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Accounting 1,2 > Unit 2 AOS 2 > Flashcards

Unit 2 AOS 2 Flashcards

1
Q

How to record a credit purchase of inventory

A

1) Receipt of the inventory
2) Payment then made at a later date

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2
Q

What is a settlement of accoutn

A

= the cash has been paid to an accounts payable

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3
Q

What is an accounts payable record

A

= subsidiary record that records each individual transaction with each individual account payable + shows balance owing 2 account payable @ any point in time

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4
Q

What is a settlement discount

A

= less in amount paid by a credit c’er in return for an early repayment

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5
Q

What is discount revenue

A

= revenue in the form of less liabilities (A.P) + inc OE, earned when A.P are paid early + settlement discount is given by supplier

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6
Q

What do these terms mean:

5/7 , n/60

A

-> 5% discount if paid for within/on 7 days or else just pay within 60 days for full amount owing

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7
Q

What are benefits of discounts

A
  • Need less cash 4 accounts payable
  • Able 2 use saved cash 4 other areas of bus b/c inc net profit
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8
Q

What are costs of discounts

A
  • Can have +ve impact on liquidity b/c x able 2 pay off other debts
  • Cash sales need 2 be generated more quickly
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9
Q

What is a statement of accounts

A

= statement provided 2 credit c’er 2 given details of transactions that have occurred over a specific period of time and the resulting balance owing at the end

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10
Q

What Q.C does a statement of account uphold

A

-> Verifiability = financial info should allow dif knowledgeable + independent observers to reach a consensus that an event is faithfully represented

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11
Q

What are the benefits of using a subsidiary record for accounts payable

A
  • Detection of errors
  • Ease of reporting
  • Management of accounts payable
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12
Q

What is the effect credit sales of inventory has on the accounting equation

A

A- dec inv. ; inc A.R
L- inc gst P
OE- inc rev; inc expenses; inc N.P

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13
Q

What is the effect of a receipt from accounts receivable on the accounting euqation

A

A- inc Bank ; dec A.R
L + OE - N/E

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14
Q

What is an accounts receivable record

A

= subsidiary record that records each individual accounts receivable + shows the balance owed by accounts receivable @ any point in time

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15
Q

What is an accounts receivable schedule

A

= listing of name and balance of each accounts receivable record

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16
Q

What Q.C is supported by accounts receivable schedule

A

-> Faithful representation = financial info should be a faithful representation of the real world economic event it claims to represent, being complete, free from material error and neutral

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17
Q

What are ethical considerations

A
  • If good is faulty, damage / x “fit 4 purpose” the bus has a legal obligation 2 accept return ‘
  • Bus needs 2 consider it’s Marketing and Advertising, is it misleading in anyway
  • Financial implications of accepting a return
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18
Q

What is a settlment discount

A

= decrease in amount paid by a credit c’er in return 4 an early repayment

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19
Q

What is a discount expense

A

= expense in form of a decrease in assets + decrease in OE, which is x drawings, incurred when cash is received early from Accounts Receivable + a settlement discount is given by the bus.

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20
Q

How to calculate accounts receivable

A

Opening balance
+ credit sales including GST
(total from A.R column [cash received + discounted])
(sales return inc GST)

21
Q

What are bad debts

A

= an expense incurred when a debt is written off b/c it is deemed 2 be irrecoverable (A.R is not going to pay back, they’re in liquidation, administration or been declared bankrupt)

22
Q

What Q.C does bad debts uphold

A

-> ensures faithful rep, when recorded, of the balance still owing + likely 2 be collected
-> in income statement, ensures relevance by providing all info that is capable of making a difference 2 decision making re profit

23
Q

What are benefits of discounts

A
  • Cash recieved faster from A.R, bolstering liquidity of bus
  • less chances of bad debts
24
Q

What are costs of discounts

A
  • less cash received from A.R
  • net profit lessened by discount expense
25
Q

How does bad debt affect the accounting equation

A

A: less A.R
L: less GST p
OE: inc expense (debt) t/f less N.P

26
Q

What is an income statement

A

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

27
Q

What accounting assumption is recognised by an income statement

A

= accrual basis assumption -> revenues recognised when earned + expenses recognised when incurred + profit is calculated by subtracting revenue from expenses incurred

27
Q

How is a cash sale a revenue

A

= inc in bank (A) -> OE + x a capital contribution so @ point that inventory is provided 2 c’er the revenue is earned

28
Q

How is a credit sale a revenue

A

= inc A.R (A) -> inc OE (sales) + x a capital contribution so @ point that inventory is provided 2 c’er the revenue is earned

29
Q

Where is a sales return recorded in the income statement

A

= -ve revenue t/f dec revenue earned

30
Q

How is cost of sales an expense

A

= expense incurred when economic resource (inventory) is converted 2 cash or consumed t/f recognised as a cost of sales

31
Q

How is a credit purchase of inventory not an expense

A

= dec bank (A) -> dec A.P (L) + will x impact on OE t/f x expense incurred + should x appear on income statement

32
Q

What are the headings on an income statement

A

Revenue
Less cost of goods sold
Gross profit
Adjusted gross profit
Add other expenses
Net profit (loss)

33
Q

What is the formula for inventory turnover

A

I.T (number of days) = Average inventory x 365 / cost of sales

34
Q

How to calculate average inventory

A

(Inventory @ start + inventory @ end) / 2

35
Q

What does inventory turnover measure

A

= average number of days it takes for businesses to convert inventory into a sale

36
Q

What is accounts payable turnover

A

= efficiency indicator that measures average number of days it takes for business 2 pay it’s A.P

37
Q

What is accounts payable turnover formula

A

= Av AP x 365 / (net credit purchases (+gst))

38
Q

How to calculate average accounts payable

A

(AP @ start + AP @ end) / 2

39
Q

What terms to use when determining AP turnover

A

= faster or slower

-> generalise that turnover = faster / slower

40
Q

What are strategies for managing accounts payable

A

1) develop strong relationship with each supplier 2 access good prices, better credit terms + good quality inventory
2) pay within, but as close as possible 2 credit terms
3) pay early 2 earn a discount
4) appoint an accounts payable officer
5) communicate in a timely fashion

41
Q

What is accounts receivable turnover

A

= an efficiency indicator that measures the average number of days it takes a bus 2 collect cash from its AR

42
Q

What is the accounts receivable formula

A

Av AR x 365 / (net credit sales (+gst))

43
Q

How to calculate average accounts receivable

A

(AR @ start + AR @ end) / 2

44
Q

What are strategies for managing accounts payable

A

1) offer discount 4 quick settlement
2) send invoices promptly
3) conduct extensive credit checks
4) send reminder notices
5) threaten legal action
6) employ a debt collection agency
7) deny access 2 credit facilities
8) appoint an accounts receivable officer

45
Q

What are strategies for managing inventory

A

1) maintain appropriate inventory mix (high of fast selling and discount slow selling)
2) promote sale of contemporary goods
3) ensure inventory is up to date
4) rotate inventory
5) determine appropriate lvl of inventory on hand
6) market strategically + effectively / ethically
7) appoint an inventory manager responsible 4 ordering + discounting inventory

46
Q

What is the cash / trading cycle

A

APTO > ITO + ARTO

47
Q

What is the objective of the cash cycle / what does it point out

A

-> we want ITO + ARTO, which is money going in, to be faster than the rate at which we pay back AP (APTO), money going out

money going in needs to be faster than money going out to be viable

Accounting 1,2 (5 decks)

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