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Lecture_4.pptx

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Financial accounting and auditing Lecture 4 Accounting information for trading business Financial accounting and auditing Lecture 4 Accounting information for trading business

Outline • • • Introduction Goods purchased for resale Analysis of transactions and events Outline • • • Introduction Goods purchased for resale Analysis of transactions and events Manufacturing goods for resale Analysis of transactions and events

Introduction Trading business have either: • Purchased product • Manufactured product Introduction Trading business have either: • Purchased product • Manufactured product

Goods purchased for resale (retailer) • Makes profit by selling the goods at a Goods purchased for resale (retailer) • Makes profit by selling the goods at a price which is higher than the price paid Selling price-purchased price=gross profit • Gross profit cover all the costs of running the business

Analysis of transactions Find the gross profit? Apr 1 Purchase goods from manufacturer, 100 Analysis of transactions Find the gross profit? Apr 1 Purchase goods from manufacturer, 100 items $200 at $2 each, paying in cash, storing in warehouse Apr 4 Remove 70 items to meet customers’ request. They are delivered to customer, who accepts the delivery $140 Apr 4 Customer paying cash, selling price is $2, 5 per item $175

Analysis of transactions • Transaction 1: Asset (decrease/increase)-Liabilities=O/E Transaction 2: Asset (decrease)-Liabilities=O/E expense (decrease) Analysis of transactions • Transaction 1: Asset (decrease/increase)-Liabilities=O/E Transaction 2: Asset (decrease)-Liabilities=O/E expense (decrease) Transaction 3: Asset (increase)-Liabilities=O/E revenue (increase)

Manufacturing goods for resale Here, requires: • Purchase of raw materials which are used Manufacturing goods for resale Here, requires: • Purchase of raw materials which are used in production of the finished goods

Recognition of asset in manufacturing business There are several stages where the business may Recognition of asset in manufacturing business There are several stages where the business may hold an asset of one type or another: • Unused raw material • Any finished goods which are not sold • Work in progress

Analysis of transactions July 1 Purchase raw materials from $200 supplier, 100 trays at Analysis of transactions July 1 Purchase raw materials from $200 supplier, 100 trays at $2 each July 3 Remove 80 trays from raw materials to meet production department July 4 Carry out labor work and use 120 production facilities to convert raw materials into finished goods. Additional cost per tray $1. 5 July 5 Finished goods transferred to finished goods store. Job has cost $3. 5 per tray total 280 July 10 60 Trays, which cost $3, 5 delivered to customers 210 July 10 Customer pays a price $5 cash per tray 300 160

 • Transaction 1 : Asset (increase/decrease)-Liabilities=O/E • Transaction 2: Asset (increase/decrease)-Liabilities=O/E • Transaction • Transaction 1 : Asset (increase/decrease)-Liabilities=O/E • Transaction 2: Asset (increase/decrease)-Liabilities=O/E • Transaction 3: Asset (increase/decrease)-Liabilities=O/E

 • Transaction 4: Asset (increase/decrease)-Liabilities=O/E • Transaction 5: Asset (decrease)-Liabilities=O/E (decrease) • Transaction • Transaction 4: Asset (increase/decrease)-Liabilities=O/E • Transaction 5: Asset (decrease)-Liabilities=O/E (decrease) • Transaction 6: • Asset (increase)-Liabilities=O/E (increase)