Week 7 Flashcards
(18 cards)
What is the formula for calculating Cost of Goods Sold (COGS)?
Opening Inventory + Purchases – Closing Inventory
Where is Closing Inventory shown in the financial statements?
In the Income Statement and in the Balance Sheet as a Current Asset
What is an accrual?
An expense that has been incurred but not yet paid at the reporting date.
How do you adjust for accruals in expenses?
Expense = Cash Paid + Closing Accrual – Opening Accrual
What is a prepayment?
An expense paid in advance for a future accounting period.
How do you adjust for prepayments in expenses?
Expense = Cash Paid + Opening Prepayment – Closing Prepayment
What is depreciation?
The allocation of the cost of a non-current asset over its useful life.
Where does depreciation appear in the financial statements?
As an expense in the Income Statement and in the Balance Sheet as part of Accumulated Depreciation
What’s the formula for profit or loss on disposal of an asset?
Proceeds – Net Book Value (NBV)
How is a doubtful debt treated?
An estimate is made (provision) and deducted from Trade Receivables on the Balance Sheet; expense recorded in Income Statement.
What are internal controls?
Procedures designed to prevent errors, fraud, and ensure the accuracy of accounting information.
What is segregation of duties?
Ensuring no single individual has control over all aspects of a transaction.
What is the role of an external auditor?
To review the accounts and give an independent opinion on whether they show a true and fair view.
What is the purpose of a bank reconciliation?
To align the cash book with the bank statement and explain any differences.
Give two examples of timing differences in bank reconciliations.
- Unpresented cheques
- Outstanding lodgements
What is a suspense account?
A temporary account used when the trial balance doesn’t balance or for unidentified transactions.
Name two types of errors that DO NOT affect the trial balance.
- Error of Commission
- Error of Omission
Name two errors that DO affect the trial balance.
- Single-sided entries
- Arithmetic errors
