Week 4 Flashcards

1
Q

what are trading firms

A

firms that sell goods to customers to earn revenue

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2
Q

how is profit and loss for a trading firm measured

A

the same as service firm where expenses are deducted from revenue

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3
Q

what is the primary source of income for a trading firm

A

slaes of inventory called “sales revenue”

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4
Q

how are expenses classified for a trading entity

A

2 categories

1: cost of sales
2: other expenses

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5
Q

what is cost of sales

A

cost of sales is the total cost of inventory sold during the period

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6
Q

how is gross profit calculated for a trading firm

A

sales revenue - cost of sales

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7
Q

what occurs after gross profit is calculated

A

other expenses are deducted to give profit or loss

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8
Q

is inventory a separate account

A

yes it is and it is classified as an asset

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9
Q

what is the system called used to record inventory

A

the perpetual inventory system

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10
Q

what is the feature of the perpetual inventory system

A

keeps detailed records of the cost of each inventory purchase and sale. it continuously shows the inventory that should be on hand

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11
Q

how are purchases of inventory (by firm) recorded

A

DEBIT inventory

CREDIT accounts payable/cash

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12
Q

what is a purchase return

A

a purchase return is when the firm returns goods for a full refund

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13
Q

what is an allowance

A

an allowance is when the firm keeps the damaged goods but gets a deduction in the purchase price

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14
Q

how are purchase returns/allowances recorded

A

DEBIT cash/accounts payable

CREDIT inventory

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15
Q

how many journal entries must take place after a sale

A

2

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16
Q

what is the first entry of a sale

A

DEBIT cash/accounts receivable
CREDIT Sales
(selling price)

17
Q

what is the 1st entry for a damaged good

A

DEBIT sales returns/allowances
CREDIT accounts receivable/cash
(sale price)

18
Q

how many sales accounts do firms have

A

depends on the amount of products sold but on the income statement only one is shown so it is not long and competitors dont get sensitive information

19
Q

what 2 ways can a good be returned

A

re sellable condition or totally fucked

20
Q

how many journal entries are needed for a good that has been returned but can be resold

21
Q

what is the 1st entry for a good that can be re sold

A

DEBIT sales returns/allowances
CREDIT accounts receivable/cash
(sale price)

22
Q

what is the 2nd entry for a good that can be re sold

A

DEBIT inventory
CREDIT accounts receivable/cash
(cost price)

23
Q

how many journal entries are needed when goods are damaged

24
Q

what is the 1st entry for a damaged good

A

DEBIT sales returns/allowances
CREDIT accounts receivable/cash
(sale price)

25
what is the 2nd entry for a damaged good
DEBIT: inventory writedown CREDIT: cost of sales (cost price)
26
can inventory writedown account also record stolen items or wastage
yes
27
what type of account is sales returns and allowances
contra account which means it is opposite to normal sales account
28
why is the sales returns and allowances account recorded
because the amount of stock returned is important information for managers or potential investors
29
what are the 2 things that can occur to inventory after a stocktake
inventory gain or inventory loss (kept as separate account)
30
what is the GST rate in Australia
10%
31
is GST collected by a firm revenue
no it is a liability to be paid to the government
32
are inventory purchases GST refundable
yes they are
33
what do you do if GST is not inclusive in cost total
add 10% | times cost price by 0.1
34
what do you do if GST is in cost price
divide the cost price by 11
35
how is GST included in a journal entry
as the 2nd entry either as GST collected or GST paid