A-Level Accounting: Core Concepts & Management Accounting

Front

Define the **Accounting Equation** and explain its fundamental relationship.

Back

The equation is **Assets = Capital + Liabilities**. It must always balance. It represents the financial position of a business where assets (resources owned) are funded by either the owner's equity (capital) or external borrowing (liabilities). **Example:** Buying inventory for cash increases Assets (Stock) and decreases Assets (Cash), keeping the equation balanced.

Front

Explain the **Dual Aspect (Double-Entry) Concept** with an example.

Back

Every transaction has two aspects: a **debit** and a **credit** of equal value. This ensures the accounting equation always balances. **Example:** Purchasing a machine for $5,000 cash requires debiting Machinery Account (asset increase) and crediting Cash Account (asset decrease) by $5,000.

Front

Distinguish between **Capital Expenditure** and **Revenue Expenditure**.

Back

- **Capital Expenditure:** Spending on items that will provide benefit for more than one accounting year (e.g., buying a delivery van, building extension). It is shown on the Statement of Financial Position as a non-current asset. - **Revenue Expenditure:** Spending on day-to-day items consumed within the current accounting year (e.g., wages, repair costs). It is charged to the Income Statement. Incorrectly classifying revenue expenditure as capital **understates profit** in the current year because the expense is not recognized immediately.

Front

Calculate **Depreciation** using the **Reducing Balance Method**.

Back

This method applies a fixed percentage to the *net book value* (cost minus accumulated depreciation) of the asset at the start of each year. **Formula:** Depreciation Expense = (Net Book Value at start of year) × Depreciation Rate (%). **Characteristics:** Higher charges in early years, reflects efficiency loss, better for assets like vans or machinery.

Front

Define **Accruals and Prepayments** in the context of the matching principle.

Back

- **Accruals:** Expenses incurred but not yet paid (e.g., electricity used but bill not received). Added to expenses in the Income Statement and shown as a current liability. - **Prepayments:** Expenses paid for in advance (e.g., next year's insurance). Deducted from expenses in the Income Statement and shown as a current asset.