Accounting lec 5

• What should you understand by the end of this session?

  Accrual and Matching accounting conventions
• What do the Accrual and Matching conventions underpin?

  Accounting adjustments
• What must you calculate regarding accounting adjustments?

  The relevant accounting adjustments
• Where are the adjustments recorded?

  Income statement and Statement of financial position
• What are the types of accounting adjustments mentioned?

  • Accrued expenses
  • Prepayments
  • Depreciation
• How do accounting adjustments impact financial statements?

  They affect both Income statement and Statement of financial position
• What does gross profit represent?

  Profit from selling and buying goods
• How is operating profit calculated?

  By deducting operating expenses from gross profit
• What is profit for the year calculated by?

  Adding non-operating income to operating profit
• What does inventory refer to?

  Stock of goods
• What types of inventory are mentioned?

  • Stock of raw materials
  • Stock of work-in-process
  • Stock of finished goods
• What conventions are accounting adjustments based on?

  Accrual convention and Matching convention
• How is profit calculated according to the Accrual Convention?

  As excess revenue over expenses
• When is revenue recognized according to the Matching Convention?

  When earned
• What are expenses matched against in the Matching Convention?

  Revenue for the same period
• What is the amount paid for electricity expenses for the year ended 30th June 2023?

  £2,500
• How much is due for electricity expenses but not yet paid?

  £500
• What is the total electricity expenses for the year ended 30th June 2023?

  £3,000
• How are accrued expenses recorded in the financial statements?

  As current liabilities in the Statement of financial position
• What is the amount paid for rent expenses during the reporting period?

  £6,000
• How much of the rent expenses is paid for the quarter ending 30th September 2023?

  £1,000
• What are the rent expenses for the year ended 30th June 2023?

  £5,000
• How are pre-payments recorded in the financial statements?

  As current assets in the Statement of financial position
• What are pre-payments?

  • Amounts paid in advance
  • Excess amount paid
• What is the sales revenue for ABC Ltd?

  £500
• What is the cost of sales for ABC Ltd?

  £250
• What is the gross profit for ABC Ltd?

  £250
• What are the electricity expenses recorded for ABC Ltd?

  £50
• What are the rent expenses recorded for ABC Ltd?

  £100
• What is the operating profit for ABC Ltd?

  £105
• What are the non-current assets for ABC Ltd?

  £450
• What is the total assets for ABC Ltd?

  £625
• What is the owner's capital for ABC Ltd?

  £500
• What is the profit for ABC Ltd?

  £105
• What is the current liabilities for ABC Ltd?

  £20
• What is depreciation an attempt to measure?

  Usage of non-current assets
• Why do non-current assets have limited life?

  They are consumed in generating revenue
• What causes the using up of non-current assets?

  • Physical deterioration
  • Obsolescence
  • Passing of time
• What does depreciation measure?

  Proportion of asset cost depleted
• What are the components needed to calculate depreciation?

  • Cost of the asset
  • Useful life of the asset
  • Residual value of the asset