ACC1000 Study Guide - Final Guide: Deferral, Current Asset, Net Profit
6 Jun 2018
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Chapter 1 – The Role of Accounting
1. List five factors that can influence the likelihood that a small business will be successful.
Consumer tastes, the level of competition, the quality of its staff/employees, the economic
climate and the management skills of the owner
2. List three important decisions that a business owner would need to make on a daily basis.
Determining selling prices, checking stock levels and paying bills
3. Explain the purpose of accounting
The purpose of accounting is to provide business owners with financial information that will
assist them in making decisions about the activities of the firm
4. List likely users of accounting information
Debtors, creditors, employees, ATO, banks and prospective owners
5. List the four stages in the accounting process
Source documents → Record → Report → Provide advice
6. State the purpose of the following accounting reports
Cash Flow Statement – reports on the firm’s cash inflows and outflows, and the change in its
cash balance over a period
Income Statement – reports on the firm’s ability to earn a profit from its trading activities
Balance Sheet – reports on the firm’s assets and liabilities at a particular point in time.
7. State one reason why the advertising for next year is not considered to be a liability.
If advertising is expected to be paid next year, it cannot be considered a liability because
at present there is no obligation to pay. The obligation will only occur once the firm has
signed the contract, or the advertising itself has been provided.
8. Explain why a capital contribution is not considered to be revenue.
Capital contributions are excluded from revenues because they occur not due to the
activities of the business, but rather the actions of the owner.
9. Explain why drawings are not considered to be an expense.
Drawings are excluded from expenses because they do not contribute to the firm’s ability to
carry out its trading activities, and so does not affect its ability to earn revenue or profit.
Chapter 3 – The General Ledger
1. Explain the role of a ledger account
A ledger account is an accounting record where transactions are written down, with a
separate ledger account for each item in the firm’s records.
2. Draw a table to summarise the rules for recording in ledger accounts.
Type of account
Increase
Decrease
Asset
Debit side
Credit side
Liability
Credit side
Debit side
Owner’s equity
Credit side
Debit side
Revenue
Credit side
Debit side
Expense
Debit side
Credit side
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3. Explain why a receipt from a debtor does not increase profit.
A receipt from a debtor does not increase assets overall and so it does not fit the definition of
a revenue. In addition, recording a receipt from a debtor as revenue would be double-
counting the revenue; the revenue was already recorded when it was earned at the point of
sale (when the goods were provided to the customer).
4. State the purpose of a Trial Balance.
A Trial Balance is used to determine if total debits equal total credits.
Chapter 4 – The Goods and Services Tax (GST)
1. Define the term ‘Goods and Services Tax (GST)’.
Goods and Services Tax (GST) is a 10% tax levied by the federal government on most
purchases of goods (excluding fresh food) and services.
2. Explain why GST on sales creates a GST liability.
When a business charges its customers GST, it does so on behalf of the government. As
a result, any GST on sales creates a liability – an amount of GST owed to the ATO.
3. State the role of the GST Clearing account.
The GST Clearing account is a ledger account that a business uses to record all
transactions involving GST.
4. State two ways a small business could end up being owed a GST refund by the ATO.
▪ The business makes a bulk order of stock that it has not sold
▪ The business purchases an expensive non-current asset
5. Referring to one qualitative characteristic, explain the role of source documents in the
accounting process.
Reliability states that all information presented in reports should be based on verifiable
evidence, thus making the reports free from bias/subjectivity. Source documents provide the
evidence, or proof, that a transaction has occurred.
6. State the source document used to verify cash received.
A cash receipt is used to verify cash received.
7. State the source document used to verify cash paid.
A cheque butt is used to verify cash paid.
8. State the source document used to verify a credit sale.
A sales invoice is used to verify a credit sale.
9. State the source document used to verify a credit purchase.
A purchase invoice is used to verify a credit purchase.
10. Explain what is meant by the terms 5/7, n/30.
The debtor has 30 days to settle the debt but if it is repaid within 7 days, a 5% discount will be
applied to the total amount owing.
11. Explain three reasons why cash payments should be made by cheque.
▪ Security: paying by cheque avoids the risks of carrying large sums of cash
▪ Traceability: cheques must be deposited into a bank account, meaning it is possible
to trace the eventual recipient of the funds
▪ Verifiability: all payments made by cheque are recorded on the cheque butt, providing
a source document to verify the transaction
12. List different transactions for which a cheque butt may be issued.
Cash purchase, payment to creditors, cash drawing and payment of expenses
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Chapter 5 – Special Journals 1: Credit Journals
1. Explain the function of a special journal.
The main purpose of the special journals is to summarise similar transactions so that totals
can be posted to the General Ledger, in the process reducing the number of ledger entries
required and improving the efficiency of the recording system.
2. Explain the function of the General Journal.
The main purpose of the General Journal is to record infrequent, non-cash transactions
that are unable to be recorded in the special journals.
3. Explain why not all businesses will use the same special journals.
It is up to each business to determine which special journals to use, dependent on its own
circumstances and needs.
4. Explain the role of the Purchases Journal.
The role of the Purchases Journal is to summarise all transactions involving the purchase
of stock on credit during a month.
5. State which type of source document is used to verify all transactions recorded in the
Purchases Journal.
A purchase invoice.
6. State two differences in the way the Purchases Journal is posted to the Creditors ledger.
▪ The purchases journal is posted to the General Ledger at the end of the month, using
the column totals.
▪ Individual transactions are posted to the Creditors Ledger accounts on the day they
occur.
7. State the function of a Creditors Schedule.
A Creditors Schedule is a list of the name and balance of each individual account in the
Creditors Ledger, added together to enable checking against the balance of the Creditors
Control account.
8. Explain how the Creditors Schedule aids in the control of creditors.
The Creditors Schedule fulfills a control function by acting as a checking mechanism
against the balance of the Creditors Control account.
9. Explain the role of the Sales Journal.
The Sales Journal summarises all transactions involving the sale of stock on credit during
a month.
10. State which type of source document is used to verify all transactions recorded in the
Sales Journal.
The sales invoice.
Chapter 6 – Special Journals 2: Cash Journals
1. Explain the benefit of recording transactions in special journals.
Special journals summarise similar transactions so that totals can be posted to the General
Ledger, in the process reducing the number of ledger entries required and improving the
efficiency of the recording system.
2. List four transactions that would be recorded in the Cash Payments Journal.
Payments to creditors, payment of wages/electricity/other expenses, cash drawings and cash
purchase of stock
3. Identify the source document used to verify the transactions recorded in the Cash
Payments Journal.
A cheque butt is used to verify cash payments.
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Document Summary
Chapter 1 the role of accounting: list five factors that can influence the likelihood that a small business will be successful. Consumer tastes, the level of competition, the quality of its staff/employees, the economic climate and the management skills of the owner: list three important decisions that a business owner would need to make on a daily basis. Determining selling prices, checking stock levels and paying bills: explain the purpose of accounting. The purpose of accounting is to provide business owners with financial information that will assist them in making decisions about the activities of the firm: list likely users of accounting information. Debtors, creditors, employees, ato, banks and prospective owners: list the four stages in the accounting process. Source documents record report provide advice: state the purpose of the following accounting reports. Cash flow statement reports on the firm"s cash inflows and outflows, and the change in its cash balance over a period.
