Main topic areas
- Adjustments to final accounts (bad debts, depreciation, accruals and prepayments)
- Concepts and conventions
- Manufacturing accounts
- Limited companies
To be successful with study of module three, it is vitally important that you are already proficient at drawing up the final accounts of the sole trader (trading and profit and loss account and the balance sheet). Many of the examination questions will require the construction of the final accounts but with adjustments made for the topic areas of module three.
Advice on specific topics
Adjustments to final accounts
Although this is broken up into smaller sub-topics (bad debts, etc) it can be useful to think of this as one larger topic. In some ways, this topic is really putting the theoretical work of the next topic (accounting concepts and conventions) into practice. Here, we investigate adjustments made to the financial accounts of a variety of business organisations.
Specific advice on each sub-topic is dealt with in each section with the exam tips.
Accounting concepts and conventions
Any of the concepts mentioned could be tested. However, it is likely that the main ones covered will be the accruals concept, prudence, going concern and consistency. A working knowledge of each of these concepts will be needed for the examination. However, how each of these topics is applied to the actual financial accounting will be much more important. Knowing how to deal with, say, accruals and prepayments will be more important is some respects than knowledge of what the concept actually means.
It is to be expected that in every module 3 exam, there will be a question set on the accounts of a manufacturing organisation. This may take the form of the complete construction of a manufacturing, trading and profit and loss account. It is unlikely that a full balance sheet would be expected in addition to this. Given that the examination will only last one hour, it is more likely that a question will cover a particular area of the manufacturing accounts (e.g. the cost of raw materials consumed, or the factory overheads section.
Questions are also likely to cover the adjustments needed to the provision for unrealised profits on unsold stocks of finished goods. Knowledge of the appropriate calculations (for the profit and loss account and the balance sheet) as well as thorough knowledge of the concepts being applied here is essential.
Numerical questions are likely to focus on the construction of the appropriation account, as well as the preparation of balance sheet extracts - usually the capital and reserves section of the balance sheet. Thorough knowledge of the layouts of the appropriation account and the balance sheet are therefore essential. It is quite common for students to ignore, or misunderstand the additional information at the bottom of the trial balance. Here, there is likely to be plenty of information that is vital in the construction of the accounts of a limited company. Also, you must be careful in making the distinction between the types of share capital (and the size of any dividend payments). Issued share capital is used for the balance sheet calculations, and the calculations of the dividends.
These notes are aimed at people studying for AQA A Level Accounting Unit 3, but will also be suitable for other courses and exam boards.
Originally submitted by duke_stix on TSR Forums.