Debits and Credits
State the entry to record a $330 (incl. GST) Credit Purchase of Inventory.
DR Inventory $300
DR GST Clearing $30
CR Accounts Payable $330
Define 'Liquidity'.
The ability of a business to meet its short-term debts as they fall due.
Give three examples of a balance day adjustment.
Any 3 of the following:
- Adjustment for Prepaid Expense Consumed
- Adjustment for Accrued Expense Incurred
- Adjustment for Unearned Income Earned
- Adjustment for Accrued Revenue Earned
- Inventory Loss or Gain
- Inventory Write-Down
- Recording Depreciation Expense
State the formula for the 'Net Profit Margin'.
(Net Profit / Net Sales) x 100
Wages paid of $130 was incorrectly recorded as $310.
State the correcting entry required.
DR Bank $180
CR Wages $180
Define 'Expense'.
A decrease in Assets or increase in Liabilities that results in a decrease in Owner’s Equity, other than those relating to Drawings.
Preparing Balance Day Adjustments supports which two Accounting Assumptions.
Accrual Basis Assumption and the Period Assumption.
State the formula for 'Return on Assets'.
Net Profit / Average Total Assets
State the entry to record $350 worth of inventory donated to a support a fundraising event for a local charity.
DR Advertising $350
CR Inventory $350
Define 'Inventory'.
Goods purchased by a trading firm and held for the purpose of resale at a profit.
Provide two examples of Balance Day Adjustments that effects a Current Asset and one example of a Balance Day Adjustment that effects a Non-Current Asset.
Current Asset - Inventory Write-Down, Inventory Loss/Gain, Prepaid Expense, Accrued Revenue, Allowance for Doubtful Debts
Non-Current Asset - Depreciation
State the formula for 'Cash Flow Cover'.
Net Cash Flows from Operating Activities / Average Current Liabilities
State the entry to record the cash sale of inventory (cost price of inventory was $400 and mark-up applied of 150%).
DR Bank $660
CR GST Clearing $60
CR Sales $600
DR Cost of Sales $400
CR Inventory $400
Define 'Net Realisable Value'.
The estimated selling price of inventory less any direct selling costs (marketing, distribution etc.).
State the number of days in each month (non-leap year).
January - 31 days
February - 28 days
March - 31 days
April - 30 days
May - 31 days
June - 30 days
July - 31 days
August - 31 days
September - 30 days
October - 31 days
November - 30 days
December - 31 days
Which financial indicator measures the average mark-up that a firm applies to its inventory?
Gross Profit Margin
Allowance for Doubtful Debts @ 1 May 2022 = $2,900
Credit Sales for May 2022 = $44,000
Sales Returns for May 2022 = $2,200
Bad Debts Written off during May 2022 = $3,300
State the entry required on 31 May 2022 to set Allowance for Doubtful Debts at 4% of Net Credit Sales.
$2,900 - $3,300 = ($400)
($44,000 - $2,200) x 0.05 = $2,090
BDA = $2,090 + $400 = $2,490
DR Bad Debts $2,490
CR Allowance for Doubtful Debts $2,490
Define 'Depreciation'.
The process of allocating the cost of a non-current asset over its useful life.
Give an example of an entry that always occurs on Balance Day but is NOT a Balance Day Adjustment?
- Closing Revenue and Expense Accounts OR
- Transferring Profit / Loss to Capital OR
- Transferring Drawings to Capital
If a firm's Return on Assets increases but it's Asset Turnover decreases, what conclusion can be drawn about the business?
It's expense control has improved.
State the correcting entry required.
DR Accrued Interest Expense $290
DR Accrued Interest Revenue $290
CR Interest Expense $290
CR Interest Revenue $290
Define 'Owner's Equity'.
The residual interest in the assets of an entity after the deduction of its liabilities.
Accrued Wages @ 1 Jan 2023 = $600
Wages Paid for 2023 = $73,200
Wages Expense for 2023 = $74,300
Calculate Accrued Wages @ 31 Dec 2023.
$74,300 - ($73,200 - $600) = $1,700
If a firm's Debt Ratio increases, what effect (improve/worsen/no effect) will this have on its:
- Cash Flow Cover
- Asset Turnover
- Return on Owner's Investment
- Cash Flow Cover (worsen)
- Asset Turnover (no effect)
- Return on Owner's Investment (improve)