Lecture 5 Flashcards

1
Q

depreciation = ?

A

breaks up the up-front cost of a long-term asset over its useful life

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2
Q

what type of account is depreciation?

A

expense

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3
Q

what are the 2 important dates for recording depreciation?

A

asset purchase date

adjustment date

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4
Q

what is straight-line depreciation?

A

allocation of a fixed asset’s value over time in equal amounts

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5
Q

how do you record depreciation?

A

initial purchase (debit fixed asset, credit cash)

adjustment (debit depreciation expense, credit accumulated depreciation)

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6
Q

accumulated depreciation = ?

A

a contra-asset account that accumulates depreciation expenses over the asset’s useful life

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7
Q

contra-account = ?

A

have an opposite balance of the typical account

e.g., contra-asset account has a credit balance

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8
Q

what is a businesses main aim?

A

to maximise profits

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9
Q

what does accounting for profit help businesses do?

A

plan

obtain loans

show success

accurately calculate tax liability

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10
Q

gross profit = ?

A

sales - cost of sales

the excess of sales revenue over the cost of sales in the period

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11
Q

net profit = ?

A

revenue - expenses

the excess of operating profit over the operating expenses in the period

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12
Q

what does ‘on time’ mean?

A

paid by credit

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13
Q

trader = ?

A

someone mainly concerned with buying & selling goods

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14
Q

what do traders identify?

A

revenue & expenses

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15
Q

what two accounts make up the income statement?

A

trading account
profit & loss account

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16
Q

what is the purpose of the two accounts?

A

trading account = calculate gross profit

profit & loss account = calculate net profit

17
Q

how do you account for COGS?

A

debit COGS, credit inventory

18
Q

how do you calculate the trading account?

A

the sales & purchases account balances are transferred to the trading account to close the accounts for the period

debit sales, credit trading account
debit trading account, credit purchases

19
Q

after all accounts have been balanced off with the trading account, what do you do?

A

close off the trading account by debiting closing inventory and crediting trading account

20
Q

what is the format of a trading account?

A

revenue
-cost of sales (opening stock + purchases - closing stock)
= gross profit

21
Q

what does the profit & loss account show?

A

revenue - expenses

22
Q

trading account & profit & loss account format = ?

A

sales
- cost of sales
= gross profit
- expenses
= net profit

23
Q

income statement = ?

A

a summary of the revenue and expenses for a specific period of time

24
Q

matching concept = ?

A

concept applied by matching expenses with the revenues they generated, only during the period that those revenues were generated

25
when is revenue deemed to have been earned?
when the firm have completed a substantial portion of the production/sales effort when the risks of ownership have been shifted to the customer
26
accrued expenses = ?
when the expenses for the period exceed the cash paid during the period and is carried over to the next period
27
what element of accrued expenses are shown on the income statement?
amount paid + amount outstanding is shown in the income statement
28
what element of accrued expenses are shown on the balance sheet?
the accrued expense amount outstanding is shown on the balance sheet as a current liability
29
how are accrued expenses portrayed on the SOCF?
the amount paid will be reduced from cash outflows in the cash flow statement
30
prepaid expenses = ?
when amount paid exceeds the expense required for the period
31
how are prepaid expenses portrayed on the income statement?
total amount paid - amount paid in advance at the end of the period is shown on the income statement
32
how are prepaid expenses portrayed on the balance sheet?
amount paid in advance is represented as a current asset
33
how are prepaid expenses portrayed on the SOCF?
amount prepaid is reduced from cash outflows in the socf
34
what factors affect depreciation calculation?
cost of asset estimated useful life residual value depreciation method