FFMA Spring Week 2 Pt3. Flashcards
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When you see dividends on the trial balance what do you do?
You subtract it from the Retained earnings value to get the new retained earnings value. If the retained earnings is from the start of the period you would also add on the profit for the period onto the value to get the final retained earnings value
How is annual depreciation calculated for equipment costing £25,000 with a useful life of 20 years using the straight-line method?
Annual Depreciation Expense = (Cost of Equipment - Residual Value) / Useful Life. Assuming no residual value: £25,000 / 20 years = £1,250 per year.
Is accumulated depreciation the same as residual value?
No, accumulated depreciation is the total amount of depreciation recorded for an asset to date, reducing its book value. Residual value is the estimated amount an asset is expected to be worth at the end of its useful life.
Do income statements have a credit and debit column?
No, income statements do not have separate credit and debit columns. Instead, they are structured to display revenues and expenses in a format that shows the financial performance of a company over a specific period, typically starting with revenues, subtracting the cost of goods sold to find gross profit, subtracting operating expenses to find operating income, and finally accounting for taxes to determine net income.
How is depreciation calculated using the reducing balance method for vehicles with a cost of £18,000, accumulated depreciation of £8,000, and a depreciation rate of 25%?
- Determine Net Book Value at Beginning of Year: Cost - Accumulated Depreciation = £18,000 - £8,000 = £10,000. 2. Calculate Depreciation Expense: Net Book Value * Depreciation Rate = £10,000 * 25% = £2,500. 3. Determine Net Book Value at End of Year: Net Book Value at Beginning of Year - Depreciation Expense = £10,000 - £2,500 = £7,500. Depreciation Expense for the Current Year: £2,500. Net Book Value at End of Year: £7,500.
When is the opening accrual reversed?
The opening accrual is reversed at the beginning of the current financial year. This involves debiting the accrual account to remove the liability and crediting the corresponding expense account to avoid double-counting the expense.
Is an opening accrual counted as an expense in the current period?
No, an opening accrual is not counted as a new expense in the current period. It represents an expense recognized in the previous financial year but not paid. In the current year, it is carried forward as a liability and needs to be adjusted against the current year’s recorded expenses to avoid double-counting.
What is an opening accrual?
Opening Accrual: This is the amount of expense that was accrued (recognized) in the previous financial year but not paid. It is brought forward into the current financial year. For Copper Ltd, the opening accrual for telephone is £410.
