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Accounting 1,2 > Unit 2 AOS 1 > Flashcards

Unit 2 AOS 1 Flashcards

1
Q

What is a trading firm

A

= bus which aims 2 generate a profit by purchasing goods + selling them @ higher price

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2
Q

What is a mark up

A

= cost x (1 + mark up) = selling price

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3
Q

What is inventory

A

= goods purchased by a trading firm 4 the purpose of resale at a profit
N.B-> can also be refered 2 as “merchandise” or “stock”

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4
Q

What would inventory be classified as in a classified balance sheet

A

Current Asset

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5
Q

What does double entry accounting refer to

A

= every transaction will change at least 2 items in the accounting equation h/r after those changes are recorded, accounting equation must still balance
-> A = L + OE

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6
Q

What impact on the accounting equation does Cash purchase of inventory have

A

A: Decrease bank, Inc inventory
L: Decrease GST pay
OE: N/E

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7
Q

What impact on the accounting equation does credit purchase of inventory have

A

A: Inc inventory
L: Inc accounts payable, Decrease GST payable
OE: N/E

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8
Q

What impact on the accounting equation does cash sales of inventory have

A

A: Inc bank, decrease inventory
L: Inc GST payable
OE: Inc

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9
Q

What impact on the accounting equation does credit sales of inventory have

A

A: Inc accounts receivable, decrease inventory
L: Inc GST payable
OE: Inc

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10
Q

What impact on the accounting equation does purchase return on inventory have

A

A: decrease inventory
L: decrease accounts payable, increase GST payable
OE: N/E

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11
Q

What impact on the accounting equation does sales return of inventory have

A

A: Inc inventory, decrease accounts receivable
L: decrease GST payable
OE: decrease

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12
Q

What impact on the accounting equation does drawings of inventory have

A

A: decrease inventory
L: N/E
OE: decrease

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13
Q

What impact on the accounting equation does advertising using inventory have

A

A: decrease inventory
L: N/E
OE: decrease

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14
Q

What are sales

A

= revenue, increase in assets (Bank), + increase in OE (profit) - recorded @selling price

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15
Q

What are costs of sales

A

= expenses incurred when inventory flows out of the bus due 2 sales

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16
Q

What is an inventory card

A

= subsidiary accounting record that records each individual transaction involving the movement in and out of a bus of a particular line of inventory

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17
Q

What is the perpetual inventory system

A

= system of accounting for inventory that involves the continuous recording of inventory movements in inventory cards

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18
Q

What are the 2 options of cost assignment methods

A

1) First in First out
2) Identified cost

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19
Q

What is first in first out

A

= used when it is x practical / possible 2 identify individual units of inventory e.g petrol station

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20
Q

What is Identified cost

A

= method requires bus 2 be able 2 track an individual item of inventory in a bus until it is sold

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21
Q

What is the gross profit formula

A

GP = sales - cost of sales

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22
Q

What is inventory count / physical count

A

= process of counting every item of inventory on hand 2 verify the accuracy of inventory cards + detect any inventory loss/gain

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23
Q

What is an inventory loss

A

= an expense that occurs when the physical count shows bus inventory that is shown on the inventory cards

24
Q

What is inventory gain

A

= revenue that occurs when the physical count shows more inventory on hand that is shown on the inventory card

25
Q

What are the reasons for an inventory loss

A
  • Theft
  • Damage
  • Oversupply 2 c’ers
  • Undersupply by suppliers
  • Recording error
26
Q

What is the impact inventory loss has on the accounting equation

A

A: less overall b/c less inventory
L: n/e
O.E: less overall b/c inc expense due 2 stock loss -> less net profit

27
Q

What are the reasons for an inventory gain

A
  • An undersupply 2 c’er
  • An oversupply by supplier
  • Recording error
28
Q

What is the impact inventory gain has on the accounting equation

A

A: inc overall b/c inc inventory
L: n/e
O.E: inc overall b/c inc revenue due 2 stock gain -> inc net profit

29
Q

What are the benefits of the perpetual inventory system

A

1) Assists in recording of inventory
2) Fast + slow-moving lines of inventory can be identified
3) Inventory losses + gains can be detected
4) Interim reports can be prepared without the need 4 physical counts

30
Q

What is the cost of goods sold

A

= cost incurred when getting inventory into a condition 2 be ready 2 sell

31
Q

What is an income statement

A

= accounting report that details revenue earned + expenses incurred during the reporting period

32
Q

How to calculate net profit

A

Revenue
(sales returns)
(cost of goods sold)
(inventory loss) /or/+ inventory gain
(expenses)

= Net Profit

33
Q

How to calculate net sales

A

-> net sales - sales return
\

34
Q

How to calculate net sales

A

-> net sales - sales return

35
Q

What is gross profit

A

-> net sales - cost of goods sold

36
Q

What is adjusted gross profit

A

-> gross profit - inventory loss or + inventory gain

37
Q

What is net profit

A

= revenue earned - expenses incurred

38
Q

What is the inventory turnover equation

A

ITO = Av. inventory x 365 / cost of sales

39
Q

What is inventory turnover

A

= av. number of days in takes 2 sell inventory / convert inventory into sales

40
Q

What is profitability

A

= ability of bus 2 generate profit compared against a base of sales, assets or O.E

41
Q

What is liquidity

A

= ability of bus 2 meet its S.T debts as they fall due

42
Q

What is stability

A

= ability of bus 2 meet its debts + continue operations in the long term

43
Q

What is gross profit margin

A

= profitability indicator that measures av. mark up by calculating the % of net sales revenue that is retained as gross profit

44
Q

What is gross profit margin formula

A

GPM = gross profit / net sales x 100

t/f high is better

45
Q

What is the possible cause of change in GPM

A
  • Inc margin b/n selling + cost price caused by…
    -> inc selling price h/r cost remains stable
    -> dec cost price h/s selling price remains same
46
Q

Strategies to improve GPM

A
  • inc selling price h/r maintain same sales volume h/r dangerous b/c c’er could go elsewhere if comp has low prices still
  • decrease cost of inventory e.g : negotiate price with suppliers; buy in bulk; seek new suppliers; less quality of inventory
47
Q

What is net profit margin

A

= profitability indicator that indicates expense control by calculating % of net sales revenue that is retained from net profit

48
Q

What is the net profit margin formula

A

NPM = Net profit / net sales x 100

49
Q

What are strategies to improve NPM

A
  • Inc sales volume whilst maintaining expenses
  • Inc effective advertising
  • Identify uneccessary expenses 2 dec cost from their removal
50
Q

What is unit cost of inventory

A

= values of inventory at the original purchase price, ensuring verifiability -> inventory being faithfully rep in the firms Accounting Records

51
Q

What is unit cost

A

= cost price of each individual unit of inventory / rather, amount of each unit of inventory has cost

52
Q

Why is it important for unit cost to be accurate

A
  • Used 2 determine value of inventory 2 be recorded on B.S
  • Used 2 determine selling price via mark up %, an inaccurate unit cost -> selling price = 2 high / low
53
Q

What are the 2 categories of cost of goods sold

A
  • Period cost
  • Product cost
54
Q

What is product cost

A

= cost incurred in order 2 bring inventory into condition + location ready 4 sale, which can be allocated 2 individual units of inventory on a logical basis

55
Q

What is period cost

A

= cost incurred in order 2 bring inventory into condition + location ready 4 sale that is x allocated 2 individual units of inventory b/c x logical basis 2 do so

56
Q

What is the p.o.d between period and product cost

A

= degree of logical basis 2 apply 2 an individual unit of stock

Accounting 1,2 (5 decks)

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