Chapter 13,14 and 15

Question 1

Credit Transaction

Answer 1

When goods are exchanged but the cash is not paid until a later date

Question 2

5/7 n/60

Answer 2

If the amount is paid in full in 7 days, a 5% discount will be granted, but the net amount must be paid within 60 days

Question 3

Referring to the link between two Qualitative characteristics, explain the importance of source documents in the Accounting process.

Answer 3

Verifiability and Faithful representation
Source documents ensure that the information is verifiable and therefore provides a faithful representation of the firm’s financial events that is complete, free from error and without bias

Question 4

Explain the role of a Purchases Journal

Answer 4

to summarise all purchases of inventory on credit during a particular period

Question 5

Effect of credit purchases of inventory on the Accounting Equation

Answer 5

Assets increase (Inventory)
Liabilities Increase (A.P increase, GST decrease)
No effect on OE

Question 6

Accounts Payable formula

Answer 6

A.P balance at start
\+Credit Purchases Incl. GST
- Purchase Returns Incl. GST
- Payments to A.P
- Discount Revenue

Question 7

Why are discounts classified as revenue

Answer 7

It meets the definition of a revenue, it decreases Liabilites (Accounts Payable) and Increases Owner’s Equity

Question 8

Effect of a payment to A.P with discount revenue on Accounting Equation

Answer 8

Assets Decrease (Bank)
Liabilites Decrease (A.P)
OE Increase ( Discount Revenue increases Profit)

Question 9

Benefits and Costs with paying A.P early

Answer 9

Benefits
- Less cash is paid
- Net Profit is increased
Costs
- Cash is paid faster
- Cash is unavailable to make other payments

Question 10

Explain the purpose of a Statement of Account

Answer 10

It provides a summary of all of the trasnsactuins in a particular period with a particular Account Receivable or Account Payable