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BDA - Revenues

UNIT 4 CH 16

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.
Created by: 96.0
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