# Basic Concepts of Financial Accounting for CPA Exam - Online Syllabus Topics for Financial Accounting Course

## Methods to Evaluate the Performance and Financial Strength of a Company

You as a financial consultant have been asked to evaluate the performance and financial strength of Deluxe Trading Co for the two years. For performance…

## Introduction to Financial Ratio Analysis

Definition and Explanation of Accounting Ratio Analysis (Financial Ratio Analysis): We have so far been concerned with the preparation of financial statements without any examination…

## Marginal Cost

Definition and Explanation: Marginal means Extra. Marginal cost is defined by CIMA as “the cost of one unit of a product or service which would…

## Analysis of Financial Statement of a Business

Analysis of Financial Statement by the Use of Solved Example of Financial Ratios: John Brown is running a business which manufactures nuts and bolts which…

## Preparation of Income Statement and Balance Sheet with the help of Financial Ratios

Sometimes examination questions may require the candidates to prepare financial statements with the help of a given set of financial ratios. In these cases at…

## Limitations of Ratio Analysis

Financial ratio analysis faces some limitations, which are given below: (1) Ratio analysis requires a proper comparison i.e., one ratio its own is of no…

## Uses of Financial Ratio Analysis

Financial ratio analysis helps a business in a number of ways. The importance and advantages of financial ratios are given below: (i) Ratios help in…

## Liquid Ratio

Liquid Ratio or Acid Test Ratio or Quick Ratio – Definition, Explanation and Use: Current ratio (which takes all current assets into account) may give…

## Current Ratio

Current Ratio or Working Capital Ratio – Definition, Explanation and Use: The current or working capital ratio is determined by dividing the total current assets…

## Liquidity Ratios

Definition, Explanation and Use: Liquidity ratios determine the ability of a business to finance, its day to day operations, or in other words, to pay…

## Non Current Asset Turnover

Definition, Explanation and Use: Non-current asset turnover ratio determines the efficiency with which a business uses its non-current assets to generate revenue for the business….

## Trade Payable Payment Period

Definition, Explanation and Use: The trade payables’ payment period ratio represents the time lag between a credit purchase and making payment to the supplier. As…

## Trade Receivable Collection Period

Definition, Explanation and Use: The trade receivables’ collection period ratio represents the time lag between a credit sale and receiving payment from the customer. As…

## Inventory Turnover Ratio

Definition, Explanation and Use: Inventory turnover ratio is often linked with the measurement of profitability. Though this ratio does not in itself measure profitability, but…

## Activity Ratios

Activity Ratios or Turnover Ratios – Definition,  Explanation and Use: The activity ratios or turnover ratios (which are sometimes referred to as efficiency ratios or…

## Return on Equity

Return on Equity (ROE) Ratio – Definition, Explanation and Use: Return on equity ratio (ROE) is one of the most widely used financial ratio. This…

## Return on Capital Employed

Definition, Explanation and Use of ROCE Ratio: Return on capital employed (ROCE) ratio is used to determine the returns that a company is generating from…

## Return on Assets

Definition, Explanation and Use of Return on Asset Ratio: The return on assets percentage determines the performance of business’ assets in terms of profitability. This…

## Operating Expenses Ratio

Definition and Explanation: Operating expenses ratio shows operating expenses as a percentage of sales. Operating expenses relate to the operations of a business entity. In other…

## Markup Percentage Formula and Margin Percentage Formula

Difference between Markup Percentage Price and Margin Percentage Price: Many business often use concepts of margin and markup as guides for setting the prices of…

## Physical Count Method of Closing Inventory

Physical Count Procedure of Closing Inventory – Definition and Explanation: The inventory value shown in the balance sheet is usually calculated through a physical inventory…

## Periodic and Perpetual Systems of Inventory Accounting

There are two types of systems of inventory accounting, which are briefly discussed below: (1) Periodic Inventory System – Definition and Explanation: When the periodic…

## Goods on Sale or Return Basis

Goods Sent to Customers on Sale or Return (Approval) Basis: When goods are sent on a “sale or return” or on “approval” basis, these goods…

## Effects of Errors in Valuing Inventory

The errors in valuing inventories affect the profit and assets in the following way:

## Separate Valuation of Inventory Items

Accounting standards require that the cost and net realizable value (NRV) of each inventory item should be calculated individually and the lower figure taken in…

## Role of Accounting Concepts in Inventory Valuation

Historical “Cost Concept” states that assets including inventory should be recorded at their original cost until they are sold. In other words, no profit should…

## Physical Flow of Goods VS Inventory Valuation Methods

The valuation methods are bookkeeping methods and must not be confused with the physical flow of inventory. As most goods deteriorate with age, the physical…

## Calculation of Gross Profit using Calculated Inventories of FIFO and AVCO

Calculation of Gross Profit (Perpetual): To calculate gross profit (perpetual) and gross profit (periodic), we take calculated inventories of FIFO from First in First out…

## Weighted Average Cost (AVCO) Method

Definition and Explanation: The weighted average cost (AVCO) method or standard cost method involves computing the weighted average cost of the inventory held after each…

## First in First out Method (FIFO)

Definition and Explanation: The FIFO method uses the price of first batch received for costing all units of sales until all units from this batch…

## Inventory Valuation Methods

Records of inventories are not normally included in the double entry system. Most organizations keep a separate record of inventories, outside the ledger, by maintaining…

## Balance Sheet and Income Statement – Solved Examples

Example 1: Preparation of Balance Sheet – Horizontal and Vertical Style: The following trial balance is prepared after preparation of income statement for F. Green…

## Items in the Balance Sheet

Balance sheet is a financial statement so it should give much information as possible to the users of the balance sheet. The items in the…

## Drawings

Drawings in Accounting – Definition and Explanation: Drawings are the amounts taken by the owner of a business for his personal use in anticipation of…

## Accounting Period

What is an Accounting Period/Reporting Period?  Definition and Explanation: Accounting period (reporting period) is that period for which the organization ascertains its profit or loss. It…

## Carriage Inwards and Carriage Outwards

Difference between Carriage Inwards and Carriage Outwards: Carriage Inwards – Definition and Explanation: Carriage inwards is an expense incurred to bring the goods purchased to…

## An Introduction to Financial Statements

We had detailed discussion of trial balance and also learnt that how it is being prepared with the help of ledger account balances. We had…

## Closing of Incomes and Expenses

As mentioned in the accounting for inventories chapter, businesses close the accounts for all its incomes and expenses by transferring their balances to incomes statement…

## Calculation of Net Profit

Definition and Procedure to Explain Net Profit: We have already learnt in the accounting for inventories chapter that how profits and losses may be determined…

## Net Profit Ratio

Net Profit Ratio or Net Profit Margin or Operating Profit Ratio – Definition and Explanation: The net profit ratio (net profit margin or operating profit)…

## Gross Profit Ratio

Gross Profit (GP) Ratio or Gross Profit Margin – Definition and Explanation: Gross profit ratio (GP ratio or gross profit margin) tells us how much…

## Profitability Ratios

Profit is as essential for a business as blood for life of a human being. A business running in continuous losses finds it dubious to…

## Bookkeeping for Incomes and Expenses

The mechanism of recording incomes and expenses transactions/entries are given below: Explanation with Example Entries and T-Accounts: Transaction 1: Capital Injection by Owner: Transaction 2:…

## Double Entry for Expenses and Incomes (Revenues)

The double-entry for expenses and incomes (revenues) are slightly more complicated as compared to assets, liabilities and capital. Debit and Credit Rules for Incomes and…

## Incomes and Expenses

Definition of Income: The most important and possibly the only source of revenue for most businesses is the income derived from the sale of goods…

## Calculation of Profits for Service Business

Many trading and manufacturing organizations, there may be service businesses which sell knowledge and or skills such as solicitors, accounting firms, estate agents and advertising…

## Opening Inventory

Definition: Businesses may inventory of unsold goods at the beginning of the period called opening inventory. Normally, an assumption is made that this inventory is…

## Closing Inventory

Definition: This is very unlikely that a business sells all the goods that it purchased during the current period. Therefor cost of purchases is not…

## Closing of Incomes and Expenses

At the end of an accounting period businesses close  the nominal accounts (accounts for all incomes and expenses) by transferring their balances to the income…

## Trading Section of Income Statement

Preparation Methods of Trading Section of Income Statement: Trading section of income statement is usually prepared on a separate sheet (in a vertical layout) rather…

Explains financial and managerial accounting. Exercises, problems, calculators and more.