Why closing inventory appears on the credit side of Trading account?
Closing stock or as it is also named as closing inventory is definitely an asset. But trading account is not the same as Inventory account. Inventory, being an asset, should have a debit balance in Inventory account. Trading account is a distinct account and both must not be mixed up together. The answer to the […]
What is the difference between Exceptional item and Extraordinary item?
So far International Accounting Standards (IASs) and International Financial Reporting Standards (IFRSs) have not defined such terminologies. However, apparently these terms seem to have different treatments according to accounting standards especially IAS 1 in which extraordinary items and material items (also referred as exceptional items) have been discussed separately under different paragraphs. These terms are […]
What is meant by ‘line item’ in accounting standards?
Term line item basically refers to such piece of information which has its own weight and should be presented on a separate line on any document. In context of International Accounting Standards (IASs) and International Financial Reporting Standards (IFRSs) line items simply means a category on the face of financial statements and in the notes […]
How POSSESSION and CONTROL of an asset are different in financial acconuting?
Possession of an asset might mean just having a physical control of the asset. The party who holds the asset is the possessor of such asset. But the word control holds special meaning in the business world. Especially in financial accounting. And understanding the meaning of control and ability to differentiate between the possession and […]
What is meant by Substance over form?
“Substance over form” if said in a complete phrase, from this term is extracted, then it will be something like this: Economic substance of the transaction will be preferred over the legal form of transaction for accounting purposes. Economic substance refers to the economic benefits and economic losses or any kind of economic implications related […]
Why do we add back depreciation and interest income / expense in cash flow statements?
The answer to this question is hidden right in the word “indirect method”. When we prepare statement of cash flows using indirect method we have to use income statement to find out the cash flows indirectly from it. Now, we can understand that the basic purpose of Income statement or Trading and Profit & Loss […]
Changes in ACCA F7 for 2011 exams - Explained!
Back in December 2010 when ACCA announced that changes will be made in 2011 in different subjects, we looked at it and made some guess work regarding the possible changes in subjects. But a long time has passed since ACCA has released the new syllabi of all the subjects. Except knowledge module subjects and ACCA […]
What is the difference between “Selling costs” and “Cost of Sales”?
“Cost of sales” if said in a phrase then it basically is, manufacturing cost of units sold in a particular period or simply cost. On the other hand “selling costs” include such costs that are incurred to make things available for sale. Important thing to understand here is that even after incurring cost of sales, […]
