A/C 101
What are the 5 major types of accounts
REALOE
What are accrued expenses
Journal entry and which financial statement will it show
- expenses recorded but not yet paid
Exp a/c DR, P&L
Accrued exp CR FP
Headings for fully classified P&L
Revenue
Expenses
- selling
- administrative
- financial
Provide 2 profitability ratios
- GP
- NP
- Return of OE
- Return on total assets
What is the formula straight line depreciation
= (original cost - estimated residual value)/ estimated life
The Accounting equation and re- arranged
A = L+OE
L= A- OE
OE= A- L
What are accrued revenue
Journal entry and which financial statement will it show
- revenue earned in current period but not yet received
Accrued rev, DR FP
revenue a/c, CR P&L
Headings for full classified FP
Assets- current and non current
Liabilities- current and non current
OE- add profit, less drawings
provide 2 liquidity ratios
- current
- quick
- turnover of inventories
- turnover of a/c receivables
What is the formula for diminishing balance depreciation method
rate of depreciation x diminished balance
What is the difference between cash and accrual accounting
Cash- record transaction when they actually happen.
Timing of records
What are unearned revenue
Journal entry and which financial statement will it show
- payment received, however good/service has not been provided
Revenue a/c, DR P&L
Unearned revenue a/c, CR FP
Explain working capital
Working capital is the net amount of liquid funds the firm will have available
Current A minus Current L = working capital
+ N/C
- N/L
= Net assets
Net assets = OE
provide 2 stability ratios
- equity
- debt
- times interest earned
What does this mean
10/7, n 30
In the statement of financial position, what are the two negative accounts relating to non- current assets and a/c receivables.
What does these two negative asset accounts represents?
- accum depreciation: accum value lost
- provisions for bad and doubtful debts: estimation of a/c that is expected not to be collected
What are prepaid expenses
Journal entry and which financial statement will it show
expenses that have been paid in current period and recorded as assets till the economic benefit is used up
Expense a/c, DR P&L
Prepaid expense a/c, CR FP
Note- the value above (DR) will show as the same, however the (CR) value will be changed to the amount that was paid in advanced and appear under current assets
Provide 2 limitations of P&L
- inventory: discrepancies
- Depreciation: estimation, differ from firm to firm
- Doubtful debts: same as above
- Price fluctuation: may not reflect
- Manipulation: over/ under stating values
explain GP ratio
(GP/ net sales) x 100
gross profit per dollar of net sales
Explain the difference between a vertical and horizontal analysis
vertical- within the same period, and one value is the base
horizontal- across years, earliest year is the base
In accrual accounting, explain why net profit does not equate to cash at bank
- depreciation
- GST clearing
- inventory purchases
Using the T ledger, finding the missing value needed to balance the account.
Account- Provisions for bad and doubtful debts
O/B- 6,000
Bad debts written off during the year- 5,500
Desired balance for Provisions- 4,500
Missing value is 4,000
Provide 2 limitations of FP
- a/c receivables: estimation, differ from firm to firm
- Inventories: historical costs, estimations
- PPE: valuations, historical costs and depreciations methods
- Intangible assets: as above
explain ratio
ability to meet current debts
Provide 3 recommendations on how a struggling business can improve.
What will be the impact of these recommendations
TBC