chapter 5: accounting adjustments 1

Question 1

what do the accruals basis of accounting incorporate

Answer 1

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

Question 2

what is the cost of sales figure (equation)

Answer 2

cost of sales = opening inventory + purchases - closing inventory

Question 3

what is included in the trading account

Answer 3

(found at the top part of the IS)

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