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Accounting 1,2 > Unit 2 AOS 1 > Flashcards

Unit 2 AOS 1 Flashcards

1
Q

What is a trading firm

A

= bus which aims 2 generate a profit by purchasing goods + selling them @ higher price

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2
Q

What is a mark up

A

= cost x (1 + mark up) = selling price

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3
Q

What is inventory

A

= goods purchased by a trading firm 4 the purpose of resale at a profit
N.B-> can also be refered 2 as “merchandise” or “stock”

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4
Q

What would inventory be classified as in a classified balance sheet

A

Current Asset

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5
Q

What does double entry accounting refer to

A

= every transaction will change at least 2 items in the accounting equation h/r after those changes are recorded, accounting equation must still balance
-> A = L + OE

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6
Q

What impact on the accounting equation does Cash purchase of inventory have

A

A: Decrease bank, Inc inventory
L: Decrease GST pay
OE: N/E

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7
Q

What impact on the accounting equation does credit purchase of inventory have

A

A: Inc inventory
L: Inc accounts payable, Decrease GST payable
OE: N/E

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8
Q

What impact on the accounting equation does cash sales of inventory have

A

A: Inc bank, decrease inventory
L: Inc GST payable
OE: Inc

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9
Q

What impact on the accounting equation does credit sales of inventory have

A

A: Inc accounts receivable, decrease inventory
L: Inc GST payable
OE: Inc

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10
Q

What impact on the accounting equation does purchase return on inventory have

A

A: decrease inventory
L: decrease accounts payable, increase GST payable
OE: N/E

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11
Q

What impact on the accounting equation does sales return of inventory have

A

A: Inc inventory, decrease accounts receivable
L: decrease GST payable
OE: decrease

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12
Q

What impact on the accounting equation does drawings of inventory have

A

A: decrease inventory
L: N/E
OE: decrease

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13
Q

What impact on the accounting equation does advertising using inventory have

A

A: decrease inventory
L: N/E
OE: decrease

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14
Q

What are sales

A

= revenue, increase in assets (Bank), + increase in OE (profit) - recorded @selling price

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15
Q

What are costs of sales

A

= expenses incurred when inventory flows out of the bus due 2 sales

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16
Q

What is an inventory card

A

= subsidiary accounting record that records each individual transaction involving the movement in and out of a bus of a particular line of inventory

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17
Q

What is the perpetual inventory system

A

= system of accounting for inventory that involves the continuous recording of inventory movements in inventory cards

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18
Q

What are the 2 options of cost assignment methods

A

1) First in First out
2) Identified cost

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19
Q

What is first in first out

A

= used when it is x practical / possible 2 identify individual units of inventory e.g petrol station

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20
Q

What is Identified cost

A

= method requires bus 2 be able 2 track an individual item of inventory in a bus until it is sold

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21
Q

What is the gross profit formula

A

GP = sales - cost of sales

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22
Q

What is inventory count / physical count

A

= process of counting every item of inventory on hand 2 verify the accuracy of inventory cards + detect any inventory loss/gain

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23
Q

What is an inventory loss

A

= an expense that occurs when the physical count shows bus inventory that is shown on the inventory cards

24
Q

What is inventory gain

A

= revenue that occurs when the physical count shows more inventory on hand that is shown on the inventory card

25
What are the reasons for an inventory loss
- Theft - Damage - Oversupply 2 c'ers - Undersupply by suppliers - Recording error
26
What is the impact inventory loss has on the accounting equation
A: less overall b/c less inventory L: n/e O.E: less overall b/c inc expense due 2 stock loss -> less net profit
27
What are the reasons for an inventory gain
- An undersupply 2 c'er - An oversupply by supplier - Recording error
28
What is the impact inventory gain has on the accounting equation
A: inc overall b/c inc inventory L: n/e O.E: inc overall b/c inc revenue due 2 stock gain -> inc net profit
29
What are the benefits of the perpetual inventory system
1) Assists in recording of inventory 2) Fast + slow-moving lines of inventory can be identified 3) Inventory losses + gains can be detected 4) Interim reports can be prepared without the need 4 physical counts
30
What is the cost of goods sold
= cost incurred when getting inventory into a condition 2 be ready 2 sell
31
What is an income statement
= accounting report that details revenue earned + expenses incurred during the reporting period
32
How to calculate net profit
Revenue (sales returns) (cost of goods sold) (inventory loss) /or/+ inventory gain (expenses) = Net Profit
33
How to calculate net sales
-> net sales - sales return \
34
How to calculate net sales
-> net sales - sales return
35
What is gross profit
-> net sales - cost of goods sold
36
What is adjusted gross profit
-> gross profit - inventory loss or + inventory gain
37
What is net profit
= revenue earned - expenses incurred
38
What is the inventory turnover equation
ITO = Av. inventory x 365 / cost of sales
39
What is inventory turnover
= av. number of days in takes 2 sell inventory / convert inventory into sales
40
What is profitability
= ability of bus 2 generate profit compared against a base of sales, assets or O.E
41
What is liquidity
= ability of bus 2 meet its S.T debts as they fall due
42
What is stability
= ability of bus 2 meet its debts + continue operations in the long term
43
What is gross profit margin
= profitability indicator that measures av. mark up by calculating the % of net sales revenue that is retained as gross profit
44
What is gross profit margin formula
GPM = gross profit / net sales x 100 t/f high is better
45
What is the possible cause of change in GPM
- Inc margin b/n selling + cost price caused by... -> inc selling price h/r cost remains stable -> dec cost price h/s selling price remains same
46
Strategies to improve GPM
- inc selling price h/r maintain same sales volume h/r dangerous b/c c'er could go elsewhere if comp has low prices still - decrease cost of inventory e.g : negotiate price with suppliers; buy in bulk; seek new suppliers; less quality of inventory
47
What is net profit margin
= profitability indicator that indicates expense control by calculating % of net sales revenue that is retained from net profit
48
What is the net profit margin formula
NPM = Net profit / net sales x 100
49
What are strategies to improve NPM
- Inc sales volume whilst maintaining expenses - Inc effective advertising - Identify uneccessary expenses 2 dec cost from their removal
50
What is unit cost of inventory
= values of inventory at the original purchase price, ensuring verifiability -> inventory being faithfully rep in the firms Accounting Records
51
What is unit cost
= cost price of each individual unit of inventory / rather, amount of each unit of inventory has cost
52
Why is it important for unit cost to be accurate
- Used 2 determine value of inventory 2 be recorded on B.S - Used 2 determine selling price via mark up %, an inaccurate unit cost -> selling price = 2 high / low
53
What are the 2 categories of cost of goods sold
- Period cost - Product cost
54
What is product cost
= cost incurred in order 2 bring inventory into condition + location ready 4 sale, which can be allocated 2 individual units of inventory on a logical basis
55
What is period cost
= cost incurred in order 2 bring inventory into condition + location ready 4 sale that is x allocated 2 individual units of inventory b/c x logical basis 2 do so
56
What is the p.o.d between period and product cost
= degree of logical basis 2 apply 2 an individual unit of stock

Accounting 1,2 (5 decks)

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