Week 4 Flashcards
what are trading firms
firms that sell goods to customers to earn revenue
how is profit and loss for a trading firm measured
the same as service firm where expenses are deducted from revenue
what is the primary source of income for a trading firm
slaes of inventory called “sales revenue”
how are expenses classified for a trading entity
2 categories
1: cost of sales
2: other expenses
what is cost of sales
cost of sales is the total cost of inventory sold during the period
how is gross profit calculated for a trading firm
sales revenue - cost of sales
what occurs after gross profit is calculated
other expenses are deducted to give profit or loss
is inventory a separate account
yes it is and it is classified as an asset
what is the system called used to record inventory
the perpetual inventory system
what is the feature of the perpetual inventory system
keeps detailed records of the cost of each inventory purchase and sale. it continuously shows the inventory that should be on hand
how are purchases of inventory (by firm) recorded
DEBIT inventory
CREDIT accounts payable/cash
what is a purchase return
a purchase return is when the firm returns goods for a full refund
what is an allowance
an allowance is when the firm keeps the damaged goods but gets a deduction in the purchase price
how are purchase returns/allowances recorded
DEBIT cash/accounts payable
CREDIT inventory
how many journal entries must take place after a sale
2
what is the first entry of a sale
DEBIT cash/accounts receivable
CREDIT Sales
(selling price)
what is the 1st entry for a damaged good
DEBIT sales returns/allowances
CREDIT accounts receivable/cash
(sale price)
how many sales accounts do firms have
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
what 2 ways can a good be returned
re sellable condition or totally fucked
how many journal entries are needed for a good that has been returned but can be resold
2
what is the 1st entry for a good that can be re sold
DEBIT sales returns/allowances
CREDIT accounts receivable/cash
(sale price)
what is the 2nd entry for a good that can be re sold
DEBIT inventory
CREDIT accounts receivable/cash
(cost price)
how many journal entries are needed when goods are damaged
2
what is the 1st entry for a damaged good
DEBIT sales returns/allowances
CREDIT accounts receivable/cash
(sale price)
what is the 2nd entry for a damaged good
DEBIT: inventory writedown
CREDIT: cost of sales
(cost price)
can inventory writedown account also record stolen items or wastage
yes
what type of account is sales returns and allowances
contra account which means it is opposite to normal sales account
why is the sales returns and allowances account recorded
because the amount of stock returned is important information for managers or potential investors
what are the 2 things that can occur to inventory after a stocktake
inventory gain or inventory loss (kept as separate account)
what is the GST rate in Australia
10%
is GST collected by a firm revenue
no it is a liability to be paid to the government
are inventory purchases GST refundable
yes they are
what do you do if GST is not inclusive in cost total
add 10%
times cost price by 0.1
what do you do if GST is in cost price
divide the cost price by 11
how is GST included in a journal entry
as the 2nd entry either as GST collected or GST paid
