ACCT1006 Study Guide - Midterm Guide: Retained Earnings
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Thursday, 19 September 2019
-Asset deﬁnition: have future economic beneﬁts !
•1. resource control by entity!
•2. as a result of past events!
•3. from which future economic beneﬁts are expected to ﬂow to entity !
-How do future economic beneﬁts ﬂow to entity which controls the supplies? Use !
Adjusting entries (W2)!
-To update ledger accounts!
-Performed when ﬁnancial statements are prepared !
-Example of adjusting entires !
•Original: DR rent exp 36,000 CR cash!
•Adjusting: used $3000; thus DR prepaid rent 33,000 CR rent exp 33,000!
-Basis on what inventory is measured: Lower of cost and NRV (net realisable
•if cost > NRV, write down inventory to NRV!
•if cost <NRV, no change required !
-For cost, can be actual cost (unit identiﬁcation method) or make cost ﬂow
assumptions (FIFO, average, LIFO)!
•Perpetual inventory: apply cost ﬂow assumption continuously throughout !
•Periodic inventory: apply cost ﬂow assumption only at the end (ONCE)!
-Example: Perpetual inventory at FIFO!
•End value (not always recorded ﬁnancial statements) as it can be adjusted by
stock-take adjustment & LCNRV !