Chapter - 2

Question 1

What is the accounting process?

Answer 1

The turning of financial data into financial information to be used by the owner.

1. collecting outsource documents
2. recording
3. reporting
4. advice

Question 2

What are the accounting principles?

CHER@MCG

Answer 2

The accounting principle refers to the guidelines to be followed by accountants in the way they record the accounting information.
Consistency
Historical Cost
Entity
Reporting Period
Monetary Unit
Conservatism 
Going Concern

Question 3

What are the qualitative characteristics?

RRUC

Answer 3

The qualitative characteristics refer to the qualities the accounting reports will contain once all accounting principles have been followed.
Reliability
Relevance
Understandability
Compatibility

Question 4

Source Documents

Answer 4

The pieces of paper that provide both the evidence that a transaction has occurred, and the details of the transaction itself. ( which provides the raw facts for the accounting information to be based on )

Question 5

Functions of Source Documents?

Answer 5

They provide the evidence of the details of a transaction, to ensuring that the information in the accounting reports will be reliable.
They provide the evidence that is required by the (ATO) relating to the businesses (GST) obligations.

Question 6

What are a businesses GST obligations?

Answer 6

Where the business acts as tax collectors for the ATO on the tax paid by there customers, this becomes an obligation for the business to pay back. If they pay any GST to its suppliers they reduce the amount it owes to the ATO

Question 7

Goods and Services Tax

Answer 7

A 10% tax levied by the federal government on sale of goods and services (except fresh food)

Question 8

GST Payable

Answer 8

GST payable is where the business owes the ATO for the tax they have collected on behalf of them.

Question 9

GST Receivable

Answer 9

The tax the business will receive from the ATO as a result of the excess of tax they pay for their supplies, than the tax they receive from sales.

Question 10

What details are required for the source documents to be used by ATO, to substantiate GST transactions

Answer 10

• tax invoice
• name of seller
• ABN of seller
• date
• description
• price including GST
• amount of GST

Question 11

What are the two forms of Cash Receipts? Define

Answer 11

cash receipt refers to both the cash received from the sale and the source document to verify the transaction

• a source document used to verify cash received (receipt)
• a transaction that occurs when cash is received from another entity (sales)

Question 12

What is a Cheque Butt, Define.

Answer 12

All cash payments for G&S are paid by Cheque and should be evidenced by the b/. A source document used to verify cash payments

Question 13

Identify the process of paying by Cheque?

Answer 13

The Cheque informs the drawee (bank) to transfer funds from drawer’s (business) bank account to the bank account of payee

Question 14

Credit transactions

Answer 14

When the business exchanges using credit where payment is made at a later date.

Question 15

Invoice

Answer 15

A source Document used to verify credit transactions

Question 16

Differentiate Sales and Purchase Invoice

Answer 16

A Sales invoice is where the business sells stock on credit to a customer (duplicate copy & letterhead)
A Purchase invoice is where the business purchases stock on credit (original cop & invoice addressed to)

Question 17

Memo

Answer 17

A source document used to verify internal transactions (informal method of communication within the firm)