Chapter 1 Question

So I almost missed this bit! Oops.

At the end of Chapter 1 there were two questions:

Question 1-1:  Why do we have double-entry accounting? Why do we put in everything twice? Why not just once?  I hope I have answered this question in my assignment one however it was the next question that we were required to blog about.

Question 1-2:  Identify three Assets, Liabilities and three items of Equity.  Describe what each item means to you. 

Assets
Inventories
are direct materials which are stated at the lower cost and net realisable value.  In this business inventories would consist of stock that they have in their warehouse for re-sale.

Trade and other receivables normally have a 30-90 day term and are recorded at a lower amount than shown on the original invoice.  When the collection of the full amount is no longer likely the remaining amount is then assessed and written off.

Cash and cash equivalents is cash you receive straight away.  It can be cash in hand, on demand deposits with banks or short term high liquid investments which can mature in less than 3 months.

Liabilities
Trade and other payables is when a company issues an invoice for pay however the goods have already been provided.  Martin used the example in the study guide of an electricity company.

Interest bearing loans and borrowings is a loan which accrues interest over the pre-determined loan period and borrowers promise to repay the principal balance as well as any accrued interest.

Provision is an amount of money set aside in the businesses account for any known liability.  Britvic has provisions set aside mainly for contract termination costs, consultation fees and employee termination benefits.


Equity Items
Issued share capital “
is incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.”  (I had no idea how to explain this so I did need to use the footnote from the annual report.

Own shares reserve
is a recorded amount that the company uses on its own shares to distribute to employees when share awards are made through the employee share plan.

Retained losses is an amount recorded in an earnings account in the equity section of the balance sheet to represent a loss incurred by the business.

I am not feeling confident with my answers because this is way over my hear however I have done my best to explain and understand them.

question

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5 thoughts on “Chapter 1 Question

  1. Hi Sarah
    You went into great depth with those answers. Well done.
    I didn’t know that trade & other receivables are recorded a lower amount than shown on the invoice. I wonder how that works in MYOB where the invoices are put in at original amount. How does that get recorded at a lesser amount for the trade & other receivables ledger account? You have me on a path now 🙂
    Angela

    Liked by 1 person

  2. Pingback: Chapter 1 Answer 1-2 | ACCT11059 Blog

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