Financial Accounting 1 Final Exam

Financial Accounting Concepts

• The business entity concept should be applied to record a transaction where the owner of a business takes goods from inventory for personal use.
• The Conceptual Framework for Financial Reporting identifies several qualitative characteristics of useful financial information, including relevance, faithful representation, timeliness, comparability, and verifiability.

Accounting for Transactions

• A credit entry will increase a bank overdraft, while a debit entry will decrease payables.
• A debit balance on a ledger account indicates an asset or expense, while a credit balance indicates a liability or revenue.
• The petty cash book is a book of prime entry.

Depreciation

• Depreciation is the allocation of the cost of a non-current asset over its useful life.
• The reducing-balance method of depreciation involves deducting a percentage of the asset's carrying value each year.
• The straight-line method of depreciation involves allocating the cost of the asset evenly over its useful life.

Accounting for Non-Current Assets

• Capital expenditure refers to the expenditure relating to the acquisition or improvement of non-current assets.
• The cost of a non-current asset includes delivery and installation costs, as well as any testing and training costs.

Accounting for Receivables and Payables

• Discounts received from suppliers for early settlement should be treated as a deduction from the value of purchases.
• A receivables ledger control account should be reconciled to ensure that the balance agrees with the total of the individual accounts in the ledger.

Bank Reconciliations

• A bank reconciliation statement should be prepared to reconcile the bank statement balance with the cash book balance.
• Items to be included in a bank reconciliation statement include outstanding cheques, outstanding lodgements, and bank charges.

Petty Cash

• An imprest system of petty cash involves maintaining a float, and regularly replenishing it to the original amount.
• The float should be maintained at a constant level, and any discrepancies should be investigated and corrected.

Errors and Corrections

• Errors in accounting can result in a trial balance that does not agree, and these errors should be investigated and corrected.
• A suspense account should be used to record errors and corrections, and to ensure that the accounting equation remains balanced.

Financial Statements

• The statement of profit or loss should include all revenues and expenses, including irrecoverable debts and prepayments.

• The capital balance should be calculated by adding the opening capital balance to the profit, and deducting drawings.

• Accruals and prepayments should be accounted for in the financial statements to ensure that revenue and expenses are matched accurately.### Accounts and Finance

• At 30 April 20X3, Neardey's total amount owed by customers was 64,865,andthereceivablesallowancewas64,865, and the receivables allowance was 64,865,andthereceivablesallowancewas3,775. These balances should be reported in Neardey's statement of financial position as at 30 April 20X3 as 64,865asacurrentassetand64,865 as a current asset and 64,865asacurrentassetand3,775 as a current liability.

• A company's receivables totaled 800,000,andanallowanceforreceivablesof800,000, and an allowance for receivables of 800,000,andanallowanceforreceivablesof100,000 had been brought forward from the previous year. Debts totaling 76,000werewrittenoff,andtheallowanceforreceivableswasadjustedto1076,000 were written off, and the allowance for receivables was adjusted to 10% of the receivables. The charge for receivables expense should be 76,000werewrittenoff,andtheallowanceforreceivableswasadjustedto1056,000.

• The correct formula to calculate cost of goods sold is: Purchases + Opening inventory - Closing inventory.

• In inventory costs, carriage inwards and import duties should be included, but not carriage outwards or administrative costs.

• Using the first in, first out (FIFO) method, the value of inventory at 31 January would be 1,000,andthecostofgoodssoldforthemonthofJanuarywouldbe1,000, and the cost of goods sold for the month of January would be 1,000,andthecostofgoodssoldforthemonthofJanuarywouldbe1,325.

• Maine valued her inventory at 30 June at its cost of 25,000,includingitemscosting25,000, including items costing 25,000,includingitemscosting2,100 that were difficult to sell. After repackaging at a cost of 350,theycanbesoldfor350, they can be sold for 350,theycanbesoldfor1,000. The value of closing inventory in Maine's accounts at 30 June would be $23,550.

• Jane had a loan with an outstanding balance of 60,000at31May20X3andwasrequiredtorepay60,000 at 31 May 20X3 and was required to repay 60,000at31May20X3andwasrequiredtorepay1,000 on the 10th of each month. The loan should be reported on her statement of financial position at 31 May 20X3 as a current liability of 12,000andanon−currentliabilityof12,000 and a non-current liability of 12,000andanon−currentliabilityof48,000.

• Mike's trial balance included a balance for his drawings, which should be treated in the final accounts as a reduction in capital.

• When the extended trial balance is being completed, the balance in allowance for receivables should be entered in the statement of financial position credit column.

• The result for the year can be calculated from the extended trial balance totals: a profit of $11,936.

• James and Dwayne were in partnership, sharing profits and losses in the ratio 3:4. The statement of profit or loss for the year to 31 May 20X3 reported a net profit of 35,000.Dwayne′sshareoftheprofitfortheyearto31May20X3wouldbe35,000. Dwayne's share of the profit for the year to 31 May 20X3 would be 35,000.Dwayne′sshareoftheprofitfortheyearto31May20X3wouldbe12,000.

• Ant and Dec were in partnership. Ant's drawings were 36,000,andthepartnershipappropriationaccountincludedAnt′ssalary,interestondrawings,andshareofresidualprofit.ThebalanceonAnt′scurrentaccountat31October20X3wouldbe36,000, and the partnership appropriation account included Ant's salary, interest on drawings, and share of residual profit. The balance on Ant's current account at 31 October 20X3 would be 36,000,andthepartnershipappropriationaccountincludedAnt′ssalary,interestondrawings,andshareofresidualprofit.ThebalanceonAnt′scurrentaccountat31October20X3wouldbe48,500.

• Mara and Kara were equal partners in a business. Janna joined the partnership, introducing 160,000incash.ThebalanceonMara′scapitalaccountimmediatelyaftertheadmissionofJannatothepartnershipwouldbe160,000 in cash. The balance on Mara's capital account immediately after the admission of Janna to the partnership would be 160,000incash.ThebalanceonMara′scapitalaccountimmediatelyaftertheadmissionofJannatothepartnershipwouldbe270,000.

• Anna and Karen were in partnership sharing profits and losses equally. Nina was admitted to the partnership, and it was agreed that goodwill would be valued at 150,000butnotmaintainedinthebooks.Ninamustcontribute150,000 but not maintained in the books. Nina must contribute 150,000butnotmaintainedinthebooks.Ninamustcontribute50,000 in cash.

• John's sales were 364,000atamarkupof30364,000 at a markup of 30%. His opening inventory value was 364,000atamarkupof3023,600, and his closing inventory value was 19,400.ThevalueofJohn′spurchasesintheyearto30April20X3wouldbe19,400. The value of John's purchases in the year to 30 April 20X3 would be 19,400.ThevalueofJohn′spurchasesintheyearto30April20X3wouldbe275,800.

• Janine's capital balance increased by 13,596,andherdrawingstotaled13,596, and her drawings totaled 13,596,andherdrawingstotaled29,200. She introduced additional capital of 5,800.Hernetprofitorlossfortheyearwouldbe5,800. Her net profit or loss for the year would be 5,800.Hernetprofitorlossfortheyearwouldbe36,996 profit.

• If James normally earns a mark-up on cost of sales of 25%, his gross profit margin would be 20.00%.