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BDA - Revenues
UNIT 4 CH 16
| Question | Answer |
|---|---|
| Purpose of a balance day adjustment: | necessary so that an accurate profit is calculated by comparing revenue earned and expenses incurred in the current RP. |
| Revenue | inflow of ec ben (or savings in outflows) in the form of an increase in assets or a reduction in liabilities that leads to an increase in OE. |
| State three non-cash revenue items. | stock gain __ prepaid revenues __ accrued revenues |
| prepaid revenue: | revenue received but not yet earned. |
| Where are prepaid R cash receipts recorded? | CRJ: sundries column |
| How prepaid revenue is reported in the Balance Sheet: | CL as it represents a present obligation that is expected to result in an outflow of economic benefits when the good/service is supplied sometime in the next 12 months. |
| State the effect of a receipt of prepaid revenue on the accounting equation. | A - Increase Bank ___ L - Increase (prepaid R, GST C) __ OE - X |
| GJ entries necessary to record the BDA for prepaid R earned: | DR: Prepaid x Rev __ CR: x Rev |
| Narration to record the BDA for prepaid R earned: | Adjusting entry to record one month’s rent R earned (Memo x) |
| Effect of BDA for prepaid R earned on the ac eq: | A- ___ L - Decrease (prepaid R) __ OE - increase (R increases NP) |
| 2 situations that may lead to the receipt of a deposit: | new product is released, and customers pay in advance to ensure they are among the first to own the item. ___ customer pays a deposit item in order to secure the sale. |
| receipt of a deposit effect on ac eq: | A-increase (bank) __ L - increase prepaid sales R _ OE- |
| debit and credit entries required to record a cash sale involving a deposit: | DR:Prepaid sales rev __ CR: Sales Rev __ DR (Bank)__CR: Sales Rev and GST C __ DR:COS __CR: SC |
| Why doesn’t Deposits recognise GST? | Transaction does not identify any GST received as GST is only recognised at point of sale. And as the goods have not been received b customer, sale has not take place. |
| In CRJ or Sales Journal why doesn’t GST figure = 10% of figure recorded in sales column? | It is 10% of the total Sales figure consisting of deposit (in GJ and CRJ) as well as sale payment, and then later sale in CRJ or SJ… GST equals 10% of the sum of the amounts recorded as sales in both journals. |
| sale involving a deposit effect on ac. Eq: | A: increase (incr bank decr SC) __ L: decrease (decr Prepaid Sales Rev, incr GST C) __ OE: increase (sales Rev less COS = increase in NP) |
| 3 differences between recording a cash sale involving a deposit and recording a credit sale involving a deposit. | A credit sale verified by an invoice, cash sale - cash receipt. _ 2 _ credit sale recorded in the Sales Journal, cash sale is recorded in the CRJ _ 3 _ credit sale, incr DC (+ subsidiary ledger account), cash sale, incr Bank. |
| accrued revenue: | R that has been earned but not yet received. |
| how accrued R is reported in the BS: | CA, a resource controlled by the entity from which future economic benefit is expected to be received (when the cash is received) in the next 12 months. |
| Distinguish between accrued R and debtors: | If customer has goods + invoice, then a credit sale has occurred, and D recognised. If R relates to a transaction other than Sales, and customer has not been sent the invoice, then accrued R has been earned. |
| GJ entires to record BDA for accrued R: | DR: accrued x Rev __ CR: Interest R |
| Narration for BDA for accrued R: | Adjusting entry to record interest revenue earned but not yet received (Memo x) |
| Effect of BDA for accrued R on ac eq. | A: increase (Accrued R __ L - __ OE increase (incr Rev increases NP) |
| why the receipt of accrued R in a subsequent period requires the receipt to be split in the CRJ? | Receipt represents R earned in different periods. Some of the receipt represents R earned (and reported) in a previous RP and is now a reduction in the CA Accrued R, while the remainder represents R earned (and received) in the current RP. |
| Effect of receipt of acc R in a subsequent period on the ac eq: | A: increase (incr bank, decr Acc Rev) __ L: ___ OE: increase (incr Rev increases NP) |
| AP: why only sometimes part of rent received I recognised as revenue for RP: | RP: Only x months worth of rent (month – month) has been earned in the RP ending 30 June. (The remaining 2 months remain a CL as they are still owed to the solicitor.) |
| AP: Why deposit is not recognised as R for period it is received in? | Rp: although at x dategoods have not been provided and still owed to the customer, so R has not been earned in that RP. (The goods are owed to the customer, so A (Bank) increases but so does L (prepaid sales) + no increase in OE) |
| Cash receipt of Term Deposit fits where into CFS? | hard to classify: not O (day-day trading activity), not F (change in firm’s financial structure), not I (not NCA - under 12 months?) However, it is an investment (to generate interest R), reporting it as I = useful for decision-making. |
| AP: Purpose of BDA: | RP: To ensure that profit is calculated accurately by matching/comparing R earned against E incurred in the current RP |
| What two ledger items are affected by a customer returning damaged rug and then business having to throw rug out: | Sales returns __ stock write down |
| 4 possible reasons for stock write down: | Physical deterioration __ obsolescence __ lack of demand (change in fashions/taste)__ purposeful decrease for marketing reasons |
| 2 reasons for loss on disposal of NCA: | Under-depreciation due to overstated useful life/residual value___ Lack of demand due to damage OR obsolescence |
| Purpose of closing ledgers: | Relevance: Resetting R and E accounts to zero in readiness for the next R P ensures that the IS includes only info that is useful for decision-making about the current RP. |
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