Poa Chp 4 and 5

• A trade discount is a reduction to the list price whereas A cash discount is a reduction to the invoiced price.
• A trade discount is given to encourage customers to buy in bulk or it is given to customers for their loyalty and patronage
• A trade discount is calculated by

  List Price - Trade discount = Invoiced Amount

  A cash discount is calculated by

  Invoiced Amount - Cash discount = Amount paid
• A discount is given when goods are purchased or sold

  Or

  When amount owed by a credit supplier is received or when amount owed to a credit supplier is paid
• Rules of Double-Entry recording

  The total amount recorded as debit must be equal to the total amount recorded as credit so that the accounting equation is balanced
• A journal entry is like a diary, it is a record of individual transactions
• A trial balance is a list of all the ledger accounts and their ending balances at a point in time
• Purpose of a trial balance

  to facilitate the preparation of financial statements

  to ensure arithmetic accuracy in recording
• Accounting theory - Going Concern theory

  A business is assumed to have an indefinite economic life unless there is credible evidence that it may close down
• Accounting theory - Accounting Period theory

  The life of a business is divided into regular time intervals
• A statement of financial performance shows the income earned and expenses incurred for a period of time.
• The statement of financial performance consist of

  trading portion

  profit and loss portion
• Gross profit/loss measures profit or loss from buying and selling goods
• Profit or loss measures overall profit/loss after including other income and deducting other expenses
• Formula for Gross Profit/Loss

  Gross Profit/Loss = Net sales revenue - Cost of sales
• Formula for Profit/loss for the period

  Profit/Loss for the period = Gross profit + Other income - Other expenses
• Formula For Owners Equity (New capital)

  Initial Capital + Additional Capital + Profit/loss - Drawings
• A statement of Financial position lists the assets, liabilities and equity of a business as at a specified date
• Non-current assets are resources a business owns that provides benefits which lasts beyond one financial year
• Current assets are resources a business owns that provides benefits which are used within one financial year
• Examples of non-current Assets

  Office Equipment, Fixtures and fittings, motor vehicles and machinery
• Examples of current assets

  Cash in hand, Cash at bank, Inventory and trade receivables
• Non-current liabilities are Obligations owed by a business to others due to be paid beyond one financial year
• Current liabilities are obligations owed by a business to others due to be paid within one financial year
• Examples of Non-current liabilities

  Bank Loan, Long-term borrowings
• Examples of current liabilities

  Trade payables, bank overdraft