Week 6

Question 1

What does the double bookkeeping system record?

Answer 1

The cost of buying and producing products, and the sales revenue from these products.

Question 2

What are expenses?

Answer 2

Costs consumed in delivering goods or services to customers

Question 3

What is the matching part of the accruals concept?

Answer 3

All expenses must be matched against the revenue (or income) earned in an accounting period

Question 4

Closing inventory is a double entry system, what does this mean? What are the 2 methods needed?

Answer 4

Double entry means each transaction is recorded twice. The two methods are period count and perpetual inventory control system.

Question 5

What is period count?

Answer 5

The physical counting of all assets at the end of the accounting period.

Question 6

What is perpetual inventory count?

Answer 6

Computerised recording of all deliveries and usage of each item. This method calculates sales automatically.

Question 7

What are the three assumptions that can be made about the cost of goods in inventory?

Answer 7

First in, first out (FIFO), Last in first out (LIFO) and Weighted average cost (AVCO)

Question 8

What is the first in, first out method, and how is the closing inventory valued?

Answer 8

First (oldest) inventory is first to be used
As a result, closing inventory will be valued at the cost of the most recent purchases

Question 9

What is the last in, first out method? Can you give examples of products used this way? How is closing inventory valued?

Answer 9

Goods sold (or raw materials used) are assumed to be those which have been in inventory for the shortest time.
(e.g. coal, iron ore, sand and gravel stored in piles).
Closing inventory will consist of the oldest purchases

Question 10

What is the weighted average method? Can you give examples of products used this way?

Answer 10

Goods sold (or materials used) are assumed to consist of a mixture of each batch of purchases (or production).
This may occur where goods are stored together in a single container e.g. nuts and bolts stored in bins; liquids and granular substances stored in tanks.

Question 11

Define Net realisable value.

Answer 11

The net amount that a company is able to sell the asset with the current market price, less the cost associated with the sale

Question 12

What are other names for credit loss and what is the definition?

Answer 12

‘Bad debts’ or ‘irrecoverable debts’. These are trade receivables that are unable to be cash collected.

Question 13

What are non current assets and what are other sub categories of this type of asset?

Answer 13

Long-term in nature
-Expected to contribute to income generation for more than one year
-Indirect relationship with trading activities
Sub-categories:
-Intangible
-Tangible
-Financial (investments held)

Question 14

What are current assets? What sub categories are there?

Answer 14

Short-term in nature
-Convertible into cash in less than one year
-Usually relate directly to trading activities
Sub categories:
-Inventories
-Trade receivables
-Cash