Balance day Adjustments

Question 1

Define balance day adjustment

Answer 1

A change made to a revenue or expense account on balance day so that revenue accounts show revenues earned and expense accounts show expenses incurred in a particular period

Question 2

Types of balance day adjustments x5

Answer 2

• Inventory losses and gains
• Prepaid expenses and accrued expenses
• Depreciation
• Bad debts
• Unearned revenue and accrued revenue

Question 3

Define a prepaid expense

Answer 3

A current asset that has been paid in advance in the current Period but is yet to be incurred

Question 4

Define accrued expenses

Answer 4

A current liability that arises when an expense has been incurred in the current Period but has not yet been paid

Question 5

Define unearned revenues

Answer 5

A current liability that arises when cash is received in advance for revenue that is yet to be earned

Question 6

Define accrued revenue

Answer 6

A current asset which arises when revenue has been earned, but cash is yet to be received

Question 7

How to deal with a term deposit

Answer 7

• When cash is recieved, accrued revenue is decreased (credited)
• On balance day, record the revenue earned but not received since the last payment
• Credit accrued revenue and debit revenue

Question 8

Define depreciation

Answer 8

The allocation of the cost of a non-current asset over its Useful life

Question 9

Define depreciation expense

Answer 9

The part of the cost of a non-current asset that has been incurred in the current period

Question 10

Straight line method depreciation expense formula

Answer 10

HC-RV/Life = expense

Question 11

Straight line method depreciation rate formula

Answer 11

Depreciation expense/cost *100 = rate (%)

Question 12

Define accumulated depreciation

Answer 12

The total value of a non-current asset that has been incurred over its life thus far

Question 13

How to dispose of a non-current asset

Answer 13

1. Transfer the carrying value of the asset
   a. Transfer historical cost into Disposal of NCA
   b. Transfer accumulated depreciation into Disposal of NCA
2. Record proceeds on disposal (amount it was sold for)
   a. Subtract the cash to bank from the Disposal of NCA
3. Record profit/loss on disposal
   a. Loss if the proceeds incurred is more than the carrying value
   b. Profit if the proceeds incurred is less than the carrying value

Question 14

Define bad debt

Answer 14

A debt that must be ‘written off’ as irrecoverable because it is confirmed the Accounts Receivable won’t pay

Question 15

Define doubtful debt

Answer 15

A debt that is unlikely to be collected but hasn’t been ‘written off’ yet as there isn’t confirmation the Accounts Receivable won’t pay

Question 16

Define Fair value

Answer 16

The price of an asset contributed by the owner that would be received if that asset was sold at the time it was acquired by the business