Chapter 6

Question 1

What are closing inventories?

Answer 1

total value of inventory items that have been purchased but remained unsold at the end of any given accounting period.

Question 2

Is the closing inventory part of the “cost of goods sold”?

Answer 2

no

Question 3

Is the closing inventory an asset to the business?

Answer 3

yes and are held for resales and are classified a current assets

Question 4

What is the correct double entry to record closing inventory?

Answer 4

Dr closing inventory - statement of financial position

Cr closing inventory - cost of sales on statement of profit or loss

Question 5

What is opening inventory?

Answer 5

the closing inventory from the previous period

this will be part of this periods cost of sale - as it should be sold this year
therefore added to purchase

Question 6

Where would opening inventory go?

Answer 6

this will be part of this periods cost of sale
- as it should be sold this year
therefore added to purchase

Question 7

What is delivery inwards?

Answer 7

amount paid by business for having the goods delivered in

Question 8

What is delivery outward?

Answer 8

amount paid by business for delivering goods to its customers

Question 9

Delivery inward = ?

Answer 9

part of cost of sales in the statement of profit or loss

Question 10

Delivery outward = ?

Answer 10

expense in the statement of profit or loss

Question 11

What happens if you are supplying a service eg. bookkeeping, legal advice, training rather than goods?

Answer 11

no inventory is needed to be accounted

Question 12

What should the cost of sales of a service must reflect?

Answer 12

it must reflect the cost of providing the service to customers during the accounting period

Question 13

What is direct labour costs?

Answer 13

labour costs incurred to perform the service
eg. a pool cleaning company would need to include the cost of employing individuals to clean the customers room or hot-tub
(as opposed to labour costs that are not incurred as a result of the service provided e. receptionist salary, sales person salary)

Question 14

Sales commission

Answer 14

represents the commission or bonus earned by salespeople specifically as a result of securing work from customers

Question 15

Materials Used

Answer 15

these are the materials required to supply a service

eg. a pool cleaning company would need to use chemicals to clean a pool or hot-tub ad these chemicals would be include in cost of sales

Question 16

What are the three things charged under cost of sales?

Answer 16

direct labor

commission

materials used

Question 17

What does accrual basis of accounting that to calculate the profit of the period mean?

Answer 17

The accrual basis of accounting means that a business records income and expenses when they happen, even if the money hasn’t been received or paid yet.

Question 18

What does accrual basis of accounting that to calculate the profit of the period need to include?

Answer 18

all the income and expenditures relating to the period, whether or not the cash has been received or paid or an invoice received /not received

Question 19

In accrual basis of accounting , what is income matched with?

Answer 19

with expenditure incurred to generate that income in a particular accounting period - matching concept

Question 20

Why do we need to adjust accrual and prepayments?

Answer 20

insure correct expense figure has been included

Question 21

What is deferred income?

Answer 21

income received in advance that related to the next period

Question 22

What is accrued income?

Answer 22

income earning during the period but not yet received

Question 23

Is deferred income removed from the statement of profit or loss or is it kept on?

Answer 23

removed

Question 24

Is accrued income removed from the statement of profit or loss or is it kept on?

Answer 24

kept on

Answer 25

DR income - SPL

Cr Deferred income - SFP

Question 26

accrued income and balance sheet

Answer 26

Dr accurred income - SFP

Cr income - SPL