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Accounting And Finance > Week 4 > Flashcards

Week 4 Flashcards

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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

A

2

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

A

2

24
Q

what is the 1st entry for a damaged good

A

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

25
Q

what is the 2nd entry for a damaged good

A

DEBIT: inventory writedown
CREDIT: cost of sales
(cost price)

26
Q

can inventory writedown account also record stolen items or wastage

A

yes

27
Q

what type of account is sales returns and allowances

A

contra account which means it is opposite to normal sales account

28
Q

why is the sales returns and allowances account recorded

A

because the amount of stock returned is important information for managers or potential investors

29
Q

what are the 2 things that can occur to inventory after a stocktake

A

inventory gain or inventory loss (kept as separate account)

30
Q

what is the GST rate in Australia

A

10%

31
Q

is GST collected by a firm revenue

A

no it is a liability to be paid to the government

32
Q

are inventory purchases GST refundable

A

yes they are

33
Q

what do you do if GST is not inclusive in cost total

A

add 10%

times cost price by 0.1

34
Q

what do you do if GST is in cost price

A

divide the cost price by 11

35
Q

how is GST included in a journal entry

A

as the 2nd entry either as GST collected or GST paid

Accounting And Finance (8 decks)

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