Chpt 7

Question 1

Define expenses

Answer 1

Expenses are cost incurred in the operation of the business to generate income in the same accounting period.

Trading business incurrs both cost of sales, which is cost price of goods that have been sold as well as other expenses during the operation of a business.

Question 2

Difference between cost of sales and other expenses

Answer 2

Cost of sales are costs of the inventory that was sold, while other expenses are other costs incurred during the operation of the business to generate revenue and other income.

Question 3

Difference between cost of sales and other expenses

Answer 3

Cost of sales are costs of the inventory that was sold, while other expenses are other costs incurred during the operation of the business to generate revenue and other income.

Question 4

Accounting theory applied when accounting for cost of sales

Answer 4

According to matching theory, the cost incurred to buy inventory must be matched against the sales revenue earned from selling the inventory in the same accounting period to determine the gross profit for that period.

Question 5

Accounting theory applied when accounting for cost of sales

Answer 5

According to matching theory, the cost incurred to buy inventory must be matched against the sales revenue earned from selling the inventory in the same accounting period to determine the gross profit for that period.

Question 6

Accounting theory when accounting for expenses

Answer 6

According to the matching theory, expenses incurred during the operation of the business to generate income must be matched against income earned in the same period to determine the profit for that period.

Question 7

Accounting theory applied when calculating / adjusting for expenses

Answer 7

According to the accrual basis of accounting theory, business activities that have occured, regardless of whether cash is paid or received, should be recorded in the relevant accounting period. Thus, expenses must be recorded in the period the service have been used regardless of whether they have been paid for or not.

Question 8

Define expenses payable

Answer 8

Expenses payable refers to expense that have been incurred but not yet paid, services have been used but the amount has not been paid.

Question 9

Define prepaid expenses

Answer 9

Prepaid expenses refer to expenses that have been paid in advance before services have been used.