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Accounting > Outcome 1c > Flashcards

Outcome 1c Flashcards

1
Q

Net Realisable Value Formula

A

NRV = Estimated Selling - Direct Selling Expenses

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2
Q

QC of Period and Product Costs

A

Relevance:
When a cost is significant that it affects financial decision making then it should be considered material and should be a reported

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3
Q

Period Cost

A

The cost incurred by the business which brings inventory to a point ready for sale and cannot be allocated to individual units of inventory on a logical basis

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4
Q

Product Cost

A

The cost incurred by the business brings inventory to a point ready for sale and can be allocated to individual units of inventory

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5
Q 
Inventory Write-Down
Define
How its treated on income
Effect on accounting equation
QC Effect
A

An expense incurred when the NRV of an item of a
falls below the original cost price

Treated as a deduction of gross profit on the income statement

Credited on General Ledger under Inventory

A - decrease
L - no effect
OE - decrease

Relevance - Writing down the asset affects business decisions
Faithful - By not recording the write down you are not reporting truthfully

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6
Q

Cost of Inventory
Define
Examples

A

All costs incurred to bring that inventory in a position ready for sale
e.g: Supplier price, freight in, modification

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7
Q

Purchase Return

A

Return of inventory by a firm to accounts payable (Supplier)

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8
Q

Sales Return

A

Return of inventory to a firm by the accounts receivable (Customer)

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9
Q

Reasons for Returns

A

Faulty
Too many items
Change of mind

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10
Q

Credit Note

A

A credit note is a source document that verified the return of inventory either to accounts payable (Supplier) or from an accounts receivable (Customer)

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11
Q

Purchase Return
Effect on Journal
Effect on Acc Equation

A

Journal:
Debit - Acc Pay
Credit - Inv GST Cl

Accounting Equation:
Asset - Decrease (inv control)
Liability - Decrease (GST cl increase, Acc Pay decrease)
OE - No effect

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12
Q

Sales Return
Effect on Journal
Effect on Acc Equation

A

Journal:
Debit - Sales Return, GST Cl, Inv
Credit - Acc Receiv, Cost of Sales

Accounting Equation:
Asset - Decrease (Acc Receive Decrease, Inv Increase)
Liability - Decrease (GST Cl)
OE - Decrease (Sales return Increase,

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13
Q 
GST Effect
Purchase Return (Business to Supplier)
A

GST Cl Increase

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14
Q 
GST Effect
Sales Return (Customer to Business)
A

GST Cl Decrease

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15
Q

Trading business

A

Firm that purchases goods in order to resell at profit

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16
Q

Perpetual Inventory
Define
Give Adv+Dissadv

A

A system of recording movements of inventory items on a continuous basis throughout a period

Adv:
Greater control of inv
Slow and fast-moving identified
Losses/gains can be measured

Dissadv:
Additional record-keeping
Additional costs
Physical stocktake still required

17
Q

Inventory Card

A

Records individuals transactions of movements of inventory within the the business for a particular period of time

18
Q

Identified Cost Method

A

The actual individual cost of each individual unit of inventory

19
Q

FIFO

A

The assumption that inventory purchased first will be sold first

20
Q

Difference between FIFO and Indentified

A

Identified is the actual individual cost price of the unit
whereas
Fifo is the assumption that inventory purchased first will be sold first

21
Q

Physical Stocktake
Define
Adv+Dissadv

A

Involves physical count of the number of units of a particular line of inventory

Adv:
Can cross-check with inventory cards to determine gain or loss

Dissadv:
Time Consuming

22
Q

Inventory Gain

A

A revenue earned when stocktake shows the inventory on hand is GREATER than the balance on inventory card

23
Q

Inventory Loss

A

An expense incurred when stocktake shows the figure on hand is LESS than the balance on the inventory card

24
Q

Reasons for Inventory Loss + Gain

A

Loss:
Theft, Damage, Undersupply from Supplier
Gain:
Oversupply from Supplier, Undersupply to Customer

25
Q

Inventory Loss or Gain is reported as

A

Loss:
Use FIFO, inv lost is assumed last out
Gain:
Gain recorded at latest cost price

26
Q

Inventory for Advertising
Reasons
How its recorded

A

Reasons:
Donation, Display

Recorded as FIFO

27
Q

Sale Price to Cost Price

A

SP divided by 1 + markup

28
Q

Cost Price to Sale Price

A

CP times 1 + markup

29
Q

Inventory Loss or Gain on Inv Card under FIFO

A

Gain: Last in First In
Loss: First in, First out

30
Q

Inventory Turnover
Formula
Define

A

Avg Inv x 365 / Cost of Goods Sold

A financial indicator that determines how quickly a business can turn its inventory into sales

31
Q

Avg Inv

A

Inv at Start, Inv at End / 2

32
Q

How to increase Inventory Turnover

A

Rotating Inventory
Remove slow-moving items
Reduce total stock held

Accounting (4 decks)

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