Principles of Accounting (H2)

This course is designed as an introductory accounting course at the H2 level and does not require prior accounting knowledge. It focuses on developing students' ability to use accounting information for decision-making. The syllabus also emphasizes business ethics, particularly integrity, objectivity, and responsibility.

Key Understanding 1: Accounting information supports decision-making

Stakeholders and Decision-Making

This section covers various stakeholders of a business, including shareholders, managers, suppliers, lenders, customers, employees, government, potential investors, and the general public. It explores the types of financial information each stakeholder needs and how they use it to make decisions. It also discusses the limitations of financial information and the role of non-financial information in decision-making.

Business Ethics

This section focuses on the ethical values of integrity and objectivity in business. It examines common ethical issues such as honesty, fairness, conflicts of interest, and fraud. It also explores the financial effects of unethical accounting practices and their implications for decision-making.

Qualitative Characteristics of Useful Financial Information

This section introduces the fundamental qualitative characteristics of relevant and faithful representation, including materiality. It explores how these characteristics affect decision-making.

Financial Statement Analysis

This section covers the analysis of income statements, balance sheets, and statements of cash flows. It introduces techniques like horizontal analysis, vertical analysis, and ratio analysis. It also discusses the limitations of using financial ratios and the importance of comparing financial information over time, with other businesses, and industry benchmarks. Specific areas of analysis include profitability, liquidity, efficient use of assets, solvency, and shareholder rewards.

Key Understanding 2: Accounting represents business economic activities

Types of Businesses

This section classifies businesses by objectives (profit-making vs. non-profit making) and trade (merchandising, service, and manufacturing). It examines the features and differences between these classifications and how they affect business economic activities and financial statements. The syllabus focuses on profit-making businesses in merchandising, service, and manufacturing.

Forms of Business Ownerships

This section covers different forms of business ownership, including sole proprietorship, partnership, and company. It examines the features and differences between these forms and how they are reflected in financial statements. The syllabus focuses on accounting for companies.

Economic Activities

This section explains the importance of and differences between financing, investing, and operating activities. It also explores the relationships between these activities and the concept of the operating cycle.

Elements of Financial Statements

This section classifies the effects of economic activities into assets, liabilities, equity, income, and expenses.

Accounting Equation

This section introduces the basic accounting equation (assets = equity + liabilities) and its expanded form. It relates the accounting equation to financial statements and analyzes the effects of economic activities on the equation and statements.

Financial Statements

This section covers the preparation of financial statements, including the income statement, balance sheet, statement of changes in equity, and statement of cash flows. It also discusses the generally accepted formats and terms used in these statements.

Shareholders' Equity

This section explains the concept of a company as a separate legal entity and shares as units of ownership. It explores the effects of transactions related to share issuance, buy-backs, dividends, retained earnings, and asset revaluation on the accounting equation and financial statements.

Long-term and Short-term Borrowing

This section covers different types of borrowings, such as loans, mortgages, and bonds. It examines the effects of borrowing, repayment, and interest on the accounting equation and financial statements.

Property, Plant, and Equipment

This section explains the purpose of property, plant, and equipment and the effects of their acquisition, depreciation, revaluation, impairment, and sale on the accounting equation and financial statements. It also covers the distinction between capital and revenue expenditure.

Income and Expenses

This section relates income and expenses to the main income-generating activities of a business. It explores the effects of sales, service provision, other income, and various expenses on the accounting equation and financial statements. It also covers adjustments for accrued and prepaid expenses and unearned income.

Inventories

This section discusses inventories in merchandising and manufacturing businesses and their purchase, sale, and valuation. It covers inventory costing methods like FIFO and weighted average and the adjustment between these methods.

Trade and Other Receivables

This section explores the effects of sales and services on credit and the impairment of trade receivables on the accounting equation and financial statements.

Trade and Other Payables

This section examines the effects of purchases of goods and services on credit on the accounting equation and financial statements.

Cash on Hand and Cash at Bank

This section covers the effects of cash receipts, cash payments, and bank-related transactions, including bank reconciliation, on the accounting equation and financial statements.

Correcting Accounting Errors

This section explains how to check for arithmetic accuracy using a trial balance and how accounting errors not revealed by the trial balance are created. It also covers the effects of accounting errors and their corrections on financial statements.

Incomplete Records

This section introduces techniques for deriving financial items from incomplete records, including the capital comparison method, accounts analysis method, and financial ratios method.

Key Understanding 3: Accounting is a measurement system

Accounting Principles

This section covers various accounting principles, such as the accounting entity concept, going concern, monetary principle, historical cost, objectivity, accounting period, accrual, matching, consistency, materiality, and prudence. It discusses their implications for the representation of economic activities and their presentation on financial statements. It also relates accounting principles to business ethics and discusses the limitations of accounting as a measurement system.

Accounting Information System and Accounting Cycle

This section explains how business economic activities are recorded, processed, and organized into information. It covers the components of the accounting information system and the accounting cycle and its role in preparing financial statements.

Double-Entry Recording

This section explains the double-entry recording rule and how to represent double-entry effects as journal entries.

Measuring Economic Activities

This section covers the measurement of performance (profit/loss), financial position (assets, liabilities, and equity), and cash flows.

Measuring Costs

This section explains the purpose of measuring cost objects and the relationship between costs and cost objects (direct and indirect). It also covers cost assignment and cost-allocation bases.

Cost Flow in a Manufacturing Business

This section explains cost flow and computations related to materials, work-in-progress, and finished goods in a manufacturing business. It also covers prime cost and conversion cost and the preparation of a schedule of cost of goods manufactured and income statement.

Normal Job-Costing System

This section explains the concept of job costing and how under- and over-applied overhead arises and its financial effects.

Budgeting

This section covers fixed and flexible budgets and the preparation of various budgets, including sales, production, raw materials, direct labor, production overhead, expenses, cash budget, and budgeted income statement and balance sheet.