Preview

Cma Part 2

Good Essays
Open Document
Open Document
723 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Cma Part 2
Historic cost
Assets (such as cars) and liabilities (such as amounts owed to a creditor) are usually valued at their historic cost, i.e. at the price paid for them when they were originally purchased or sold. However, apart from the impact of inflation or deflation, assets and liabilities may change their value owing to such factors as wear and tear and obsolescence.
Realization
When goods are sold or purchased or sold on credit terms it is customary practice to treat them as being exchanged at the point when the legal title to the goods is transferred,
i.e. when they are realized. In modern manufacturing and trading conditions that point is not necessarily obvious and it remains a major issue that the accountancy profession is still trying to sort out.
Matching
The matching rule is illustrated in Figure 2.4.
This rule is closely related to the realization rule. Accounts are not usually prepared on the basis of cash received and cash paid during (say) a 12-month period because there is often a delay between the receipt and the payment of cash depending on the credit period given. This means that a comparison based on cash received/cash paid may
28 PART 1 INTRODUCTION TO ACCOUNTING
A contracting company divides each of its sales

be misleading when one year is compared with another. When preparing the accounts at the end of a year, therefore, it is necessary to allow for what was owed to the entity and owing by it at both the beginning and the end of the year, i.e. opening and closing debtors and creditors. This procedure often involves making an estimate of the amounts due to be received and sometimes the amounts due to be paid. Any estimate, of course, can be wrong because it is likely that some debts will not be settled. If this proves to be the case then the accounts for that year will be incorrect.
Dual aspect
Any transaction involves someone giving something and someone else receiving it. So the basic rule is: record every

You May Also Find These Documents Helpful

  • Satisfactory Essays

    ACCT Exam

    • 304 Words
    • 2 Pages

    b. The City records the following revenues (on account) and other financing sources (paid in cash)…

    • 304 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    MGMT 108 Case 2

    • 1251 Words
    • 1 Page

    was another entity competing to repossess, First Time Bank would have to either file or perfect first…

    • 1251 Words
    • 1 Page
    Good Essays
  • Satisfactory Essays

    Research Case 1

    • 363 Words
    • 2 Pages

    3. What amounts should be recognized in the financial statements for the $25 million payment on June 15, 2012?…

    • 363 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    Case 12-03

    • 545 Words
    • 3 Pages

    a) the entity has an obligation at the reporting date as a result of a past event;…

    • 545 Words
    • 3 Pages
    Good Essays
  • Good Essays

    924 case study

    • 1259 Words
    • 6 Pages

    end of the year is less than trading stock on hand at the beginning of the year, the…

    • 1259 Words
    • 6 Pages
    Good Essays
  • Better Essays

    contract for the sale of goods are merchants, a confirmatory writing signed by one of the parties…

    • 1107 Words
    • 5 Pages
    Better Essays
  • Good Essays

    December 31, 20xx to account for expenses Johns Deli in the amount of 1,500 incurred during the first six months of operation but paid in the second six months…

    • 546 Words
    • 3 Pages
    Good Essays
  • Better Essays

    Fsa Quiz 3

    • 1438 Words
    • 6 Pages

    4. Which of the following is n ot a condition that requires capital lease accounting?…

    • 1438 Words
    • 6 Pages
    Better Essays
  • Satisfactory Essays

    Acc 290

    • 1661 Words
    • 7 Pages

    6. In the first month of operations, the total of the debit entries to the cash account amounted to $1,400 and the total of the credit entries to the cash account amounted to $600. The cash account has a…

    • 1661 Words
    • 7 Pages
    Satisfactory Essays
  • Satisfactory Essays

    been receiving payments but they may have not been made in full, not on time, and in some cases…

    • 428 Words
    • 2 Pages
    Satisfactory Essays
  • Powerful Essays

    Fair Value Case

    • 1941 Words
    • 8 Pages

    below. Also refer to the data table at the end of this section for the fair value amounts for…

    • 1941 Words
    • 8 Pages
    Powerful Essays
  • Good Essays

    Summary: Case Study

    • 818 Words
    • 4 Pages

    of reasonableness of the compensation if a portionthereof is for service rendered in prior years.…

    • 818 Words
    • 4 Pages
    Good Essays
  • Satisfactory Essays

    Hsm/260 Week 2

    • 262 Words
    • 2 Pages

    were to use the cash method of accounting, then an amount would only be recorded when cash was…

    • 262 Words
    • 2 Pages
    Satisfactory Essays
  • Powerful Essays

    The GCU Financial Procedures extract at Appendix 1 provides information on the receipt of income…

    • 5381 Words
    • 22 Pages
    Powerful Essays
  • Satisfactory Essays

    Cma Assignment

    • 762 Words
    • 4 Pages

    DELTA COMPANY 1) Acquisition Cost $400,000 Consolidating Work Sheet Book Value at date of Acquisition 160,000 December 31, 19x3 Excess of Acquisition Cost over Book Value $240,000 Account Title Delta Company Alpha Company Eliminating Entries Consolidated 3) Goodwill = 40 years Debits Credits Trial Balance $240,000 - 40 years Inventory $200,000 $50,000 (5) $4,000 $246,000 $6,000 per year Other Current Assets 400,000 200,000 600,000 Plant Assets (Net) 1,000,000 400,000 (2) $40,000 1,440,000 4) Asset Value increase $40,000 Investment in Alpha Company 400,000 (2) 400,000 - Depreciation (years) 20 Investment in Alpha Bonds 100,000 (7) 100,000 - Depreciation per year $2,000 Cost of Goods Sold 4,000,000 800,000 (5) 76,000 (6) 5,000 4,719,000 5) Let x = cost and 0.25x = profit Depreciation Expense 200,000 50,000 (4) 4,000 246,000 x + 0.25x = 1.25x (selling price) Interest Expense 40,000 40,000 Profit ratio = 0.25x Other Expense 600,000 80,000 680,000 1.25x Current Liabilities (300,000) (300,000) Profit ratio = 20% Bonds Payable (500,000) (7) 100,000 (400,000) Sales (5,500,000) (980,000) (5) 80,000 (6,400,000) Profit to be eliminated is determined as follows: Interest Income (8,000) (7) 8,000 - Ending inventory at selling price $20,000 Paid-In Capital - Delta (100,000) (100,000) x Profit Ratio 20% Paid-In Capital - Alpha (40,000) (2) 40,000 - Profit to be eliminated from ending inventory $4,000 Retained Earnings - Delta (992,000) (1) 20,000 (3) 12,000 6) Beginning inventory at selling price $25,000 (4) 4,000 x Profit ratio 20% (6) 5,000…

    • 762 Words
    • 4 Pages
    Satisfactory Essays