Accounting Notes
AB1102: Accounting 2 Notes
Objective of Financial Statements – objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity.
2 roles of financial reporting: Contracting (backward looking) and Valuation (forward looking)
Qualitative Characteristics (QC) of Useful Financial Information
- Relevance o Predictive value of Confirmatory value o Materiality
- Faithful Representation o Complete o Neutral o Free from error
Enhancing QC
- Comparability
- Verifiability
- Timeliness
- Understandability Seminar 5: Revenue Recognition
Revenue is the inflow of economic benefits from the course of the ordinary activities of an entity. (Recurring revenue)
FRS 18:14: Revenue from Sale of Goods to be recognised when all the conditions have been satisfied
- Transfer of significant risks and rewards of ownership
- No managerial involvement and effective control over the goods sold
- Inflow of economic benefits is probable
- Amount of revenue can be measured reliably
- Cost incurred or to be incurred can be measured reliably
Credit Sales
DR AR XXX CR Sales Revenue XXX
To record the sale DR Cash XXX
DR Sales Discount XXX CR AR XXX
To record payment with sales discount
Credit Card Sales
DR AR XXX
DR Credit Card Discount (contra Revenue or selling exp) XXX CR Sales Revenue XXX
To record the sales
Sales Returns and Allowances
DR Sales Returns and Allowances (contra Revenue) XXX CR AR / Cash XXX To record the sales return
With GST
DR AR / Cash XXX CR Sales Revenue XXX CR GST Payable XXX
If is purchase goods, DR GST receivable (GST registered)
Usually GST payable > GST receivable because company usually buys at a lower price than
Objective of Financial Statements – objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity.
2 roles of financial reporting: Contracting (backward looking) and Valuation (forward looking)
Qualitative Characteristics (QC) of Useful Financial Information
- Relevance o Predictive value of Confirmatory value o Materiality
- Faithful Representation o Complete o Neutral o Free from error
Enhancing QC
- Comparability
- Verifiability
- Timeliness
- Understandability Seminar 5: Revenue Recognition
Revenue is the inflow of economic benefits from the course of the ordinary activities of an entity. (Recurring revenue)
FRS 18:14: Revenue from Sale of Goods to be recognised when all the conditions have been satisfied
- Transfer of significant risks and rewards of ownership
- No managerial involvement and effective control over the goods sold
- Inflow of economic benefits is probable
- Amount of revenue can be measured reliably
- Cost incurred or to be incurred can be measured reliably
Credit Sales
DR AR XXX CR Sales Revenue XXX
To record the sale DR Cash XXX
DR Sales Discount XXX CR AR XXX
To record payment with sales discount
Credit Card Sales
DR AR XXX
DR Credit Card Discount (contra Revenue or selling exp) XXX CR Sales Revenue XXX
To record the sales
Sales Returns and Allowances
DR Sales Returns and Allowances (contra Revenue) XXX CR AR / Cash XXX To record the sales return
With GST
DR AR / Cash XXX CR Sales Revenue XXX CR GST Payable XXX
If is purchase goods, DR GST receivable (GST registered)
Usually GST payable > GST receivable because company usually buys at a lower price than