CCP Principles of Accounting/CPA Financial Accounting

By Jacob Tuda Categories: CCP
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About Course

UNIT DESCRIPTION
This paper is intended to equip the candidate with knowledge, skills and attitudes that will enable him/her to prepare and interpret the financial statements of different non-complex entities.

LEARNING OUTCOMES
A candidate who passes this paper should be able to:
Prepare books of original entry and basic ledger accounts under the double entry system
Prepare basic financial statements of sole traders, partnerships, companies, manufacturing entities and not for profit organizations
Comply with the regulatory framework in the accounting field
Analyse financial statements by use of ratios and statement of cash flows.
Detect and correct accounting errors in financial records

Course Content

1. Introduction to Accounting
1.1 The nature and purpose of accounting 1.2 Users of accounting information and their respective needs 1.3 Accounting Standards and their purposes (IFRS, IASs, IPSAS) 1.4 Elements of accounting statements 1.5 The qualitative characteristics of accounting information 1.6 Principles; concepts and conventions underlying the preparation of accounting statements 1.7 Regulatory framework (ICPAK, IASB, IAESB, IPSASB) 1.8 Professional ethics 1.9 Description of Social and environmental accounting

  • Introduction to Accounting

Accounting procedures and techniques
2.1 Source documents, the accounting cycle, the accounting equation 2.2 Double entry book-keeping 2.3 The ledger and their role in recording and summarising, classifying accounting data 2.4 Books of original entry 2.5 Petty cash book 2.6 Balancing accounts and preparing the trial balance 2.7 Introduction to simple statements of financial performance 2.8 Statements of financial position

Computerized Accounting

Preparation of financial statement and Year End Adjustment

5. Confirming and Correcting Mechanism

6. Errors and Correction of errors

7. Sole traders accounts
7.1 Income statements 7.2 Statements of financial position

8. Partnership accounts
8.1 Basic contents of a partnership agreement 8.2 Provisions of the Partnership Act 8.3 Partnership statement of financial performance and appropriation account 8.4 Partners current account and statement of financial position 8.5 Financial statements to reflect elementary changes in partnership such as admission, retirement and dissolution

9. Introduction to simple company accounts
9.1 Share capital and reserve 9.2 Issue of shares at par; premium; discount 9.3 Over and under subscriptions 9.4 Allotment and calls on shares, forfeiture of shares 9.5 Preparation of statements of financial performance and appropriation account and the statement of financial position 9.6 Published accounts: Components of a complete set of published financial statements only

10. Manufacturing accounts
10.1 Elements of cost and cost behaviour 10.2 Preparation of manufacturing accounts, statement of financial performance and statement of financial position 10.3 Accounting treatment of manufacturing profit or loss and unrealised profit on closing stock

11. Financial statements of a not-for-profit organisation
11.1 Characteristics of not-for-profit organisations 11.2 Receipts and payments accounts 11.3 Income and expenditure accounts and statement of financial position

12. Incomplete records and single entry book keeping
12.1 Preparation of statement of affairs 12.2 Preparation of income statement 12.3 Preparation of statement of financial position

13. Analysis of financial statements
13.1 Role of analysis in providing information for decision making 13.2 Cross sectional and common size analysis 13.3 Trend analysis 13.4 Financial ratio analysis: liquidity ratios, return ratios, margin ratios, coverage ratios, leverage ratios, capital structure ratios, turnover ratios, activity ratios, efficiency ratios, market evaluation (valuation) ratios, cost ratios etc 13.5 Working capital and cash operating cycle 13.6 Preparation of statement of cash flows (International Accounting Standard 7) using the direct and indirect methods

PAST PAPERS

PUBLIC SECTOR ACCOUNTING
FINANCIAL ACCOUNTING PUBLIC SECTOR ACCOUNTING Introduction Public sector is an entity that is owned and controlled by the government. They do assist to provide services to its citizen. These services include security, health, education etc. Structure of the public sector The public sector is organized into the following levels. 1) The national government - This is the government that control a nation. It is headed by the president and deputy president. 2) County government - This is a government that controls a county. The structure of the county government comprises the following three arms. (i) County executive /committee. (ii) County assembly (iii) County public service board. 3) Parastatal - This is a government owned company owned company which help the government to provide essential services to the citizen. They are managed by directors who are appointed by president. 4) Charitable organization - These are companies incorporated with aim of providing charity only. They are not for profit making organization. Characteristics of public sector entities 1) They are organization to service its citizens - These units exist to serve the citizen subject to their jurisdiction thus citizen as a whole should establish government units through the constitutional process. 2) General absence of the profit motive - Government entities render service to its citizen without the objectives of making profit from the services offer. 3) Taxation is the principal sources of revenue - Many taxes are paid which is the source of revenue and form the basis on which the services will be provided. 4) Impact of the legislation process - Operation of government entities are for most parts stared by various acts of parliament such as taxation levies operating budgets as well as borrowing authorization. 5) Stewardship for resources - The primary responsibility of government entities is to demonstrate adequate control of resources to provide effective services to its citizen. NB: The above characteristics are also the difference between the private entities and government entities in Kenya. Regulatory Structure of The Public Sector The public sector is regulated by the accounting standard board of Kenya that consist of representative from each of the following bodies:  National Treasury  Controller of Budget  Auditor General  Director of Accounting Services  Capital Markets Authority  Institute of Certified Public Accountant of Kenya (ICPAK)  Institute of certified public secretaries of Kenya (ICPSK) NB: The cabinet secretary responsible for financial matters should appoint a chairperson of the board from the members nominated. Functions of The Accounting Standards Board of Kenya: 1) Setting accounting standard in the public sector 2) Formulating internal audit procedure in the public sector 3) Gazetting the date of the application of the standard and the guidelines. 4) Prescribing the minimum standard of maintaining proper books of accounts at all the levels of government. 5) Prescribing the format for preparing financial Statement in the public sector. 6) Publishing the accounting and financial standard and any directive the board prescribe National Treasury This is the ministry which formulates the financial and economic policies and oversees the effective co- ordination of the government financial operation Function of national treasury: (i) Formulating, implementing and monitoring micro economic policies involving expenditure and revenue. (ii) Managing the level and composition of the national and other financial obligation of the government. (iii) Formulating, evaluating and promoting economic and financial policies that facilitates, social and economic development. (iv) Mobilizing domestic and external resources for financing national and county government budgetary requirement (v) Assisting the county government to develop efficient and transparent financial management system. (vi) Strengthening financial and fiscal policies between the national and county government. (vii) Ensuring that that national government and its entities apply uniform accounting standards. Controller of Budget To be qualified to be the Controller, a person shall have extensive knowledge of public finance or at least ten years’ experience in auditing public finance management. Auditor General There shall be an Auditor-General who shall be nominated by the President and, with the approval of the National Assembly, appointed by the President. To be qualified to be the Auditor-General, a person shall have extensive knowledge of public finance or at least ten years’ experience in auditing or public finance management. Director of Accounting Services This is a senior member in the public sector and they are responsible for the public sector financial health. They are responsible for developing, implementing and maintaining accounting system and procedures that accountants use to collect, analysis and also to verify financial data. Functions of director of accounting services (i) Managing and overseeing the daily operations of the accounting department (ii) Establishing and implementing proper accounting methods policies and principles. (iii) Monitoring and analyzing financial data in order to produce financial reports (iv) Improving systems and procedures by making recommendation (v) Encouraging the accounting clerks to adhere to the accounting standards in the public sector. Accounting Officers at The National and County Level Accounting officers are accounting clerks who performs variety of general accounting functions in the accounting department. Functions of accounting clerks: (i) Preparing and maintaining accounting records and documents. (ii) Informing the directors of accounting and compiles a report that summaries activity in the database. (iii) Entering daily transition in the database. (iv) Providing assistance and support to the director of accounting. Capital Markets Authority Institute of Certified Public Accountant of Kenya (ICPAK) Institute of Certified Public Secretaries of Kenya (ICPSK) Parliamentary Committees These are groups of members who are appointed to undertake specified tasks. They are appointed at both levels of parliament i.e. the lower house/parliament and the upper house /parliament. These committee include: - (i) Public account committee (PAC) (ii) Public investment committee (PIC) (iii) Budget and appropriation committee. Public Accounts Committee (PAC) This is committee appointed by parliament to examine the accounts of government departments inorder to check whether money is spent in a suitable way i.e. whether there is proper expenditure. Functions of PAC (i) Examining reports accounts and working of the county public investments. (ii) Examining accounts showing appropriations by county assembly to meet public expenditure. (iii) Examining whether affairs of the county public investment are managed with sound financial practices (iv) Receiving and discussing report from the auditor general. (v) Developing and implementing recommendations with the assistance of the auditor general. Public Investments Committee This is a committee established to examine and oversee the working of the public investments. It consists of a chairperson and not more than sixteen other members. Functions of PIC (i) To examine the report and accounts of the public investment (ii) To examine the report if any of the auditor general on public investments. (iii) To examine whether the affairs of public investment are being managed in accordance with sound financial practices. (iv) Developing and implementing recommendations with the assistance of the auditor general. Budget and Appropriation Committee. International Public Sector Accounting Standard (IPSAS) These are set of accounting standards issued by the international public sector accounting standard board to be used by the public sector entities. Benefits of IPSAS (i) To assist in improving financial management. (ii) To improve accountability and transparency (iii) To provide a measure of government entity performance (iv) To provide the acceptance of account by donor (v) To provide best accounting practices to be used by public sectors (vi) To improve the comparability and consistency of presentation of public sector financial statement. Public Sector Financial Statement These are financial prepared by each government unit in a given financial year. They include _ (i) Statement of financial performance (ii) Statement of financial position (iii) Statement of changes in net assets (iv) Statement of cash flow (v) Statement of comparison of actual and budgeted amount (vi) Notes to the accounts. Objectives of Public Sector Financial Statement (i) To provide information and to evaluate the overall performance (ii) To provide information for planning and budgeting in order to allocate resources (iii) To provide information for monitoring the performance under the statutory requirements (iv) To provide information for determining and predicting economic condition of government units (v) To provide information for determining the requirement of short-term resources of government units. Accounting Techniques in The Public Sector. 1) Cash accounting. - This system recognizes cash inflow and cash outflow. The financial statement is summarized basically as cashbook. 2) Accrual accounting. - This requires that revenue and cost be recognized as they are earned and incurred. 3) Commitment accounting - This system recognize transaction when the organization is committed to them. Transaction are recognised when orders are issued and received and not when cash is paid or received. 4) Budgetary accounting: - This system requires the preparation of operating accounts in form of budgets. The main purpose of budgetary accounting is to emphasis the role of budgets in the planning. Definition of Terms Used in Public Sector: 1) Revolving funds: - These are the amounts of money that must be available for daily operations I.e. if an amount has been withdrawn, it must be deposited back. 2) Recurrent expenditure: - This is day to day expenses of entity. 3) Development expenditure - This is expenditure incurred in order to create assets that will provide long term public goods and services e.g roads, hospital etc. 4) Encumbrance - This is a future liability that is charged to an account. A future liability that is uncertain is known as a contingent liability 5) Vote book - This is a ledger account that is used by public sector entities to record various expenditure and sources of incomes 6) Consolidated fund - This is a fund that the government puts all moneys raised in a given period. 7) Paymaster general (P.M.G) - This is the principal paying agent of the government and it considered as a banker for all government departments. it is essential the cash book.

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