FIA FA2 Maintaining Financial Records Flashcards
What are the two key financial statements, and what does each show?
State the formula for cost of sales, and why the inventory adjustment is needed.
Distinguish gross profit from net profit.
How are assets and liabilities classified in the statement of financial position?
What is the going concern assumption?
What is the accruals (matching) concept?
Explain the prudence concept and how it applies to inventory.
What is the consistency concept?
Explain the business entity concept and duality.
Explain the materiality concept and historical cost.
List the six qualitative characteristics of useful financial information.
What does faithful representation require, and what is relevance?
Why are accounting standards needed, and what are the sources of accounting rules?
What is the fundamental rule of IAS 2 Inventories?
Under IAS 16, what is included in the initial cost of an item of property, plant and equipment?
What are the two measurement models permitted by IAS 16?
Under IAS 37, define a provision, a liability and a contingent liability.
How is a provision distinguished from other liabilities such as a trade payable?
What does IFRS 15 deal with, and when is revenue recognised?
What does IAS 1 cover?
Why is it important to maintain financial records (internal and external uses)?
What key features does a computerised accounting system offer, including use of the cloud?
How does profit and drawings affect capital in the statement of financial position?
Give the components of the financial statements for a sole trader.
If inventory is valued at net realisable value (below cost), which two concepts are in tension, and which prevails?
Name the five books of prime entry.
Which books of prime entry are part of the double-entry system and which are not?
Name the three ledgers and what each contains.
State the accounting equation and its link to double entry.
What does a debit entry represent, and what does a credit entry represent?
Give the double entry for: (a) a cash sale and (b) a credit sale.
Give the double entry for: (a) a credit purchase of goods for resale and (b) payment to a supplier.
Give the double entry for: (a) paying wages, (b) receipt from a credit customer, and (c) the owner introducing capital in cash.
Give the double entry for the purchase of a car on credit from a garage.
How do you balance off a ledger account (carry down a balance)?
What does a debit balance brought down on the cash account mean, and a credit balance?
State the relationship linking the change in net assets to profit.
Net assets rose from $15,000 to $19,000; the owner introduced $1,000 capital and drew $400. What is the profit?
Define the five elements of financial statements.
What is the purpose of a trial balance, and why is it extracted regularly?
What is the purpose and use of general ledger accounts?
What is the journal used for, and what is the format of a journal entry?
What are drawings, and what is the double entry when the owner withdraws cash?
Why do the receivables and payables ledgers need to agree with their control accounts?
What is the year-end procedure for carrying forward balances on general ledger accounts?
Why is cross-referencing (the narrative naming the other account) used in T-accounts?
For an unincorporated business, distinguish capital injected by the owner from finance from third parties.
What is recorded in the capital account of a sole trader, and how is it prepared?
Demonstrate the impact of changes in capital on the financial statements.
Why is interest on a bank loan a finance cost (expense) but a share of profit to the owner is not?
Distinguish output tax from input tax, and state what is paid to the tax authority.
When must a business register for sales tax, and what must it then do?
Distinguish the four categories of supply: standard-rated, reduced-rate, zero-rated and exempt.
Give the sales tax cost structure at 20% and show how to move between net, tax and gross.
Output tax charged is $4,600; purchases were $6,000 including sales tax at 20%. What is paid to the government?
For a registered trader, is sales tax part of sales or purchases? Where is it recorded?
On what value is sales tax charged when a trade/bulk discount is given?
What are the main components of a sales tax return, and its cash-flow impact?
What is a purchases day book (PDB), and what postings are made from its totals?
What postings are made from the totals of the sales day book (SDB)?
In day-book postings, what is the crucial distinction between totals and individual lines?
What postings are made from a sales returns day book and a purchases returns day book?
What is the purpose of a control account, and why reconcile it to the list of balances?
A day book total is undercast (added up short). Which side of the reconciliation is affected - control account or list of balances?
An invoice is posted to a customer's personal account for the wrong amount. Which side of the reconciliation is affected?
The sales day book is overcast by $1,000. What is the effect on sales, the control account and the list of receivables balances?
An invoice of $4,300 is recorded in the sales day book as $3,400. What corrections are needed?
How is sales tax handled in an analysed cash book for cash sales and cash purchases?
A debit balance of $100 in a supplier's account is wrongly listed as a credit when totalling the payables list. What is the error size?
How does the sales tax account behave as a ledger account?
What is 'cross-casting' a day book, and why does it matter?
Is the cash book part of the double-entry system, and what does it record?
List the four main ways of making a payment from a bank account.
On a cheque, define drawer, drawee and payee, and explain an unpresented cheque.
Distinguish a standing order from a direct debit.
What is the purpose of a bank reconciliation?
Why does a bank statement show a credit balance when the customer has funds?
What are timing differences in a bank reconciliation? Give the two main ones.
Which reconciling items require a correcting entry in the cash book?
Outline the method to reconcile the cash book to the bank statement.
Cash book $5,700 Dr; add receipt $403 not recorded, deduct charges $70; unpresented cheques $3,880; uncredited lodgements $1,367. What is the bank statement balance?
Bank statement $750 overdrawn; unpresented cheques $800; uncredited lodgements $330; charges $75 not in cash book. What overdraft appears in the SOFP?
After a bank reconciliation, which balance is reported in the financial statements?
What does a cheque returned marked 'refer to drawer' mean, and what entry is needed?
In an analysed cash book, what double entry is made from the credit-side 'Payables' column?
Explain the petty cash imprest system and how a reimbursement is calculated.
Float $100; $5 received from staff for photocopying; vouchers of $45 approved. How much reimbursement restores the float?
Give the journal to offset (contra) a party who is both a customer and a supplier ($1,400 owed by them, $1,600 owed to them).
How are cash and bank balances reported in the financial statements?
Why is a bank reconciliation an important internal control?
What is credit control, and what checks precede granting credit?
How is a settlement discount allowed to a customer accounted for?
Distinguish a trade discount from a settlement (cash) discount in the accounts.
Goods list $800, 20% trade discount, plus a 5% settlement discount taken. What is posted to Sales and Discounts Allowed?
Four invoices ($1,200, $400, $500, $1,000) offer 2.5% within 30 days; only the $500 and $1,000 are paid in time. What is paid?
What is an aged receivables analysis and what does it show?
What is an irrecoverable debt and how is it written off?
What is the impact of writing off an irrecoverable debt on the statement of profit or loss and the SOFP?
When can sales tax relief be claimed on an irrecoverable debt, and how is the tax found?
A debt of $34,615 (including sales tax at 15%) is written off. What tax is recoverable and what is the net cost?
Distinguish a specific from a general allowance for irrecoverable debts, and how is the allowance shown?
Only the movement in the allowance for irrecoverable debts hits profit. Explain.
Allowance b/f $12,000; debts of $5,000 written off in the period; required closing allowance $14,000. What is charged to the income statement?
Allowance b/f $10,000; $4,000 written off; total charged to income statement is $2,500. What is the closing allowance?
Give the journal to create (or increase) an allowance for irrecoverable debts.
How is the allowance for irrecoverable debts reported in the SOFP?
What is a contra between receivables and payables, and how is it accounted for?
How does the Discounts Allowed account differ from Discounts Received?
List the items posted to the receivables control account.
How is a provision (e.g. warranty) accounted for and reported, per IAS 37?
Give an example of a receivable and a payable other than trade debts.
State the accruals (matching) concept as applied to expenses and income.
Define an accrued expense (accrual) and a prepaid expense (prepayment), and how each is shown.
Define accrued income and deferred income, and how each is shown.
Insurance $2,400 paid Oct 2013 (year to 30/11/2014) and $3,000 paid Oct 2014 (year to 30/11/2015). What is the expense for the year ended 31/12/2014?
Using the same insurance data ($3,000 paid Oct 2014 for the year to 30/11/2015), what prepayment appears at 31/12/2014?
How do you calculate an expense that mixes prepayments/accruals at both ends of the year?
Give the journals to create an accrual and a prepayment at the year end.
Give the journals to record accrued income and deferred income.
In an expense T-account, what does a balance carried down on the debit side represent, and on the credit side?
Rent is fixed at $2,500/month. Opening balance is $2,500 credit; 14 payments are made in the year. What is the expense and the closing balance?
What is the impact of failing to record an accrual on profit, net assets and capital?
How are accruals, prepayments, accrued income and deferred income reported in the SOFP?
An electricity bill for the quarter is received after the year end. How is the December charge treated?
Distinguish a prepayment from deferred income.
Why is matching income and expenses on a cash basis unsatisfactory?
What are the three categories of inventory, and what two effects does inventory have on the financial statements?
State the cost of sales formula and rearrange it for purchases.
Opening inventory $12,400; cost of sales $93,000; closing inventory $16,600. What were purchases?
Give the year-end journal entries for inventory when preparing financial statements.
State the IAS 2 valuation rule and why it is prudent.
What costs are included in the cost of inventory, and what is net realisable value?
Inventory cost $15,000 plus carriage inwards $1,000; it will cost $2,500 to clean/pack/distribute and then sell for $12,000. At what value is it stated?
Explain the FIFO method of valuing inventory.
Purchases: 1,000 @ $12, 500 @ $13; sell 1,200; buy 700 @ $14; sell 100. Under FIFO, what is the value of closing inventory?
Explain the cumulative (continuous) weighted average cost method.
Buy 1,000 @ $5 then 500 @ $6, then sell 800. Under continuous weighted average, what is the cost of the sale and the closing value?
How does the periodic weighted average differ from the continuous method?
Distinguish continuous (perpetual) from period-end inventory records.
How does the choice of inventory valuation method affect profit, assets and capital (in a period of rising prices)?
Why is the closing inventory figure a critical judgement area?
Why is the cost/NRV comparison made item by item rather than on total inventory?
Is carriage inwards or carriage outwards part of inventory cost?
Is LIFO (last-in, first-out) permitted under IAS 2?
How is closing inventory reported in the financial statements?
Define a non-current asset and distinguish it from a current asset.
Distinguish capital expenditure from revenue expenditure.
What is the effect of wrongly treating capital expenditure as revenue expenditure?
What is the purpose of depreciation?
How is straight-line depreciation calculated?
How is reducing (diminishing) balance depreciation calculated?
A machine cost $25,000, depreciated at 20% reducing balance (full year in year of purchase). What are the charges for the first three years?
When is straight-line more appropriate, and when is reducing balance?
Name the four ledger accounts used for non-current assets, and the depreciation posting.
Outline the steps to account for the disposal of a non-current asset.
A machine cost $26,000 with accumulated depreciation $20,000 is sold for $7,500. What is the profit or loss on disposal?
How is a part-exchange (trade-in) of a non-current asset accounted for?
A machine (cost $40,000, accumulated depreciation $28,000) is part-exchanged: $50,000 cash paid plus a $10,000 trade-in allowance. Find the new cost and the profit/loss.
What entries appear in the disposals account?
What is a non-current asset register and its purpose?
How are non-current assets and depreciation reported in the SOFP?
Why is the cost account unaffected by depreciation, and what happens as an asset is depreciated?
What term is used for the depreciation of a lease, and which asset is not depreciated?
How should discrepancies between the non-current asset register and the general ledger be resolved?
What is the purpose of the trial balance and what are its limitations?
List the error types NOT revealed by a trial balance.
Distinguish an error of commission from an error of principle.
What is a transposition error, and the quick divisibility check?
Which errors WILL cause a trial balance not to balance?
What is a suspense account, and how is each type of error corrected?
A debit balance of $1,123 was listed in the trial balance as a $2,123 credit. By how much does it fail to balance?
Cash of $5,641 paid was posted to the credit card account as $5,146. Give the correcting entry.
A bad debt of $500 was written off but the Irrecoverable Debts account was credited $500. Give the correction.
Sales of $2,950 including 18% sales tax were posted Dr Receivables $2,950, Cr Sales $2,950, Cr Sales tax $531. What correction is needed?
Petty cash of $56 was listed on the wrong side of the trial balance. What correction is needed?
$1,239 paid to a supplier to settle an invoice was treated as a new purchase. Give the correction.
What is the impact of an error of principle (e.g. a repair capitalised) on the statement of profit or loss and the SOFP?
What is an extended trial balance used for?
In an extended trial balance, where do the accruals total and prepayments total end up in the SOFP columns?
In the income statement columns of an extended trial balance, the credit total is $134,000 and the debit total is $110,000. What does this show, and where does the difference go?
List the typical year-end adjustments made when finalising the trial balance.
A trader offsets ABC (owed $500 by them, owing $600) by Dr Receivables $500, Cr Payables $500. What is the effect?
How does correcting errors affect the financial statements?
What is the opening trial balance for the next period, and which balances form it?
What circumstances lead to incomplete records, and what techniques are used to construct the accounts?
How is the payables control account used to find missing credit purchases?
Opening payables $4,000; closing $6,000; payments to suppliers $12,000; cash purchases $1,000. What are total purchases?
How is the receivables control account used to find missing receipts from credit customers?
Opening receivables $5,000; closing $4,000; credit sales $12,000; cash sales $2,000. How much cash was collected from credit customers?
Distinguish a gross margin from a mark-up.
A business has a mark-up of 33⅓% and sales of $12,000. What are cost of sales and profit?
A business earns a gross margin of 30% and gross profit is $21,000. What are cost of sales and sales?
How can a margin or mark-up be used to find closing inventory lost in a fire?
Purchases $37,000; opening inventory $7,500; credit sales $45,000 with a 50% mark-up. What is the closing inventory (destroyed by fire)?
How can a cash account be used to find missing drawings?
Opening cash $4,321; cash sales $160,600; paid to suppliers $85,393; other expenses $59,952; closing cash $4,567. What are the drawings?
State the accounting-equation method for finding profit when records are very scarce.
Opening net assets $56,265; NCA up $10,500, net current assets down $2,345, bank loan up $6,000; drawings $8,000; capital introduced $2,000. What is the profit?
Explain the process of preparing a set of financial statements from a trial balance.
State the format and purpose of the statement of profit or loss and statement of financial position for a sole trader.
Why might two figures being unknown in a control account force the use of margins/mark-ups?
Define a partnership.
What is the purpose and content of a partnership agreement?
If there is no partnership agreement, how are profits shared?
List the ways partnership profit can be appropriated.
Why are partners' salaries and interest on capital not expenses?
How is interest on a loan from a partner treated, and why does it differ from interest on capital?
Profit $118,000. A salary $30,000, B salary $20,000; interest 10% on capitals A $200,000 and B $120,000; residual shared 3:2. Find each partner's total.
Salaries A $10,000, B $8,000, C $12,000; profits only $12,000; profit-sharing ratio 2:3:4. What total is appropriated to B?
Interest on capital 5% (A $100,000, B $80,000, C $120,000); A made a $50,000 loan at 6%; profit before interest $90,000; PSR 2:3:4. What total is appropriated to A?
Distinguish a partner's capital account from a current account.
What is posted to a partner's current account as debits and credits?
Give the double entry for (a) capital introduced by a partner and (b) a partner's drawings.
What is goodwill, and why is a goodwill adjustment needed when a partner is admitted?
How is a goodwill adjustment made when goodwill is not to remain in the books?
Old ratio W:X:Y 3:2:4; new ratio W:X:Y:Z 3:3:3:1; goodwill $180,000 (not retained). What is the net effect on Y's capital account?
How does interest on drawings affect the appropriation?
Outline the structure of a partnership statement of financial position capital section.
In the partnership income statement, where does the appropriation begin?
Are partners' current accounts fundamentally different from their capital accounts in nature?
Card 1 of 220. Question side.