REVIEW

Question 1

Merchandise purchased (600)

Answer 1

• Expense account used when purchasing goods for the purpose of resale
• The goods being returned are recorded in a separate revenue account: Purchases returns and similar transactions (608)
• If the cost of transporting the goods is the responsibility of the company, it must be added at the purchase value. Same accounting treatment for any kind of purchases expense
• As an incentive to pay early, the company may be offered discounts by the seller. It is recorded in a ledger account called prompt payment discounts on purchases (606)

Question 2

Merchandise sold (700)

Answer 2

• Revenue account used when selling merchandises
• Every sale, whether it is made cash or on credit, will be credited to this account
• Its balance represents, at the end of the accounting period, the GROSS SALES: the total sales made by the organization
• Sales returns and similar transactions (708): account debited when a defective or unsatisfactory items is returned by the customer

Question 3

Value added tax

Answer 3

• Standard rate of 21%
• (472) INPUT VAT- when buying goods or services
• (477) OUTPUT VAT- when selling goods or services
• (4750) VAT PAYABLE
• (4700) VAT RECOVERABLE

Question 4

Expenses and revenues

Answer 4

Temporary accounts

- Absorbed by the (129) at the end of the accounting cycle

Question 5

4 basic transactions:

Answer 5

1. Purchases
2. Sales
3. Payments
4. Collections

Question 6

Closing date of the accounting cycle:

Answer 6

1. Balances from ledgers
2. Adjusting entries
   - changes in inventories (610)
   - VAT liquidation
3. Closing entries
   - revenue accounts and expense accounts (129- profit of the year)
   - assets, liability, and equity accounts
4. Financial statements

Question 7

Retained earnings

Answer 7

equity

Question 8

Creditors

Answer 8

assets, rights

Question 9

Sales

Answer 9

revenue

Question 10

Financial assets

Answer 10

= investments

• LT or ST- depends on the intention of the investor
• (540) shares- owners
• (541) bonds- lending money
• public- government
• private- cooperation

Question 11

Finished goods

Answer 11

produce our own products to sell

Question 12

Merchandises

Answer 12

bought and sold as they are (supermarket)

Question 13

Purchase price

Answer 13

doesn´t include mandatory charges

Question 14

Acquisition price

Answer 14

final price after mandatory charges (transport etc)

Question 15

Discounts:

Answer 15

Volume: (609) Purchases, revenues- (709) Expenses, sales
Prompt payment: (606) Purchases, revenues- (706) Expenses, sales
Others: (608) Purchases, revenues - (708) Expenses, sales

Question 16

Containers

Answer 16

Returnable: (406) asset, right
Non-returnable: include in (600), (601)
Obligation containers (437)

Question 17

Calculate bank balance:

Answer 17

A= L + Eq + Rv – Exp

Question 18

Net income:

Answer 18

Revenue- expenses

Question 19

Temporary accounts

Answer 19

expenses and revenues- GROUP 6 & 7

Question 20

Groups:

Answer 20

1. Equity/ non-current liabilities- NC
2. Non-current assets- NC
3. Inventories- beginning and end of the accounting cycle
4. Current assets/ trade
5. Current liabilities/ financial
6. Expenses
7. Revenues

Question 21

Containers- purchases

Answer 21

• (602) when buying containers (not returning all of them)

- (406) a right until returned/bought

Question 22

Containers- sales

Answer 22

• (704) containers and packaging sold (customers decides to keep some)
• (437) an obligation until we know if the customer returns/buys

Question 23

(300)

Answer 23

Merchandises: asset account used for the opening and closing inventory

Question 24

PROFIT/LOSS FOR THE PERIOD (129)

Answer 24

Debit side: the merchandise purchased and changes in inventories (when it has debit balance) and other EXPENSE accounts

Credit side: merchandise sold and changes in inventories (when it has credit balance) and other INCOME accounts

• All income and expense accounts will have zero balance at the end of the year. Its balances are transferred to the account (129), which will indicate the overall results obtained by the company
• If it has DEBIT BALANCE, there will be a LOSS
• If it has CREDIT BALANCE, there will be a PROFIT

Question 25

CLOSING ENTRIES

Answer 25

1. Changes in inventories
   (610) Changes in inventories- it is an account that could be considered as an expense or as an income, depending on each situation.
2. Closing temporary accounts

• It involves transferring the balances of the temporary accounts to the owner´s equity
• Each temporary account must be either debited or credited to eliminate its balance, while a corresponding debit or credit is summarized in another temporary account designed exclusively for that purpose. PROFIT AND LOSS, INCOME SUMMARY OR NET EARNINGS SUMMARY