Test 2 Flashcards
Scrap value
• Residual / Scrap value – what the directors
imagine the Asset could be disposed of, at the end
of its useful life. Decided at time of acquisition.
Bad debts journal entry
• Dr Bad Debts Exp; Cr Accounts Receivable:
Debtor’s name (if avail)
Allowance for bad debts journal entry
Dr Bad Debts Expense; Cr Allowance for Doubtful Debts
Asset definition
An asset is:
• a present economic resource*
• Controlled** by the entity
• as a result of past events.
Current asset definition
According to IAS 1, an asset is classified as
a current asset when:
• it is expected to be realised within 12
months after the end of reporting period;
or
• it holds the asset mainly for the purpose
of trading; or
• it expects to realise the asset, or intends
to sell or consume it, in its normal
operating cycle; or
• it is cash or a cash equivalent.
All other assets are Non-Current Assets
Liability definition
a present obligation of the
entity
•to transfer an economic
resource
• as a result of past events.
Current liability definition
According to IAS 1, a liability is classified as
a current liability when:
• it is due to be settled within 12 months
after the end of the reporting period; or
• it holds the liability mainly for the purpose
of trading; or
• it expects to settle the liability in its
normal operating cycle;
• the entity does not have an unconditional
right to defer settlement of the liability for
at least 12 months after the end of the
reporting period.
Revaluation journal entry
Increased value recorded (DR Asset Type CR Reval
Surplus/Gain)
Recorded as an item in other comprehensive income
Equity
Equity is the transactions with the owners (shareholders). The
residual interest in the assets of the entity after deducting all its
liabilities. (Assets – Liabilities) AKA Net Asset Value or net ‘wealth’
of the entity. The amount due to owners (s/h) if all assets
liquidated and liabilities paid
Income
increases in economic benefits during the accounting
period in the form of inflows or enhancements of assets (Bank/AR)
or decreases of liabilities (Inc Recd in Adv) that result in increases
in equity, other than those relating to contributions from equity
participants.
Expense
decreases in economic benefits during the
accounting period in the form of outflows or depletions of assets
(Bank/Expenses Prep) or incurrences of liabilities (AP) that result
in decreases in equity, other than those relating to distributions to
equity participants.
Bad debt journal entry
Dr Bad Debts Exp; Cr Accounts Receivable: Debtor’s
name (if avail
Accrued meaning
Payment that is outstanding
Three rates of VAT
Zero rate - financial / educational / health services / energy
saving (solar panels / heat pumps etc) / gambling?????
• Reduced rate - health and safety – power (elect & gas) / car
seats for children / aids to stop smoking
• Standard rate – everything else
Who should register for VAT
You should register for VAT if you supply goods
other than VAT Exempt goods and
• your total VAT taxable turnover for the last
12 months was over £85,000 (the VAT
threshold)
• you expect your turnover to exceed £85,000
in the next 30 days
Journal entry for VAT received on a sale
VAT received on a sale / service (Output Tax) is treated as a liability as it is
received on behalf of the HMRC and needs to be refunded (CL)
Journal entry for VAT paid on expenses
VAT paid on expenses / services received (Input Tax) is treated as an asset
as it can be used to reduce any amount owing to the HMRC, and could be
refunded to you (CA)
Journal entry for VAT
Exclusive amount + VAT amount = Inclusive amount
100% + 20% = 120%
Sales/ purchases/inventory + input/output VAT = bank
VAT on cost of sales
No VAT impact on cost of sales
Journal entry for inventory purchased on VAT
Debit to Inventory or Purchases (next slides/section!) – exclusive figure
• Debit to Input VAT
• Credit to Bank / Accounts Payable – inclusive
Journal entry for sales on VAT
Debit to Bank / Accounts Receivable – inclusive
• Credit to Sales - exclusive
• Credit to Output VAT
Periodic method of recording inventory
the inventory-on-hand figure and
therefore cost-of-sales figure are calculated
PERIODICALLY, i.e. at the end of the period, i.e. the month,
quarter or financial year.
• Using this method, when purchasing stock the journal
entry is:
• Debit Purchases (Exp), Credit Bank / Acc Payable
• When selling stock, the JE is:
• Debit Bank / Acc Receivable; Cr Sales.
• There is NO cost-of-sales entry.
• Stock-take at the end of the year determines Inventory on
Hand
Perpetual method of recording inventory
Perpetually keeping inventory up to date
Closing inventory value
Closing Inventory to always be valued at ‘lower of cost
and net realisable value’. Cost figure you will have, NRV is
the amount to be realised if sold, less any cost to sell.
