VCE Accounting Question Thread!

[Kuroyuki]

I don't like this answer. IMO it doesn't answer the question very well, doesnt make much sense and the question itself isnt that specific.
The answer says basically why a business would use FIFO. Because its easier, more practical. It says that FIFO is an assumption and doesnt reflect the actual flow of stock.
The answer then goes on to say about when higher priced stock is sold first the implications on profit, basically in times of falling prices. What does not make sense is why is profit higher. IF the most expensive stock is assumed sold COGS would be higher and NP will be lower. Maybe they meant something like even though it might actualy be the most expensive stock leaving the business under FIFO is is assumed that a cheaper unit is leaving resulting in a higher NP. The answer doesnt really address COS or OE.

[sin0001]

Sales Returns included in the General Journal when closing either the expenses/revenues at end of the R.P.?
My teacher said that they must be included when closing revenues to P & L Summary, as they're certainly not an expense. Just making sure I didn't mishear

[FunkyAfrican]

Yeah it is a bit vague.

Since there is no extra writing space, how do you recommend staying withing the confines of the allocated box for a theory question as I always find it is not enough space?

[Damoz.G]

Sales Returns included in the General Journal when closing either the expenses/revenues at end of the R.P.?
My teacher said that they must be included when closing revenues to P & L Summary, as they're certainly not an expense. Just making sure I didn't mishear

Thats actually a good question. It wouldn't be reported as a Revenue, because it is a negative Revenue, but not an Expense though either. Actually, I'm gonna email my teacher about that.

Yeah it is a bit vague.

Since there is no extra writing space, how do you recommend staying withing the confines of the allocated box for a theory question as I always find it is not enough space?

You are allowed to write under the lines - Your assessor will read it.

[Kuroyuki]

I dont know either.
I personally close it off with expenses cuz it makes my general journal more clean.
In one exam i did it said like expenses were like 243733 and for some reason they included sales returns in that.. :/

[Damoz.G]

I dont know either.
I personally close it off with expenses cuz it makes my general journal more clean.
In one exam i did it said like expenses were like 243733 and for some reason they included sales returns in that.. :/

Well I guess if you do Total Revenues less Total Expenses in the General Journal, it should match the actual Net Profit figure. Therefore, I guess it should be reported under Expenses, even though its a negative Revenue.

[sin0001]

Well I guess if you do Total Revenues less Total Expenses in the General Journal, it should match the actual Net Profit figure. Therefore, I guess it should be reported under Expenses, even though its a negative Revenue.

Hmm I was thinking that since they're reported with in the Revenues section, they should also be closed with the revenues... just a thought

[lmaoss]

I was told that they are recorded separately in the General Journal because they are neither revenues or expenses.

[ashs_vb]

Well I guess if you do Total Revenues less Total Expenses in the General Journal, it should match the actual Net Profit figure. Therefore, I guess it should be reported under Expenses, even though its a negative Revenue.

But if you credit the entry with the revenues in the general journal then you should get the same net profit figure if you have done the income statement properly plus the right total revenue and expense figure is achieved so it does match the net profit figure. Its sort of like drawings and accumulated depreciation, acc dep is not a liability but you could say it is a negative asset. Also with drawings, they are negative capital( if that makes sense) so the negative classification is very important.

But if you think about it, technically the sales returns account should be closed to the sales account and only reported, not specifically recorded in  its entirety as a negative revenue or expense. As sales returns are presented for the owner to see, who only views the reports in most cases, they shouldn't need a closing to the p and l as the accountant can decipher the transaction. Oh well, guess all these 'glitches' will be sorted out at uni.

[FunkyAfrican]

I came across a question asking for ways to improve Working capital ratio, the solutions just detailed ways to improve debtors turnover like leaving remainders, this would mean that debtors pay sooner and debtors control and assets decrease, leading to a decrease in WKR.

I dunno I guess I just thought an improvement in WKR was for it to increase. Sure we don't want it too high, doesn't a decreasing WKR also indicating a reduced ability  to meet debts???

[TimmyC]

I came across a question asking for ways to improve Working capital ratio, the solutions just detailed ways to improve debtors turnover like leaving remainders, this would mean that debtors pay sooner and debtors control and assets decrease, leading to a decrease in WKR.

I dunno I guess I just thought an improvement in WKR was for it to increase. Sure we don't want it too high, doesn't a decreasing WKR also indicating a reduced ability  to meet debts???

A WCR is a measure of a firms efficiency in the way of covering it's short term debt.
Having a excessively high WCR (like >2) means that a firm is not investing it's excess cash, thus wasting opportunities to make greater profits or revenue. A good WCR is regarded as anywhere from 1-2

[FunkyAfrican]

A WCR is a measure of a firms efficiency in the way of covering it's short term debt.
Having a excessively high WCR (like >2) means that a firm is not investing it's excess cash, thus wasting opportunities to make greater profits or revenue. A good WCR is regarded as anywhere from 1-2

I understand, But it was currently 1.5:1 and  It was just tough to choose in which direction an improvement would occur.

[massachusetts8]

I'm stuck on a question. Okay, the PRE-adjustment trial balance as at 30 June 2013 says the Prepaid Rent Expense is 9000. Reports are prepared on a quarterly basis. The Prepaid Rent Expense was paid 12months in advance on 1 January 2013, Calculate the Prepaid Rent Expense balance as at 30 June 2013.
So the answer is 6000 but I dont know how they got that because in my eyes,
9000 represents 12 months so thats 750 per month and 2250 per quarter and after one quarter (Jan to March) the Prepaid Rent Expense would be 6750 so then after another quarter (Apr-June) it should be 6750-2250 which is 4500. What am I doing wrong? :/
Its from a PES Exam btw.

[Damoz.G]

I'm stuck on a question. Okay, the PRE-adjustment trial balance as at 30 June 2013 says the Prepaid Rent Expense is 9000. Reports are prepared on a quarterly basis. The Prepaid Rent Expense was paid 12months in advance on 1 January 2013, Calculate the Prepaid Rent Expense balance as at 30 June 2013.
So the answer is 6000 but I dont know how they got that because in my eyes,
9000 represents 12 months so thats 750 per month and 2250 per quarter and after one quarter (Jan to March) the Prepaid Rent Expense would be 6750 so then after another quarter (Apr-June) it should be 6750-2250 which is 4500. What am I doing wrong? :/
Its from a PES Exam btw.

Yes the balance is 6000.

You gotta work backwards with this question, and it helps to draw up a timeline.

Okay, so with this Question, the first thing to note, is that Reports are prepared quarterly, and since we have been told that we are now on Balance Day at June 30 2013, it means that this Reporting Period is April-June. Why? Quarterly is three months, so counting backwards from June three months is April 1. It might help if I said these are the Reporting Periods:
* Jan, Feb, March
* April, May, June
* July, August, September
* October, November, December

Sometimes they may trick you and it won't be as simple as that for quarterly Reporting Periods, which is why you gotta work backwards from the date given.

So from this timeline, where are we?
* Jan, Feb, March
* April, May, June <----- HERE! We're on Balance Day for the end of the Reporting Period, so June 30.
* July, August, September
* October, November, December

Now look back at the Balance of the Prepaid Rent Expense and it was $9000. This was as at April 1, 2013 because the Reporting Period is April to June. Then, look at when the Prepaid Rent Expense was paid, and for how long. So we can see that it was paid on January 1 2013 for 12 months (annual). So, January, February and March have already been accounted for, and the Expense was allocated in the previous Reporting Period as at March 31, so cross them out:
* Jan, Feb, March
* April, May, June <----- HERE! We're on Balance Day for the end of the Reporting Period, so June 30.
* July, August, September
* October, November, December

After the last Reporting Period concluded, how many months were left on the Prepaid Rent Expense? 12 minus 3 (Jan, Feb, March) = 9. So as at April 1, 9 Months are left. So now, the balance was 9000, and divide this by 9 months remaining = $1000 per month is the Expense, so for a Reporting Period, its 3x$1000=$3000

So now, the question is asking, whats the balance as at June 30 2013. So now we need to take off another 3 months (April, May, June) because we have already consumed them.
* Jan, Feb, March
* April, May, June <----- HERE! We're on Balance Day for the end of the Reporting Period, so June 30.
* July, August, September
* October, November, December

How many months left on the Prepaid Rent Expense? 6 months. And just before, we calculated the amount for each month is $1000 per month. So 6 x $1000 = $6000 remaining for the Prepaid Rent Expense, as at June 30 2013.

Hope this helps! I tried to break it down as much as I could, but if you still don't get one of the steps, let me know.

The mistake you made was thinking that the whole Prepaid Rent Expense paid on January 1 2013, was $9,000, and missed the Balance Day date on March 31 2013, when the Expense for January to March was already accounted for and recognised as an Expense in the previous Reporting Period.

[Damoz.G]

I came across a question asking for ways to improve Working capital ratio, the solutions just detailed ways to improve debtors turnover like leaving remainders, this would mean that debtors pay sooner and debtors control and assets decrease, leading to a decrease in WKR.

I dunno I guess I just thought an improvement in WKR was for it to increase. Sure we don't want it too high, doesn't a decreasing WKR also indicating a reduced ability  to meet debts???

What happens when a Debtor pays you back? Your Bank increases, so therefore Assets increase as well

Whilst Debtors ↓, Bank ↑, so the effect on the Accounting Equation, is simply no increase or decrease (Unless there was a Discount Expense involved). So with this actually helps WCR, because that cash recieved can immediately be used to pay the firm's short-term debts. Otherwise, you would have to wait for the Debtors to pay you back, and then receive the money to pay short-term debts. You can't pay your short-term debts by transferring a Debtor over to another firm who is a Liability to you.