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Module 1: Demonstrações de resultados

Nota de Estudos
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Accounting - Classification

Classification

The benefits of classification may be linked to departmental Profit and
Loss statements. They include:

* enables assigning of responsibility to department managers

* measures performance of particular departments

* helps recording - specialised journals save time and effort

* assists control - performance figures may be compared with budget figures

* provides information for decision making

Benefits of classifying the balance sheet include:

* identifies relative liquidity of assets

* shows assets in need of depreciation and illustrates carrying cost of assets

* assists calculation of working capital

The question as to the benefit of preparing accounting reports more
frequently than once a year has appeared in past papers. Reasons include:

* assists planning and control by enabling comparisons with budgeted figures

* business can respond more readily to both favourable and unfavourable trends in its operations

* to help in making of policy decisions; for example, a change in prices

* more effective monitoring of the performance of the business

The repairs department may be retained despite what appears to be a
relatively poor performance because:

* after sales service attracts customers to the business to buy bicycles

* people may buy bicycles if they discover their current bicycle is beyond repair

* repairs take up a share of overhead expenses such as rent

* the resources for repairs may not be used profitably somewhere else in the business

It may be inappropriate to allocate cleaning according to floor space
because:

* the difficulty in cleaning the respective floor space may differ

* cleaning may involve more than cleaning the floor

Contribution margin is the difference between sales revenue and the
direct costs associated with earning that revenue.

Four items likely to be regarded as 'general expenses' may be chosen from:

* security

* accounting fees

* electricity

* telephone

* managers salary

* various finance expenses

* office expenses

The general journal entry would be:

Drawings
200

Cleaning

200

Correcting entry

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