chapter 5: accounting adjustments 1 Flashcards

1
Q

what do the accruals basis of accounting incorporate

A

both the accruals and matching concepts:

  1. income and expenses are recognised in the IS in the period in which they are incurred or earned
  2. costs (expenses) are recognised in the IS in the same period as the income they help to generate
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2
Q

what is the cost of sales figure (equation)

A

cost of sales = opening inventory + purchases - closing inventory

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3
Q

what is included in the trading account

A

(found at the top part of the IS)

sales revenue above the cost of sales
- difference between these: gross profit

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4
Q

how is bad debts written off

A

when the debt is no longer collectible, it is written off = involves
1. reducing the receivale
2. increasing the expenses

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5
Q

how is an account provision for doubtful debt shown

A
  1. shown as an expense in the income statement
  2. deducted from the total receivables figure in the SOFP

the provision for bad debts can either be estimated as a percentage of sales for the year ( income statement approach) or a percentage of the total receivables (SOFP approach)

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6
Q

what happens when a bad debt is unexpectedly paid

A

when the bad debt written off as bad in one accounting period is subsequently repaid in another, the amount paid should be recorded as additional income in the income statement of the period in which the payment is received

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7
Q

trade receivables: 30,250
provision for doubtful debt: 1,512

total of 5000 if trade receivables are to be written off and the provision adjusted to 10% of trade receivables

what the relevant final balances

A

1) expense in income statement
- bad debt = 5000
- doubtful debt = (30,250-5000)10% - 1512 =1,013

2) trade receivables in SOFP
- trade receivables = 25,250
- provision for doubtful debt = 25,250(10%) =2,525

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8
Q

what is the double entry for discounts allowed

A

Dr discounts allowed
Cr accounts receivables

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9
Q

what is the double entry for discounts received

A

Dr accounts payables
Cr discounts received

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