From Quizzes

Question 1

Cost of goods sold VS Operating expenses

Answer 1

Cost of goods sold includes the cost of obtaining goods that are held for resale; it is deducted directly from net sales on the income statement.

Operating expenses includes selling, administrative, financial expenses, and appears directly below the gross profit on the income statement.

Question 2

The Financial Reporting Council advises the government on ….

Answer 2

the accounting standard-setting process.

Question 3

The accounting standards by the Australian Accounting Standards Board are consistent with those issued by the …..

Answer 3

International Accounting Standards Board

Question 4

How to calculate NRV?

Answer 4

Selling price minus (whichever is the lowest cost)

Question 5

The main basis for recording and reporting inventory is ….

Answer 5

cost

Question 6

Cost of goods purchased formula (periodic inventory)

Answer 6

Purchases - purchases returns & allowances = net purchases

Net purchases + freight-in = cost of goods purchased

Question 7

Cost of goods available for sale (periodic inventory)

Answer 7

Beginning inventory + cost of goods purchased

Question 8

Ending inventory (periodic inventory)

Answer 8

Beginning inventory + cost of goods purchased = cost of goods available for sale

Cost of goods available for sale - ending inventory = cost of sales

Question 9

Advantages of using subsidiary ledgers

Answer 9

1. Shows transactions affecting one customer or one creditor in a single account, providing up-to-date information on specific account balances.
2. Free the general ledger of excessive details. As a result, a trial balance of the general ledger does not contain vast numbers of individual accounts.
3. Provide effective control through the periodic comparison of the total of the schedule of the subsidiary ledger with the balance in the corresponding control account.
4. Allows for segregation of duties in posting. One employee can post to the general ledger while another can post to subsidiary ledgers. Segregation of duties improves control over the recording process.

Question 10

What is an entire group of accounts maintained by a company called?

Answer 10

Ledger

Question 11

Cost of goods sold

Answer 11

beginning inventory + cost of goods purchased - ending inventory

Question 12

Primary difference between prepaid expenses and accrued expenses

Answer 12

Prepaid expenses have been recorded and accrued expenses have not

Question 13

Distinguish between a prepayment and an accrual.

Answer 13

A prepayment is the postponement of the recognition of an expense already paid or of a revenue already received.

An accrual is the recognition of an expense or revenue that has arisen but has not yet been recorded.

• • prepayments –> recorded but not recognised
• • accruals –> not recorded but recognised

Question 14

A list of all accounts and their balance in the accounts subsidiary ledger is known as

Answer 14

Schedule of accounts

schedule of creditors for a/c payable
(schedule of debtors for a/c receivable)

Question 15

Comparability of financial reports result when ….

Answer 15

different entities use the same accounting principles.

Question 16

Direct method vs allowance method (receivables and bad debts)

Answer 16

Direct method:

• recognises that all receivables will be collected
• bad debt is recognised only when we know that the debt will not be paid
• bad debts expense recognised when the uncollectable amount is specifically identified and written off
• accounts receivable reported at GROSS amount

Allowance method:

• recognises that NOT all receivables will be collected
• bad debt is estimated using (1) percentage of net sales method or (2) ageing of total receivables method
• accounts receivable reported at NET amount

Question 17

Weaknesses of using the direct-write off method in reporting bad debts expense

Answer 17

1. Companies can choose when to write off their bad debts. Because of this, companies can end up overstating or understating their total profit or loss.
2. Accounting information can be misinterpreted, which goes against the faithfully representation characteristic.

Question 18

Basic principles of cash management

Answer 18

5Ws:

WHO handles cash
WHERE it's handled
WHEN did cash inflow or outflow
WHY did cash inflow or outflow
HOW did cash move

Question 19

Which inventory valuation method generally results in costs allocated to ending inventory that will approximate their current cost?

Answer 19

FIFO

Question 20

Accrued revenues are …

Answer 20

received and recorded as liabilities before goods or services are provided