PRINCIPLES OF ACCOUNTS 7110
GCE O Level
2007
IMPORTANT NOTICE
University of Cambridge International Examinations
(CIE) in the UK and USA
University of Cambridge International Examinations
accepts entries in the UK and USA only from
students registered on courses at CIE registered
Centres.
UK and USA private candidates are not eligible to
enter CIE examinations unless they are repatriating
from outside the UK/USA and are part way through a
course leading to a CIE examination. In that case
a letter of support from the Principal of the school
which they had attended is required. Other UK and
USA private candidates should not embark on courses
leading to a CIE examination.
This regulation applies only to entry by private
candidates in the UK and USA. Entry by private
candidates through Centres in other countries is not
affected.
Further details are available from Customer Services
at University of Cambridge International
Examinations.
Exclusions
This syllabus must not be offered in the same session
with any of the following syllabuses:
0452 Accounting
0614 Accounting (Botswana)
7114 Principles of Accounts (Singapore)
7118 Principles of Accounts (Singapore)
You can find syllabuses and information about CIE
teacher training events on the CIE Website
(www.cie.org.uk).
PRINCIPLES OF ACCOUNTS 7110 O LEVEL 2007
1
PRINCIPLES OF ACCOUNTS
GCE Ordinary Level/School Certificate
Subject 7110
(Available in the June
and November
examinations)
Copies of syllabuses, past papers and Examiners'
reports are available on CD-ROM and can be
ordered using the Publications Catalogue, which is
available at www.cie.org.uk under
Qualifications & Diplomas Order
Publications.
AIMS
1. To develop an understanding of the principles and
purposes of accounting in providing an information
system for monitoring and decision making appropriate
to the needs of individuals, business and nontrading
organisations and society as a whole.
2. To develop an understanding of accounting concepts,
conventions, procedures and terminology.
3. To develop knowledge and understanding of the aims
and activities of business and non-trading
organisations, their accounting implications and the
accounting techniques and procedures appropriate
to them.
4. To develop skills of numeracy, literacy,
communication, enquiry, presentation and interpretation.
5. To encourage attitudes of accuracy, orderliness and
logical thought.
ASSESSMENT OBJECTIVES
The skills tested in Principles of Accounts are:
A Knowledge with understanding
B Analysis
C Evaluation
A description of each skill follows.
A Knowledge with understanding
Students should be able to:
1. demonstrate knowledge and understanding of facts,
terms, concepts, conventions, principles and
techniques appropriate to the syllabus;
2. demonstrate understanding of knowledge through
numeracy, literacy, presentation and interpretation;
3. apply knowledge and information to various
accounting situations and problems.
The syllabus content defines the factual material that
candidates may be required to recall and understand.
Questions testing this will often begin with words
such as: state, define, identify, list, outline,
write up,
record, calculate, compute, explain.
B Analysis
Students should be able to:
4. select, analyse and order information in written,
numerical and diagrammatic form;
5. present appropriate information in an accepted
accounting form.
Questions testing these skills will often begin with
words such as: select, prepare, draw
up.
PRINCIPLES OF ACCOUNTS 7110 O LEVEL 2007
2
C Evaluation
Students should be able to:
6. display an ability to interpret and evaluate
accounting information and to draw reasoned conclusions.
Questions testing this skill will often require verbal
answers and may begin with words such as: explain,
suggest, advise, comment on, discuss, compare.
SPECIFICATION GRID
The relationship between the skills and components of
the scheme of assessment.
Paper Skill
A Knowledge
with
understanding
B Analysis C Evaluation
1 60% 40% -
2 25% 55% 20%
The skills are weighted to give an indication of their
relative importance. They are not intended to
provide a precise statement of the number of marks
allocated to particular skills.
SCHEME OF ASSESSMENT
Paper 1 Multiple Choice (1Ό hrs) consisting of 40 items testing the whole syllabus.
Paper 2 Structured Written Paper (1Ύ hrs).
Paper 2 will usually consist of between 4 and 6
compulsory questions drawn from
topics across the whole syllabus: one of these
questions, carrying approximately
one third of the marks for Paper 2, will involve the
preparation of the final accounts
of a business (the Trading and Profit and Loss Account
and the Balance Sheet).
Questions on Paper 2 may require completion of
proformas and tables.
Candidates will write their answers on the question
paper.
There will be no choice of question on either paper.
Paper 1 will be worth 33.3% of the final marks. Paper
2 will be worth 66.6% of the final marks.
Candidates may be provided with multi-column
accounting stationery on which to answer the last
question of Paper 2.
PRINCIPLES OF ACCOUNTS 7110 O LEVEL 2007
3
CONTENT
1. Basic Principles
Within the following areas the candidate should be
able to:
1.1 The Double Entry System of Bookkeeping
process
accounting data using the double entry system
explain the
sub-division of the ledger into the sales ledger, the purchases ledger, and the
general ledger
1.2 Documentary Records
name and
state the use of an invoice, credit note, debit note, cheque, receipt, and
statement of account
Questions will not
require knowledge of document details.
1.3 Books of Prime Entry
process
accounting data in the books of prime (original) entry - Cash Book, Sales
Journal,
Purchases Journal, Sales Returns Journal, Purchases
Returns Journal, and General
Journal
post the
ledger entries from the books of prime entry
distinguish between,
and account for, cash and trade discounts
1.4 The Cash Book
recognise its
dual function both as a book of prime entry and as a ledger account for bank
and cash by use of analysis columns
give the
correct treatment to bank current accounts, bank deposit accounts, bank
overdrafts, bank loans and other loans
draw up a
reconciliation of the cash book with the bank statement in respect of the
following: unpresented cheques, bank charges, direct
debits, standing orders, credit
transfers, dividends, correction of errors, and
uncredited deposits
1.5 The General Journal
enter those
transactions, including correction of errors, that cannot be recorded in any
special journal
write
relevant explanatory narrations for each entry
1.6 The Ledger
prepare
ledger accounts using the T account format
post
transactions to the ledger accounts
balance the
ledger accounts as required
interpret
ledger accounts and their balances
Candidates need not
know the use of the folio columns.
PRINCIPLES OF ACCOUNTS 7110 O LEVEL 2007
4
1.7 The Trial Balance
recognise
that it is a statement of ledger balances on a particular date
extract a
trial balance
outline its
uses and limitations
draw up a
suspense account and show its use
identify and
explain those errors which do not affect the trial balance - omission,
commission, principle, compensating, original entry,
and reversals
2. Accounting Procedures
Within the following areas the candidate should be
able to:
2.1 Capital and Revenue Expenditure
show understanding
of the differing accounting treatment of capital and revenue
expenditure and income
calculate and
comment on the effect on profit and asset valuation of incorrect treatment
2.2 Accounting for Depreciation
define
depreciation
explain the
reasons for accounting for depreciation
name and
describe the straight line, diminishing (reducing) balance and revaluation
methods of depreciation
explain the
circumstances in which each method is used
prepare
ledger accounts and journal entries for the provision of depreciation and the
disposal of fixed assets
2.3 Adjustments to Ledger Accounts
Accruals and
Prepayments
- make entries
in the journal and ledger accounts to record accrued and prepaid
expenses and outstanding and prepaid incomes
Bad Debts and
the Provisions for Doubtful Debts and Discounts
- make entries
in the journal and ledger accounts to write off bad debts and to make
provision for doubtful debts as instructed, and
discounts
2.4 Correction of Errors
make journal
entries supporting the correction of errors
open and post
entries to a suspense account where necessary
prepare a
statement of revised profit
prepare
revised balance sheets or extracts
2.5 Control Accounts
explain that
control accounts are an independent check on the sales and purchases
ledgers
explain that
control accounts may be used to provide totals of debtors and creditors, locate
errors and act as a deterrent against fraud
identify and
use the books of prime entry as sources of information for the control account
entries
PRINCIPLES OF ACCOUNTS 7110 O LEVEL 2007
5
enter the
following items into the relevant control account: sales and purchases,
receipts
and payments, discounts, returns, bad debts, bad debts
recovered, dishonoured cheques,
interest on overdue accounts, contra entries, refunds,
opening and closing balances
(debit and credit within each account)
2.6 Purchase of a Business
record the
assets and liabilities acquired in the books of the purchasing business
(sole trader or partnership)
calculate and
record Goodwill
3. Principles of Final Accounts
Within the following areas the candidate should be
able to:
3.1 Trading and Profit and Loss Accounts
calculate the
gross and net profits or losses, based on accounting principles, for a
specified
period
recognise
that net profit (or loss) is the increase (or decrease) in the net value of
assets
during that period
prepare
simple columnar trading accounts when dealing with a business which has two
departments
3.2 Balance Sheets
recognise
that it is a statement of balances of assets and liabilities on a specified
date set
out in any valid layout
demonstrate
knowledge of the meaning, importance and designation of fixed assets,
goodwill, current assets, current liabilities, long
term liabilities and working capital
comment upon
the significance of the inter-relationship of the Balance Sheet items
relate
working capital to the liquidity of a business
explain the
basis of valuation of assets as follows:
- fixed assets at cost less accumulated depreciation
- stock in trade at cost or net realisable value,
whichever is lower
- trade debtors at expected collectible amount i.e.
after deduction of provisions for
doubtful debts and discounts
distinguish
between, and show understanding of, capital and capital employed
3.3 Partnerships
know the
importance and contents of a partnership agreement
make simple
entries for the formation of a partnership via capital contribution by each
partner in cash and/or non-cash assets and
amalgamation of two sole traders, including
the calculation and recording of Goodwill
Questions will not
be set on the dissolution of partnership.
PRINCIPLES OF ACCOUNTS 7110 O LEVEL 2007
6
4. Preparation of Final Accounts
Within the following areas the candidate should be
able to:
4.1 Sole Trader
prepare
Trading and Profit and Loss Accounts and Balance Sheets
make
adjustments for provision for depreciation - straight line, diminishing
(reducing)
balance and revaluation
make
adjustments for provisions for bad and doubtful debts and for discounts
make
adjustments for accruals and prepayments to take account of accrued and prepaid
expenses and outstanding and prepaid income
make
adjustments for goods taken by owner for own use
4.2 Partnership
prepare
Trading and Profit and Loss Accounts, Appropriation Accounts and Balance
Sheets
draw up
partners' current and capital accounts both in ledger form and as part of a
Balance
Sheet presentation
show the
treatment of interest on capital, partners' salaries, interest on partners' loans
and
on drawings
make the
other adjustments as detailed under 4.1
4.3 Clubs and Societies
distinguish
between receipts and payments accounts and income and expenditure
accounts
prepare
accounts for the following - receipts and payments, revenue generating
activities
e.g. refreshments, and subscriptions
prepare
Income and Expenditure Accounts and Balance Sheets
make the
other adjustments as detailed under 4.1 as appropriate
4.4 From Incomplete Records
prepare
opening and closing statements of affairs
calculate net
profit/loss from change in capital over time
compute sales
and purchases figures and gross profit from incomplete information
apply the
following techniques to arrive at missing figures - mark up, margin, stock
turnover
comment upon
the importance of providing information on profitability and financial position
of enterprises when the books of account are not
compiled by the double entry system
4.5 Limited Liability Companies
prepare a
simple appropriation account
explain the
capital structure of a limited company and how it appears in the Balance Sheet
recognise the
distinctions between authorised, called-up, issued and paid-up share capital
and between share capital - ordinary and preference -
and loan capital e.g. debentures
Candidates will not
be required to prepare a company's Profit
and Loss Account or a
complete Balance Sheet, to make entries to record the
issue of capital, or to know the
accounting requirements of the Companies Acts.
PRINCIPLES OF ACCOUNTS 7110 O LEVEL 2007
7
4.6 Manufacturing or Production Accounts
distinguish
between direct and indirect costs
identify
direct material, direct labour, prime cost and factory overheads
make
adjustments for work-in-progress
calculate
factory cost of production
prepare
Manufacturing and Trading Accounts of a manufacturing business
5. Advanced Principles
Within the following areas the candidate should be
able to:
5.1 Financial Relationships
compute and
explain the importance of rate of stock turnover, gross profit/sales, net
profit/sales, and net profit/capital
explain the
relationship of gross and net profits to the valuation of stock, rate of stock
turnover, turnover, expenses, and capital
recognise the
importance of stock valuation and the effect of an incorrect stock valuation
on profit, capital, and assets
5.2 Accounting Principles
recognise the
application of the following principles/concepts in the compilation of final
accounts
- going
concern, historical cost, accounting entity, money measurement, accounting
period, matching, prudence (conservatism),
materiality, and dual aspect
PRINCIPLES OF ACCOUNTS 7110 O LEVEL 2007
8
BOOK LIST
The inclusion of books in this list does not imply a
recommendation. It is simply a list from which
teachers may like to select. Locally available
information from industry, commerce, banks, the
accounting profession and Government will also be
useful in providing exemplar material and
background.
Author Title Publisher ISBN
Bright, G and
Herbert M
Mastering Accounting Palgrave 0 333 51198 0
Coucom, Catherine IGCSE
Accounting Cambridge 0 521 89346 1
Cox, David Business
Accounts Osborne Books 1 87296 258 0
Cox, David Success
in Book-keeping and Accounts John Murray 0
7195 4194 8
Marshall, Peter Mastering
Book-keeping How To Books 1 85703
752 9
Nicholson, Margaret Mastering Accounting Skills Palgrave
0 333 91991 2
Whitehead, Geoffrey Book-keeping Made Simple Butterworth
0 7506 3651 3
Whitehead, Geoffrey Success in Principles of Accounting John
Murray 0 7195 7212 6
Wood, Frank Bookkeeping
and Accounts FT Prentice Hall 0 273
64619 2