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HIGH LOW METHOD
High Low Method assumes a linear relationship between cost and activity which is an over simplified analysis of cost behavior. Activity based costing can provide a more useful analysis of the behavior of cost in relation to distinct activities. High Low Method is not representative of entire data as it is based on just 2 activitylevels.
VERIFIABILITY IN ACCOUNTING Verifiability means that the accounting information presented in financial statements must be verifiable by independent accountants. Verifiability helps to assure users that the financial statements are a true and fair representation of the underlying transactions.FIFO METHOD
Example. Bike LTD purchased 10 bikes during January and sold 6 bikes, details of which are as follows: The value of 4 bikes held as inventory at the end of January may be calculated as follows: The sales made on January 5 and 10 were clearly made from purchases on 1stJanuary.
ACCOUNTING FOR RECEIVABLES Accounting for Receivables. As credit sale results in increase in the income (sale revenue) and assets (receivable) of the entity, assets must be debited whereas income must be credited. In case of a credit sale, the following double entry is recorded: The double entry is same as in the case of a cash sale, except that a different asset account DERECOGNITION & WRITE OFF OF ACCOUNTS PAYABLES This is an application of the prudence concept which requires a degree of caution in the preparation of financial statements in order to avoid the overstatement of income and assets and the understatement of liabilities and expenses. Trade creditors and other payables may be de-recognized in the following circumstances: 1. Discharge ofliability.
ACCOUNTING FOR CONVERTIBLE BONDS Accounting for Convertible Bonds. 3 minutes of reading. Convertible Bonds entitle bondholders to convert their bonds into a fixed number of shares of the issuing company usually at the time of their maturity. Convertible bonds are a type of compound financial instrument with characteristics of ACCOUNTING TREATMENT OF STOLEN ASSETS & INSURANCE Accounting treatment for lost or stolen tangible fixed assets such as motor vehicles is similar to the accounting for disposal of such assets without any sale proceeds. The fixed asset must be de-recognized from the statement of financial position and a loss must LEARN ACCOUNTANCY THE EASY WAY Accounting Simplified provides interactive and easy-to-understand accounting lessons for students, professionals, teachers, and entrepreneurs for free. ACCOUNTING FOR LOAN PAYABLES Accounting for loan payables, such as bank loans, involves taking account of receipt of loan, re-payment of loan principal and interest expense. Liability for loan is recognized once the amount is received from the lender. Interest expense is calculated on the outstanding amount of the loan for that period. ACCOUNTING FOR PURCHASE RETURNS Example. Bike LTD purchases a mountain bike from BMX LTD for $100 on cash. Bike LTD later returns the bike to BMX LTD due to a serious defect in the design of the bike. The initial purchase will be recorded as follows: Upon the return of bike, the following double entry will be passed: When BMX LTD will pay $100 owed to Bike LTD inrespect of
HIGH LOW METHOD
High Low Method assumes a linear relationship between cost and activity which is an over simplified analysis of cost behavior. Activity based costing can provide a more useful analysis of the behavior of cost in relation to distinct activities. High Low Method is not representative of entire data as it is based on just 2 activitylevels.
VERIFIABILITY IN ACCOUNTING Verifiability means that the accounting information presented in financial statements must be verifiable by independent accountants. Verifiability helps to assure users that the financial statements are a true and fair representation of the underlying transactions.FIFO METHOD
Example. Bike LTD purchased 10 bikes during January and sold 6 bikes, details of which are as follows: The value of 4 bikes held as inventory at the end of January may be calculated as follows: The sales made on January 5 and 10 were clearly made from purchases on 1stJanuary.
LEARN ACCOUNTANCY THE EASY WAY Accounting Simplified provides interactive and easy-to-understand accounting lessons for students, professionals, teachers, and entrepreneurs for free.HIGH LOW METHOD
High Low Method assumes a linear relationship between cost and activity which is an over simplified analysis of cost behavior. Activity based costing can provide a more useful analysis of the behavior of cost in relation to distinct activities. High Low Method is not representative of entire data as it is based on just 2 activitylevels.
VERIFIABILITY IN ACCOUNTING Verifiability means that the accounting information presented in financial statements must be verifiable by independent accountants. Verifiability helps to assure users that the financial statements are a true and fair representation of the underlying transactions. LIMITATIONS OF ACCOUNTING & FINANCIAL REPORTING Audit is the main mechanism that enables users to place trust on financial statements. However, audit only provides ‘reasonable’ and not absolute assurance on the truth and fairness of the financial statements which means that despite carrying audit according to acceptable standards, certain material misstatements in financial statements may yet remain undetected due to the inherentDUAL ASPECT CONCEPT
Dual Aspect Concept, also known as Duality Principle, is a fundamental convention of accounting that necessitates the recognition of all aspects of an accounting transaction. Dual aspect concept is the underlying basis for double entry accounting system. ECONOMIC BATCH QUANTITY (EBQ) Economic Batch Quantity = √ ( (2 x C s x D ) / (C h (1 – D/P)) ) Where: Cs is the setup cost of a batch. D is the annual demand. P is the annual production capacity. Ch is the annual cost of holding one unit of finished inventory. The formula for calculating EBQ is very similar to EOQ with one notable difference in the denominator. ACCOUNTING TREATMENT OF STOLEN ASSETS & INSURANCE Accounting treatment for lost or stolen tangible fixed assets such as motor vehicles is similar to the accounting for disposal of such assets without any sale proceeds. The fixed asset must be de-recognized from the statement of financial position and a loss must DIRECT LABOR EFFICIENCY VARIANCE Direct Labor Efficiency Variance is the measure of difference between the standard cost of actual number of direct labor hours utilized during a period and the standard hours ACCOUNTING FOR DOUBTFUL DEBTS Allowance for doubtful debts is created by forming a credit balance which is netted off against the total receivables appearing in the balance sheet. A corresponding debit entry is recorded to account for the expense of the potential loss. Accounting entry to record the allowance for receivable is as follows: Debit Allowance for Doubtful Debts (Expense) & Credit Allowance for Doubtful Debts DEBT-TO-EQUITY RATIO Debt-to-Equity Ratio, often referred to as Gearing Ratio, is the proportion of debt financing in an organization relative to its equity. Debt-to-equity ratio directly affects the financial risk of an organization. Debt-to-equity ratio quantifies the proportion of finance attributable to debt and equity. LEARN ACCOUNTANCY THE EASY WAY Accounting Simplified provides interactive and easy-to-understand accounting lessons for students, professionals, teachers, and entrepreneurs for free. ACCOUNTING FOR LOAN PAYABLES Accounting for loan payables, such as bank loans, involves taking account of receipt of loan, re-payment of loan principal and interest expense. Liability for loan is recognized once the amount is received from the lender. Interest expense is calculated on the outstanding amount of the loan for that period. ACCOUNTING FOR PURCHASE RETURNS Example. Bike LTD purchases a mountain bike from BMX LTD for $100 on cash. Bike LTD later returns the bike to BMX LTD due to a serious defect in the design of the bike. The initial purchase will be recorded as follows: Upon the return of bike, the following double entry will be passed: When BMX LTD will pay $100 owed to Bike LTD inrespect of
HIGH LOW METHOD
High Low Method assumes a linear relationship between cost and activity which is an over simplified analysis of cost behavior. Activity based costing can provide a more useful analysis of the behavior of cost in relation to distinct activities. High Low Method is not representative of entire data as it is based on just 2 activitylevels.
VERIFIABILITY IN ACCOUNTING Verifiability means that the accounting information presented in financial statements must be verifiable by independent accountants. Verifiability helps to assure users that the financial statements are a true and fair representation of the underlying transactions.FIFO METHOD
Example. Bike LTD purchased 10 bikes during January and sold 6 bikes, details of which are as follows: The value of 4 bikes held as inventory at the end of January may be calculated as follows: The sales made on January 5 and 10 were clearly made from purchases on 1stJanuary.
ACCOUNTING FOR RECEIVABLES Accounting for Receivables. As credit sale results in increase in the income (sale revenue) and assets (receivable) of the entity, assets must be debited whereas income must be credited. In case of a credit sale, the following double entry is recorded: The double entry is same as in the case of a cash sale, except that a different asset account DERECOGNITION & WRITE OFF OF ACCOUNTS PAYABLES This is an application of the prudence concept which requires a degree of caution in the preparation of financial statements in order to avoid the overstatement of income and assets and the understatement of liabilities and expenses. Trade creditors and other payables may be de-recognized in the following circumstances: 1. Discharge ofliability.
ACCOUNTING FOR CONVERTIBLE BONDS Accounting for Convertible Bonds. 3 minutes of reading. Convertible Bonds entitle bondholders to convert their bonds into a fixed number of shares of the issuing company usually at the time of their maturity. Convertible bonds are a type of compound financial instrument with characteristics of ACCOUNTING TREATMENT OF STOLEN ASSETS & INSURANCE Accounting treatment for lost or stolen tangible fixed assets such as motor vehicles is similar to the accounting for disposal of such assets without any sale proceeds. The fixed asset must be de-recognized from the statement of financial position and a loss must LEARN ACCOUNTANCY THE EASY WAY Accounting Simplified provides interactive and easy-to-understand accounting lessons for students, professionals, teachers, and entrepreneurs for free. ACCOUNTING FOR LOAN PAYABLES Accounting for loan payables, such as bank loans, involves taking account of receipt of loan, re-payment of loan principal and interest expense. Liability for loan is recognized once the amount is received from the lender. Interest expense is calculated on the outstanding amount of the loan for that period. ACCOUNTING FOR PURCHASE RETURNS Example. Bike LTD purchases a mountain bike from BMX LTD for $100 on cash. Bike LTD later returns the bike to BMX LTD due to a serious defect in the design of the bike. The initial purchase will be recorded as follows: Upon the return of bike, the following double entry will be passed: When BMX LTD will pay $100 owed to Bike LTD inrespect of
HIGH LOW METHOD
High Low Method assumes a linear relationship between cost and activity which is an over simplified analysis of cost behavior. Activity based costing can provide a more useful analysis of the behavior of cost in relation to distinct activities. High Low Method is not representative of entire data as it is based on just 2 activitylevels.
VERIFIABILITY IN ACCOUNTING Verifiability means that the accounting information presented in financial statements must be verifiable by independent accountants. Verifiability helps to assure users that the financial statements are a true and fair representation of the underlying transactions.FIFO METHOD
Example. Bike LTD purchased 10 bikes during January and sold 6 bikes, details of which are as follows: The value of 4 bikes held as inventory at the end of January may be calculated as follows: The sales made on January 5 and 10 were clearly made from purchases on 1stJanuary.
ACCOUNTING FOR RECEIVABLES Accounting for Receivables. As credit sale results in increase in the income (sale revenue) and assets (receivable) of the entity, assets must be debited whereas income must be credited. In case of a credit sale, the following double entry is recorded: The double entry is same as in the case of a cash sale, except that a different asset account DERECOGNITION & WRITE OFF OF ACCOUNTS PAYABLES This is an application of the prudence concept which requires a degree of caution in the preparation of financial statements in order to avoid the overstatement of income and assets and the understatement of liabilities and expenses. Trade creditors and other payables may be de-recognized in the following circumstances: 1. Discharge ofliability.
ACCOUNTING FOR CONVERTIBLE BONDS Accounting for Convertible Bonds. 3 minutes of reading. Convertible Bonds entitle bondholders to convert their bonds into a fixed number of shares of the issuing company usually at the time of their maturity. Convertible bonds are a type of compound financial instrument with characteristics of ACCOUNTING TREATMENT OF STOLEN ASSETS & INSURANCE Accounting treatment for lost or stolen tangible fixed assets such as motor vehicles is similar to the accounting for disposal of such assets without any sale proceeds. The fixed asset must be de-recognized from the statement of financial position and a loss must LEARN ACCOUNTANCY THE EASY WAY Accounting Simplified provides interactive and easy-to-understand accounting lessons for students, professionals, teachers, and entrepreneurs for free.HIGH LOW METHOD
High Low Method assumes a linear relationship between cost and activity which is an over simplified analysis of cost behavior. Activity based costing can provide a more useful analysis of the behavior of cost in relation to distinct activities. High Low Method is not representative of entire data as it is based on just 2 activitylevels.
VERIFIABILITY IN ACCOUNTING Verifiability means that the accounting information presented in financial statements must be verifiable by independent accountants. Verifiability helps to assure users that the financial statements are a true and fair representation of the underlying transactions. LIMITATIONS OF ACCOUNTING & FINANCIAL REPORTING Audit is the main mechanism that enables users to place trust on financial statements. However, audit only provides ‘reasonable’ and not absolute assurance on the truth and fairness of the financial statements which means that despite carrying audit according to acceptable standards, certain material misstatements in financial statements may yet remain undetected due to the inherentDUAL ASPECT CONCEPT
Dual Aspect Concept, also known as Duality Principle, is a fundamental convention of accounting that necessitates the recognition of all aspects of an accounting transaction. Dual aspect concept is the underlying basis for double entry accounting system. ECONOMIC BATCH QUANTITY (EBQ) Economic Batch Quantity = √ ( (2 x C s x D ) / (C h (1 – D/P)) ) Where: Cs is the setup cost of a batch. D is the annual demand. P is the annual production capacity. Ch is the annual cost of holding one unit of finished inventory. The formula for calculating EBQ is very similar to EOQ with one notable difference in the denominator. ACCOUNTING TREATMENT OF STOLEN ASSETS & INSURANCE Accounting treatment for lost or stolen tangible fixed assets such as motor vehicles is similar to the accounting for disposal of such assets without any sale proceeds. The fixed asset must be de-recognized from the statement of financial position and a loss must DIRECT LABOR EFFICIENCY VARIANCE Direct Labor Efficiency Variance is the measure of difference between the standard cost of actual number of direct labor hours utilized during a period and the standard hours ACCOUNTING FOR DOUBTFUL DEBTS Allowance for doubtful debts is created by forming a credit balance which is netted off against the total receivables appearing in the balance sheet. A corresponding debit entry is recorded to account for the expense of the potential loss. Accounting entry to record the allowance for receivable is as follows: Debit Allowance for Doubtful Debts (Expense) & Credit Allowance for Doubtful Debts DEBT-TO-EQUITY RATIO Debt-to-Equity Ratio, often referred to as Gearing Ratio, is the proportion of debt financing in an organization relative to its equity. Debt-to-equity ratio directly affects the financial risk of an organization. Debt-to-equity ratio quantifies the proportion of finance attributable to debt and equity. LEARN ACCOUNTANCY THE EASY WAY Accounting Simplified provides interactive and easy-to-understand accounting lessons for students, professionals, teachers, and entrepreneurs for free. ECONOMIC BATCH QUANTITY (EBQ) Economic Batch Quantity = √ ( (2 x C s x D ) / (C h (1 – D/P)) ) Where: Cs is the setup cost of a batch. D is the annual demand. P is the annual production capacity. Ch is the annual cost of holding one unit of finished inventory. The formula for calculating EBQ is very similar to EOQ with one notable difference in the denominator. IAS 8 CHANGES IN ACCOUNTING ESTIMATES Example. ABC LTD has depreciated a machine over its expected useful life of 5 years. The cost of machine was $100,000 and annual depreciation charge was therefore $25,000. No residual value is expected at the end of the machine’s useful life. Three years later, the remaining useful life of the machine was estimated to be only 1years.
HIGH LOW METHOD
High Low Method assumes a linear relationship between cost and activity which is an over simplified analysis of cost behavior. Activity based costing can provide a more useful analysis of the behavior of cost in relation to distinct activities. High Low Method is not representative of entire data as it is based on just 2 activitylevels.
LEARN ACCOUNTANCY THE EASY WAY Accounting Simplified provides interactive and easy-to-understand accounting lessons for students, professionals, teachers, and entrepreneurs for free. ECONOMIC BATCH QUANTITY (EBQ) Economic Batch Quantity = √ ( (2 x C s x D ) / (C h (1 – D/P)) ) Where: Cs is the setup cost of a batch. D is the annual demand. P is the annual production capacity. Ch is the annual cost of holding one unit of finished inventory. The formula for calculating EBQ is very similar to EOQ with one notable difference in the denominator. IAS 8 CHANGES IN ACCOUNTING ESTIMATES Example. ABC LTD has depreciated a machine over its expected useful life of 5 years. The cost of machine was $100,000 and annual depreciation charge was therefore $25,000. No residual value is expected at the end of the machine’s useful life. Three years later, the remaining useful life of the machine was estimated to be only 1years.
HIGH LOW METHOD
High Low Method assumes a linear relationship between cost and activity which is an over simplified analysis of cost behavior. Activity based costing can provide a more useful analysis of the behavior of cost in relation to distinct activities. High Low Method is not representative of entire data as it is based on just 2 activitylevels.
ACCOUNTING FOR LOAN PAYABLES Accounting for loan payables, such as bank loans, involves taking account of receipt of loan, re-payment of loan principal and interest expense. Liability for loan is recognized once the amount is received from the lender. Interest expense is calculated on the outstanding amount of the loan for that period. ACCOUNTING TREATMENT OF STOLEN ASSETS & INSURANCE Accounting treatment for lost or stolen tangible fixed assets such as motor vehicles is similar to the accounting for disposal of such assets without any sale proceeds. The fixed asset must be de-recognized from the statement of financial position and a loss must DERECOGNITION & WRITE OFF OF ACCOUNTS PAYABLES This is an application of the prudence concept which requires a degree of caution in the preparation of financial statements in order to avoid the overstatement of income and assets and the understatement of liabilities and expenses. Trade creditors and other payables may be de-recognized in the following circumstances: 1. Discharge ofliability.
DIRECT LABOR EFFICIENCY VARIANCE Direct Labor Efficiency Variance is the measure of difference between the standard cost of actual number of direct labor hours utilized during a period and the standard hoursPREPAID INCOME
Prepaid income is revenue received in advance but which is not yet earned.Income must be recorded in the accounting period in which it is earned. Following accounting entry is required to account for the prepaid income: Debit- Cash/Bank & Credit- Prepaid Income (Liability) DEBT-TO-EQUITY RATIO Debt-to-Equity Ratio, often referred to as Gearing Ratio, is the proportion of debt financing in an organization relative to its equity. Debt-to-equity ratio directly affects the financial risk of an organization. Debt-to-equity ratio quantifies the proportion of finance attributable to debt and equity. ACCOUNTING FOR ORDINARY SHARE CAPITAL Share Premium. $250,000. ($0.25 x 1 million) Note. The total amount recognized in the share capital account is $1 million which equates to the nominal value of the issued shares (i.e. $1 per share) whereas the cash proceeds over and above the nominal value amounting $500,000 (i.e. $0.5 per share) has been credited to the share premium account.HIGH LOW METHOD
High Low Method assumes a linear relationship between cost and activity which is an over simplified analysis of cost behavior. Activity based costing can provide a more useful analysis of the behavior of cost in relation to distinct activities. High Low Method is not representative of entire data as it is based on just 2 activitylevels.
ACCOUNTING FOR LOAN PAYABLES Accounting for loan payables, such as bank loans, involves taking account of receipt of loan, re-payment of loan principal and interest expense. Liability for loan is recognized once the amount is received from the lender. Interest expense is calculated on the outstanding amount of the loan for that period. ACCOUNTING FOR SALES TAX ON PURCHASES- EXPLANATION AND Example: Sales Tax on Purchases. Bike LTD purchases a mountain bike from BMX LTD for $115 on credit. Sales tax is 15%. As the purchase of $115 includes an element of sales tax, we need to first separate tax from the gross amount. Input tax on the transaction may be calculated as follows: Sales Tax: 115 x 15/115 = $15. AUDIT RISK & BUSINESS RISK Audit risk is the risk that the auditor expresses an inappropriate audit opinion on the financial statements. Audit risk therefore includes any factors that may cause a material misstatement or omission in the financial statements. Whereas business risks relate to the organization and its stakeholders, audit risk relates specificallyto an auditor.
DUAL ASPECT CONCEPT
Dual Aspect Concept, also known as Duality Principle, is a fundamental convention of accounting that necessitates the recognition of all aspects of an accounting transaction. Dual aspect concept is the underlying basis for double entry accounting system.FIFO METHOD
Example. Bike LTD purchased 10 bikes during January and sold 6 bikes, details of which are as follows: The value of 4 bikes held as inventory at the end of January may be calculated as follows: The sales made on January 5 and 10 were clearly made from purchases on 1stJanuary.
MONEY MEASUREMENT CONCEPT IN ACCOUNTING The recognition criteria defined by IASB and FASB require that the elements of financial statements (i.e. assets, liabilities, income and expense) must only be recognized in the financial statements if its cost or value can be measured with sufficient reliability. Therefore, an entity shall not recognize an element of financial statement unless a reliable value can be assigned to it. REORDER POINT OF INVENTORY Reorder Point = (Average Lead time x Average usage) + Safety Stock. where: Average Lead Time is the average number of days it takes between the moment an order is placed and when the inventory is actually received from the supplier and made available forconsumption.
ACCOUNTING FOR DOUBTFUL DEBTS Allowance for doubtful debts is created by forming a credit balance which is netted off against the total receivables appearing in the balance sheet. A corresponding debit entry is recorded to account for the expense of the potential loss. Accounting entry to record the allowance for receivable is as follows: Debit Allowance for Doubtful Debts (Expense) & Credit Allowance for Doubtful DebtsSkip to content
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