Chapter 6 Flashcards
What are closing inventories?
total value of inventory items that have been purchased but remained unsold at the end of any given accounting period.
Is the closing inventory part of the “cost of goods sold”?
no
Is the closing inventory an asset to the business?
yes and are held for resales and are classified a current assets
What is the correct double entry to record closing inventory?
Dr closing inventory - statement of financial position
Cr closing inventory - cost of sales on statement of profit or loss
What is opening inventory?
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
Where would opening inventory go?
this will be part of this periods cost of sale
- as it should be sold this year
therefore added to purchase
What is delivery inwards?
amount paid by business for having the goods delivered in
What is delivery outward?
amount paid by business for delivering goods to its customers
Delivery inward = ?
part of cost of sales in the statement of profit or loss
Delivery outward = ?
expense in the statement of profit or loss
What happens if you are supplying a service eg. bookkeeping, legal advice, training rather than goods?
no inventory is needed to be accounted
What should the cost of sales of a service must reflect?
it must reflect the cost of providing the service to customers during the accounting period
What is direct labour costs?
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)
Sales commission
represents the commission or bonus earned by salespeople specifically as a result of securing work from customers
Materials Used
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
What are the three things charged under cost of sales?
direct labor
commission
materials used
What does accrual basis of accounting that to calculate the profit of the period mean?
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.
What does accrual basis of accounting that to calculate the profit of the period need to include?
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
In accrual basis of accounting , what is income matched with?
with expenditure incurred to generate that income in a particular accounting period - matching concept
Why do we need to adjust accrual and prepayments?
insure correct expense figure has been included
What is deferred income?
income received in advance that related to the next period
What is accrued income?
income earning during the period but not yet received
Is deferred income removed from the statement of profit or loss or is it kept on?
removed
Is accrued income removed from the statement of profit or loss or is it kept on?
kept on
