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CHAPTER 7
COST/REVENUE
Revenues: inflows (creation) of assets (cash, receivable) = result from the sale of
goods and services to customers.
Expenses: outflows (consumption) of resources that were required in order to
generate revenues.
1
2)
+
+
+
A
D1
D2
+
-
604
504
601,602,61., 62.
501,502,503,51.
52.
53.
64.
54.,55.
Financial revenues
Financial expenses
PROFIT (LOSS) FROM FINANCIAL
OPERATIONS
66.
56.,57.
I.
ORDINARY INCOME
+
-
68.
58.
Extraordinary revenues
Extraordinary expenses
EXTRAORDINARY PROFIT
(LOSS)
593
II.
EXTRAORDINARY
INCOME
591
A+B-D1
C-D2
I.+II.
See appendix A for more details about included expenses and revenues!
Types of accounts
With respect to type of two basic statements, i. e.:
1) balance sheet is reporting structure and value of assets and liabilities,
2) profit and loss account (income statement) is reporting expenses and
revenues and structure of profit (loss),
we recognize two types of accounts:
1) real accounts (accounts which relate to balance sheet, i. e. accounts of assets
and liabilities)
D
asset
OB
X
Increase
TDM
Decrease
liability
OB
Decrease
TCM
TDM
CB
Increase
TCM
CB
2) nominal accounts (accounts which relate to profit and loss account, i. e. accounts
of expenses and revenues)
D
expense
Increase
revenue
Increase
TDM = CB
TCM = CB
Notice:
2)
increase of asset,
2)
2. Current ass.
Total A
1. Equity
Operating exp.
Operating rev.
PROFIT
Financial exp.
Financial rev.
Extraordinary
exp.
PROFIT
Extraordinary
rev.
2. Not-owncap.
=
Total L
Total (E+profit) =
Total R
2. Current ass.
Total A
1. Equity
Operating exp.
Operating rev.
- LOSS
Financial exp.
Financial rev.
Extraordinary
exp.
Extraordinary
rev.
LOSS
2. Not-owncap.
=
Total L
Total E
= Total (R+loss)
EXERCISE 7.1
Enterprise starts a new month period with following structure of its assets and
liabilities:
Opening balance sheet as of June, 1st
Assets
Liabilities
Fixed Assets:
Equity:
Machinery
20000 Capital
Office furniture
40000
8000
Current Assets:
Not-own-capital:
Inventories
4000
Bank account
5000
Assets
43000 Liabilities
3000
43000
Event
nr.
1
2
Text
Amount
()
800
a) 2000
b) 3200
a) 600
b) 900
2500
100
60
a) 400
b) 600
700
Debit
Credit
General ledger
Real accounts:
Nominal accounts:
Trial Balance
Account
Closing balances
D
C
TOTAL
=
Liabilities
Fixed Assets:
Equity:
Current Assets:
Not-own-capital:
Revenues
EXERCISE 7.2
A company has the following assets and liabilities at 31st December (in ):
Premises 40000, Suppliers 3000, Inventories 8000, Amounts owed for rates at 31st
December 350, Cash on hand 2100, Balance at bank overdrawn 4300, Customers
5000, Equipment 6000.
Review questions:
a)
b)
If, six months later, the capital has increased by 7000 what reasons could
account for this?
c)
If, six months later, the capital has decreased by 5000 what could be the
reasons for this decrease?
EXERCISE 7.3
Which category of expenditure do the following payments fall into? Indicate with a
tick.
Event
Capital
expenditure
10
Revenue
expenditure
EXERCISE 7.4
Classify the following items as capital or revenue expenditure. In each case give
reason for your classification.
Event
Capital
expenditure
Revenue
expenditure
EXERCISE 7.5
C. Horne started business as a shoe shop retailer on 1st June with 40000 deposited
in a business bank account.
Opening balance sheet as of June, 1st
Assets
Liabilities
Assets
Liabilities
Event
nr.
1
4/6
6/6
7/6
9/6
3
4
5
10/6
14/6
6
7
18/6
Text
Purchased shoes, from M&Co. on
credit
Sold shoes which had cost, 80 for
110, received cash
Paid rent for shop, by cheque
Purchased more shoes for cash
Sold the shoes purchase on 7th June,
received cash
Bought shop fittings, paid cheque
Sold shoes (cost 2400) to Jones on
credit, for 3000
Paid cheque to M&Co. as part
settlement of account
11
Amount
()
4000
a) 80
b) 110
120
60
a) 60
b) 100
2500
a) 2400
b) 3000
2500
Debit
Credit
20/6
22/6
23/6
26/6
9
10
11
12
General ledger
Real accounts:
Cash on hand
Bank account
OB
TDM
CB
TCM
TCM
TDM
CB
Merchandise
TDM
CB
TCM
TCM
TCM
Customers
TDM
CB
TCM
Suppliers
TDM
TCM
CB
TDM
Capital
OB
TCM
CB
Nominal accounts:
Revenue:
Revenues from merchandise sold
TDM=CB
TCM=CB
12
Expense: Wages
TDM=CB
TDM=CB
Expense: Consumption of material
TDM=CB
Trial Balance
Account
Closing balances
D
C
TOTAL
=
Liabilities
Fixed Assets:
Equity:
Current Assets:
Not-own-capital:
13
Revenues
14
Study case
INVENTORY "BOOKKEEPING"
Accounting units could choose one of two possible methods for inventory
bookkeeping. These methods are known as method "A" and "B" in Czech
accounting system.
Method A is useful for such firms, which have a large number and quite big
turnover of inventories because it administers monitoring of inventories movements
by accounting system too.
Inventory
Expense:Consumption of
(i.e.Merchandise)
inventory (Sold merchandise)
Cash
X
X X
X
1 a) Cash purchase
2 a) Consumption (valued by
cost of acquisition)
Suppliers
X
X
1 b) Purchase on credit
Revenue from
inv. sold
X
2 ba) Cash sale (valued by
sale price)
Cash
X
Customers
X
X
2 bb) Sale on credit (valued by
sale price)
15
Method B is proper for such firms, which provide for example services,
inventories place only insignificant part of their assets values. This method
supposes that inventories are consumed directly after their acquisition. This
method does not observe the inventories movements in the storage room in
accounting system.
Expense:Consumption of
inventory (Sold merchandise)
X
Cash
X
1 a) Cash purchase
Suppliers
X
1 b) Purchase on credit
Revenue from
inv. sold
X
2 ba) Cash sale (valued by
sale price)
Cash
X
Customers
X
X
2 bb) Sale on credit (valued by
sale price
16
EXERCISE 7.6
Write up the accounts of J. Brunsdon from the following information. Keep your real
accounts separate from your nominal accounts.
Use the method "B" of inventory records.
On March, 1st, J. Brunsdon starts business as a retailer of video equipment with
45000 in cash.
Journal
Date
3.III
4.III
5.III
Event
nr.
1
2
3
6.III
7.III
8.III
5
6
10.III
12.III
7
8
9
14.III
18.III
20.III
21.III
22.III
10
11
12
13
14
23.III
24.III
15
16
25.III
17
26.III
18
27.III
28.III
19
20
31.III
21
Text
Buys shop premises, pays in cash
Cash paid into a business bank account
Stock of video equipment purchased on
credit from V.S.Ltd.
Purchase of shop fittings - payment by
cheque
Assistants wages, paid in cash
Purchase of office furniture - payment by
cheque
Cash sales of video
equipment
Stationery paid for in cash
Insurance premium paid by cheque
Credit sales of video equipment to PTS
Ltd.
Rates paid by cheque
Cash sales of video equipment
Wages paid in cash
Purchases of video equipment - paid for
by cheque
Advertising costs, paid in cash
Cheque received from PTS Ltd. as part
payment of account
Amount
()
28000
15000
8000
1200
60
600
1600
48
65
1930
280
4120
270
3000
140
700
4000
7940
310
4000
214
Journal balance
17
Debit
Credit
Tasks:
1)
2)
3)
4)
5)
Liabilities
Assets
Liabilities
General ledger
Real accounts:
Nominal accounts:
18
19
Trial Balance
Account
Closing balances
D
C
TOTAL
=
Liabilities
Fixed Assets:
Equity:
Current Assets:
Not-own-capital:
20
Revenues
EXERCISE 7.7
Write up the accounts of B. Rawle from the following information. Keep real accounts
separate from your nominal accounts.
Use the method "B" of inventory records.
On May, 1st B. Rawle starts business as the sole proprietor of a music shop, with
40000 in cash.
Journal:
Date
2.V
Event
nr.
1
4.V
6.V
2
3
7.V
10.V
12.V
16.V
18.V
4
5
6
7
8
20.V
24.V
9
10
25.V
11
12
26.V
27.V
28.V
13
14
15
16
Text
Pays cash into a business bank account
Purchases sheet music on credit, from
J.M.
Buys various musical instruments, from
E.W., pays by cheque
Pays assistants' wages in cash
Pays rent by cheque
Sells sheet music for cash
Purchases display units, pays by cheque
Pays by cheque to J.M. as part settlement
of account
Sells a trombone to P.S., on credit
Purchases musical instruments at auction,
for cash
Buys various shop fittings, pays cheque
Sells musical instruments to the Dickens
School of Music, on credit
Pays wages in cash
Sells sheet music for cash
Receives part payment - cash, from P.S.
Pays for advertising, by cheque
21
Amount
()
30000
3000
4000
80
60
180
1000
1200
480
2200
600
4400
210
450
100
30
Debit
Credit
30.V
17
18
4600
6800
Journal balance
Tasks:
1)
2)
3)
4)
5)
Liabilities
Assets
Liabilities
General ledger
Real accounts:
D
22
Nominal accounts:
Trial Balance
Account
Closing balances
D
C
TOTAL
=
=
23
Liabilities
Fixed Assets:
Equity:
Current Assets:
Not-own-capital:
Revenues
24