Day 2- Chapter 6 Flashcards

1
Q

Cost of Sales = ?

A

opening inventory + purchases - closing inventory

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2
Q

When do we adjust our inventory?

A

only at year end

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3
Q

What is closing inventory?

A

goods held at the year end

remain unsold at year end

are a current asset

NOT PART OF COST OF GOODS SOLD

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4
Q

What is the double entry to record closing inventory?

A

DR closing inventory - statement of financial position

CR closing inventory - cost of sales on p/l

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5
Q

Why do we CR closing inventory at year end?

A

to reduce the cost of sales in the p/l

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6
Q

Why do we DR closing inventory at year end?

A

to increase our current assets on balance sheet

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7
Q

What is opening inventory a part of?

A

the periods cost of sales therefore you have to increase it - we assume its the first to get sold

THEREFORE we add to purchases

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8
Q

How to account for inventory at Y/E

A
  1. REMOVE OPENING INVENTORY

DR opening inventory - cos, SPL
CR inventory - CA, SFP

  1. RECORD CLOSING INVENTORY

DR inventory - CA, SFP
CR closing inventory - cos, SPL

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9
Q

Double entry for closing inventory

A

RECORD CLOSING INVENTORY

DR inventory - CA, SFP
CR closing inventory - cos, SPL

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10
Q

Double entry for opening inventory

A

REMOVE OPENING INVENTORY

DR opening inventory - cos, SPL
CR inventory - CA, SFP

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11
Q

What else might go into cos?

A

delivery in and outwards

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12
Q

Delivery inwards

A

delivery cost of purchases - cos on p/l

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13
Q

Delivery outwards

A

delivery cost to send to customers - expense on p/l

distribution costs

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14
Q

What is the main equation for accruals basis of accounting?

A

Profit = income earned - expenses incurred

relates to relevant AP
- regardless of cash paid/ received

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15
Q

What would happen if cash paid for expenses during period does not equal expenses relating to the period?

A

accural/prepayment has occurred

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16
Q

When does accrual occur?

A

when cash paid is less than expense for the year

current liability

17
Q

When does prepayment occur?

A

if cash paid is more than expense for the year

its is a current asset

18
Q

How do we account for accrual at the end of the year?

A

DR expense - P/L

CR accural - FP

19
Q

How do we account for prepayment at the end of the year?

A

DR prepayment - FP

CR expense - P/L

20
Q

What does accural mean?

A

we have incurred an expense but have not paid it at y/e

21
Q

What does prepayment mean?

A

we have paid for an expense in advance - relates to next year

22
Q

closing accural = ?

A

cash paid - expenses

23
Q

accrued expense incurred =?

A

cash paid + closing accrual - opening accrual

24
Q

prepayment expense incurred = ?

A

opening prepayment + cash paid during year - closing prepayment

25
Q

What does deferred income relate to?

A

income received in advance that relates to next period

needs to be removed from p/l

26
Q

Deferred Income Entries

A

DR income (P/L)

CR Deferred income (FP)

27
Q

What does Accrued Income relate to?

A

income earned during the period but not yet received

needs to be included in P/L

28
Q

Accrued Income Entries

A

DR accrued income (FP)

CR income (P/L)

29
Q

What is deferred income?

A

current liability

30
Q

What is accrued income

A

current asset

31
Q

Income earned during the period - accrued income

A

accrued income carried forward (relates to this year)

+ cash received

  • accrued income brought forward (relates to last year)
32
Q

Income earned during the period - deferred income

A

deferred income brought forward (relates to this year)

+ cash received

  • deferred income carried forward (related to next year)
33
Q

Income earned during the period - both deferred and accrued income

A

deferred income b/f (relates to this year)

+ cash received

+ accrued income c/f (relates to this year)

  • accrued income b/f (relates to last year)
  • deferred income c/f (relates to next year)