TOPIC 7 Flashcards
(11 cards)
What is the Basic Accounting Equation?
Assets = Liabilities + Owner’s Equity.
What is the purpose of Balance Day Adjustments?
Balance Day Adjustments ensure that the correct income, expenses, assets, and liabilities are reflected at the end of an accounting period.
What is Accrued Income?
Income earned but not yet received in cash, recorded as Accounts Receivable and Services Income.
What is Accrued Expense?
An expense incurred but not yet paid, recorded as Expenses and Expenses Payable.
What is FIFO in inventory accounting?
First In, First Out (FIFO) assumes that the first inventory purchased is the first sold, often used for perishable goods.
What is the Weighted Average method in inventory accounting?
The Weighted Average method calculates the cost of inventory by averaging the prices paid for inventory during the period.
What is Depreciation?
Depreciation is the allocation of the cost of a non-current asset over its useful life.
What is the Allowance for Doubtful Debts?
It is a contra-asset account used to estimate the portion of accounts receivable that may not be collectible.
What is the Net Realisable Value (NRV) rule?
Inventory must be valued at the lower of cost and net realizable value (NRV), where NRV is the estimated selling price minus costs to complete and sell the inventory.
What is the journal entry for a sale of inventory?
Debit: Cash (Increases Asset), Credit: Sales Revenue (Increases Income), Debit: Cost of Sales (Increases Expense), Credit: Inventory (Decreases Asset).
What is the journal entry for a sales return?
Debit: Sales Returns (Negative Revenue), Credit: Cash (Decreases Asset), Debit: Inventory (Increases Asset), Credit: Cost of Sales (Decreases Expense).
