Chapter 6 accounting procedures for asset and liabilities

　　Imprest system

　　It implies a fixed amount of cash， a float is supplied. From the float， expenses are paid， which are reimbursed at the end of the period bringing the amount in hand up to the original amount.

　　Bank reconciliation statement

　　A bank reconciliation statement is normally prepared each month to analyze the differences between the ending cash balance on the bank statement and the ending cash balance in the firm‘s accounting records.

　　Its begin is ‘balance per bank statement’ ends at ‘balance per cash book’ （correct version or adjusted one）。

　　First-in-first-out assumption

　　FIFO cost flow assumption assumes that the first item purchased is the item sold.

　　Weighted average cost assumption

　　The average cost flow assumption allocates all costs to cost of goods sold and ending stock on an average basis. The total cost of gods available for sale is divided by the total number of units on hand.

　　Disposal of fixed assets

　　*A fully depreciated asset with no scrap value is removed from the accounts by debiting provision for depreciation and crediting the asset account.

　　**An asset that is sold for an amount equal to its carrying value is removed from the accounts by debiting cash for the proceeds， debiting provision for depreciation， and crediting the asset account. If there is loss or gain， it will be shown in the profit and loss account. （ disposal of fixed assets account may be used， DR. Fixed asset CR. trade-in allowance ， accumulate depreciation ， profit and loss.）

　　Preference share

　　*They carry a fixed rate of dividend.

　　**cumulative preference shares have the right to accumulate dividends in a given year if they are in arrears.

　　***Participating preference shareholders share extra dividends with ordinary shareholders in excess of their normal preference dividends.

　　Provisions and reserves

　　A provision is an amount written off or retained by ways of providing for depreciation or renewals.

　　A reserve is where an amount has been voluntarily transferred from the profit and loss appropriation account. It may be for some specific purpose or it would be a general reserve account.

　　Indirect cost

　　Cost that cannot be identified with or traced to a given cot object in a cost effective way.

　　Variable cost

　　A variable cost is unchanged per unit of cost driver but changes I total in direct proportion to changes in the cost driver. Such like direct materials， direct labor costs； sales commissions and some factory supplies. 转贴于 265考试网 http://www.265ks.com/

　　Fixed cost

　　A fixed cost is unchanged in total over a wide range of the cost drivers during a given time span but becomes progressively smaller on a per unit basis as the cost driver increases. Such like rental ； fixed asset depreciation， and supervisor‘s salary.

　　Relevant range

　　It is the band of the cost driver in which a specific relationship between cost and the cost driver is valid. The basic assumption of a relevant range also applies to variable costs.

　　Prime costs are all direct manufacturing costs （direct materials and labor costs）。

　　Conversion costs are all manufacturing costs other than direct materials costs. （direct labor cost and factory overhead）。

　　Breakeven analysis

　　It is an overview of decision models by examining the interrelationships of changes in costs， volume， and profits. The breakeven point is that point of sales volume where total revenue equals total expenses and costs， there is neither profit nor loss.

　　1. Equation method：

　　sales -variable costs - fixed costs =net income

　　2. Contribution margin method

　　Contribution margin is equal to sales minus all variable costs.

　　Unit contribution margin is the unit selling price less unit variable cost.

　　Breakeven point in units = fixed costs / unit contribution

　　Margin

　　3. graphic method

　　we can also graph the CVP relationships and find the breakeven point where the total revenue line and total cot line intersect.

　　Sensitivity analysis and margin of safety

　　A tool of sensitivity analysis is the margin of safety， which is the excess of budgeted sales over the breakeven volume. Products with lower fixed costs will always enjoy a higher Margin of Safety.

　　Products with lower fixed costs will always enjoy a higher Margin of Safety.