AC 5-6 Flashcards
According to IAS 1, what is the objective of financial statement?
Provide info about entity, which is useful to investors
What are the two fundamental qualities of financial information?
Relevance- useful and can help evaluate past present future
Faithful representation - complete, free from error, and neutral
List enhancing characteristics
CUVT
Comparability verifiability, timeliness understandability
What is an accrual?
When transactions are recognised at time of occurrence, and not when cash is traded
How do you value assets in relation to going concern?
If not going concern- value as if being sold
If not going concern in a few months - price at historic value
What is the closing inventory?
It is the goods held at the end of the year. If we still hold at year end, it is now an asset
Give the double entry for closing inventory
Dr closing inventory (SOFP- asset)
Cr closing inventory (SOPL- expense)
Give the full formula of cost of sales
Opening inventory + purchases + delivery inward - closing inventory = cost of sales
Where does delivery outward go on the statement of profit and loss?
It is an expense and goes under gross profit as a distribution cost
What are the cost of sales for a service organisation?
Cost of providing the service - Direct labour cost sales, commission and materials use
If an electricity bill consists of £1000 per month, how would you deal with pre-payment?
If you have paid in advance, for 15 months, this means you have overpaid by £3000. We recognise this and reduce expenses
Now you have an expense of 12,000 and a pre-payment of 3000 which goes under assets
How do you deal with accruals? If you’re rent was £1000 per month and you have given £10,000 you have accrued £2000
Dr accrual (as an expense) 2000
Cr accrual (as a liability) 2000
Come back to this
What is the formula for opening/closing accruals and prepayments
PL expense= (-opening accrual) + payment + closing accrual
PL expense= opening prepayment+ payment + (-closing prepayment)
What is accrued income and what is the formula? Should it be included in SOPL?
Accrued income is when you get paid before you have completed the job. It should be included in the SOPL.
PL income amount = (-accrued income) + cash receipt + closing accrued income
What is deferred income and what is the formula? Should it be included in SOPL?
Deferred income is income received in advance that relates to the next period. It should not be included in the SOPL.
Opening deferred income + cash receipt - closing deferred income
