Users of Accounting
Give an example of an internal user.
Someone who works within the company.
What is straight line depreciation and provide the formula
Same depreciation each accounting period
Straight line method: (original cost- residual value)/ useful life
The accounting equation
A= L+OE
A- L= OE
A- OE= L
A business' money.
Cash
Earnings that result from the sale of goods or services.
Revenue.
Give an example of an external user.
Creditor, Investor, Businesses, etc.
What is diminishing balance depreciation and its formula
diminishing balance
(diminishing balance = original cost - accumulated depreciation
Higher depreciation in earlier years than later
Format of fully classified Statement of Profit or Loss
Revenue less COGS = GP
Expenses
- Selling, Administrative, Finance, Occupancy
Payment of an expense in advance.
Journal entry
Prepaid expense.
Expense account DR
Prepaid expense CR
Cost of selling goods or services.
Expenses.
What is the difference between cash and accrual accounting
time of recording
What is the narrative form when determining working capital ( Statement of Financial Position )
Narrative form with working capital (equation OE= (Current A minus Current L) add Non- current A less non-current L
What is historical cost? What other 'expenses' can be capitalised?
Purchase price.
Installation
Transportation
Major body works
Promise made by the business to pay a debt in the future.
Accounts payable.
Depreciation journal entry and closing of for end of year reporting
dep exp DR
accum dep CR
P&L summary DR
Dep exp CR
What is a creditor?
Any person or business to whom a business owes money.
What is the formula to determine COGS for an accounting period?
COGS= opening inventory + net purchases - ending inventory
Using the T ledger, explain the Provisions for Doubtful and Bad debts
on board
Company receives cash from a product but has not provided the good or service.
Journal entry
Unearned revenue.
Revenue DR
Unearned rev CR
A customer's promise to pay in the future for services or goods sold.
Accounts receivable.
What is the difference between financial and managerial accounting?
Financial accounting provides information to external users. Managerial accounting provides information to users internal to the company.
What are the 5 steps for disposal of a non current asset?
Step 1- Calculate the depreciation charge for the current year (the date recorded is the date of disposal).
Depreciation expense DR
Accumulated depreciation CR
Step 2- Transfer the cost of the asset sold from the asset account to the Disposal account (date is date of disposal).
Disposal a/c DR
Non-current asset CR
(non-current asset is a CR entry because we are disposing the asset)
Step 3- Transfer the accumulated depreciation of the asset being disposed to the Disposal account (date is date of the disposal)
Accumulated depreciation DR
Disposal account CR
(accumulated depreciation is normally a CR entry because it is a negative asset account. However, we are now 'closing' the accumulated depreciation of the disposed asset)
Step 4- Record the disposal price in the Disposal account
Cash/ Accounts receivable DR
GST CR
Disposal account CR
(remember to split the CR entries to show GST)
Step 5- determine whether a gain or loss has been made
Disposal account DR
Gain on disposal CR
Loss on disposal DR
Disposal account CR
When writing your written responses, what are some key things you need to ensure?
- answer what the question is asking
- look at the right stimulus
- headings (if applicable)
- refer to stimulus
- delve deeper and identify if other parts of the stimulus supports your claim/ recommendations
Give some 3 items that have GST and 3 GST free
GST- inventories, rent, telephone, purchase of asset
GST free- interest, wages, fresh produce
Horizontal- over years (usually earliest year is base year)
Vertical- within one year (usually GP, Assets is the base value)
Trend- comparison between industry benchmarks