IMPORTANT

• conceptual framework (3)

  A) accounting entity

  B) historical

  C) cost

  D) general principles

  E) reporting

  F) who

  G) characteristics

  H) statements

  
• for an item to be recorded

  1. satisfies the definition of an element
  2. meets recognition criteria (relevant/faithful rep)
• recognition vs disclosure

  • recognised items are included in financial statements (definition + recog. criteria)
  • disclosed items are included in notes section (definition met only)
• extended accounting equation

  • owners equity = capital - drawings
  • profit = income - expenses

  A) -

  B) +

  C) capital

  D) drawings

  
• prepaid income

  • can be initially recorded as a liability OR income
  • if liability: normal adjustment
  • if income: reverse adjustment (decrease income...)
• prepaid expenses

  • can be initially recorded as assets OR expenses
  • if asset: normal adjustment
  • if expense: reverse adjustment (decrease expense..)
• consequence of not recording prepaid income

  A) understated

  B) understated

  C) overstated

  D) understated

  
• effect of not recording prepaid expense (asset)

  A) understated

  B) overstated

  
• effect of not recording prepaid expense (expense)

  A) overstated

  B) understated

  
• income statement format

  • headings: income, expenses, profit
  • no other headings (unlike VCE)

  A) less sales returns

  B) net sales

  C) less cost of sales

  
• NRV = selling price - costs to sell
• Inventory write down

  • when NRV is LESS than the cost price
  • this avoids overstating assets and recognises the expense when it's incurred
• where is revaluation expense/decrement recorded

  • income statement: other expenses
  • balance sheet: N/A

  A) revaluation expense

  
• where is revaluation income/increment recorded

  • income statement: other comprehensive income
  • balance sheet: in Owner's equity

  A) asset

  
• GST

  • gst-registered firms must charge an extra 10% to selling prices (collected on behalf of ATO)
  • these firms must also pay an extra 10% on purchases (can be claimed)
  • but higher selling price may decrease sale volumes
• "should the firm record the provision"

  • ask: is the firm big enough for the provision to be material?
  • ask: does the firm have past experience for a reliable estimate of the amount to be determined?
• careful for inventory turnover

  • although higher is always better,
  • it always DEPENDS ON the TYPE OF INVENTORY being traded