batch, LIFO the newest batch held at that date. FIFO gives the same result as periodic; LIFO m
32. Labour productivity and remuneration methods
    Day work pays for time; piecework pays for output; bonuses reward time saved or team output. Employer cost = gross pay + employer's contributions.
33. Overheads: behaviour, allocation and apportionment
    Fixed, variable, semi-variable and semi-fixed describe behaviour. Allocate what belongs to one centre; apportion shared overheads on a fair basis; then absorb i
34. Service department costs and continuous allotment
    Service costs must end up in production departments. Use the direct method if services are not reciprocal; otherwise continuous allotment (or simultaneous equat
35. Overhead absorption rates and over- or under-absorption
    OAR = budgeted overheads / budgeted hours. Absorbed = OAR x actual hours. Over-absorbed: add to profit; under-absorbed: extra expense.
36. Job costing and batch costing
    Job cost = direct materials + direct labour + direct expenses + absorbed overheads; add profit to price it. Batch cost per unit = batch cost / units in the batc
37. Profitability ratios
    Margin = GP / revenue; mark-up = GP / cost of sales; net margin = profit for the year / revenue; ROCE = profit before interest / (capital + non-current liabilit
38. Liquidity and asset-use ratios
    Current ratio = CA : CL. Liquid ratio = (CA - inventory) : CL. Inventory turnover = cost of sales / average inventory. Collection and payment periods use credit
39. Using ratios to appraise performance and make projections
    Appraise: calculate, compare, explain the cause, state the consequence, conclude. Project: forecast figure x expected ratio, stating assumptions.
40. Social and ethical accounting
    Assess effects on community, environment, workforce, health and safety and resources; consider every stakeholder; weigh non-financial factors; act with integrit
41. WAC11 exam technique
    3 hours, 200 marks: two 55-mark questions, then three of four 30-mark questions. Learn the formulae, show working, write in full, and always finish evaluations

Next exams for WAC11

• January 2027: Tue 12 Jan 2027, morning, 3h 00m
• Summer 2027: Tue 4 May 2027, morning, 3h 00m

From Pearson's final timetables. All exam dates. Always confirm your entries with your exams officer.