accounting booklet 2 Flashcards
Why is cash important?
it is the main source of revenue
Define a service business
A small business that operates be providing its time, labor or expertise in return for a fee
Define journal
an accounting record that classifies and summarizes transactions during a particular reporting period
Define cash receipts journal
accounting record that summarizes all transactions where cash is received from other entities during a particular reporting period
State the 2 types of transaction
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
Define cash payable journal
an accounting record which classifies and summarizes all transactions where cash is paid to other entities during a particular reporting period
Define cash surplus
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)
Define cash deficit
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)
Define opening bank balance
this figure represents how much cash was available in the business’s bank account at the start of the reporting period
Define closing bank balance
this figure represents how much cash should be available in the business’s bank account at the end of the reporting period
Define GST
its a 10% tax on sales of goods and services
Define GST received
GST received from customers on cash transactions.
Define GST paid
GST paid by the business to suppliers on cash transactions
Define GST balance
GST balance will be reported in the appropriate section of the businesses Classified Balance sheet
Define GST payable
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
Define GST receivable
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
Define GST settlement
A payment made to the ATO by a small business to settle GST payable (cash payment)
Define GST Refund
a cash receipt from the ATO to clear GST receivable (cash receipt)
GST Formula
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
Define revenue
An increase in assets or reduction in liabilities that leads to an increases in owner’s equity (except for a capital contribution)
Define expense
A decrease in assets (or increase in liabilities) that reduces owner’s equity (except for drawings )
State examples of revenue
Fees
interest on investments
State examples of expense
Electricity- once used there is no lasting benefit
Cleaning supplies
How do you calculate profit
Profit= revenue - expenses
What does profit do?
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
