Concepts Merit or Excellence Flashcards
How does the entity concept get applied to Jo paying home electricity from Jo’s music store
The financial affairs of Jo’s Music Store are kept separate and distinct from the financial affairs of Jo
When preparing accounting records of Jo’s Music Store we only include the business transactions and exclude those of the owner, Jo.
When preparing the Income Statement only Jo’s Music Store income and expenses are included. Jo’s personal income and expenses are recorded as Drawings in the Equity Section of the Statement of Financial Position
How does accounting entity concepts apply to Jo taking an office computer of Jo’s Music Store for his daughters use.
The financial affairs of Jo’s Music Store are kept separate and distinct from the financial affairs of Jo
When preparing accounting records of Jo’s Music Store we only include the business transactions and exclude those of the owner, Jo.
When preparing the Statement of Financial Position only Business assets and liabilities are included. Jo taking the computer home is now a personal assets and is recorded as Drawings in the Equity section of the Statement of Financial Position.
How does the accounting entity concept get applied to Jo introducing her personal car into the business.
The financial affairs of Jo’s Music Store are kept separate and distinct from the financial affairs of Jo
When preparing accounting records of Jo’s Music Store we only include the business transactions and exclude those of the owner, Jo.
When preparing the statement of financial position only business assets and liabilities are included. Jo introducing a private car into the business is recorded as an increase in Equity-Assets Introduced. the assets of Jo’s music store increases.
Jo wants to record the excellent service of her business as goodwill. Explain the Monetary Measurement concept that does not allow this to happen.
Financial transactions must be measured in a common currency such as NZ$ for Jo’s music Store.
Therefore if goodwill for excellent service cannot be expressed in money values, backed up with a source document, it will not be recorded in the accounting records of Jo’s Music Store.
Jo imported two pianos to sell in Jo’s Music Store. They cost 1000 USD each. Explain how the monetary management is applied to this transaction.
Financial transactions must be measured in a common currency such as NZ$ for New Zealand businesses.
Jo’s music store would have to convert the two pianos purchased at 1000 USD each to NZ currency.
Looking at the Income Statement for Jo’s music store how is the monetary concept applied.
Financial transactions must be measured in a common currency such as NZ$ for New Zealand businesses.
Therefore all of the numerical figures in the income statement for Jo’s music store must be in common currency. Only financial transactions are shown in $ amounts. This is seen by $ signs on each column of he report of Jo’s music store.
Jo’s music store’s financial reports are divided into accounting periods. Explain to Jo how the Period Reporting concept is applied to her business.
The lifetime of Jo’s Music Store is divided into nominated time periods of equal length, usually a year.
This allows Jo and users to make comparisons of financial performance and position of Jo’s Music Store from one period to another. Jo and users can identify financial trends to assist in decision-making. E.g is there enough profit to expand Jo’s Music Store.
Jo’s music Store has purchased a computer for $5000. She had it revalued at $1000 as it is now quite old. What value will be shown in the financial statement.
The financial reports are prepared on the assumption that the life of the business is expected to continue to operate into the foreseeable future.
Hence assets of Ji;s music store, particularly Plant Property and Equipment, are valued at historical cost in the Statement of Financial Position.
The computer will appear in the financial statement at a value of $5000, this is its historical cost.
What would happen to the assets of Jo’s Music Store if the going concern concept did not apply.
The financial reports are prepared on the assumption that the life of the business is expected to continue to operate into the foreseeable future.
If Jo’s Music Store is not a Going Concern then the Historical Cost Concept does not apply. Assets must be valued at Market Value. All the assets will all be classified as Current Assets. There will be no Non-Current Assets, as the business will close very soon and stop trading – well within a year.
The computer will be valued at $1000 its market value.
How does recording prepaid insurance $500 in Jo’s music store meet the accrual concept.
Prepaid Insurance $500 is recognised when it occurs and is recorded and reported in the financial reports of Jo’s Music Store of the period to which they relate.
Prepaid Insurance $500 is added as current asset to the Statement of Financial Position. In the Income Statement Administration Expenses - Insurance will decrease by $500 because it relates to the next accounting period.
Jo’s Music Store is owed dividends of $300 which will be received next financial year. How will the accrual basis concept be applied to this example.
Dividends owing $300 is recognised when it occurs and is recorded and reported in the financial reports of Jo’s Music Store of the period to which they relate.
Dividends owing $300 is recorded as Accrued Income increasing Current Asset in the statement of financial position. In the Income Statement, other income, called dividends received will increase by $300.
How will Jo’s music store deal with shop wages owing $300 using the Accrual Basis concept
Shop wages owing $300 is recognised when it occurs and is recorded and reported in the financial reports of Jo’s Music Store of the period to which they relate.
Shop wages owing $300 is added as a current liability to the Statement of Financial Position as an accrued expense. In the income statement, distribution expenses will increase by $300 this is because it relates to this accounting period.
Jo’s Music Store rents part of its store to a piano tuner. The piano tuner has paid $600 rent in advance.
Rent received in advance $600 is recognised when it occurs and is recorded and reported in the financial reports of Jo’s Music Store of the period to which they relate.
Rent received in advance is added as a current liability to the Statement of Financial Position as income received in advance. In the income statement, other income rent received will decrease by $600 this is because it relates to the next accounting period.
