Accounting Assumptions and Qualitative Characteristics
Name the four Accounting Assumptions.
Period, Accrual Basis, Going Concern, and Entity.
State the accounting equation.
Assets = Liabilities + Owner's Equity.
What is the acronym used to remember the double-entry accounting rules?
DEALOR
State the debit and credit entries required to record the following transaction:
The owner contributed $500 cash to the business.
Debit: Cash at bank ($500).
Credit: Capital ($500).
How is profit calculated?
Revenue minus expenses.
Name the six Qualitative Characteristics.
Timeliness, verifiability, comparability, understandability, relevance, and faithful representation.
Provide an example of a revenue.
Possible answers include: Cash sales, credit sales.
Assets: on which side do they increase and on which side do they decrease?
Assets increase on the debit side, and decrease on the credit side.
State the debit and credit entries required to record the following transaction:
The business paid $450 for rent.
Debit: Rent expense ($450).
Credit: Cash at bank ($450).
State the formula used to calculate straight-line depreciation.
(Cost - Residual Value) / Useful Life
The business owner withdrew $50 worth of inventory from the business and recorded the event on Memo 14.
Which accounting assumption does this event uphold?
Entity.
Define the term 'liability'.
Liabilities: on which side do they increase and on which side do they decrease?
Liabilities increase on the credit side, and decrease on the debit side.
The accountant of a business recorded the following entry:
Debit - Inventory ($600) and GST ($60).
Credit - Accounts payable ($660).
What would the narration be?
Purchased inventory on credit for $660 including GST.
A business purchased inventory worth $750 plus GST.
Calculate the amount of GST to be paid.
$75.
Which qualitative characteristic ensures that all financial information represents current economic events and that amounts reported are free from error and bias?
Faithful representation.
Provide three examples of current assets.
Possible examples include: cash at bank, accounts receivable, inventory, GST receivable.
A business purchased inventory for $300 plus GST.
On which side would the GST be recorded?
Debit.
State the five accounts required to record a cash sale.
You are required to state which are debited and which are credited.
Debit: Cash at bank and Cost of Sales.
Credit: Sales, GST Clearing, and Inventory.
A business purchased inventory for $500 plus GST on the 1st of November. The invoice displayed the following credit terms: '10/7, n/60'.
The business paid the amount in full on the 9th of November.
Calculate the discount revenue.
$55.
The business owner is planning on switching from the Identified Cost valuation method to the FIFO method.
Which qualitative characteristic would this breach?
Comparability.
Which accounting element is defined as: a decrease in assets that results in an decrease in owner's equity?
Expense.
Drawings: on which side does it increase and on which side does it decrease?
State the debit and credit entries required to record the following transaction:
The business purchased a new vehicle for $45,000 plus GST. The business paid for the vehicle by taking out a $40,000 loan and paid the rest in cash.
Debit: Vehicle ($45,000) and GST Clearing ($4,500).
Credit: Loan ($40,000) and Cash at Bank ($9,500).
A business purchased a new computer for $3 850 (including GST).
How much is the GST?
$350.