Question

a. Consider this statement: "Quickbooks Accountant records revenue when an invoice is generated even though cash has not been received." Is this practice acceptable? Why or why not?

b. When you've finished reconciling a bank account, what should be the difference between the ending balance and the cleared balance?

c. What information is included in the Reconciliation Summary report?

d. Explain the typical relationship between sales and cost of goods sold, and describe how this information is included in the QuickBooks Accountant budgeting process

discuss. #4

Answer 1

A.) According to the IFRS criteria, for revenue to be recognized, the following conditions must be satisfied:

1. Risks and rewards of ownership have been transferred from the seller to the buyer.
2. The seller does not have control any longer over the goods sold.
3. The collection of payment from goods or services is reasonably assured.
4. The amount of revenue can be reasonably measured.
5. Costs of revenue can be reasonably measured

An invoice is raised when the risk is transferred along with ownership and the performance is done along with the determination of price. Hence, recognisition of revenue after raising invoice is valid even if cash is not received because receiving of payment is not a valid criteria for revenue recognisition.

B.) After reconciliation of bank account with bank blance as per books, following differences will arise:

1. Items debited in bank account but not credited in books of account (any charges charged by bank, any payment done but not recorded)
2. Items credited in bank account but not debited in books of account. ( any cheque deposited but not recorded, payment directly recieved in bank, interest given by bank)
3. Items debited in books of account but not credited in bank account (cheque deposited but not yet cleared, cheque deposited but dishonoured)
4. Items credited in books of account but not debited in bank account ( cheque issue but not presented)

C.) Reconccilliation summary shall include following things:

1. A clear reconcilliation of ending balance with cleared balance along with period for which reconcilliation is made.
2. Reason of debit differences and credit differences
3. Highlighting permanent differneces if any
4. Points cleared in coming period and

D.) Sales and cost of goods sold are directly related to each other. The difference between sales and cost of goods sold denotes the gross profit of the company (commonly known as earning before inerest depreciation taxes and anortization.

EBIDTA = Sales- cost of goods sold

In budgeting process, after calculating the cost of production of goods produced, it is then adjusted with opening and closing inventory of finished goods and then selling expenses are added to fond out the cost of goods sold.

This information is then taken to ptofit and loss account to calculate the net profit after adjusting with indirect expenses.