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Unit 3: Financial Accounting

12 dot points across 12 inquiry questions. Click any dot point for a focused answer with worked past exam questions where available.

How does a company record the issue of shares, the payment of dividends, and the appropriation of profit?

Record the issue of shares for cash, the declaration and payment of interim and final dividends, transfers to reserves, and prepare the equity section showing share capital and retained earnings
WACE Year 12 Accounting and Finance Unit 3 on company accounting: recording share issues for cash, interim and final dividends, transfers to reserves, and presenting share capital and retained earnings in the equity section of a company Balance Sheet.
6 min answer →

How does the accrual basis create accrued and prepaid items at balance day, and how are revenues and expenses adjusted to the correct period?

Record balance day adjustments for accrued expenses, prepaid expenses, accrued revenue and revenue received in advance, and explain how each adjustment affects profit and the balance sheet
WACE Year 12 Accounting and Finance Unit 3 on accruals and prepayments: recording accrued expenses, prepaid expenses, accrued revenue and revenue received in advance under the accrual basis, and explaining the effect of each on profit and the balance sheet.
6 min answer →

How does a business account for customers who may not pay, using bad debts written off and an allowance for doubtful debts?

Distinguish bad debts from doubtful debts, write off a bad debt, create and adjust an allowance for doubtful debts, and present accounts receivable at net realisable value
WACE Year 12 Accounting and Finance Unit 3 on receivables: writing off bad debts, creating and adjusting the allowance for doubtful debts, recording doubtful debts expense, and presenting accounts receivable at net realisable value on the balance sheet.
6 min answer →

How does the Conceptual Framework guide the preparation of useful financial reports for a reporting entity?

Explain the purpose of the Conceptual Framework, the objective of general purpose financial reports, the qualitative characteristics of useful information, and the definitions and recognition criteria for the five elements
WACE Year 12 Accounting and Finance Unit 3 on the Conceptual Framework: the objective of general purpose financial reports, the qualitative characteristics, the five elements and their recognition, and how the AASB standards and Corporations Act shape company reporting.
6 min answer →

How does the Conceptual Framework define the five elements of financial statements, and when is each one recognised in the accounts?

Define assets, liabilities, equity, income and expenses using the Conceptual Framework, apply the recognition criteria, and explain how the definitions drive whether an item appears in the financial statements
WACE Year 12 Accounting and Finance Unit 3 on the five elements of financial statements: the Conceptual Framework definitions of assets, liabilities, equity, income and expenses, the recognition criteria, and how applying the definitions decides what is reported.
6 min answer →

How is the cost of a non-current asset allocated over its useful life and what happens on disposal?

Calculate and record depreciation using the straight-line and reducing-balance methods, determine carrying amount, and record the disposal of a non-current asset including any profit or loss
WACE Year 12 Accounting and Finance Unit 3 on depreciation: the straight-line and reducing-balance methods, calculating carrying amount, recording depreciation entries, and accounting for the disposal of a non-current asset with profit or loss on sale.
6 min answer →

How does a company appropriate its profit through dividends and reserves, and how do these movements flow through retained earnings?

Record interim and final dividends, declared dividends and transfers to and from reserves, and reconcile the opening and closing balances of retained earnings for a company
WACE Year 12 Accounting and Finance Unit 3 on profit appropriation: interim and final dividends, declared dividends as a current liability, transfers to and from reserves, and reconciling opening and closing retained earnings for a company.
6 min answer →

How are balance day adjustments processed and used to prepare a company's financial statements?

Process balance day adjustments for accruals, prepayments, depreciation, doubtful debts and stock, and prepare a classified Income Statement, Statement of Changes in Equity and Balance Sheet for a company
WACE Year 12 Accounting and Finance Unit 3 on balance day adjustments and reporting: accruals, prepayments, depreciation, doubtful debts and the accrual basis, then preparing the classified Income Statement, Statement of Changes in Equity and company Balance Sheet.
6 min answer →

How is inventory valued using the first-in first-out method, and how does this determine cost of sales and closing inventory?

Apply the first-in first-out (FIFO) method under a perpetual system to value closing inventory and cost of sales, and value inventory at the lower of cost and net realisable value
WACE Year 12 Accounting and Finance Unit 3 on inventory valuation: applying the first-in first-out (FIFO) method under a perpetual system to determine cost of sales and closing inventory, and valuing inventory at the lower of cost and net realisable value.
6 min answer →

What makes financial information useful, and how do the fundamental and enhancing qualitative characteristics shape a general purpose financial report?

Explain the fundamental qualitative characteristics of relevance and faithful representation and the enhancing characteristics of comparability, verifiability, timeliness and understandability, and apply them to judgements about financial information
WACE Year 12 Accounting and Finance Unit 3 on the qualitative characteristics from the Conceptual Framework: the two fundamental characteristics of relevance and faithful representation, the four enhancing characteristics, the cost constraint, and how to apply them when judging whether financial information is useful.
6 min answer →

How is a Statement of Cash Flows prepared, and what do its operating, investing and financing sections reveal about a company?

Prepare a Statement of Cash Flows classifying cash flows into operating, investing and financing activities, reconcile to the change in cash, and interpret what the statement reveals about the business
WACE Year 12 Accounting and Finance Unit 3 on the Statement of Cash Flows: classifying cash flows into operating, investing and financing activities, reconciling to the net change in cash and the closing balance, and interpreting what the statement reveals about a company.
7 min answer →

How does the Statement of Changes in Equity reconcile the opening and closing equity of a company across each component?

Prepare a Statement of Changes in Equity showing movements in share capital, retained earnings and reserves, reconciling opening and closing balances of total equity
WACE Year 12 Accounting and Finance Unit 3 on the Statement of Changes in Equity: reconciling share capital, retained earnings and reserves from opening to closing balances, including profit, dividends, share issues and reserve transfers in a company.
6 min answer →