UNIT 3 Accounting Adjustments
Recommended Prior Knowledge Students need some understanding of commercial transactions and an understanding of double entry principles.
Context The Unit covers aspects of accounting which are required because business is continuous but accounting covers discrete periods of time. The
adjustments largely derive from the application of accounting concepts and look at the accounting bases and methods used to apply those concepts. This
could be studied in conjunction with the latter part of Unit 10.
Outline The unit concentrates on adjustments which feature in virtually every examination, either as part of final accounts and/or in separate questions.
Syllabus Learning Outcomes Suggested Teaching Activities Online Resources Other resources
Ref.
2.1 Candidates should be able to: Explain the matching concept. Income and
• show understanding of the revenue expenditure should be matched to
differing accounting treatment of the year they were incurred.
capital and revenue expenditure
Capital and revenue expenditure is an http://www.bized.ac.uk/stafsu
and income
important distinction because an error in p/options/accounting/work03. BKA 18
categorisation affects the profit and htm IGSCE 8
• calculate and comment on the
balance sheet.
effect on profit and asset
http://teachers.cie.org.uk/tea
valuation of incorrect treatment
Students should be able to provide cher_support/pdf/7110_w03_
definitions, identify and state examples and qp_1.pdf CIE Nov 2003 Paper 1 Q11
calculate the effects of incorrect
categorisation. Students may find making
notes in a matrix form will help revision, for
example:
Definition Example
Capital expenditure
Capital income
Revenue expenditure
Revenue income
1
Syllabus Learning Outcomes Suggested Teaching Activities Online Resources Other resources
Ref.
2.2 Candidates should be able to: A fixed asset arises from capital
BKA 25, 26
• define depreciation expenditure. Depreciation of the fixed asset
http://www.staffs.ac.uk/schoo IGSCE 10
is revenue expenditure.
ls/business/bsadmin/staff/s5/ BM 38, 39, 40, 41
• explain the reasons for
accsys/wfour.htm#l1
accounting for depreciation Students should be able to define
depreciation clearly and show brief
• name and describe the straight calculations as an example. Comparing
line, diminishing (reducing) different methods of depreciation for one
http://www.accaglobal.com/p
balance and revaluation methods asset over a period of two to three years
ublications/studentaccountan
of depreciation should clearly show the differences to
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students. Students should, at this stage, be
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• explain the circumstances in aware that depreciation is an example of
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which each method is used an ‘accounting base’ and is applied by
various ‘methods’ such as straight-line.
A useful exercise to help students is to
prepare ledger accounts for specific assets
http://teachers.cie.org.uk/tea CIE Nov 2003 Paper 1 Q14
and their respective provisions for
cher_support/pdf/7110_w03_
depreciation accounts at this stage and
qp_1.pdf
then bring these accounts into a later profit
and loss account and balance sheet when
studying final accounts. This will help them
see the connections
http://teachers.cie.org.uk/tea BM 61, 62
• prepare ledger accounts and Students often experience difficulties with
cher_support/pdf/7110_w03_
journal entries for the provision of preparing disposal accounts. Clear
qp_1.pdf CIE Nov 2003 Paper 1 Q13
depreciation and the disposal of diagrams of the various accounts and how
fixed assets they interrelate and practice in preparing
disposal accounts is recommended.
2
Syllabus Learning Outcomes Suggested Teaching Activities Online Resources Other resources
Ref.
2.3 Candidates should be able to: Explain that accounting adjustments are BKA 28
• make entries in the journal and required because accounts are produced IGSCE 9
ledger accounts to record for a period of time (often a year) but BM 29
accrued and prepaid expenses business is continuous. So amounts are
http://www.staffs.ac.uk/schoo
and outstanding and prepaid outstanding at the end of the period (e.g.
ls/business/bsadmin/staff/s5/
incomes wages are owed to employees – an
accsys/wthree.htm#t
accrual).
A progressive approach is the best way to
illustrate accruals and prepayments, for
example:
http://www.bized.ac.uk/stafsu
p/options/accounting/work05.
1) illustrate an accrual followed by practice
htm
2) illustrate a prepayment, then practice
3) take the illustrations on another period
where an account starts a year with an
accrual and ends with a prepayment and
vice versa.
http://teachers.cie.org.uk/tea
CIE Nov 2003 Paper 1 Q22
cher_support/pdf/7110_w03_
Candidates often find this subject
qp_1.pdf
confusing so time and practice are
essential to reinforce understanding.
http://www.accaglobal.com/p BKA 27, 28
• make entries in the journal and Ensure students are clear on the difference
ublications/studentaccountan IGSCE 11
ledger accounts to write off bad between actual bad debts and a provision.
t/11983?session=fffffffeffffffff BM 42, 43
debts and to make provision for By considering them separately rather than
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doubtful debts as instructed, and together, they are less likely to confuse the
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discounts two. Practice journal and ledger account
entries together as further reinforcement of
http://teachers.cie.org.uk/tea
double entry principles.
cher_support/pdf/7110_s02_ CIE Jun 2002 Paper 2 Q3
qp_2.pdf
