Accounting

Question 1

A contra entry is always recorded as:

Answer 1

Dr Trade payables
Cr Trade receivables

Eliminating the common balance and reducing both, i.e. the bit we don’t pay in cash

The contra will be the lower of the two amounts

Question 2

Bank reconciliations: what comes between cash at bank and corrected CAB, what comes after to make CAB the bank statement

Answer 2

CAB account xxx
Less all these: (this might be plus) Undercast error 
Dishonoured cheque
Bank charges
Standing orders
direct debits

Adjusted/corrected CAB

Less Unrecorded lodgements
Plus Outstanding cheques
Bank errors
Bank statement xxx

Question 3

Qualitative characteristics of financial information

Answer 3

Fundamental: Relevance, faithful representation

Enhancing: verifiability, timeliness, understandability, comparability

Question 4

Source documents

Answer 4

Invoices

Credit notes

VAT

Bank transaction report

Cheque payment

Question 5

Explain the petty cash imprest system

Answer 5

Pre-set limit, vouchers go in when cash is taken out so at any time

vouchers + cash = pre-set limit

filled in from vouchers at end of week/month

Question 6

What’s the journal for inventory drawing

Answer 6

Dr Drawings (equity)
Cr CoS

Question 7

Journals for losing inventory in a fire, which is then repaid for the cost

Answer 7

1. Reclassify from CoS to one-off expense Dr One-off expense; Cr Purchases
2. Record insurance receivable: Dr Other receivables; Cr other income

Question 8

What happens to a prepayment or accrual in the following year? method for finding expense

Answer 8

POP it!

Plus opening prepayment
Less closing prepayment
Less opening accrual
Plus closing accrual

Plus any cash paid in period

Question 9

What is accrued income vs deferred income?

Answer 9

Accrued: income earned but haven’t been paid

Deferred: income received by not earned (pre order)

Question 10

Recoverable amount is…

Answer 10

Higher of:

Fair value less costs to sell

Value in use

Question 11

Journal entry for part exchange allowance

Answer 11

Dr New asset cost (asset)

Cr disposal account (P/L)

Question 12

What kind of goodwill should not be recorded as an asset?

Answer 12

Internally generated goodwill

Question 13

Is VAT calculated before or after trade discounts?

Answer 13

After

Question 14

What is the journal entry to increase allowance for receivables in the next period?

Answer 14

Dr Irrecoverable debts expense
Cr Allowance for receivables

(reverse for decreasing the allowance)

Question 15

What is the journal entry for if an allowance in prior period then becomes irrecoverable?

Answer 15

Dr Allowance (increase)
Cr Receivables

Question 16

5 types of error

Answer 16

Transposition errors

Errors of omission

Errors of principle

Errors of commission (made in ledger accounts)

Compensating errors (errors balance out)

Question 17

What element is a suspense account?

Answer 17

Equity

Question 18

How do we treat irredeemable preference shares?

Answer 18

Like share capital, dividends out of RE probably but definitely in equity section not P/L

Question 19

Quickly explain the direct method proforma of NCF

Answer 19

Cash received from customers
Less cash paid to suppliers
Less cash payments to and on behalf of employees

= cash generated from operations

Question 20

What document is issued by a supplier when a customer returns goods to them?

Answer 20

A credit note

Question 21

When is a remittance advice document issued?

Answer 21

Sent in by the customer with payment

Question 22

What is the wages expense vs wages cost

Answer 22

Wages expense = Gross pay to employees + Employer and employee NI + PAYE (everything)

Wages cost = Gross pay to employees + Employer NI (just what the employer pays)

Question 23

What does GAAP stand for?

Answer 23

Generally Accepted Accounting Principles

Question 24

What is residual profit share?

Answer 24

Just the profit split at the end

Question 25

What to do if we're calculating from a change in e.g. net assets

Answer 25

If it has decreased, start with it as positive If it has increased, start with it as negative. Basically think how everything would affect the change

Question 26

What does not feature in a sole trader's balance sheet

Answer 26

Income tax payable

Question 27

What to look out for when including then eliminating goodwill following partnership changes

Answer 27

- Ignore months before or after, just do profit splits | - Credit first then debit

Question 28

What is residual profit and what is net profit available for appropriation

Answer 28

Net profit available is at the top Residual is what's left to divvy up

Question 29

What do we value drawings at?

Answer 29

Cost Look out for if valued at resale value, you'll have to find the margin or mark up to get cost

Question 30

What is the accounting equation?

Answer 30

Assets = opening capital + profit - drawings + liabilities

Question 31

On what side (debit or credit) will a profit or loss appear in the P/L?

Answer 31

A loss is a credit, a profit is a debit

Question 32

How to get net trade receivables balance?

Answer 32

Start with TR and write off allowance for receivables at y.e. and write off IDE (don't include opening allowance)

Question 33

For depreciation when do you include VAT

Answer 33

Only if it's a car!

Question 34

What are the three aspects of faithful representation?

Answer 34

- Complete - Free from error - Neutral (prudence)