Chapter 16&17 Flashcards
What are prepayments/prepaid
expenses?
-The accruals concept also gives rise to prepayments/prepaid expenses which are receivables in respect of services that
have been paid for but not received at the end of the accounting year.
- Prepaid expenses arise where services are paid for in advance; e.g. rent, road tax, insurance.
- The amount is usually ascertained by determining on a time basis how much of the last payment made during the accounting year relates to services that will be received in the following accounting year
What is the ledger entries for prepayments ?
- Debit - Relevant expense account as a balance brought down (b/d) (next period
portion) - Credit - Relevant expense account
as a balance carried down (c/d) (current period portion)
- The credit will thus reduce the amount paid that is charged to the statement of profit or loss account, and the debit shown
as a current asset on the statement of financial position.
- The charge to the statement of profit or loss account therefore reflects the total value of the services received/consumed
during the accounting year.
What are Categories of inventories in manufacturing entities?
- Finishing Goods
- Work-in-progress
- Raw Materials
- Consumables
What are finished goods?
Inventory that is ready for sale; for example, completed jeans held in stores ready for distribution to retail outlets.
What is a work-in-progress?
Inventory that is partly complete; for example, jeans with no buttons or back pockets
What are raw materials?
Source products that are required when manufacturing the good for sale; for example, rolls of Demin in a jeans factory
What are consumables?
Immaterial items that are required in the production process; for example, buttons, thread, zips or packing.
Examples of Monitoring Inventory - systems?
- Periodic Inventory control system
- Perpetual inventory control system
What is Periodic Inventory control system?
-The number of items in inventory are physically checked periodically (monthly, quarterly, yearly) and orders for more items are made in light of expected demand relative to the number of items in stores.
- The review period is usually fixed and hence high levels of inventory are typically held
- In many instances the business closes for the counts, or it is performed overnight
What is Perpetual inventory control system?
- Constant monitoring of inventory levels and frequent reorders
- Computerized control system usually with point of sale technology which records inventory receipts and issues from stores.
- Physical counts take place continuously, are organized and focus on rotated areas
What is Perpetual inventory system?
the recording, as they occur, of receipts, issues, and the resulting balances of individual items of inventory in either quantity or quantity and value.
What are store ledgers?
Stores ledger - a record of the quantity and
value of receipts, issues, and the balances of individual items of inventory.
What are Methods of identifying the cost of
inventories and pricing stores issues?
- First in, first out (FIFO)
- Last in, first out (LIFO)
- Weighted average (AVCO)
What is First in, first out method ?
- The materials issued to production (or finished goods sold) are those which have been in inventories for the longest time. The closing inventory is thus composed of the most recent purchases.
- It is based on the premise that the physical
movement of goods over time will have this
sequence of events, particularly where they are perishable. - This is favoured by IAS 2 and HM Revenue and Customs, and is by far the most common in the UK
What is the purpose of bank reconciliations?
- To ascertain whether or not the bank balance shown in the cash book is correct by comparing it with that shown on the bank statement supplied by the bank.
- In practice these two figures are rarely the same, and thus need to be reconciled.
- It also therefore facilitates the location of errors and omissions in the cash book.
Structure for Bank statement adjustments?
1.Balance per statement
+ outstanding lodgements
- outstanding payments
2.Balance per cashbook
What is Bank reconciliation statements:
the basic formula?
Balance per adjusted cash book (debit/favourable)
+ payments not yet presented (outstanding)
- amounts not yet credited (outstanding)
= Balance per bank statement
Reverse the addition and subtraction when starting with the bank statement balance, and when there is a credit/unfavourable cash book balance.
What are Reasons for difference between the cash book and bank statement
- Unrecorded items
- Unpresented items
- other adjustments
