§-Unit

Unit 4: Recording, reporting, budgeting and decision-making

7 dot points, in syllabus order. Each dot point has a focused answer, with exam-style questions and worked answers where available.

How are bad debts written off and how does an allowance for doubtful debts apply the accrual basis to expected future losses?

Recording bad debts written off and establishing an allowance for doubtful debts as a balance day adjustment, and reporting the net realisable value of accounts receivable

Bad and doubtful debts. Distinguishes writing off a bad debt from creating an allowance for doubtful debts, records both, explains the accrual basis and faithful representation, reports net realisable value of receivables, and reconciles the worked figures.

6 min read →

How do variance reports compare budgeted and actual results to control business performance?

Preparing variance reports comparing budgeted and actual figures, classifying variances as favourable or unfavourable, and explaining their use in evaluating and controlling business performance

Variance reports. Defines favourable and unfavourable variances, prepares a variance report comparing budget against actual, and explains how managers investigate variances to control performance and improve future budgeting.

6 min read →

How are budgeted accounting reports prepared and how do they support planning and control?

Preparing a Budgeted Income Statement, Budgeted Cash Flow Statement and Budgeted Balance Sheet for a trading business and explaining the role of budgeting in planning and decision-making

Budgeting. Explains the purpose of budgeting, prepares a Budgeted Income Statement and Budgeted Cash Flow Statement, distinguishes budgeted profit from budgeted cash, and shows how budgets guide planning and control decisions.

6 min read →

How is non-financial information used alongside financial indicators, and what strategies can a business use to improve performance?

Identifying non-financial information relevant to evaluating business performance and recommending strategies to improve profitability, liquidity and efficiency in light of both financial indicators and non-financial information

Non-financial information and improvement strategies. Defines non-financial information, shows how it explains the cause behind a ratio, links specific strategies to profitability, liquidity and efficiency, and works an example tying indicators to recommended actions.

6 min read →

How is the sale or trade-in of a non-current asset recorded and why does a profit or loss on disposal arise?

Recording the disposal of non-current assets, including by sale and trade-in, calculating the profit or loss on disposal and explaining its cause

Disposal of non-current assets. Shows the disposal account entries for sale and trade-in, calculates carrying amount and the resulting profit or loss on disposal, and explains why the loss or gain reflects inaccurate depreciation estimates.

6 min read →

How are financial indicators used to analyse profitability, liquidity and efficiency for decision-making?

Calculating and interpreting financial indicators of profitability, liquidity and efficiency, and using them with non-financial information to evaluate business performance

Ratio analysis. Calculates and interprets profitability, liquidity and efficiency indicators including return on assets, net profit margin, the working capital ratio and inventory turnover, and shows how non-financial information supports decisions.

6 min read →

How do ethical considerations affect accounting decisions, and what are the consequences of manipulating reports by shifting revenues and expenses between periods?

Discussing and evaluating the ethical considerations in business decision-making, including the manipulation of profit by shifting revenues and expenses between reporting periods and the wider social and environmental responsibilities of a business

Ethical considerations. Explains how shifting revenues and expenses between periods manipulates profit, links it to the accrual basis and faithful representation, considers social and environmental responsibilities, and works an example showing the report distortion with reconciled figures.

6 min read →