CHAPTER 6

Question 1

Cash payments journal

Answer 1

an accounting record summarising all cash paid during a month.

Question 2

Cash receipts journal

Answer 2

an accounting record that summarises all cash received during a month.

Question 3

GST Settlement and GST refund

Answer 3

At the end of the reporting period, each business will balance its GST Clearing account to determine whether it has a GST liability or a GST asset. After the end of its Business Activity Statement (BAS) period, when it must complete and submit its BAS, the business must pay any GST owing to the A-10 as a GST settlement, or will receive a GST refund from the ATO for excess GST.

Question 4

GST Settlement

Answer 4

A cash payment made to the ATO to settle the liability that occurs when GST on sales is greater than GST on purchases.

Question 5

GST Refund

Answer 5

A cash receipt from the ATO to refund the excess that occurs when GST on sales is less than GST on purchases.

Question 6

How to ensure debtors pay on time

Answer 6

Offer a settlement discount. This is a reduction in the amount repayable by a credit customer in return for early repayment. This rewards debtors who pay early encouraging all debtors to pay early and on time.

Question 7

3 benefits of discounts

Answer 7

1. Cash is received faster from debtors. This will allow the business to:
   - pay its debts on time, allowing it to take advantage of any dlscounts offered by
   creditors
   - make other payments, such as wages or other expenses.
2. The possibility of bad debts is reduced. The longer a debt goes unpaid, the more likely it is the debtor will not actually pay at all.
3. Greater sales may be encouraged. Customers may be more willing to buy from a firm that offers discounts than one that does not, knowing that the amount they end up paying will be less.

Question 8

2 disadvantages of discounts

Answer 8

Less cash is received from debtors. Because a dlscount reduces the amount the debtor has to pay, less cash is received.

Net profit is reduced. The amount of the dlscount is an expense, and thus reduces net profit.

Of course, if the discount is received from a creditor (rather than given to a debtor), then these costs become benefits. A dlscount means less cash is paid to creditors
and, as the dlscount is a revenue, profit increases.

Question 9

Discount revenue

Answer 9

A revenue (in the form of a decrease in creditors) earned when creditors are paid early.

Question 10

Discount expense

Answer 10

An expense, in the form of a decrease in debtors, incurred when cash is received early from debtors.