CPA Foundation Level
Financial Accounting cheat sheet
Every chapter's key points, formulas and definitions on one page, for the last week before the exam. Each heading links to the chapter that explains it.
Introduction to accounting
- Accounting identifies, measures, records, summarises and communicates an entity's transactions so that the people who rely on it can make economic decisions.
- Bookkeeping records the transactions, management accounting turns them into information for the owner's own decisions, and financial accounting presents them to outsiders under a common rulebook such as IFRS.
- Every financial statement is built from five elements: assets, liabilities, equity, income and expenses.
- Assets = Liabilities + Equity holds after every transaction; double entry is that equation enforced one transaction at a time.
- Capital put in and drawings taken out change equity directly; only income and expenses change it through profit.
Key terms
- Bookkeeping
- The mechanical, day-to-day recording of transactions, the input side of accounting (see the next chapter).
- Financial accounting
- The branch of accounting concerned with preparing general-purpose financial statements for external users, this paper's focus.
- Management accounting
- The branch concerned with information for internal decision-making, not general-purpose and not this guide's focus (covered in CPA Management Accounting).
- Assets
- A present economic resource controlled by the entity as a result of past events, with the potential to produce economic benefits, for example the delivery van owned by a Nyeri-based agro-dealer.
- Liabilities
- A present obligation of the entity to transfer an economic resource as a result of past events, for example a trade payable owed to a supplier, or a bank loan from Equity Bank.
- Equity
- The residual interest in the assets of the entity after deducting all its liabilities, the owners' claim.
- Income
- Increases in assets, or decreases in liabilities, that result in increases in equity, other than contributions from owners, for example sales revenue.
- Expenses
- Decreases in assets, or increases in liabilities, that result in decreases in equity, other than distributions to owners, for example rent paid.
- Owners/investors
- Assess profitability and return on their capital, to decide whether to hold, add to, or exit their investment.
- Management
- Needs detailed, timely information to plan, control and make operating and strategic decisions.
- Employees
- Assess job security, pay prospects and the stability of their employer.
- Lenders
- Banks and other lenders assess whether the entity can service and repay debt, the core question behind any credit appraisal.
- Trade payables/suppliers
- Assess whether to extend trade credit and on what terms.
- Customers
- Assess the entity's ability to continue supplying goods or services, particularly under long-term contracts.
- Government and KRA
- Uses financial information to assess tax liability (income tax, VAT) and to monitor compliance.
- The public
- Has an interest in an entity's employment, environmental and local economic impact.
The rest of the sheet covers
- The accounting process and systems
- Regulation of the accounting profession
- Accounting for assets and liabilities
- Financial statements of a sole trader
- Financial statements of a partnership
- Financial statements of a company
- Financial statements of a manufacturing entity
- Financial statements of a not-for-profit entity
- Correction of errors and incomplete records
- Analysing financial statements
- Accounting in the public sector
- Worked examples
- Exam technique and revision
- Glossary