Accounting Book 2

Question 1

what is cash surplus

Answer 1

an excess of cash receipts over cash payments, leading to an increase in a positive bank balance or a decrease in bank overdraft (negatibe bank balance)

Question 2

what is cash deficit

Answer 2

an excess of cash payments over cash receipts, leading to a decrease in a positive bank balance or an increase in bank overdraft ( negative bank balance).

Question 3

what strategies should be implemented if cash deficit or low closing bank balance or both?

Answer 3

1. effective advertising to boost cash fees/sales
2. reduce loan repayments
3. reduce drawings
4. purchase more inventory of supplies using credit facilities
5. ask the owner to make a cash capital contribution
6. borrow cash from a bank (a loan)
7. organise a bank overdraft facility.

Question 4

what strategies should be implemented if cash surplus or high closing bank balance or both?

Answer 4

1. higher loan repayments reduce debts
2. the owner can take greater drawings in cash from the business
3. upgrade/purchase newer non-current assets
4. expand the businesses operations or open a new store in a new location

Question 5

what is GST received

Answer 5

the GST received from customers on cash transaction

Question 6

what is GST paid

Answer 6

The GSt paid by the business to suppliers on cash transaction

Question 7

what is GST payable?

Answer 7

GST owed by the business to the ATO when the ammount of GST the business has received on its fees is greater than the GST it has paid to its suppliers

Question 8

What is GST Receivable?

Answer 8

GST owed to the business by the ATO when the amount of GST the business has paid to its supploers is greater than the GST it has been received from customers

Question 9

what is GST refund?

Answer 9

a cash receipt from the TO to clear GST receivable ( cash receipt)

Question 10

what is GST settlement?

Answer 10

a payment made to the ATO by a small business to settle GST payable (cash payment)

Question 11

what is revenue?

Answer 11

an increase in assets or reduction in liabilities that leads to an increase in owners equity (except for capital contribution). e.g when a service is performed for cash, asset bank will increase.

Question 12

what is an expense?

Answer 12

a decrease in assets (or increase in liabilities) that reduces owner’s equity (except for drawings)
e.g electricity- once the electricity has been used there is no lasting benefit and more electricty is needed

Question 13

what does net profit margin measure?

Answer 13

assesses the ability of a business to generate a profit from against a base of sales

Question 14

what is the net profit margin formula (NPM)?

Answer 14

Net profit/Net sales x 100

Question 15

what are some strategies to improve profitability?

Answer 15

1. Regenerate with existing supplier to secure a cheaper price for supplies/materials
2. change suppliers to access cheaper price
3. buy materials in bulk in order to access a discount
4. review staff rostering in order to minimise wage expesnives
5. apply effective marketing
6. improve service delivery to boost sales

Question 16

where is OE located in the balance sheet?

Answer 16

bottom right corner

Question 17

what is the structure for a cash vs profit question

Answer 17

1. Cash and profit are two different measures of performance
   2.Net profit is revenues earned minus expenses incurred, whilst net cash receipts minues cash payments. There are some items that will impact net profit but not net cash and vice versa. (HOW)
2. example 1 and example 2

Question 18

examples that contribute to cash surplus, but net loss

Answer 18

capital contribution
GST received
GST refund
Loan receivable

Question 19

examples that contribute to cash deficit, but net profit

Answer 19

Cleaning fees
Consultant fees
Loans