2020 PHS 3N POA EOY P1 Q4

4 Kaiting was doing an internship in an accounting firm during the school holidays. In the process of her work, Kaiting came across several terms that were taught in Principles of Accounts lessons. As these terms appeared rather similar, she was not sure what the differences were. She was also unsure of the definitions of some accounting theory.


a. State one difference between the following terms.


ii. Trade receivables and trade payables

b. Explain the following accounting theories.


ii. Accounting period theory

[TOTAL 10]

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(i) Trade discount is given to encourage bulk purchase while cash discount is given to
    encourage prompt payment. 

    Trade discount is given at the point of purchase while cash discount is given at the
    point of payment.


(ii) Trade receivables is an asset while trade payables is a liability.
      Trade receivables arises when a business sell goods on credit while trade
      payables arises when a business buys on credit.


(iii) Discount received is an income while discount allowed is an expense.
      Discount received arises when the supplier gives discount to the business for prompt
      payment while discount allowed arises when the business gives discount to
      customers to encourage prompt payment.


(iv) Current assets are resources that easily converted to cash  while non-current
      assets takes a longer time to be converted to cash.
      The benefits of current assets are used within one financial year while the 
      benefits of non-current assets last beyond one financial year.


(i) Only transactions measured in monetary terms can be recorded by the business.


(ii) The life of the business is divided into equal periods of usually one year.