Unit 2 Flashcards
Taxable supplies
Taxable supplies are those goods and services that are subject to GST. May also include supplying information or advice, providing hire equipment or leasing business premises.
Taxable supplies include furniture, clothing, computers, stationary, telephone, electricity, food eaten in a restaurant, accounting, legal fees, investment advice and taxi fares.
GST-free supplies
GST-free supplies are those that are not taxed. They are defined by legislation.
GST-free supplies include basic food, education, water and sewerage, exports, eligible childcare, businesses bought as a going concern, non-commercial activities of charitable institutions, religious services, international air and sea travel, inwards duty-free items, international mail, grants of freehold by government, cars for use by disabled people and most health services.
Input taxed supplies
This is a supply that the seller cannot charge GST on and also cannot claim any GST incurred in relation to that supply.
Input taxed supplies include financial supplies (interest and bank charges), sale of residential premises, residential rent and he sale of food in school tuckshops and canteens.
GST registration
GST registration is necessary if an entity has an annual turnover of $75000 and a not-for-profit entity has an annual turnover of $150000.
To register for GST an entity must also have an Australian Business Number (ABN)
Sales
The sales a/c is a revenue account and so it has a credit nature.
It records the sales of goods.
Perpetual inventory system
The perpetual system keeps the stock records up-to-date on a continuous basis, instead of merely updating the records at the end of each period.
It provides much greater control over the asset ‘inventories’, and allows costly and time-consuming physical stocktakes to be reduced to a minimum.
First-in First-out (FIFO) inventory
Under this method it is assumed that the first items to come into the business are the first items to go out of the business.
Because prices change, the quantity of items purchased at each different price must be tracked so that the oldest items are sold first.
Weighted average costing method
Under this method it is assumed inventory items are completely intermingled so a new weighted average cost price is calculated, generally after each item of purchase.
This is the most common method used in computer systems as it is easier to calculate a new average rather than to track the quantity of each item purchase at each different price.
Trading business
Trading entities purchase inventories/stock with the express intention of reselling that product at a profit
Cost of goods sold
The cost of goods sold a/c is an expense account, so it has a debit nature.
It keeps a continuous record of all costs associated with the inventories sold.
As sales are made, the cost of the goods sold is recorded as an increase on the debit side. If inventories are returned, this account must be credited (as the inventories have not really been sold and the expense has not really been incurred).
Inventories
The inventories a/c is an asset account. It has a debit nature and balance.
Goods that are held for sale in the ordinary course of the normal operations of the business.
The inventories a/c increases, because of the inward movement of goods (due either to purchases or to goods being returned by customers).
The inventories a/c decreases, because of outward movement of goods (due to either sales or to goods being returned to other businesses).
GST
The goods and services tax (GST) is a broad-based tax of 10 per cent on the supply of most goods and services consumed in Australia. It is designed to be collected by enterprises but eventually paid by consumers.
GST collected
The GST a/c is a liability account, so it has a credit nature.
It records the GST that is collected on sales and supplies, and is payable to the ATO.
GST Credits Received
The GST Credits Received a/c is a negative liability a/c for the business because it reduces the amount owing to the ATO. It has a debit nature.
It records the input tax credits claimed on the purchases of acquisitions.
Input tax credits
Input tax credits are the amounts claimed back from the government for the GST paid on acquisitions used by a GST-registered business.
Stocktake
A stocktake is the process of listing, counting and valuing unsold inventories on hand.
Sales returns and allowances
The sales returns and allowances a/c is a negative revenue account and so it has a debit nature.
It records the returns of goods or allowances.
Business activity statement (BAS)
Reporting to the ATO is done through the completion of a business activity statement (BAS). The BAS summaries the GST charged and collected, along with details of the input tax credits and other taxation matters for the tax period and determines what payment (if any) must be made to the ATO.
All registered entities must lodge this statement, the frequency depends upon the size of the entity in terms of annual turnover.
Adjustment note
An adjustment note is a source document issued if an adjustment occurs in relation to a taxable supply. They are sometimes called a credit advice or credit note.
Tax invoice
A tax invoice is a source document issued if a supplier makes a taxable supply.
A tax invoice is necessary if a business wish to claim an input tax credit for a credible acquisition.
Bank deposit
A bank deposit is the receipt of money by the business through an electronic funds transfer.
Bank payment
A bank payment is the payment of money by the bank through electronic funds transfer
GST-inclusive goods
Refers to the value of the goods after GST is added
GST-free goods
GST-free, this means that no GST is payable on the goods by the customer.
Reliable competent personnel
An accounting system is only as good as the individuals who implement and maintain it
Employ qualified personnel and ensure that they are given duties and responsibility commensurate with their abilities
Verification
Checking the accuracy of accounting records by some independent means by comparing the physical asset with the accounting record relating to it
Authorisation
Person in the position of responsibility/authority will validate a course of action
Such as purchasing assets granting credits and paying bills
Responsibility
Fix responsibilities for the functions to be performed in confer to authority necessary to carry them out
Each employee should do their own responsibilities or problems may arise
Separation/Rotation of duties
Separation is physically handling the asset with two more people. People who authorise a transaction should not be involved in recording or handling the asset vice versa
With the separation of duties two or more people need to collaborate to commit fraud so it makes it harder
Adequate and accurate documents and records
Documents are necessary to capture the information that is to enter the accounting system. Inadequate documentation can cause control problems.
Physical controls and security
These are physical safeguards of the assets
Safes, security guard, cameras, cash registers, adequate insurance
