Forums › FIA Forums › FA2 Maintaining Financial Records Forums › Accounting Treatment
- This topic has 5 replies, 2 voices, and was last updated 3 years ago by Ken Garrett.
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- May 31, 2021 at 8:02 pm #622502
Sorry sir, asking again and again as my paper is near.
What is the correct accounting treatment of finance costs accrued on a loan taken out by Michelle during the year?
A) Debit: Drawings, and Credit: Capital
B) Debit: Capital, and Credit: Profit or loss
C) Debit: Profit or loss, and Credit: Liabilities
D) Debit: Profit or loss, and Credit: CapitalAnswer is C but no idea how.
May 31, 2021 at 8:34 pm #622504I assume that Michelle is the proprietor and that she has taken out the loan from a bank for the purposes of the business.
If no interest has been charged to the account no entries will will have been made in the accounts. It is then recognised that some interest needs to be accrued.
This requires that an expense is recognised. So Dr Interest expense (which ultimately will be a Dr to P&L)
The accrued interest is effectively owed to the bank – which becomes a creditor. Therefore, Cr Liabilities.
June 1, 2021 at 4:08 am #622527Thank you sir.
June 1, 2021 at 4:27 am #622528Which of the following statements regarding inventory valuation is correct?
a. Inventory valuation should exclude profit which has not yet been earned.
b. All items held in inventory should be valued at cost.
C. Inventory should be valued at anticipated selling price less any cost which will be incurred.
d. The purchase price of items which have been held for the longest period is an acceptable method for valuing inventory.Sir, my question is that in “d” it is telling about Lifo or Fifo. According to me, its Fifo, I can not understand how Lifo.
June 2, 2021 at 11:07 pm #622855Sir?
June 3, 2021 at 8:17 am #622898d is lifo. The last received items go out first leaving the earliest received in inventory.
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