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In this February 2010 new edition

A user-friendly format for easy navigation

Regular fast forward summaries emphasising the key points in each chapter

Assessment focus points showing you what the assessor will want you to do

Questions and quick quizzes to test your understanding

Question bank containing objective test questions with answers

A full index

BPP Learning Media's i-Pass product also supports this paper.

FOR ASSESSMENTS IN 2010 and 2011

Certificate Paper C2

FUNDAMENTALS OF FINANCIAL ACCOUNTING

For assessments in 2010 and 2011

Study Text

This text has been fully updated for IAS 1 (revised). However the latest information from CIMA is that this will not be assessed until Autumn 2010. At this level the main changes are in terminology. Therefore students taking their Computer Based Assessments before Autumn 2010 should refer to the list of terms on page xix.

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First edition June 2006

Third edition February 2010

ISBN 9780 7517 8069 7 (previous edition 9780 7517 5280 9) e-ISBN 9780 7517 8397 1

British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library

Published by

BPP Learning Media Ltd BPP House, Aldine Place London W12 8AA

www.bpp.com/learningmedia

Printed in the United Kingdom

Your learning materials, published by BPP Learning Media Ltd, are printed on paper sourced from sustainable, managed forests.

All our rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of BPP Learning Media Ltd.

We are grateful to the Chartered Institute of Management Accountants for permission to reproduce past examination questions. The suggested solutions in the exam answer bank have been prepared by BPP Learning Media Ltd.

BPP Learning Media Ltd 2010

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Contents Page

Introduction The BPP Learning Media Study Text The BPP Learning Media Effective Study Package Help yourself study for your CIMA assessment Learning outcomes and syllabus The assessment Tackling multiple choice questions Tackling objective test questions International terminology

Part A Conceptual and regulatory framework 1 The nature and objectives of accounting .....................................................................................................................................3 2 Assets and liabilities .................................................................................................................................................................13 3 An introduction to final accounts ..............................................................................................................................................27

Part B Accounting systems and accounts preparation 4 Sources, records and the books of prime entry .........................................................................................................................47 5 Ledger accounting and double entry .........................................................................................................................................61 6 From trial balance to financial statements .................................................................................................................................85 7 Preparing accounts: concepts and conventions ......................................................................................................................101 8 Accruals and prepayments ......................................................................................................................................................115 9 Non-current assets depreciation, revaluation and disposal..................................................................................................127 10 Bad debts and allowances for receivables ...............................................................................................................................153 11 Cost of goods sold and inventories.........................................................................................................................................165 12 Bank reconciliations................................................................................................................................................................185 13 Control accounts.....................................................................................................................................................................195 14 Accounting for sales tax..........................................................................................................................................................213 15 Accounting for payroll.............................................................................................................................................................223 16 Correction of errors.................................................................................................................................................................231

Part C Final accounts and audit 17 Preparation of sole traders accounts ......................................................................................................................................245 18 Limited liability companies .....................................................................................................................................................257 19 Incomplete records .................................................................................................................................................................277 20 The accounts of unincorporated organisations (income and expenditure accounts) ...............................................................297 21 Manufacturing accounts..........................................................................................................................................................313 22 The regulatory system.............................................................................................................................................................321 23 Internal and external audit.......................................................................................................................................................327

Part D Interpretation of accounts 24 Statements of cash flows ........................................................................................................................................................349 25 Interpreting company accounts ...............................................................................................................................................367 Question bank (computer-based assessment) ..................................................................................................................................393 Answer bank (computer-based assessment).....................................................................................................................................415 Index ...............................................................................................................................................................................................431 Review form and free prize draw

iv Introduction

The BPP Learning Media Study Text Aims of this Study Text To provide you with the knowledge and understanding, skills and application techniques that you need if you are

to be successful in your exams

This Study Text has been written around the Fundamentals of Financial Accounting syllabus.

It is comprehensive. It covers the syllabus content. No more, no less.

It is written at the right level. Each chapter is written with CI