Difference Between Bookkeeping And Accounting

 

Accounting Bookkeeping
Accounting is the process of recording, summarising, reporting, analysing and interpretation of financial information. Book-keeping is part of the accounting process. It involves the process of recording accounting data according to set rules. 
Role of accounting is to communicate financial information for decision-making purposes.  Role of book-keeping is to ensure a systematic and accurate recording of business events

Methods & Suitability of Depreciation Calculations

Several depreciation methods have been coming out for the O Level examinations such as the Revaluation and Units of Production method. We will discuss the two main methods commonly used – the Straight Line Method (SLM) and the Reducing Balance Method (RBM). 

 

1. Straight Line Method

Calculation of Depreciation:

Depreciation can be calculated if the following items of information are available:

  • Cost of the asset includes all expenses incurred for freight, carriage, and installation costs.
  • Scrap or residual value of the asset. I call it the garang-guni value – that amount we estimate the trash collection uncle will take when he collects from your place.
  • Useful life (not the physical life) of asset.

2. Reducing (Diminishing) Balance Method

Calculation of Depreciation:

Depreciation = Rate x Net Book Value (NBV)

where

NBV = Cost* – Provision for (Accumulated) Depreciation

In Year 2,

Depreciation expense using RBM = 10% x (10,000 – 1,000)

 

EXAMPLE

Using two different methods, a $10,000 asset with no scrap value at a depreciation rate of 10% will result in a different depreciation expense and net book value of the asset from Year 2 onwards.

· Straight Line = 10% X $10,000 = $1,000 per year

· Reducing Balance = 10% x Net Book Value Asset at the end of the previous period

Often, the depreciation rate used in RBM is usually between two and three times greater than under the SLM. Besides the depreciation charges, there are also the maintenance and repairs costs element and these running costs usually increases with age.

In Reducing Balance Method,

Suitability of Methods

How suitable the depreciation method is on an asset depends on how well it reflects the benefits the business derives from the used of assets.

Straight line method is more suitable for fixed assets that generates a more constant benefits such as Furniture and Fittings. it is fairer and more realistic.

Reducing balance method is used for fixed assets which depreciate more in the early years and in later years due to the efficiency of the fixed asset is higher in the early year. Therefore, reducing balance method used for assets such as motor vehicle and computers.

Revaluation Method (for loose tools and cutlery) – see notes below on Materiality Concept

Other Methods of Providing Depreciation:

Machine Hour Rate Method, Sum of Year’s Digit Method, Production unit method or Depletion method etc.

Why Different Methods?

To adhere to the Matching principle, because the revenue earned must be matched with the expenses incurred (depreciation) from the fixed asset that was used to generate that income within the same accounting period.

Prudence/Conservatism principle is adhered because the fixed asset is valued based on their net book value after accumulated depreciation so that assets and profits will not be overstated.

Materiality Concept is applied when the amount is insignificant. Loose tools which are immaterial in dollar amount may be written off as expense in one period, even though it may have a useful life of more than an accounting period.

 

SUMMARY OF DIFFERENCES

2011 N Level Results Out!

The results of 2011 Singapore-Cambridge General Certificate of Education (GCE) Normal (Academic) and Normal (Technical) Level Examinations are out!

 

Received great news from all my students. U-graders passed and the best went from F9 to B3 (taught him over 5 months). Did some screen shots of the smses. Rewards from tutoring comes in many ways – this being the greatest! Can’t wait to see what comes from the O’ – Levelers!

“Thanks Caleb, Bryan got 1 for POA. Because of your effort, he managed to top the school. Thanks 🙂 “ – Annie, Bryan’s mom. St Patrick’s School

“F9 to B3 is a big jump. I’m happy!” – Rigzin

“Hello teacher, grade1 for POA :)”Sheri

 

IMG_3371

“… and I didn’t expect to pass my POA! Hahah thank you caleb for the time you spent on me, helping me on my POA 🙂 see you next time! “Joseph Kim, my Korean student from Assumption English School.

A little note on Joseph – Joseph struggled to understand accounting concepts in school and even during my lessons as his command of English was not strong. It was over 4.5 months we worked together on his understanding of the subject. Unlike my student from Hangzhou  in 2010 who scored a C5 from Ungraded in 2.5 months, I was not able to teach in his native language (Korean). I’m so proud of Joseph Kim.

 

Congratulations to all my N-Levelers and all you guys who worked hard for this N levels.

2012 GCE N Levels Principles of Accounts (POA) Suggested Solutions!

Suggested Solution

It’s 8 days since your last paper.

Hope you guys are having a great time with your holidays!

This year’s suggested solutions came in a little late as the O’ levelers are ramping up their revision. 😉

Anyhow, it’s here now!

Tell me what you think.

Right click and choose “Save As” to download:

Paper 1 7092/02 GCE N’ Level Principles of Accounts 2012 Paper 1 Suggested Solutions

Paper 2: 7092/02 GCE N’ Level Principles of Accounts 2012 Paper 2 Suggested Solutions

Thanks guys!

Caleb

Why is there no depreciation for land?

sheep by A. Roger Davies

Short Answer:

Land generally does not depreciate in value because it is a limited resource with an
infinite life and can be used for a range of purposes.

Explanation:

All assets wear out and eventually cease to exist, except land. Land is not considered to ever be able to be destroyed, so it can’t lose value and go down to zero value like other assets.

The land generally retains or increases in value  Over the long term, land will go up in value over because the demand is always increasing, while they are not “making” any new land.

If there is something built on the land which the business owns,  the accountant has to subtract the cost of the land from the overall cost of the property in order to determine the depreciation expense for the buildings,

2011 GCE O’ Level Principles of Accounts (POA) Suggested Solutions!

image

So guys, it’s a few more weeks before your O’s are finally over!

Yes, I know some of you have been waiting long for the suggested solutions.

Braving thunderstorm and huge downpour some slight drizzle, I’ve been able to receive both Paper 1 and Paper 2 of 2011 GCE O’ Level POA Paper yesterday afternoon, thanks to an equally brave student. 🙂

In response to a student’s question on my thoughts for this year’s paper:

———-

Summary:

Overall difficulty was similar to the last 2-3 years (prior comparison to that was meaningless since it was old syllabus). It’s the kind of paper I would set.

What worked

Questions like:

1. MV, Prov for Dep and Disposal, Margins,

2. ratios and analysis (liquidity and profitability) in both P1 and P2

3. Sales ledger (compared to 2010’s purchase ledger)

came out big time as predicted (to my students).

Amalgamation of businesses and effect of transactions on type of capital did not come out as predicted (phew!). It was a bet while we had to decide what was important for the crash course.

Surprises

Many were surprised with the Drawings and Capital accounts which were Sec 3 work and were of substantial weightage. Students who have strong foundation of debits/credits and ratios + commentary will cruise through these sections..

Current A/c and partnership didn’t come out – I think to compensate for the surprise in P1, I think… It’s a disappointment.

The repeat of Trial Balance and Errors not revealed by it was both a good news and bad news. Most of my students will do well because of the many practices we did throughout the year. Bad news for those who predicted it will not come out because it would have been a repeat of 2010. Even that, Trial Balance was a simple question – although (with much embarrassment) my first upload of P1 had some mistakes related to it.

For P2, except for additional information part 4 in Q1, not many questions can substantially differentiate the A1 and A2 student. Only difficulty I imagined is to get the full 5 marks when you comment on the liquidity position in Q3c.

Conclusion

Past questions can be repeated.

Spotting questions worked around 60% for us this year.

Always be prepared emotionally for surprises. Stay cool.

————

Suggested Solution

Tell me what you think. Here it is!

Right click and choose “Save As” to download:

4 Nov:

7092/02 GCE O’ Level Principles of Accounts 2011 Paper 2 Suggested Solutions

Solutions for Paper 1 cannot be uploaded due to copy right reasons.

Thanks guys!

Caleb

All the Best for Your Papers Tomorrow!

Thank you all who came for the crash course for such a wonderful time the last three days. You guys are amazing to have sat through a grueling 15 hours of intensive revision. Hope the Physics paper today was forgiving.

Some final pointers before your POA Paper tomorrow:

1. Revise your theory questions. They weigh 33-42% of the grades. Use the notes given to you all on the Frequently Asked Questions Theory Questions and Common Mistakes Made by Students.

2. Key topics for Revision (besides Trading, Profit and Loss):

– Capital and Current Accounts
– Balance Day Adjustments
– Bank Reconciliation & Updating of Cash Book
– Correction of Errors and Errors not Revealed by Trial Balance
– Control Accounts
– Fixed Assets, Depreciation and Provision for Depreciation and Disposal
– Bad Debts, Doubtful Debts and Provision for Doubtful Debts
– Analysis and Interpretation of Final Accounts

3. Sleep early. Because POA is a conceptual subject. You’d need a clear head and a cool heart to deal with the intensity in that 3.5 hours.

To Your Academic Success,

Signature Caleb

INTERNATIONAL STANDARDS – ACCOUNTING TERMINOLOGY

The terminology for accounting varies across different levels of study. Those of you who have moved on to study accounting at tertiary level would agree – terms like debtors and creditors have a different meaning in ICCI, CAT, ACCA and other accounting diploma/degree programs.

The term Debtors used for O’/N’ Level, for example, becomes Accounts Receiveable at the diploma/degree level. The following table lists the difference between the international usage of accounting terms against that which is used and accepted by The University of Cambridge International Exams (CIE).

Please note: GCE O’/N’ Level candidates will not be penalised for using different terms.

International usage Current CIE/UK usage
Balance sheet Balance sheet
Bank (and other) loans/ Interest bearinq loans and borrowinq Loans repayable after 12 months
Bank overdrafts and loans/ Interest bearinq loans and borrowinq Loans repayable within 12 months
Capital or Equity/

Shareholders’ Equity

Capital
Cash (and cash equivalents) Bank and cash
Cost of Sales Cost of qoods sold
Current assets Current assets
Current liabilities Current liabilities. Creditors: amounts due within 12 months
Finance costs Interest payable
Finance Income/Investment revenues Interest receivable
Financial Statements Final accounts
Gross profit Gross profit
Income statement Tradinq and Profit & Loss account
Intanqible assets Goodwill etc.
Inventory/ Inventories(of raw materials and finished qoods) Stock
Investment property Investments
Non-current assets Fixed assets
Non-current liabilities Long term liabilities. Creditors: amounts falling due after more than one year
pdf
The University of Cambridge International Exams (CIE) released an information brochure on this which is available for download here. [page 19]
A condensed version on the same is available here.

National Accounting Quiz 2010

Ngee Ann LogoThe National Accounting Quiz (NAQ) 2010 is the biggest annual accounting quiz organised in Singapore since 2004! NAQ 2010 promises to be a fun-filled event. Students will be immersed in a series of accounting-related activities to revise their accounting concepts and to stimulate their passion for accounting.

The event will take place on 21 July 2010, from 1.00pm to 5.00pm, at the Ngee Ann Polytechnic Convention Centre. Click on the button below for more information!

National Accounting Quiz 20102

Source Document – the Returned Cheque Advice

IRD Returned Cheque Advice DBS

Image courtesy of The Association of Banks in Singapore

Reasons for Dishonoured Cheques

Whenever a cheque given to a business bounces, the bank will send notice to the business that the customer/ debtor’s cheque was dishonoured. The cheque may not have been cleared for one or more of the following reasons:

1. There is insufficient funds in the payer’s bank account.

2. The cheque was not written in the form that it was supposed to

a. Differing/missing signature(s). It is not uncommon for companies to have more than one signatories.

b.  Amount in words and numbers don’t tally,

c. “or bearer” was strike off for a cash cheque,

d. Too many corrections made on the cheque.

3. The cheque was post dated.

Image Return Document (IRD), Return Cheque Advice or Refer to Drawer

This notice comes in the form of an Image Return Document (IRD) which contains a scanned image of the dishonoured cheque. The IRD can be re-presented to the bank to receive payment subject to some of these conditions:

Conditions for IRD Presentment, if applicable

1. IRD with any alteration, mutilation or tear will not be accepted
2. To be presented at any of the bank’s branches in Singapore.
3. The IRD will be retained when presented to the bank.
4 To be presented on a clearing day not later that 6 mmonths from the cheque date,

For those taking the GCE O’/N’ Level Principles of Accounts, the IRD is mentioned in the textbooks as notice of dishonoured cheques in the chapters on Cash Book and Bank Reconciliation. The following words/ phrases refer to the IRD:

– Return Cheque Advice

– Refer to Drawer

– Returned by bank marked “insufficient funds”

– Cheque given by xxx (name of debtor) was dishonoured.

Download a sample a real-life Return Cheque Advice in pdf here.

The Association of Banks SingaporeThe Association of Banks in Singapore (ABS) represents and promote the interests of member banks as well as help set standards of good practice and raise  the banking industry expertise in Singapore. The pdf version of the Cheque Return advice first appear in ABS’ website and is reproduced here with permission.