Fabm Rev Flashcards
The objective of the closing process is to zero-out balances of nominal accounts such as:
- Income accounts
- Expense accounts
- Owner’s drawing account
Procedures in closing the books
- Close income to profit or loss summary
- Close expense accounts to profit or loss summary
- Close the profit or loss summary to the capital account
Total Income accounts > Total Expense accounts = Profit
Total Expense accounts > Total Income accounts = Loss
Preparation of the post-closing trial balance
The result would only show assets, liabilities and equity because the expense, income
and drawings accounts are zeroed in the closing process
is an adjusting entry of the current period that is reversed and recorded as an opening
entry in the following accounting period.
● is an optional procedure in the accounting process.
● The purpose is to facilitate the recording of expenses and income in the following
Reversing entries
Reversible adjusting entries
- Accruals
a) Accrued expense
b) Accrued income - Deferred income under the income method
- Prepaid expense under the expense method
Non-reversible adjusting entries
- Provision for depreciation expense
- Provision for supplies expense
- Bad debts expense
- Deferrals under the liability method
- Prepayment under the asset method
2 inventory systems in practice
periodic and perpetual system.
buys goods and sells them to customers for a profit.
A merchandising business
goods bought by the merchandising business from its suppliers are called
purchases.
The merchandiser add-up a value to the purchase prices of goods and charges
total amount to the customer
total amount charged to customers is called
sales
agreed selling price of goods
sales, purchases
This is an established price or general price list before deducting any discounts.
List Price
This is list price less any trade discounts.
* gross billable amount by the seller to the buyer.
* indicated in the billing statement of the seller.
Invoice price
Also called volume discount or quantity discount,
* usually given when the buyer is a fellow merchandiser in order to allow him profit for the resale of
the goods to his customers.
Trade discount
Also called settlement discount
* additional discount to the invoice price aside from the trade discount which is given to the buyer
for early payment.
Cash Discount
period of time granted by the seller to the buyer
Discount Period
- Net 30 or n/30
due within 30 days from the invoice without discount.
* n/60 due within 60 days without discount, and so on.
1/15, n/30
is due within 30 days but the buyer is entitled to 1% discount if the invoice is paid within 15 days
- 2/10, 1/15, n/60
is due for payment in 60 days but the buyer will be given a 2% discount if he makes payment
within 10 days
* 1% if he makes payment beyond 10 days but within 15 days.
2/EOM, n/60
is due for payment in 60 days but the buyer shall be entitled to 2% cash discount if payment is
made on or before the end of the month of purchase.
to record the cost of goods
* This is normally a debit balance.
Purchases
to record the transport cost of the goods purchased.
* This is an adjunct account (addition) to the purchases account;
* it has normal debit balance.
fREIGHT IN
used for the agreed reduction in the price of goods.
* normally given by the supplier on account of early payment.
* is a contra-account to the purchase account;
* normal credit balance
Purchahse Discount
to record the cost of merchandise returned to the supplier and including price reductions to the
purchase which is granted by a supplier on account of unsatisfactory goods delivered.
* this is normally a credit balance.
Purchcase return and Allowances
to record advance payments
* purchased in the future
* asset account and has a normal debit balance.
Advances to Supplier
if the purchased goods have been paid in cash and the supplier
agreed to return cash in the future for the goods returned.
Receivable from supplier
if the supplier agreed to offset the price of goods returned against future
purchases of the business from the supplier
Advances to supplier
to record the selling price of goods to a customer.
* normal credit balance
Sales
to record the transport cost of the goods sold to customers.
* is a separate expense account and is not a contra-account to the sales account.
* called delivery expense.
Freight out
to record the agreed reduction in the price of goods sold to customers.
* equivalent of purchase discount in the buyer’s perspective.
* is a contra-account to the sales account
* normal debit balance.
Sales Discount
