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Asset – present economic resource controlled by the entity as a result of past event.

An economic
resource is a right that has the potential to produce economic benefits.

1. Right
2. Potential to produce economic benefits
3. Control – entity has ability to direct the use of the asset and obtain economic benefit that
may arise from it.
- Present ability to prevent others from directing and obtaining economic benefit from it.

Liabilities – present obligation to transfer an economic resource as a result of past event.

GST Payable (Output Tax) – liability, collected from customers, payable to IRAS
GST Receivable (Input Tax) – asset, paid to suppliers, collectable from IRAS

Accrual – income recorded when it is earned, expenses recorded when they are incurred.
Cash – Income recorded when cash is received, expenses recorded when cash is paid.
Transaction must be recognised by accrual in some point in time.
Only difference between the 2 is the timing of recognition. Not whether it is recognised or not.

Matching Principle:
All expenses used to generate the income should be recognised in the same period the income is
generated.
- ensures profits reported is related to the income recognised  meaningful profit.

Useful Financial Information:

1. Relevance
- Able to make difference in decisions of users of financial statement.
- Has predictive / confirmatory value
2. Faithful Representation
- Complete, neutral, free from error (as much as possible)

Enhancing:

1. Comparable
2. Verifiable
3. Timeliness
4. Understandable

Revenue recognition

1. Identify contract with customer


- Contract approved by both parties
- Each party’s rights to the goods/service to be transferred can be identified
- Payment terms are identified
- Commercial substance (entity’s cash flow expected to change in the future from the
contract)
- Probable that entity will collect consideration from the customer it’s entitled to.
(ability + intention of the customer)
2. Identify Performance Obligations in the contract
a. Customer can benefit from the good either on its own, or together with other readily
available resources
- (entity sells goods separately)

b. Promise to transfer good to customer is separately identifiable from other promises in


the contract.
- No significant service provided to integrate the good with other goods in the contract.
- Good do not significantly modify / is not significantly modified by other goods promised
- Goods are not highly interdependent / interrelated

3. Determine transaction price (excludes amounts collected on behalf of 3rd party)


- Amt of consideration an entity expects to be entitled to in exchange for transferring the
promised goods in the contract.

4. Allocate transaction price to POs.

5. Recognise revenue when entity satisfies PO.


- Satisfied over time / satisfied at a point in time
Over time:
- customer simultaneously receives and consumes benefit as entity performs the service
- asset that the customer controls is created/enhanced
- asset is not created with an alternative use to the entity.

Point in time:
- physical possession of asset
- legal title of asset
- entity has present right to payment

Conservatism Principle:
More likely to overstate losses and expenses, and less likely to overstate income and assets.
(only when uncertainty involved)

Net Purchases = (only for periodic system) (perpetual – all under inventory)
Add: Purchases + Freight-in charges
Less: Purchase returns and allowances + Purchase Discounts

Estimating impairment loss on AR:


Impairment Loss on AR // Allowance for impairment loss of AR
- expense recorded at the beginning of the year in same period revenue recognised

Writing off bad debt:


Allowance for impairment loss on AR // AR
Recovering bad debt:
AR // Allowance for impairment loss on AR
Cash // AR

Refund Liability
1. Estimated sales returns
2. Actual sales returns in the current period
3. Difference between the 2 is the adjusted refund liability
4. Find the adjusting refund liability.

Schedule of COGM
direct materials:
beginning inventory
purchases
direct materials available for use
Less: ending inventory
cost of direct materials used
direct labour cost incurred
MOH applied
Total manufacturing cost incurred
Add: Beginning WIP
Less: Ending WIP
COGM

Schedule of COGS
beginning FG inventory
COGM
COGAS
Less: ending FG inventory
COGS

Income Statement:
Sales Revenue
Less: Sales Discounts
Less: Sales returns and allowances
Net Sales Revenue
Less: COGS
Gross Profit
Less: Total expenses
Net Profit/Loss

Balance Sheet:

Current Assets
Non Current Assets
Total Assets
Current Liabilities
Non-Current Liabilities
Total Liabilities
Owners’ Equity : Share Capital + Retained earnings
- (RE = beginning RE + net profit -dividends)
Total liabilities + Owners’ Equity (should = assets)