UNIT 1 Flashcards
Credits are equal to…
rights
promissory notes are equal to..
bills of exchange
(431) sell
(401) buy
what is the difference between the 400 and 410 accounts ?
they are both liabilities but the 400 account is used for primary activities while the 410 is used for secondary activities.
What are 523 and 173 code used for and what are their differences?
“Payable to supplier of fixed assets”
523 - short term (current)
173 - long term (non-current)
what is the difference between the 430 and 440 accounts?
they are both assets but the 430 account is used for primary activities while the 440 is used for secondary activities.
What are 543 and 253 code used for and what are their differences?
“loans for disposal of fixed assets”
543 - long term (current)
253 - short term (non-current)
codes used for personnel
465 - liability
460 - Asset
Code used for prepaid expenses and deferred income
480 - Asset
485 - Liability
How many type of containers are there and what are their codes?
- Returnables (406) Asset, right
2. Non- returnable (include in 600, 601)
Define doubtful trade receivables
Accounts receivable, whether customers or debtors, represent those collection rights that we can consider in a normal collection situationnormal collection situation.
When the collection expectations foresee risks or doubts, as a consequence of insolvency situations, we are facing credits in a situation situation of uncertainty.
trade receivable and doubtful trade receivable codes for primary and secondary activities
Primary Activities
- 430 trade receivable (right)
- 436 doubtful trade receivables (right)
- 650 losses on irrecoverable trade receivables (loss)
Secondary Activities
- 440 receivables (right)
- 446 doubtful receivables (right)
- 650 losses on irrecoverable trade receivables (loss)
Define promissory notes
It is an unconditional written promise to pay a stated sum of money upon demand or a future determinable date.
Usually prepared by the debtor as a result of a request made by the creditor
Upon receipt of the invoice by the buyer, it is the buyer’s obligation to prepare and deliver to the seller the promissory note within a reasonable time
Define INTEREST-BEARING PROMISSORY NOTES
It is a written promise to pay a certain sum at a fixed and determinable future date along with an additional sum known as interest
This interest is calculated based on the holding period of the note, which is usually expressed in days, and the payment of a specific stated rate in interest, which is calaculated on the face amount of the note
The interest assigned to the promissory note is usually calculated based on three factors:
1) The face value of the note, known as the PRINCIPAL
2) The amount of time the note is in the hands of the
creditor before payment is made, known as the TIME
3) The rate of interest being charged on the note, which is commonly referred to as the RATE
The basic formula for calculating interest is:
Principal x Rate x Time = Interest
When you receive a promissory note, you are able to…
- hold it until maturity; (431) or (441)
- To endorse it to other creditors;
- To discount it: sell it to a bank or finance company
define DISCOUNTING THE NOTE
IT IS THE PROCESS OF SELLING THE PROMISORY NOTE TO A BANK OR OF SELLING THE PROMISORY NOTE TO A BANK OR FINANCE COMPANY.
what is the process of discounting a promissory note
1 ) The note is endorsed and delivered to a bank;
2) The bank deducts from the maturity value of the note (face value of the note plus interest) their discounting charges and provides the seller with the net proceeds maturity; (665)
3) When the note becomes due, the lending institution expects to receive the maturity value from its maker;
4) The fact that the note has been discounted and turned over to the lending institution does not eliminate the seller’s involvement with the note: if the maker fails to pay the bank, the seller will do it;
5) A CONTINGENT LIABILITY has developed until the due date of the note: the commitment of the endorser to pay the discounter the maturity value of the note in the event that the maker of the note defaults; (5208)
Define Subsequent Measurement
At the balance sheet date, monetary items shall be measured at the closing rate, considered to be the average spot exchange rate at that date.
Exchange gains and losses arising on this process and on settlement of these assets and liabilities shall be recognised in the income statement for the reporting period in which they occur.
Define serve assessment system
If we sell to another country, no VAT is included, If we receive a purchase from another country, VAT is included upon arrival.
Liabilities codes
- (400) Primary activity
- (410) Secondary activity
- (523) Short-term fixed assets bought on account
- (173) Long-term fixed assets bought on account
extending credit
- When credit is given, a receivable is set up on the books of the seller (oral promise called “Account receivable” or “Trade receivables”)
- A receivable represents claims against individuals, business organizations, or other debtors that will eventually be settled by the receipt of cash, checks, bank transfers or any other asset accepted by the creditor
- When the creditworthiness of reliability of a customer is in doubt, the seller may decide to sell to the customer on credit (on account) with certain additional requirements: a promissory note as evidence of the buyer´s obligation to the seller
Accounts receivable/suppliers (400)
- (410) Payables for the rendering of services
- (430) Trade receivables
- (440) Receivables
Notes receivable/suppliers, trade bills payable (401)
- (411) Trade bills payable
- (431) Notes receivable
- (441) Receivables, trade bills
