Analysis of transaction

Question 1

What are the criteria of an explicit transaction

Answer 1

They are routine
Subject to daily processing - Automatically done, no concern for the recording of the transaction
The transaction is supported by explicit evidence
Usually triggered by a market exchange

Question 2

What are the criteria of an implicit transaction

Answer 2

Triggered by events that are ignored on a day to day basis - often deals with time
Usually recorded at the end of an accounting period
May require judgement

Question 3

Name the four types of implicit transactions

Answer 3

Expiration of unexpired costs
Earning unearned revenues
Accrual of unrecorded expenses
Accrual of unrecorded revenues

Question 4

Explain the Expiration of unexpired costs concept with an example

Answer 4

When a prepaid asset is used up - ex: paying rent for a month. At the end of the month, the tenants right to use the property expires

Question 5

Explain the Earning unearned revenues concept with an example

Answer 5

Liability created by the transaction
Company may have to give money back if the transaction is not completed.
Holding for a refund is a common example ex: if you book a flight Ryanair hasn’t earned that money until you are flown on holiday

Question 6

What is the relationship with implicit and explicit transactions - they can get used at the same time

Answer 6

An implicit transaction comes with explicit transactions - cash changing hands is explicit for a right to do some service/ use something

Question 7

Explain Accrual of unrecorded expenses/revenues with an example

Answer 7

For this type of implicit transaction as a result of the passage of time, an asset or liability is created.
Subsequently, an explicit transaction leads to the cancellation of this event