Accounts Chapter 10 Flashcards
What is depreciation?
When an asset loses value over time
What are the two methods of depreciation?
Straight line / cost price / fixed instalment
Diminishing balance / book value / carrying value
How do you calculate the depreciation with the straight line method?
Cost price
Times depreciation rate
Name the debits and credits of:
Asset depreciated
Cr Accumulated depreciation on (name of asset)
Dr Depreciation
How do you calculate depreciation with the diminishing balance method?
Cost price - accumulated depreciation
Times the depreciation rate
How do you calculate depreciation on an asset that was bought during the year? (Straight line method)
Cost price
Times depreciation rate
Times the number of months the asset has been owned
Divided by twelve (number of months in a year)
How do you calculate depreciation on an asset that was bought during the year? (Diminishing balance method)
Cost price
Times depreciation rate
Times the number of months the asset has been owned
Divided by twelve (number of months in a year)
What happens if the depreciation of an asset exceeds its original cost?
The depreciation cannot do this
The figure must be adjusted so that the total depreciation is one rand less than the value
The balance of the asset will therefore be 1
Name the debits and credits of:
We are still owed payment at the end of the financial year
Cr the income
Dr Income receivable / Accrued income
Name the debits and credits of:
We are paid in this financial year for something that will occur in the next financial year
Cr Income received in advance / deferred income
Dr the income
How do you work out the amount of accrued income if the income is received throughout the year?
Amount paid
Divided by the number of months that the money already received covers
Multiply the number by twelve (this will give you what should be paid in one year)
Work out the difference between the amount paid and what should have been paid
This is the accrued income amount
How do you work out the deferred income amount if the income is received throughout the year?
Amount paid
Divided by the number of months the amount paid covers
Multiply by twelve (this will give you what should be paid in one year)
Work out the difference between what should have been paid and what was paid
This will give you the deferred income amount
Name the debits and credits of:
We owe money at the end of the financial year
Cr Expenses payable / Accrued expenses
Dr the expense
Name the debits and credits of:
We paid for something in this financial year that will occur in the next financial year
Cr the expense
Dr Prepaid expenses
Name the debits and credits of:
A stock-take is done. The amount of stock we have is less than what we have paid for in the year
Cr Trading Stock
Dr Trading Stock Deficit
How do you work out what your Trading Stock deficit is?
Amount in the ledger / pre-adjustment trial balance
Minus the stock-take amount
Name the debits and credits of:
We have consumable stores left over at the end of the year
Cr Consumable Stores
Dr Consumable Stores on Hand
Name the debits and credits of:
We are charged interest on our overdue account
Cr Creditors Control
Dr Interest on Overdue Account
Name the debits and credits of:
Stock lost due to theft/fire. The insurance company is going to pay us
Cr Trading Stock
Dr Loss due to theft/fire
Cr Loss due to theft/fire
Dr Accrued income
What happens if our bank balance is not favourable?
We will have to take out an overdraft
Wherever Bank would be influenced, Bank overdraft is used instead
The operations are reversed (if Bank would increase, Bank Overdraft would decrease)
Name the debits and credits of:
Interest on Overdraft
Cr Bank
Dr Interest on Overdraft
What are reversals?
When adjustments that occur, in the previous year, due to timing differences are reversed to reflect correct balances for the time period
Name the debits and credits of:
Reversal of Accrued income
Cr Accrued income
Dr the Income name
Name the debits and credits of:
Reversal of deferred income
Cr Income name
Dr Deferred income
Name the debits and credits of:
Reversal of Accrued expenses
Cr Name of expense
Dr Accrued income
Name the debits and credits of:
Reversal of prepaid expenses
Cr Prepaid expenses
Dr Name of expense
Name the debits and credits of:
Reversal of Consumable Stores on Hand
Cr Consumable Stores on Hand
Dr Consumable Stores
Which adjustments do not need reversals?
Depreciation
Bad Debts
