Unit 3
State the Accounting equation.
Assets = Owners equity + Liabilities
What type of accounts are closed
Revenue and expenses
What do we do with the asset, liabilities and owner’s equity accounts at the end of a period?
They are balanced
What is disposal of a non-current asset?
Selling a non-current asset
Which 2 Accounting reports get affected when making balance day adjustments?
Income statement
Balance sheet
Which qualitative characteristic proves the use of source documents in recording transactions?
Verifiability
Name two types of asset accounts
Furniture
Accounts Receivable
Inventory
Name two types of liability accounts
Bank overdraft
Accounts Payable
Short term loan
Name two balance day adjustments made to expenses
Pre-paid expense
Accrued expense
Name two methods of depreciation
Straight-line method
Reducing balance method
What is the name given to entities that owe money to the business for the purchases made by them?
Accounts Receivable
What accounting assumption states that expenses should be recorded when they are incurred and revenues should be recorded when they are earned?
Accrual basis Assumption
Which qualitative characteristic states that information reported must be complete, without bias, free from material error and neutral.
Faithful representation
How is pre-paid expenses treated in the balance sheet?
As a current asset
Explain one qualitative characteristic for making BDA
Relevance - information relevant for decision making
Write the formula to calculate Net Realizable value
Estimated selling price - Direct selling expenses
State the double entry for
Credit purchases
Dr. Inventory
Dr. GST
Cr. Accounts Payable
State the two cost assignment methods of inventory cards.
FIFO
Identified cost
State the double entry for recording the BDA of pre-paid expenses.
Dr. Expense
Cr. Pre-paid expense
How is carrying value calculated?
Historical cost - Accumulated Depreciation
Sate the double entry for
Cash Drawings
Dr. Drawings
Cr. Bank
State the double entry for
Credit Sales
Dr. Accounts Recievable
Cr. Sales
Cr. GST
Dr. Cost of Sales
Cr. Inventory
Explain how NRV is applied
Choose the lower cost between NRV and the cost in the inventory card.
State the double entry for recording an allowance for doubtful debts.
Dr. Bad Debts
Cr. Allowance for doubtful debts
State the double entry for writing off a bad debt
Dr. Allowance for doubtful debts
Dr. GST
Cr. Accounts Receivable