Test 2 Theory

Question 1

T-Accounts Layout

Answer 1

Debit Side: Assets Increase, Liabilites and Equity Decrease, Income Decreases, Expenses Increase
Credit Side: Aseets Decrease, Liabilities and Equity Increase, Income Increases, Expenses Decrease

Question 2

VAT - Value Added Tax

Answer 2

General tax on consumption of goods and services, levied at all stages of economic circuit (importer/producer all the way to final consumer), deprived of cumulative effects.
If VAT is levied higher for transactions carried out than the acquisition VAT, the Treasury is owed that difference, vice versa.

Question 3

VAT Cont.

Answer 3

VAT Deductible > VAT Charged = VAT Recoverable (claim refund or use in following period)
VAT Deductible < VAT Charged = VAT Payable

Question 4

Summary of Accounts

Answer 4

2432 - VAT Deductible (used on purchases/Debit-Asset)
2433 - VAT On Supply (Charged) (used on sales and services/Credit-Liabilities)
2434 - VAT Adjustments (used in case of returns)
2435 - VAT Clearance (value of VAT from transfer of previous account balances)

Question 5

2435 - VAT Clearance

Answer 5

If it’s a credit balance amount (Liabilities) -> 2436 VAT Payable
If it’s a debit amount (Assets) -> 2437 VAT Recoverable

Question 6

Payroll

Answer 6

Sum of all financial records for employee salaries, wages, bonuses and deductions. Paid for services provided during a certain period of time. Important, payroll and payroll taxes considerably affect net income of companies and subject to laws and regulations. Payroll dept pays staff on time, accurately, and with correct withholdings and deductions

Question 7

Payroll Taxes

Answer 7

Income Tax Withholding (IRS) - based on withholding tables (salary, # of kids, marital status)
Social Security Tax Withholding - Employees pay 11% of salary, Employers pay 23.75% of salary

Question 8

3 Phases of Payroll

Answer 8

1. Salary Processing - 25th of each month
2. Charges Processing - 25th of each month
3. Payments (3 moments) - end of month net pay, until 20th each month IRS, until 20th each month Social Security

Question 9

Accounting Records - Payroll

Answer 9

242 - Income Tax Retention (ITR) {2421 - Employees, 2422 - Self-Employed}
245 - Contributions to Social Security (CSS) {2451 - Directors, 2452 - Staff}
635 - Charges on Salaries {6351 - Directors, 6352 - Staff}

Question 10

Inventory Systems

Answer 10

Two objectives: know the quantity and amount of stock in the warehouse and measure the COGS and gross margin.
Either use perpetual (permanent) or periodic (intermittent) inventory systems

Question 11

Perpetual Inventory Systems (Permanent)

Answer 11

31 - Purchases (debited for purchases and related changes) {credited for entry into warehouse (311), returns (317), discounts (318)}
32 - Goods (debited for entry into warehouse and credited by the outputs) {balance of this account means value of stock in warehouse}
61 - COGS (updated in perpetual systems to ensure the number of goods in a store or storage is accurately reflected in the books) {debited for GOGS, credited for 31}

Question 12

Gross Margin

Answer 12

Difference between selling price (71) and cost (61)
Gross Margin = Net Sales - COGS
Gross Margin % = (Net Sales - COGS)/Net Sales

Question 13

Periodic Inventory System (Intermittent)

Answer 13

Necessary to count goods in stock at end of period, scheduled inventory checks throughout the year, checks happen few times per year or every month, gross margin - calculated the same but only done at end of year

Question 14

Cost of Goods Sold (Periodic)

Answer 14

Initial Inventories + Purchases +/- Reclassifications/Adjustments - Final Inventories

Question 15

Accounting Records

Answer 15

Same as permanent system, two records at end of period, not when there is an input or output, entity periodically takes a physical count of ending inventory

Question 16

Weighted Average Cost

Answer 16

Total Cost of Goods Available divided by Total Units Available for Sale

Question 17

Inventories are Assets

Answer 17

Held for sale in ordinary business course, process of production for such sale, form of materials/supplies to be consumed in the production process

Question 18

IAS 2 - International Accounting Standard

Answer 18

Objective: prescribe the accounting treatment for inventories
Primary issue: amount of cost recognised as an asset and carried forward until related revenues are recognised
IAS2 provides guidance on determination of cost and subsequent recognition as expense, provides guidance on cost formulas

Question 19

Cost of Inventories

Answer 19

Comprises of all costs of purchase, conversion and other costs incurred in bringing inventories to present location and condition

Question 20

Costs of Purchase

Answer 20

Comprises of purchase price, import duties and other taxes, transport, handling and other costs attributable to acquisition of finished goods, materials and services
Trade discounts, rebates and other similar items deducted in determining costs of purchase

Question 21

Costs of Conversion

Answer 21

Include costs directly related to the units of production, such as direct labour

Question 23

Recognition as an Expense

Answer 23

When inventories are sold, carrying amount of those inventories shall be recognised as an expense in the period where related revenue is recognised