accounting booklet 2

Question 1

Why is cash important?

Answer 1

it is the main source of revenue

Question 2

Define a service business

Answer 2

A small business that operates be providing its time, labor or expertise in return for a fee

Question 3

Define journal

Answer 3

an accounting record that classifies and summarizes transactions during a particular reporting period

Question 4

Define cash receipts journal

Answer 4

accounting record that summarizes all transactions where cash is received from other entities during a particular reporting period

Question 5

State the 2 types of transaction

Answer 5

it the source of transaction is a FREQUENT one, then there is usually a dedicated classification column provided in the journal

If the source of transaction is an INFREQUENT one, then it will be recorded in the sundries column

Question 6

Define cash payable journal

Answer 6

an accounting record which classifies and summarizes all transactions where cash is paid to other entities during a particular reporting period

Question 7

Define cash surplus

Answer 7

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

Question 8

Define cash deficit

Answer 8

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 9

Define opening bank balance

Answer 9

this figure represents how much cash was available in the business’s bank account at the start of the reporting period

Question 10

Define closing bank balance

Answer 10

this figure represents how much cash should be available in the business’s bank account at the end of the reporting period

Question 11

Define GST

Answer 11

its a 10% tax on sales of goods and services

Question 12

Define GST received

Answer 12

GST received from customers on cash transactions.

Question 13

Define GST paid

Answer 13

GST paid by the business to suppliers on cash transactions

Question 14

Define GST balance

Answer 14

GST balance will be reported in the appropriate section of the businesses Classified Balance sheet

Question 15

Define GST payable

Answer 15

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

CLASSIFIED AS CURRENT LIABILITY

Question 16

Define GST receivable

Answer 16

GST owed to the business by the ATO where the amount of GST the business has paid to its suppliers is greater than the GST it has received from customer

CLASSIFIED AS A CURRENT ASSET

Question 17

Define GST settlement

Answer 17

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

Question 18

Define GST Refund

Answer 18

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

Question 19

GST Formula

Answer 19

Opening balance of GST:
+GST received from customers
-GST paid to suppliers
+GST refund (to settle previous GST receivable)
-GST settlement (to settle previous GST payable)
=GST balance

Question 20

Define revenue

Answer 20

An increase in assets or reduction in liabilities that leads to an increases in owner’s equity (except for a capital contribution)

Question 21

Define expense

Answer 21

A decrease in assets (or increase in liabilities) that reduces owner’s equity (except for drawings )

Question 22

State examples of revenue

Answer 22

Fees
interest on investments

Question 23

State examples of expense

Answer 23

Electricity- once used there is no lasting benefit
Cleaning supplies

Question 24

How do you calculate profit

Answer 24

Profit= revenue - expenses

Question 25

What does profit do?

Answer 25

Profit will lead to an increase in owner’s equity.

Therefore, any increase in a Revenue will increase Owner’s Equity

And any increase in an Expense will decrease Owner’s Equity