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financial accounting an introduction

Questions and Answers of Financial Accounting An Introduction

The profits of the close corporation do not automatically accrue to the members.
The salary, interest on capital contribution and profit distribution accruing to the mem-bers is recorded in the Short-term loan to members' account.
The undistributed profit remains in the close corporation as "retained earnings".
There are liquidity requirements that have to be met before profits can be distributed.
Describe the information reported in a statement of cash flows
Understand the major classifications on the statement of cash flows: operating, investing and financing activities
Prepare a statement of cash flows according to the direct and indirect methods
Do a basic analysis of the statement of cash flows of a business.
She can see whether her business generates cash from its operations.
She will be able to assess whether her business is able to pay interest on borrowed funds, and settle outstanding debt.
She will be able to assess whether the business is able to pay its short-term debts.
She can plan future cash expenditure based on the cash she has available and by deter-mining the source of the cash in her business.
She will have information about the cash effects on the business of decisions to buy or sell assets.
1. Prepare the ledger account for Stationery for the year ended 31 December X2.2. What amount will be recognised in the statement of comprehensive income for the year ended 31 December X2?
3. How much cash did the business spend on stationery during the year ended 31 December X2?
4. Briefly explain why the two amounts are different.
5. Which amount do you think will affect the statement of cash flows of the business?
1. Assuming that there is no closing stock, calculate the profit for Tiny Tots for the year.
2. Assuming that purchases, wages, telephone and sales were paid or received in cash, how much money would Tiny Tots have in the bank at the end of the year?
3. Why is the cash in the bank different from the profit figure?
4. If the business had closing inventory of R20 000, how would this influence the profit?
5. Would the closing inventory influence the amount of cash in the bank? Explain your answer.
6. Assume that all the sales are on credit and 40% of the debtors have not paid by year-end. How would this influence the profit? How would this influence the amount of cash in the bank at the end of
1. Prepare ONLY the investing activities section of the statement of cash flows for the year ended 30 June X2.
2. Prepare the note to the statement of cash flows reconciling the cash generated by operations to net income before tax.
3. What is the purpose of a statement of cash flows?
4. Discuss whether you think, the cash generated from operations OR the net profit before taxation as calculated in the statement of comprehensive income is a better indicator of a company's success.
1. Prepare the Cash flow from operations section of the Statement of cash flows of Gua-temalan Gifts Ltd for the year ended 30 June X4 insofar as the given information allows, using the direct
2. Calculate the amount of interest paid during the year ended 30 June X4.(2 marks)
3. Prepare the note reconciling net profit before interest and tax with cash generated from operations.(12 marks)
4. Calculate the dividend that a shareholder with 500 shares is entitled to for the year ended 30 June X4.(2 marks)
Explain the objectives of financial analysis
Compare different techniques for analysing and interpreting financial statements
Calculate key ratios for evaluating all aspects of a business, including performance and capital structure
Describe the results of the analysis, with suggestions for improvement or explanation of the causes
Consider the benefits and limitations of financial analysis.
How it is calculated?
What it measures?
How it is expressed?
What it reveals?
How the company’s performance could be improved?
Understand the difference between a non-profit organisation and a profit-orientated organisation
Understand and prepare the different forms of financial reports generally used by non-profit organisations, such as the Statement of Receipts and Payments and the Income and Expenditure statement
Understand what coupons are, why they are often used by clubs, and how to record the relevant transactions
Prepare Subscription Fee accounts for clubs
Prepare the financial statements of non-profit organisations and clubs.
Understand what VAT is
Know how to record VAT in the books of the business
Understand how VAT affects the financial statements of a business.
If a restaurant registered for VAT purchased fish for R342 from the fish shop, what is the cost incurred by the restaurant?
If you bought fish for R342 from the fish shop and cooked it for a dinner party at home, what is the cost to you of the fish?
Briefly explain why the amounts in the answers differ.
What do we notice in the journal entry above?
What do we notice in the journal entry above?
1. What is output VAT?
2. What is input VAT?
3. On what sort of items is VAT levied?
4. Can you think of any items on which VAT is not levied?
5. Is inventory recorded inclusive or exclusive of VAT in the statement of financial position? Explain your answer.
6. Why are expenses and income recorded as VAT exclusive?
7. Are receivables (debtors) and payables (amounts owed to suppliers) inclusive or exclusive of VAT?
- Understand what adjusting journal entries are
- Understand why it is important to process adjusting entries
- Adjust accounting information to reflect the financial position and performance of a business more accurately
- Process closing transfers at the end of the financial period
- Prepare financial statements after adjustments have been taken into account
- Understand the implications of the accrual basis (matching expenses against revenue).
1. What if talk-time amounting to R250 still remained at the end of the month?
2. What if stationery amounting to R90 was still on hand at the end of the month?
1. What reversing entries would Judy process on 1 February X1?
2. What journal entries would Judy process during February X1 to record the purchase of stationery amounting to R500 and talk-time amounting to R350?
3. If Judy had no stationery or talk-time left as at 28 February X1, would it be correct to recognise a stationery expense of R500 and a talk-time expense of R350 for February, assuming that these
4. Prepare the following ledger accounts for February X1: Stationery on hand; prepaid talk-time; stationery expense; talk-time expense.
1. What reversing journal entries would Judy prepare on 1 February X1?
2. During February X1, Judy provides her client with the handbags and pays the interest expense of R25 on 10 February X1. If Judy prepared financial statements as at 28 February X1, would she include
3. Prepare the following ledger accounts for February X1: income received in advance; sales; accrued interest expense; interest expense.
1. Prepare the Trading account of Survivor Traders as at 30 June X3.
2. Prepare the Stationery on hand account as it would have appeared in the books of Survivor Traders for the year ended 30 June X3. Assume that stationery of R300 was purchased for cash on 1 July X2.
3. Prepare the journal entries to record the necessary adjustments as at 30 June X3.
- Know what is meant by the term "inventory"
- Understand how to calculate the total cost of inventory
- Understand how value added tax (VAT) affects the recording of inventory
- Know the difference between trade discount and settlement discount
- Record trade discount and settlement discount in the general ledger
- Understand the two different bookkeeping methods for recording inventory: the perpetual recording method and the periodic recording method
- Record transactions using both the perpetual recording method and the periodic recording method
- Understand how inventory is disclosed in the financial statements
- Calculate the cost of goods sold and inventory on hand using the different cost allocation methods: First in First out (FIFO) and weighted average
- Calculate the gross profit and gross profit percentage
- Calculate mark-up on selling price and mark-up on cost price
- Understand the relationship between mark-up on selling price and gross profit percentage.
1. What would the cost of inventory and trade payables in Kayak Africa's books be if:a) it is probable that your business, Kayak Africa, will take advantage of the discountb) it is probable that your
2. What would happen if the opposite of what you expected occurs? In other words:a) if Kayak Africa does not take advantage of the discount although it expected to do sob) if Kayak Africa takes
3. Do you know where Judy should look in the financial statements to find how much her inventory was worth at the end of the year?
Understand why the Bank account balance in the general ledger can differ from the balance on the bank statement
Read and understand a bank statement
Understand the need for reconciling the bank account
Complete a bank reconciliation statement.
We know why the bank account balance in the general ledger differs from the balance on the bank statement.
We have learnt how to read a bank statement.

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