Chapter 2 - Manual Processing Of Financial Transactions Flashcards
What is the Accounting process?
The Accounting process is Source documents Journal Ledger Trial balance Income statement Balance sheet
What are source documents?
Source documents are proof of a sale or transaction. These include Tax invoices Credit note Cash register summary Receipts Cheques & cheque butts Bank statements
What is the flow of business documents between the buyer and seller?
The flow of business documents between the buyer and seller is
The purchase order from the purchaser to the seller
Delivery note and goods from the seller to the purchaser
The tax invoice from the seller to the purchaser
The adjustment note from the seller to the purchaser
The cheque from the purchaser to the seller and
The receipt from the seller to the purchaser.
What is net realisable value?
Net realizable value (NRV) is the value of an asset that can be realized upon the sale of the asset, less a reasonable estimate of the costs associated with either the eventual sale or the disposal of the asset.
What is the cost of stock at the end of the stocktake?
The cost of stock at the end of a stocktake is the cost or net realisable value, whichever is lower.
Define cost.
Cost is the purchase price of an asset plus all the costs to deliver and install the asset. No recurring costs are part of the cost and no GST is part of the cost.
What are the main purposes of accounting for inventory?
The main purposes of accounting for inventory is to accurately determine the cost of goods sold, which will be offset as an expense within an accounting period against the revenue earned by selling those goods and to place an accurate value on the stock of unsold goods held by the firm at anytime.
What’s the difference between the physical method and the perpetual method for accounting for inventory?
The physical method calculates the the cost of sales but does not attempt to to identify the cost of goods sold at the time of sale and the perpetual method allows the business to know constantly how much stock is on on hand.
How is the cost of sales calculated for the physical method?
For the physical method, the cost of sales is equal to opening inventory plus purchases subtract closing inventory.
What are the advantages of the periodic method?
The advantages of the periodic method is that the system is simple and it is cheap to install and operate and doesn’t require a computer.
What are the disadvantages of the physical method?
The disadvantages of the physical method there is little control over stock as there is no way of knowing how much stock should be on hand. The stocktake only reveals what’s on hand. Lost or stolen inventory won’t be detected. Stock shortages may occur as there is no record kept of how much stock is in the business. Short term reports cannot be prepared unless there is a stocktake. Stocktakes can be disruptive as the business needs to close for a stocktake. They can be inaccurate because errors can be made when counting. This can lave to distorted profit calculations.
What are the advantages of the perpetual method?
Some advantages of the perpetual method is it gives business greater control over stock because the business knows what items should be on stock. When a stocktake is done, these values are compared making it easier to detect lost or stolen inventory. Short term report can be prepared at any time because the closing stock and the cost of goods sold are available form the records.
What are the disadvantages of the perpetual method?
The disadvantages of the perpetual method is if it is done manually, it take a lot of time and more business’ use computers.
What is the transaction for a purchase return to an accounts payable?
The transaction for a purchase return to an account payable is
Debit accounts payable.
Credit inventory.
What is the transaction for a credit sales returns?
The transaction for a sales returns is Debit sales returns. Credit accounts receivable. Debit inventory. Credit cost of sales.
