VCE Accounting Question Thread!

[chasej]

how do you record a period cost? Essentials Book says it's recorded it it's own ledger account but in the exercises they put a period cost in the general journal

How does using a period cost affect the accounting equation? As the period cost is assigned in its entirety, regardless of how many stock items were sold, does this mean it overstates the cost of goods sold or cost of sales? Again textbook says it understates cost of goods sold which I don't understand

A period cost is recorded in the relevant journal, not necessarily a journal journal. If it is a cash payment of the cost, it goes into cash payments journal. If it is on credit it goes in the general journal as it is a sundry creditor. Period cost is simply the way buying expenses have been recorded in unit 3, in their own ledger account classified under "Cost of Goods Sold" in the income statement. The only actual change in recording of buying expenses is with product costing, which includes buying expenses within the value of stock if it is logical to do so, eliminating the need for the extra ledger account to record the buying expense.

Period cost results in Cost Of Goods Sold being overstated, as it records the entire buying expense as being incurred in the period it is paid/charged, when in reality the entire expense is not incurred as the stock it is associated with has not been sold. It understates cost of sales, as the figure representing the buyers expense for each stock only includes the supplier's price of stock itself as the buying expenses weren't calculated in the value of stock. The essentials textbook has a mistake which says COGS is understander, COGS is overstated, I actually encountered that issue earlier today when I was writing notes on period cost.

[Jason12]

explain why sales returns is classified as a negative revenue account?

[chasej]

explain why sales returns is classified as a negative revenue account?

Because it is important that sales return be clearly shown in the balance sheet so the owner can ascertain the level of returns in order to make important decisions to rectify the issues causing the returns, whether the issue is faulty/damaged stock or bad customer service etc.

If sales return was not recorded separately, sales revenue would just be debited and the owner may not find out about the returns affecting net (and gross) profit.

Effectively, it is just the debit side of the sales revenue ledger which is put into another separate ledger so a person reading the final report can easily ascertain the level of returns when looking at the income statement.

[sam.utute]

How's everyone finding Unit 4?

The course really starts heating up about halfway through Unit 4.

I am back from my trip overseas so will try and be more active on this thread.

Sam

[Jason12]

why is disposal an OE account?

[demand&supply]

why is disposal an OE account?

This is because during a cash sale of a NCA or trade-in, money (or economic inflow) received differs to its carrying value. If selling NCA for a price higher than carrying value (historical cost less any depreciation), it leads to a profit on disposal which is considered to be a revenue as it is an inflow of economic benefit because your selling something for a higher price than expected, thus it influence profit and owner's equity. Vice versa, if the price sold or traded is lower than calculated carrying value (most of the case) it is an expense due to reduction in economic outflow, as a result it is the account is classified as OE as it can be both a revenue or expense.

Hope this helps 

[Rachelle]

If stock was puchased on credit, does it still get recorded in the stock card?
For instance; purchased on credit 10 watches @$25 each, plus $2.50 GST (inv 933)
Any response greatly appreciated!

[sam.utute]

If stock was puchased on credit, does it still get recorded in the stock card?
For instance; purchased on credit 10 watches @$25 each, plus $2.50 GST (inv 933)
Any response greatly appreciated!

Because there is a physical or real increase in stock on hand. Remember, your stock card is your measure of how much stock you actually have on hand at any point in time.

It doesn't matter how you purchase stock; cash or credit. A purchase of stock increases your inventory, and therefore needs to be recorded as such in the stock card.

In case you're unclear about what a purchase on credit represents:
We receive an invoice from the supplier accompanied by stock. We store the stock and begin selling it, promising to repay the supplier at some later date.

[Rachelle]

Because there is a physical or real increase in stock on hand. Remember, your stock card is your measure of how much stock you actually have on hand at any point in time.

It doesn't matter how you purchase stock; cash or credit. A purchase of stock increases your inventory, and therefore needs to be recorded as such in the stock card.

In case you're unclear about what a purchase on credit represents:
We receive an invoice from the supplier accompanied by stock. We store the stock and begin selling it, promising to repay the supplier at some later date.

thanks !

[Rachelle]

Also, when it is deduced that a stock loss has occurred, what effect will it have on OE? Is it that theres no effect? Because stock loss is an expense, this will decrease Net Profit, which will in turn decrease OE. Thus, having exactly the same effect. I dont get how this is so?

[Zealous]

Also, when it is deduced that a stock loss has occurred, what effect will it have on OE? Is it that theres no effect? Because stock loss is an expense, this will decrease Net Profit, which will in turn decrease OE. Thus, having exactly the same effect. I dont get how this is so?

Stock Loss results in a decrease in Assets and decrease in Owners Equity. You've explained it yourself, because Stock Loss is an expense it will reduce Net Profit leading to a decrease in Owners Equity.

[Jason12]

why do we debit accumulated depreciation when we removing the non-current asset. Acc dep is usually a negative asset so it is credited but why debited now?

[chasej]

why do we debit accumulated depreciation when we removing the non-current asset. Acc dep is usually a negative asset so it is credited but why debited now?

Because as we are disposing of the asset the acc dep ledger is no longer relevant and must be closed to the disposal account so profit or loss on the disposal can be determined. We Debit it simply to transfer the balance, it's an accounting procedure, nothing to do with the physical asset itself, aside from preparing its disposal.

[marsbareater12]

"70.   Explain why the receipt of accrued revenue in a subsequent period requires the receipt to be split in the Cash Receipts Journal"

At the moment I have As only part of the revenue was actually earned in the current Reporting Period, the receipt is split in the CRJ to reflect this, but I feel like that's not going to get full marks in an exam situation; anything else I'm missing here?

[Eugenet17]

Mad Magazines has a term deposit for $10000 and earns 12% per annum interest. Interest is paid quarterly from the commencement of the term deposit on the 1 November 2013. THe first payment of interest was on the 1 February 2014. Complete the Accrued Interest Revenue account for the quarter ended 30 June 2014.

This was the answer:
April. 1 |   Balance            | 200        |   April.30 | Bank | 200
Jun.30 | Interest Revenue| 200       |

This doesn't look right to me, could someone go through this question and make sense of it?