Accounting Inventory and Intangible Assets Quiz

If closing inventory is undervalued, the cost of goods sold will be overstated, resulting in a lower net profit.

Recording purchases before deducting trade discounts leads to an inflated cost of purchases, which overstates expenses and liabilities on the balance sheet.

Prime cost represents the direct costs associated with producing a good or service, including direct materials and direct labor.

A provision for doubtful debts is a specific allowance set aside to cover potential bad debts. An increase in this provision reduces the value of receivables (current assets).

A decrease in capital indicates that the amount of capital withdrawn (drawings) exceeded the capital introduced during the period.

The appropriation account in a partnership allocates profits and losses among partners, reflecting both capital account balances and drawings (withdrawals) made by partners.

The net profit is generated from all sales transactions, encompassing both cash and credit sales.

Business A, with a gross margin of 40% and a profit margin of 17%, demonstrates the most efficient management of overheads. Higher profit margin relative to gross margin indicates lower overhead costs.

A trial balance at the end of a period shows the balances of all ledger accounts at that specific date.

The error of recording $4000 for motor vehicle repairs in the motor vehicle account instead of the repair expense account is an omission error. The expense was not correctly recorded.

Zane's suspense account indicates a disagreement between trial balance totals, meaning there's an error in accounting. The suspense account acts as a temporary holding for discrepancies.

To correct the error of crediting $520 to the bank account instead of $250 for rent paid, we need to debit the bank account by the difference ($270) and credit a suspense account for the same amount to correct the error and maintain the accounting equation.