Essay on Accounting Basic Theory

1331 Words Aug 25th, 2013 6 Pages
1121 theory
Topic 1 BDA/inventory * Time period assumptions: firm would find it desirable to report their financial statements more frequently therefore the economic life could be divided into artificial time periods. * Why are adjusting entries required?
The purpose of balance day adjustment is to recognise revenue and expenses in the relevant Period. * Compare and contrast the purposes of adjusting entries, closing entries and reversing entries
The purpose of closing entry is to transfer profit and loss to owner’s equity account, produce a zero balance in each of the temporary account. P/L summary is another temporary account to which revenue and cost incurred in the period are closed, also it helps avoid excessive
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Example could be general reserve. Capital reserve: Contributions to the capital reserve account can be made from government subsidies, donated funds, or can be set aside from the firm's or municipality's regular revenue-generating operations. * Purpose of application , bank trust and calls
Application : to record receipt of application amount received
Bank trust: company put money they receive from the application into this account, in order to refund investors easily in the future.
Calls: a final payment required to pay by the investor * When do dividends become liabilities
On the declaration date Dr retained earning Cr dividend payable
Topic 4 Statement of Cash Flows * Explain the nature of items that would be included in the financing section of the statement of cash flows. Provide an example to support your answer. Financing section – relate to changing the size and composition of the financial structure of the entity, including equity, and borrowings not falling within the definition of cash. Relate predominately to the Non current liability and Equity section of the Statement of Financial Position but consider current loans
Cash inflows :

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