Contents BOOK ONE: FINANCIAL TRANSACTIONS, SUBSIDIARY LEDGERS AND INTERIM REPORTS 01 Accounting and Bookkeeping 02 Fundamentals of Accounting and GST... . 03 Cash Receipts 04 Cash Payments ......000000eeeee 05 The Double Entry System OG Petty Cash... eee eee cece eeeeeeeeeee esses sees estes eeeeeeeeeeeennrennennes 187 07 Credit Purchases and Credit Sales........ beet cece vee eeeeeeteteneeeeeeeeees 181 08 Managing Debtors and Creditors ...... 02.002. 0eeeeeeeeveceeeseneree seen ee 269 09 Periodic Inventory Systems .........0000000ceeesssseeeeeeeeeeeeetensntteeeeeee 307 40 Specialised Journals.....0.....c0cccesseeeeeeeeeeeseseeeeeees 2.329 411 Bank Reconciliations 42 Special Transactions. . 43 Interim Reports.....00.eeceeccceeeeeeeeeeeeeeseneeeeeenes vevteteeeeees 447Accounting and Bookkeeping What You Will Learn In This Chapter Accounting provides vital information for business management. An accounting system is used to process financial transactions methodically so that accurate financial reports can be prepared. ‘Accountants and bookkeepers play a vital role in processing financial information and preparing reports for businesses. This chapter will explore the purpose of accounting and the role of accountants and bookkeepers in the financial services industry. Elements Addressed Underpinning knowledge for FNSACC301 Process financial transactions and extract interim reports and FNSACC302 Administer subsidiary accounts and ledgers. Chapter Structure 4.1. Accounting and its Environment 41.2 Users of Accounting Information 4.3. Regulation 4.4 Accounting Principles & Assumptions 1.5 Business ClassificationsAccounting and its Environment Accounting or accountancy is a process used for the collection, processing and communication of financial information. It involves recording, analysing, interpreting and reporting data from transactions. Accounting can be described from a procedural viewpoint and from a conceptual viewpoint. (a) From a procedural point of view, accounting relates to bookkeeping, a process concerned with recording, classifying and summarising the transactions of a business. A transaction is any event in which the business interacts with another business or individual: for example, a sale of goods or the payment of wages. (b) From a conceptual point of view, accounting relates to the measurement, reporting and communication of financial information. * Measurement refers to the ability to state transactions in monetary terms in an objective way. * Reporting relates to the way in which information is presented to end users so as to enhance their decision-making. * Communication is the process of conveying relevant, timely and accurate financial information to interested parties. Accounting is an information system. Its main purpose is to communicate financial information to interested parties about economic events that relate to business organisations. Accounting information is used for decision-making about possible future operations. It enables, or should enable, the efficient and effective utilisation of scarce resources. The Objective of Accounting SAC 2 (Statement of Accounting Concepts) paragraph 26 states the objective of accounting as: “To provide information ... useful for making and evaluating decisions about the allocation of scarce resources.” HEEB Accounting PrincesCoat a ele cere la eiare) The history of accounting involves the development of practices and procedures for the recording, reporting and interpretation of trading transactions. There is evidence that transactions relating to trading operations have been recorded since the earliest period of civilisation. Archaeological findings have shown that as early as 3000 BCE, the Egyptians, Sumerians and other people of the Middle East had developed the first known business records. They used written numbers to record items such as the production output of farms and the transactions of merchants. It has also been established that Egyptian and Sumerian government officials kept records of taxes they collected. Most scholars agree that the Italians, probably Venetian merchants, developed double-entry bookkeeping around the thirteenth century. The first published textbook on double-entry bookkeeping appeared in 1494. Titled ‘Summa de Arithmetica, Geometria, Proportione et Proportionalita’, it was predominantly a textbook about mathematics. Written by an Italian monk by the name of Luca Pacioli, it contained a section called ‘De Computis et Scripturis’ in which the basis of DOUBLE ENTRY BOOKKEEPING was explained for the first time. Double entry bookkeeping is still the chief system used today, with most of the basic ideas remaining essentially unchanged. Early bookkeeping systems evolved from the need to record details of trading activities by merchants and traders. The activities of the business, what we will refer to as transactions, mostly comprised the receipt of income from trading in goods and services and the incurring of expenses necessary to provide the goods and services. The offsetting of expenses against income to determine profit was a fundamental of the bookkeeping process. Throughout history, the growth in size and complexity of industry and commerce has been accompanied by developments in accounting. The nineteenth century was a period of enormous growth in industry and commercial activity in Great Britain, and this growth necessitated changes in accounting practices and procedures in England and Scotland. The United States of America became the leader in accounting development and education as. it emerged as the dominant commercial and industrial nation during the 20th century. Today we live in a global society in which traditional geographic borders are increasingly less significant. The accounting profession has had to develop practices that can cater to the complexities of international businesses and large multinational conglomerates, while at the same time remaining socially aware and responsible in its performance of the accounting function. Chopter 1 Accounting and Bookkeeping iMier nite meine lela} The accounting function of an organisation is regarded as a service activity. Depending on the size of the organisation, the accounting department may comprise bookkeepers, accountants or both, who may be employed directly by the organisation, or whose services may be provided by an accounting or bookkeeping firm. The role of the accounting function is to provide a link between business activities and decision-makers by providing information that enhances the decision-making process of all users of accounting information. This relationship is outlined in the following diagram. Business Transactions & Activities INFORMATION NEEDS INFORMATION PROVISION DATA ACCOUNTING PRACTICES & PROCEDURES Measurement Reporting Communication Recording business = Processing and preparation = _ Distribution of relevant transactions of accounting reports information to decision makers The accounting function may be summarised as follows: Systems Development and Maintenance The accountant is responsible for the development and maintenance of systems used in an organisation to record and report financial data. Recording and Reporting The accounting system is designed to enable business transactions to be recorded and subsequently aggregated, classified and summarised so as to form the basis of accounting reports. These reports are distributed to the various interested parties to provide information for the decision-making process. Attention Directing Accountants assist in the interpretation of financial and quantitative information in order to draw attention to possible opportunities, problems and inefficiencies faced by the business and to enable appropriate action to be taken. Problem Solving Decision-making requires that a choice be made between a number of competing alternatives. Accountants are involved in identifying the relative merits of alternative courses of action and making recommendations regarding the best policies to implement. HEDIS counina PrincesRole of the Bookkeeper Bookkeeping can be viewed as the first stage in the accounting process, in which the bookkeeper sorts, classifies, records, and reports information about the business's transactions. The bookkeeper ensures these transactions are recorded completely and accurately. The prepared accounts are passed to the accountant for review. The Accountant will make corrections or adjustments, then prepare and analyse the financial statements. In general, a bookkeeper would be responsible for some or all of the followin: * Accounts Payable: Receive, check and record invoices from suppliers and seek authorisation for payment. * Accounts Receivable: Prepare and send invoices to customers, record receipt of payments. * Payroll: Calculate and process wages and salaries. * Petty cash: Processing and reconciliation. * Bank and credit card reconciliations. * Preparing the accounts to Trial Balance. 1g and maintaining records of transactions for statutory periods. Since A New Tax System (Goods and Services Tax) Act 1999, the role of bookkeepers has broadened to include other activities such as preparation of Business Activity Statement (BAS) and Instalment Activity Statement (IAS) returns. It may also include entering end of year adjustments from the accountant and maintaining the computerised accounting system. Self-Testing Exercise 1 To get an indication of the services bookkeepers commonly offer, search ‘bookkeeping services’ on the internet. Read the websites of four bookkeeping businesses and make a list of the services provided. Chepter + Accounting and Bookkeering iRole of the Accounta Accountants analyse, report and give advice on the financial dealings of businesses and indi and provide advice on the associated record-keeping and compliance requirements. The accountant’s role will generally include the following: * Developing and maintaining the accounting system. * Providing advice to bookkeepers. * Preparing budgets and performance reports. * Preparing and analysing financial reports. * Preparing and/or lodging BAS/IAS statements. * Liaising with banks to establish funds management arrangements. * Providing key management information and strategic advice. * Preparing and lodging tax returns and statutory documents required by ASIC. Self-Testing Exercise 2 To get an indication of the services accountants commonly offer, search ‘accountant services’ on the internet. List some of the services that are offered. Inreality, the distinction between bookkeepers and accountantsis blurred. Sometimes bookkeepers will perform accounting tasks and accountants will sometimes perform bookkeeping tasks. Bookkeepers and accountants often work closely to ensure that the financial transactions are accurately recorded and financial statements are therefore sound and useful for decision-making purposes. FEIER) courting PrincesThe Accounting Profession In Australia, three professional accounting bodies govern the accounting profession. They are: (a) CPA Australia, whose members are referred to as Certified Practising Accountants (CPAs); (b) The Institute of Chartered Accountants in Australia (ICAA), whose members are referred to as Chartered Accountants (CAs); and (c) The Institute of Public Accountants (IPAs), whose members use the classification MIPA. To become a member of one of the bodies, an applicant must: * Have completed a recognised qualification from an accredited university (or an Advanced Diploma in Accounting or equivalent in the case of the IPA); * Satisfy specified employment experience criteria; and * Complete the Chartered Accountants Program with the ICAA , the CPA Program with CPA Australia or the IPA Program with the Institute of Public Accountants. In addition to the professional bodies, there are a number of associations representing bookkeepers and accountants, such as the Institute of Certified Bookkeepers, with different ‘education and experience requirements for membership. ‘A major condition of continued membership of any of these associations is that members must maintain their knowledge through Continued Professional Education. Accountants have formed professional associations for the advancement of their profession and in order to be self-regulating. In addition, the professional bodies issue pronouncements regarding: * Standards of performance; and ‘Ethical conduct and practices. This ensures that individual accountants discharge their responsibilities as suppliers of financial information in a way that adds value to the decisions made by the end users of that accounting information Further, the professional responsibility of the accountant is unique. Whereas doctors and architects are responsible to their patients and clients, the accountant may be professionally responsible to third parties who rely on financial statements that have been audited and certified by them (as a professional accountant) as true and accurate. This is true even though the third party in no way contributes to the fee paid to the professional accountant and has no contractual relationship whatsoever with the accountant. chester Accounting and Bocttening iAccountants can work in many different industries (commercial accounting), or for a firm providing accounting services (public accounting). (a) Commercial Accounting conducted by accountants who are employees of commercial business enterprises. For example, the chief accountant of QBE is a commercial accountant. Commercial accountants may be employed either in the field of management accounting or in +the field of financial accounting. Management accountants provide information to management for decision making and are thus involved in the planning and control aspects of accounting. Financial accountants are responsible for the stewardship aspects of accounting and are concerned with reporting the financial affairs of the business to interested parties, primarily outside the organisation. (b) Public Accounting conducted by accountants who work as independent professional consultants. They provide professional accounting services to the public for a fee. The type of work they perform may include auditing, taxation, management consulting, small business advice, accounting systems installation etc. Examples of Public Accounting firms include Ernst and Young, PricewaterhouseCoopers and various smaller suburban accounting practices where the principal undertakes accounting work for a number of clients for a fee. Users of Accounting Information Accounting is the process of sorting, classifying, recording, reporting and analysing the financial information of a business. From the reports produced, users can make informed judgements and decisions. This information is used by many parties, both internal and external to the business. Managers Managers make decisions relating to the allocation of resources in order to meet corporate objectives. All businesses have objectives, whether targeting profit, sales growth or a particular market share, and management must formulate detailed plans highlighting the steps to be undertaken to achieve these objectives. The control function evaluates existing and past operations by comparing actual performance to budgeted expectations. It may be necessary to implement corrective action in situations where actual performance deviates from plans or where new opportunities emerge that may require an adjustment to plans. Managers rely on financial information to help with these decisions. Shareholders Shareholders, or owners of the business, have a right to profits of the business, after repayment of business debts. They are entitled to a return on their investment, whether as profits earned and distributed as dividends or as an increase in the market value of the shareholding or both. The accounting system reports financial information to owners about their ownership interest, thus enabling them to make decisions about their investment. Short-term creditors Short-term creditors of the business are trade creditors (suppliers of inventories), or providers of short-term loans and bank overdrafts. By analysing the financial reports, the business is assessed for credit-worthiness and its ability to repay debts and any interest due in the near future. HEIDI courina PrincesLong-term creditors These users provide finance in the form of mortgages, debentures, lease finance and loans. Long-term loans are usually secured by a charge registered over a specific business asset, or all assets of the business (a floating charge). Before a business is given long-term finance, it must be able to prove its long term credit-worthiness by providing appropriate accounting information. Government agencies Most businesses must report accounting information to one or a number of regulatory agencies of the Commonwealth, State or Local Government. For example, companies must lodge annual returns with the Australian Securities and Investments Commission (ASIC). The Australian Bureau of Statistics surveys businesses about their financial and operating activities on a regular basis to assist in the management of economic activity within our country. Australian Taxation Office Accounting information provides the taxation office with a basis for determining taxation liability in personal Income Tax, Company Tax, Goods and Services Tax, Payroll Tax and Customs Duty. Other Users These include employees of the business, its competitors, and customers. Regulation Accountants and bookkeepers must comply with various legislative requirements in the ordinary course of their operations. Compliance (legal) requirements impact on the accounting process. The Tax Agents Services Act 2009 This Act established the Tax Practitioners Board (TPB) and the registration of tax agents and BAS Agents. This legislation makes it a requirement for contract bookkeepers to register as BAS Agents if they charge fees for provision of 'BAS services’ to businesses (For definition of BAS services see the Australian Tax Office website). If a person provides these services without being registered, penalties can apply under the provisions of the Act. Taxation Law Financial information provided to taxation authorities or used to calculate taxation liabilities must comply with the relevant taxation law. Some key sources of Australian taxation law are: * Income Tax Assessment Acts (1936 and 1997) * Fringe Benefits Tax Assessment Act (1986) * A New Tax System (Goods and Services Tax) Act 1999 Chester Accounting and BookkeepingAustralian Accounting and Auditing Standards The Australian Accounting Standards Board (AASB) is responsible for developing, issuing and maintaining a single set of quality accounting standards (the Australian Accounting Standards) for preparation of general purpose financial statements. Only reporting entities are required to prepare general purpose financial statements, however other entities may choose to adopt the Accounting Standards. For reporting entities, the Standards have the force of law through the Corporations Act 2001. Examples of Australian Accounting Standards are: * AASB 112 Income Taxes. * AASB 116 Property, Plant and Equipment. * AASB 117 Leases. * AASB 118 Revenue. Under the Corporations Act 2001, company directors of reporting entities have responsibility for ensuring that the financial statements comply with the accounting standards. Penalties apply for non-compliance. There is also a requirement for company directors of reporting entities to ensure the books are audited each year. Accountants performing audit services must ensure they comply with the requirements of the Australian Auditing Standards (ASAs). PAYG System The PAYG system places a responsibility on employers to withhold income tax instalments (PAYG Withholding Tax) from the gross earnings of their employees. The employer is required to send the PAYG Withholding Tax to the ATO, accompanied by the relevant Business or Instalment Activity Statement. Other obligations of employers are the issue of payment summaries at the end of.the year, issue of pay advices with each pay, and record-keeping obligations. In addition, there are annual reporting obligations in relation to wages and salaries. Superannuation Guarantee (Admin) Act 1992 This Act requires the employer to pay a compulsory amount of superannuation for all employees meeting certain eligibility conditions. The rate is currently 9.5% of ordinary time earnings, gradually increasing to 12% by 1 July 2022. This money must be paid into the superannuation fund of the employee's choice. There is usually a requirement that the employee earns over $450 per month to qualify. Privacy Act 1988 The Privacy Act 1988 aims to protect information of a private or personal nature and prevent it being disclosed without the authority of the party to whom the information relates. Disclosure of information of a confidential nature should only occur with the permission of the client. eset eseAccounting Principles and Assumptions The business enters into transactions and these are recorded and reported by the accounting system. Accounting systems are based on various assumptions and principles: Accounting Entity Principle All transactions must be recorded from the point of view of the accounting entity, the business, which is regarded as a separate accounting entity from the owner. This means that the accounting system is designed to produce financial information only on the business. Non-business (e.g. private) expenses paid from the business bank account will not be classified as business expenses. Those payments will be recorded as Drawings. They represent a reduction in the owner's equity in the business and will not be included in determining profit. Historical Cost Principle All transactions are initially recorded at cost. However, after initial recognition, the accounting standards sometimes divert from this principle. For example, where an item of stock cannot be sold at or above cost price, it must be valued at its net realisable (net resale) value. Matching Principle The costs of earning income (expenses) should be recorded in the same period as the income they helped to earn. The result is the profit (or loss) for the period. Principle of Double Entry Each transaction has at least two parts, and affects at least two accounts. For every debit there is an equal credit. This approach to recording transactions will be discussed in a later chapter. The Accounting Period Convention The life of a business can be divided into equal time periods for the purpose of determining profit. This is generally one year, but can be 6 month, a quarter or a month. The Going Concern Principle The business entity is assumed to have a continuing financial life. This means the entity will be able to realise its assets and discharge its liabilities in the normal course of business. Principle of Control Internal controls over cash and the accounting system as a whole have the effect of minimising error and fraud. As a result, the information generated from the accounting system can be relied upon. Principle of Materiality The Materiality Principle recognises that all information need not be separately disclosed (reported) but may be grouped. For example, reporting salary and wages expenses would be material but it would not be necessary to itemise salaries and wages into gross wages, overtime and allowances. Chapter 11 Accounting and BookkeepingPrinciple of Conservatism The Conservatism Principle recognises that when doubt exists for entries that require judgment or estimates, you should choose the option that would result in profit or assets being understated rather than overstated. Principle of Consistency The Consistency Principle recognises that an accounting method, once adopted, should not be changed during an accounting period. Ideally methods should only be changed at the beginning of a new accounting period. Generally a method is not changed unless there is a good reason for doing so. Principle of Disclosure ‘The Disclosure Principle recognises that all relevant information should be communicated or disclosed to users. For example, a business might be involved in litigation that could result in damages being awarded againstit. Although the exact extent of damages is not known, the contingent (possible) liability must be disclosed, as its suppression could affect investment decisions by users. Business Classifications The aim of all businesses is to produce profit for their owners. Businesses predominantly vary in two ways. The first is how they produce profit (their chosen industry), and the second is the structure of the ownership of the business. It is important for bookkeepers and accountants to be aware of industry classifications and business structures, as each key type requires different accounting procedures. Common industry classifications and ownership structures are below. Industry Classifications Trading Businesses Trading businesses purchase inventory (or goods) that are ready for sale, and aim to sell them at a profit. Examples include wholesalers and retailers such as car parts suppliers, petrol stations, clothes shops and supermarkets. Manufacturers Manufacturing businesses purchase raw materials and convert them to products for sale. Manufacturers aim to add value to the goods they purchase, in order to transform them into something more valuable. Examples include furniture factories that purchase timber and build tables. The tables are usually then sold to furniture trading businesses. Service Providers Service businesses do not buy and sell products. They provide services, either to other businesses or to individuals. Their main cost is usually labour, and examples include dental surgeries, accounting firms and gymnasiums. HE ccourting PrincesLTE totomaiawe leas ota) Sole Traders Sole traders (also known as proprietorships) are businesses formed and owned by a single person, known as the proprietor, who not only owns the business but usually also manages the business. Characteristics of a sole trader business are: * The affairs of the sole trader business are accounted for separately from the private affairs of the owner. (Entity convention). * The business is not a legal entity separate from the owner. The owner is personally responsible for all debts incurred by the business and therefore has unlimited liability for the repayment of business debts. * The owner takes all profits earned by the business and bears all losses incurred. ¢ The life of a sole trader business ends when the owner either sells or closes the business, or at ‘the owner's death or incapacity. Partnerships A partnership is similar to a sole trader except that there are two or more owners who jointly own the business in agreed proportions. The characteristics of a partnership are: * Apartnership is an unincorporated association owned by two or more persons. * A partnership is not a separate legal entity. Legally, the partners are personally responsible, individually and collectively, for all debts incurred by the business. They therefore have unlimited liability for the repayment of partnership debts. * The partners share profits earned by the business, and bear losses incurred in accordance with the terms of the partnership agreement. In the absence of such an agreement, the Partnership Act stipulates that the partners share profits and losses equally. * Apartnership is legally terminated when ownership changes through the retirement or death of a partner. If the business continues, a new partnership agreement must be created among the remaining partners. The introduction of a new partner creates a new partnership and also necessitates a new agreement. Corporations A company is an artificial body created by law, having an existence which is separate and distinct from the people who own or manage the business. Companies are created under the provisions of the Corporations Act, which is Commonwealth legislation. The characteristics of a company are: ‘+ The company is a separate legal entity and is able to conduct business in its corporate name The company can enter into legally binding contracts, buy and sell property in its own name, sue and be sued. The company has all the rights and obligations afforded to any legal person. choptart Accounting and Bookening i* Owners of companies, known as shareholders, have limited liability for the debts of the company. A shareholder's risk of lossis limited to the amount unpaid on the par value of their shareholding. For example, a $1 share paid to 60 cents will require the shareholder, in the event of liquidation, to pay no more than the 40 cents balance unpaid on each share held. Ifshares are fully paid the owner of the shares is under no further obligation. * Acompanyis said to have perpetual succession. This means that its legal existence is unaffected by changes in the ownership of shares in the company, or on the death of shareholders. * Management and ownership are usually separated. A Board of Directors is elected by the shareholders to run the business on their behalf Self-Testing Exercise 3 Sally Lawrence is the owner of a gift shop in town. She will be selling cards and gifts for a wide variety of customers. She anticipates an annual turnover as owner/operator of $200,000 per year and will employ three sales assistants. All customers will use cash or EFTPOS, Required: What type of business does Sally operate (trading business, manufacturer or service provider)? Sally is considering incorporating a company to operate the gift shop. What are the benefits of a company structure over operating as a sole trader? Solutions to Self-Testing Exercises 4. Services include accounts payable, accounts receivable, payroll, petty cash processing and reconciliation, bank and credit card reconciliations, preparing the accounts to trial balance, filing and maintaining records of transactions for statutory periods, BAS/IAS preparation. 2. Servicesare providedin many areasincluding taxand GST returns, self-managed superannuation funds, business advice, business registrations, auditing, grant applications, accounting software advice and setups, systems analysis, marketing plans and appraisals, budgeting, project management, client education, financial reporting, loan applications, due diligence. 3. _ Sally is planning on operating a trading business, as she will buy and sell inventory. The key advantage of a company structure is limited liability. Accounting PrincesChapter 1: Review Questions 1. Give a definition of “Accounting”. 2. Whats the purpose of an accounting system? 3. Explain the role of an accountant. 4. Distinguish between bookkeeping and accounting. ee5. Which parties would be interested in the accounting reports of a business enterprise? How would they be likely to use the information in those reports? 6. In Australia, the AASB from time to time issues Accounting Standards. What is their purpose? 7. Make a list of websites that you could access to assist with sourcing current information that would be relevant to bookkeeping activities. Your websites should cover the basic requirements in relation to BAS services, employees, taxation, superannuation and state duties. TEI Acouning Pines8. Discuss the following accounting principles. Why are they important? (a) Accounting Period. (b) Matching Principle. (c) Control. 9. (a) Discuss the concept of the ‘accounting entity’. (b) Why is it important to record transactions from the point of view of the “accounting entity"? Copter Accounting and Bookkeeping10. What is meant by 11. Whatis the ‘continuity of activity’ or ‘going concern’ convention? How does this convention influence the recording of accounting information? ‘Accounting PrinciplesFundamentals of Accounting and GST What You Will Learn In This Chapter The aim of accounting is to provide current, accurate and relevant financial information, either for making financial decisions or to meet the statutory requirements of corporation and taxation law. To be meaningful, the information must be in a convenient report format. It should tell management what they need to know in order to make effective decisions. A system for recording transactions and extracting the reports is necessary. This chapter introduces the basic financial reports as well as definitions and assumptions on which the system is based. Elements Addressed Underpinning knowledge for FNSACC301 Process financial transactions and extract interim reports and FNSACC302 Administer subsidiary accounts and ledgers. Chapter Structure 2.1. The Accounting Process 22 Definitions of Basic Accounting Terms 2.3 The Chart of Accounts 24 GST PrinciplesThe Accounting Process Inputs of the Accounting Process: Source Document Each transaction a business records in its accounting system must be evidenced in writing. This written evidence is referred to as a source document. For example, a cheque butt is a source document as it is a record of having paid money. Source documents are prepared at the time the transaction takes place, either manually or by a computerised system. They contain all relevant details of the transaction and provide evidence that the transaction took place. Source documents are the main source of information for the accounting records. If every transaction is recorded on a source document and each source document is recorded in the accounting system accurately and just once, then all transactions affecting the business will be recorded accurately and therefore reports prepared from this information can be relied upon. If properly recorded, amounts in the financial reports can be verified by tracing back through the accounting system to the original source documents. The more common types of source document in a typical retail business are: * Cheque © Receipt * Cash Sale Docket * Credit Card Voucher © Bank Deposit * Bank Statement * Tax Invoice to a customer or from a supplier * Tax Adjustment Note (Credit Note) to a customer or from a supplier These documents will be covered in detail later in this text. INPUTS OUTPUTS Source Documents Accounting Financial System Reports from Transactions Accounting PrinciplesThe Accounting Process The below diagram shows the flow of accounting information, from transaction to the financial statements. This process will be covered in detail throughout this text. Ren red Transactions Credit on Credit ee Source Receipt, | Tax Invoice Tax Invoice | Credit Documents to from | | Note from | customer Supplier | | Supplier ] [ Journals Sarid Credit Sales | Cah Credit General Sorel so | iat "Soomal oun Ledgers Accounts, | General Accounts: Receivable Ledger Payable Ledger Ledger Ledgers Balances cra ce Income and Assets, Liabilities Expenses “7 & Owner's Equity Financial Statements Ur cory Seed ced The above flowchart assumes that repetitive, common transactions are recorded in Specialised Journals (see Chapter 10). In a single journal system, as covered throughout this text, all transactions are recorded in the General Journal. Most computerised systems more closely resemble a Specialised Journal system, as common ‘transactions are recorded in forms dedicated to that task. For example, in MYOB, the Enter Sales form is used to record sales. Computerised systems then automate the process of posting to ledgers, closing entries at the end of an accounting period and compilation of the financial statements. Cheyer 2 Fundamentals of Accounting and G5t(ole ie elt eoMelmrat-wCerere Una lnl¢ Wer meletc toto mAb a=) slog no) The outputs of the accounting system are collectively referred to as financial reports. They comprise: * Income Statement (Statement of Comprehensive Income) * Balance Sheet (Statement of Financial Position) * Statement of Cash Flows (not covered in this text) The objective of financial reports is to satisfy the information requirements of decision makers in the acquisition and allocation of resources. This in turn facilitates the operational efficiency and financial viability of business operations. Income Statement The Income Statement is a report that determines the business's profit or loss over a period of time (eg. a month or a year). It measures the financial performance of the business by offsetting expenses against income to arrive at the profit or loss for that period. Income or Revenue is earnings made by the business as a result of entering into profit-generating activities. Examples include sales, interest income, dividends received and service income. Expenses are the costs of operating the business in order to derive income. Examples include wages, insurance and advertising. Profit occurs when income is greater than expenses for the period. Profits generated will increase the net worth of the business (the Owner's Equity). Loss occurs when expenses are greater than income for the period. Losses reduce the net worth of the business, ie, Owner's Equity is reduced. Profit or Loss is the difference between Revenue and Expenses Profit = Revenue - Expenses Gross vs Net Profit Trading businesses and manufacturers usually show both Gross and Net Profit. Gross Profit is the total sales made during the period, less the cost of sales (or cost of goods sold). For a trading business, the cost of sales is the cost of the inventory that was sold. For a manufacturer, the cost of sales is the cost of producing the goods, including the raw materials bought, labour costs and other costs incurred during production. Gross Profit on the Income Statement is the amount available to pay the operating costs of the business. Showing Gross Profit separately to Net Profit allows the business‘s mark up on cost to be calculated and analysed. Assy PicThe format of the Income Statement will vary according to the type of business and its activities. Example of an Income Statement for a service provider: er ead ag Income Statement for the period 1 July 2014 to 30 June 2015 Revenue Service Fees Received 88,000 Trade Journal Articles 6,500 $94,500 Less Operating Expenses Advertising 1,700 Bank Charges 340 Commissions Paid 2,260 Electricity 1,600 Insurance 1,900 Motor Vehicle Expenses 6,600 Rent 3,000 Telephone 1,300 Stationery 3,700 Wages 22,100 Net Profit Example of an Income Statement for a retailer or manufacturer: Let N ae letersi Te u Cua auld Cu mene Rc ate} Sales 100,000 Less Cost of Sales -45,000 Gross Profit 55,000 Less Operating Expenses Advertising 5,000 Electricity 3,500 Rent 2,000 Repairs and Maintenance 1,500 Telephone 4,000 Wages and Salaries 20,000 = 36,000 Net Profit 19,000 Chapter 2 Fundamentals of Accounting and GSTSelf-Testing Exercise 1 Following the format of the NCAP Fabrications Income Statement, prepare an Income Statement for Bojo Ice Creams for the year ended 30 June 2015. The revenues and expenses were: Advertising 4,500 | Rent Expense 10,000 Cleaning 6,000 | Sales 98,000 Cost of Sales 15,000 | Telephone 1,000 Electricity 3,000 | Wages 21,000 General Expenses 2,000 Bojo Ice Creams Income Statement for the period 1 July 2014 to 30 June 2015 Sales Less Cost of Sales Gross Profit Less Operating Expenses Net Profit ‘Accounting Principleserase ind The Balance Sheet lists the assets, liabilities and owner's equity of the business at a specific date. The basic components of the Balance Sheet are: 1. Assets - items of value belonging to the business that will provide a future benefit to the business. That is, items the business owns. Note that expenses paid in advance (prepaid expenses) are assets as they will provide a future benefit. 2. Liabilities - amounts owing by the business as a result of past transactions and which have yet to be paid, Also, if the business is paid in advance for a product or service to be supplied in the future, there is a liability to provide that product or service. 3. Owner's Equity (or Proprietorship) - the net worth of the business arising from a combination of: (a) The amount invested in the business by the owner(s) (Capital). (b) The amount of profit earned that has been retained in, and thus reinvested in, the business (sometimes referred to in the balance sheet as retained earnings). If this amount is negative, it represents losses. (c)_Less the amount drawn out of the business by the owner (Drawings). Owner's Equity = Capital + Profit - Losses - Drawings Net Assets Asimplified version of a Balance Sheet follows: ea ee Dus eu ee ete ee) Assets Bank 10,000 Accounts Receivable 15,000 Inventory 20,000 GST Paid 1,000 Plant and Machinery 45,000 Land and Buildings 60,000 Liabilities Accounts Payable 13,000 GST Collected 3,000 Bank Loan 50,000 Mortgage on Land 25,000 Net Assets Owner's Equity Capital ~ P. Griffith 58,000 Plus Net Profit 19,000 77,000 Less Drawings -17,000 Chapt 2 Fundamentals of Accounting nd GST [iFor NCAP Fabrications, OE (60,000) = Assets (151,000) — Liabilities ($91,000) The link between the Income Statement and the Balance Sheet is the Net Profit. For example: ‘On the previous pages, there is an Income Statement and a Balance Sheet for NCAP Fabrications. * Net Profit of NCAP Fabrications per the Income Statement is $19,000. * The Balance Sheet for NCAP Fabrications shows the $19,000 Net Profit added to the opening balance of Owner's Equity, representing the owner taking the profits earned by the business. Net profit increases the owner's equity in the business. This Balance Sheet conforms to the general accounting equatior Self-Testing Exercise 2 Prepare a Balance Sheet for Big Boy Earthmoving as at 30 June 2015. The assets and liabilities of the business are as follows: The revenues and expenses were: Accounts Receivable (asset) 82,000 | Land & Buildings (asset) 480,000 Accounts Payable (liability) 59,000 | Loan (liability) 320,000 Bank (asset) 14,000 | Mortgage (liability) 200,000 Capital (owner's equity) 305,000 | Motor Vehicles (asset) 52,000 Drawings (owner's equity) 3,000 | Net Profit (owner's equity) 62,000 GST Paid (asset) 5,000 | Office Furniture (asset) 25,000 GST Collected (liability) 15,000 | Plant & Machinery (asset) 300,000 ‘Accounting PrinciplesChoptor@ Fundamentals of Accounting and GSTDefinitions of Basic Accounting Terms ‘We will now examine each of the account classifications in more detail. Assets are those resources of a business that will provide a future benefit. Here are some examples of assets: * Money in the bank is an asset. The future benefit of money is that it can be exchanged for other resources, e.g. it may be used to buy a computer or a machine or to pay wages * Inventory is stock bought with the intention of selling it at a profit. As long as the stock retains some value, it is an asset until sold. * Shop display shelving is an asset which will hopefully make the stock more saleable and help the business to earn income. © Trademarks are assets as they provide a future benefit as a right that allows the business to earn income to the exclusion of others. * A customer's debt is an asset. This is an enforceable right to money owed by a customer, (known as the business’ accounts receivable or debtors). The future benefit is the money that will be received when the customer pays. * GST Paid is an asset as GST credits can be claimed from the tax office. Assets are resources of a business that provide a future benefit. | rely] bat Liabilities are amounts owed by a business to outsiders. They are debts of the business and a source of funds for the business. Liabilities represent either a commitment to relinquish assets (usually cash) at some time in the future, or to provide goods or services. Here are some examples of liabilities: * A business has liabilities because it owes others for the goods and services it has acquired but not yet paid for. These are called Accounts Payable or Creditors. * A business which has borrowed funds to finance the acquisition of resources has acquired liabilities of bank overdrafts and loans. * GST collected from customers is also a liability, as it must be paid to the tax office. Liabilities are a future commitment of assets by the business. } Net Assets = Total Assets - Total Liabilities | TEER caning PrincesOwner's Equity (or Proprietorship) is the value of the residual interest the owner has in the business. From a business point of view, it represents what the business owes to the owner of the business. ‘The owner(s) of the business are the beneficiaries of any profits and bear any losses incurred. Owner's Equity is the sum of the owner's contributions to the business and the profits generated by the business, less the amount of losses generated by the business and any withdrawals (Drawings) from the business by the owner. This will always equal the Net Assets of the business. Owner's Equity is the value of the owner's investment in the business. Owner's Equity is the total resources (assets) remaining after commitments to outsiders (liabilities) are met. For the survival and growth of a business, it is imperative that the business operates at a profit and that a satisfactory financial position be continuously maintained. Income (or Revenue) The revenues of a business will depend on the nature of the business operations. * Fora retailing or manufacturing business the revenues will be income from sales. * For professional businesses such as accounting, legal or architectural firms, revenues will be fees or service income earned. * For a not-for-profit organisation, income is derived from subscriptions, donations, activities and grants. Income will also include cash receipts from other sources such as the receipt of interest from an investment or rent received from property leased to a tenant. Income or Revenue is the receipt of resources generated by the service or trading activities of the business. Charter2 Fundamentals of Accounting and GSTExpenses are outlays of resources by the business which provide a benefit to the business in the short term and are incurred in the process of generating income by the business. Examples include: + Employees’ wages * Telephone charges * Electricity © Rent * Bank charges. The expenses for any particular business will depend on the type of activities the business undertakes. * Fora retailing business, a major expense will be the cost of the goods sold. * Fora service business, the largest expense is usually salaries and wages. * Expenses common to all types of business organisation would be wages, advertising, telephone and electricity. Expenses differ from assets, in that assets provide a future economic benefit. For example, a motor vehicle would be used in the business over 2-5 years. This provides a future benefit to the business and is therefore an asset. The running costs of the vehicle are expenses as they are immediately consumed and therefore provide no future benefit beyond the current accounting period. Running costs include fuel, servicing, licences, registration and vehicle insurance. Expenses are costs incurred in earning income. Expenses are resources which are used to earn current income only, and provide no future benefit. FEB cccuning PrincesSelf-Testing Exercise 3 Classify each of the following accounts as assets, liabilities, equity, revenues or expenses: Accounts Receivable | Commision Interest Received | Plant & Machinery Accounts Payable | Computers Inventory Rent Paid — Repairs & Advertising Cost of Sales Land Repair Bad Debts Drawings Loan Interest paid | Sales Bank Loan Electricity eae Service Revenue Capital Freight Outwards | Net Profit Stationery Cash at Bank GST Collected Office Expenses _| Wages a eis Evie Paes os croper2 Fundamentals of Accounting and GSTCurrent and Non-Current Assets In the Balance Sheet, assets and liabilities are further classified into Current or Non-Current using the 12-month rule. Current Assets are those assets that are: © Cash; * Convertible to cash within 12 months; or * Otherwise consumed within 12 months. Examples of Current Assets: * Cash at Bank * Petty Cash * Accounts Receivable © Inventory * Prepaid Insurance. The business would expect that all Accounts Receivable will be paid within 12 months, and that any inventory will be sold within 12 months. Prepaid Insurance, while not necessarily convertible to cash, will be consumed within 12 months. These are therefore current assets. Assets not expected to be converted to cash within 12 months are Non-Current Assets. These include fixed assets such as vehicles and plant and equipment as well as long term investments and intangibles (trademarks, patents, etc.), Current and Non-Curre: jabi Ss Current Liabilities are amounts payable to outside parties within 12 months. For example: * Accounts Payable * GST Collected © PAYG Withholding Tax * Short term loans. All these amounts would be payable within 12 months. Also included here would be income received in advance. The liability will be met by supply of goods or services within 12 months Non-Current Liabilities are those amounts due for payment after 12 months or longer, such as mortgage loans, and long service leave. Accounting PrinciplesSelf-Testing Exercise 4 Classify each of the following accounts. The first one has been done for you. Inventory Investments Accounts Receivable | Interest Received A Motor Vehicle GST Collected Plant & Machinery | Long Term Loan running costs Capital Sales Net Profit Accounts Payable Office Furniture Mortgage Loan Commission Received | Motor Vehicles Patents Bank Overdraft Rates & Taxes Bank Short Term Loan Bank Fees Service Revenue Postage a - 7 Insurance on Commission Paid | Drawings Loan Interest paid | sagtcr Vehicle NON- NON- o rat Tay catty Cee CURRENT belt Se 55 es ASSE rs aL lr eri vol Inventory Chapter? Fundomentais of Accounting and GSTThe Chart of Accounts Setting up an accounting system requires proper planning and an understanding of the accounting process. The accountant will decide on the information required on the Balance Sheet and Income Statement. From this analysis, a ledger will be created for the business. The ledger will consist of an account for each item required to prepare the Balance Sheet and Income Statement. The Chart of Accounts must be customised to the needs and activities of the business. Most businesses can be classified as one of the following: * Retail businesses that buy goods and sell them at a mark up. For example, hardware stores and petrol stations, * Service organisations that provide services for a fee. For example, cleaners and accountants. * Manufacturers who make products for sale. For example, car factories. For example, the ledger for NCAP Fabrications, the manufacturer used in the financial statement examples, would contain accounts for: * Bank, Accounts Receivable, Inventory, GST Paid, Plant and Machinery, Land & Buildings. * Accounts Payable, Bank Loan, GST Collected, GST Paid and the Mortgage on Land. * Capital and Drawings. * Sales revenue account. * Advertising, Electricity, Rent, Repairs and Maintenance, Telephone, General Expenses, Wages and Cost of Goods Sold. As part of the planning process the accountant prepares a Chart of Accounts, being a list of ledger account names set out in an organised manner. It may be simple alphabetical order, but the most common form is one where the accounts are classified into Assets, Liabilities, Equity, Income and Expenses, in that order with current assets and liabilities listed before non-current. The accounts are numbered to facilitate identification and access. TEBE courting PrincesModel Chart of Accounts Following is an example of a Chart of Accounts. It will be used in the activities in this text. The following list is a guide only and is not intended to be exhaustive. Alternative account numbers and names may be used. Assets Current Assets Liabilities | Current Liabilities 100 Bank 200 Bank Overdraft 101 Petty Cash / Cash on Hand 205 Credit Card Accounts 102 EFTPOS Clearing 210 Accounts Payable / Creditors 110 Accounts Receivable / Debtors 220 Short Term Loan. 115, (Allowance for Doubtful Debts) 230 GST Collected 120 Inventory/Stock 240 Expense Accrued 125 GST Paid* 250 Income Received in Advance 130 _| Expenses Prepaid Non-Current Assets Non-Current Liabilities 150 _| Investments 260 | Mortgage 160 [Land 270 _ | Long term loan 162 | Building/Premises 164 | (Accumulated Depn of Building) 166 _| Plant and Equipment Owner's Equity 168 | (Accumulated Depn of P and E) 300 | Capital 170 _| Motor Vehicles 310 | Drawings 172 __ | (Accumulated Depn of MV) 320 _| Profit/Loss 174 | Office Furniture & Equipment 176 | (Accumulated Depn of OF & E) 178 | Goodwill 180 _| Patents 182 | Trademarks *Note: While GST Paid is an asset, it is usually reported as a liability with a negative, or debit balance i.e. offset against GST Collected. The reason is to show the net liability for GST payable to the tax office. Cheptor2 Fundomentas of Accounting and GSTcy Income _| Operating Income Expenses | Administration Expenses 400 Sales 700 Office Salaries/Wages 410 Service Fees 701 Annual Leave 420 Design Revenue 702 Long Service Leave Other Operating Income 703 | Superannuation 450__| Discount Received 705 _| Electricity/Light and Power 455 Rent Received 710 Travel and Fares 715 | General Expenses 460 Interest Received 716 Staff Amenities 720 _| Insurance 465 Commission Received 725 Motor Vehicle Expenses 470 Bad Debts Recovered 730 Office Expenses 735 _ | Photocopying Expenses 740 [Postage Cost of Goods Sold 745 Rates/Rates and Taxes 500 Purchases (Periodic Inventory only) 750 Rent/Office Rent 510 Freight Inwards/Cartage Inwards 755, Repairs and Maintenance (Periodic Inventory only) 760__| Stationery 520 | Customs Duty 765 _| Telephone Charges (Periodic Inventory only) 770 _ | Depreciation 530 Transit Insurance ~ Inwards 775 Loss on Disposal of (Periodic Inventory only) Non-current Assets 550 Cost of Goods Sold (Perpetual Inventory only) Financial Expenses 800 Discount Allowed Marketing Expenses 810 _ | Interest Expense 600 Sales Salaries/Wages 820 Bad Debts 605 Advertising 830, Doubtful Debts 610 Freight Outwards 840 Bank Charges 615 Commission paid 620 Depreciation of marketing assets 640 __| Other marketing expenses The account names are interpreted from the viewpoint of the business. For example: * Interest Received is interest that the business has received. It is Revenue. © Rent paid is rent the business has paid, an expense. * Discount Allowed is the discount the business has allowed to its customers, an expense. * Freight Outwards is freight the business has incurred for freight on goods sold to customers. In the balance sheet, assets and liabilities are further classified into either Current or Non-current using the 12-month rule. ‘Accounting PrinciplesGST Principles The GST is a broad based consumption tax levied on the supply of most goods and services in Australia. Businesses that are registered for the GST must add 10% GST onto the price of most goods and services they sell to Australian customers. In our studies it is assumed that an accounting system is set up for a GST-registered business. It is therefore necessary to account for the GST in the accounting system to facilitate reporting the GST to the tax office. Who is required to register for the GST? * Businesses with an annual tumover of $75,000 or more. * Businesses whose annual turnover is less than $75,000 may register if they wish. * Non-profit bodies with an annual turnover of over $150,000. * Taxi operators regardless of turnover. Businesses that register for the GST have certain obligations and rights: * They must charge 10% GST on all “taxable supplies” (mostly this means sales and service revenue). This is called GST Collected, * They must issue a Tax Invoice for goods and services supplied with value over $75. © They may claim the GST on their business expenses; GST Credits or GST Paid. * They must complete a Business Activity Statement to report the GST each quarter or month. * They must remit the net GST to the tax office. Net GST is the GST Collected less GST Paid. Assupply is a "taxable supply” if all the following are satisfied: * The business making the supply is registered for the GST or is required to be registered. * The supply is for consideration (cash or kind). ‘* The supply is made in the course of business (not a private expense). * The supply is connected with Australia. * The supply is not GST-free or input-taxed. The GST therefore applies to most goods and services supplied by GST-registered businesses except where they are exports or are classified as GST-free or input-taxed by legislation. Typical supplies that include GST are clothing, building supplies, equipment, services provided, electricity, telephone, accounting fees, transport fares, office supplies, cosmetics and meals from a restaurant. Chester2 Fundamental of Accounting and GST4B) Supplies Without GST in the Price The below are supplies, meaning that a sale or provision of a service has been made, but they do not include GST in the price. When purchased, no GST Paid is recorded, and when sold, no GST Collected is recorded. The differences between GST-free and input-taxed supplies are not covered in detail in this text. Input-taxed supplies GST+ree supplies Financial supplies: * Basic food Such as interest charges, loan establishment fees, © Basic health finance charges, loans, shares, superannuation and life © Exported goods and services 'SUrance- | © Some childcare services Retldendalrent: | * Some religious services and Residential rent charged by a GST-registered business. | charitable activities The business is also unable to claim GST Credits on the * Some local government charges expenses incurred in maintaining the residence. These (eg rates and water) rules do NOT apply to commercial rent which is a taxable supply; GST applies to commercial rent that is supplied by a GST-registered business. Tax Invoices GST-registered businesses must supply a Tax Invoice for all supplies made over $75. The tax invoice must show: ‘* The supplier's name and Australian Business Number (ABN) * Date of issue and a brief description * The words "Tax Invoice” and the tax-inclusive price * If the GST is 1/11th of the total price, then a statement that GST is included in the total price. Alternatively the amount of GST can be shown separately. Examples of Tax Invoices: Example (a) Jones Consulting 01/06/15 44 Johns Road, Wilson WA 6250 Phone: (08) 6333 4444 TAX INVOICE No 334 ABN 444 444 444 Terms - Net 7 days Invoice to: Your Business Consulting and reports including GST $660 ‘Accounting PrinciplesExample (b) Jones Consulting TAX INVOICE 01/06/15 44 Johns Road, Wilson WA 6250 No 334 Phone: (08) 6333 4444 ABN 444 444 444 Terms Net 7 days Invoice to: Your Business Consulting and reports $600 GST 60 $660 If the amount is more than $1,000 (GST exclusive) the tax invoice also needs to show: © The name of the recipient * The recipient's ABN or street address. * The quantity of goods or extent of services provided. GST Credits GST Credits are also known as GST Input Tax Credits or GST Paid. A GST-registered business may be entitled to claim a credit for the GST it pays on its business inputs (expenses). The amount of the GST credit is the amount stated on the invoice from the supplier. Generally the business will be entitled to claim GST Credits on their inputs if the acquisitions are made for business purposes (not private) and are tax-deductible for income tax purposes. Example: Refer to the Jones Consulting invoices for consulting services. Determine the GST credit ‘on each invoice. Example (a): The invoice states, “Amount including GST is $660", so divide by 11 to determine the GST. GST Credit = 660/11 = $60. Example (b): The GST Credit is $60, as stated on the invoice. It is vital that the accounting system of a business be capable of providing information on GST Collected and GST Paid for reporting on the Business Activity Statement. Chepter@ Fundamentals of Accounting and GST I| GST-Exclusive (excluding GST) When an amount is GST-exclusive then 10% GST will be added to the price shown. Example Sale amount is $100 before GST is added. To work out the GST we add 1/10" to the price. GST = 10% of $100 = $10 Total price to the customer = $100+$10 = $110 OR Total price = $100 x 1.1 = $110 GST-Inclusive (Including GST) When an amount is GST:inclusive it indicates that 10% GST has already been added to the price shown. Example Sale amount is $110 including GST. To work out the GST find 1/11th of the price. GST on the sale = 1/11 of $110 = $10 The GST exclusive price = 110 x 10/11 = $100 (sales revenue) GST $10 10% GsT Inclusive GST Exclusive Price Price $110 | $100 rae 110% When a price is quoted as GST exclusive, the GST is 10/100 or 1/10. The GST inclusive price is 110/100 or 11/10 of the GST exclusive price. GST $10 10% GST Inclusive GST Exclusive Price Price $110 $100 100% make When a price is quoted as GST inclusive, the GST is 10/110 or 1/11. The GST exclusive price is 100/110 or 10/11 of the GST inclusive price. Accounting Principlesa Self-Testing Exercise 5 Complete the blanks in this table; the first is done as an example. GST-Exclusive Price GST GST-Inclusive price 10.00 1.00 11.00 (a) 200.00 (b) 25.00 ) 153.00 (d) 1.20 (e) 102.50 Self-Testing Exercise 6 Harvey Trading is registered for the GST and its records indicate the following payments for July. Payment Business % | Tax Invoice | Total Invoice | CSTon | GSTCredit Invoice | Claimed Rent for shop 100% Yes $3,300 $300 Equipment 100% Yes $8,800 $800 Telephone 100% Yes $1,500 $100 Vehicle 75% Yes $9,900 $900 Window Cleaner (not registered | 100% No $80 Nil for GST) Wages 100% No $1,620 | No Invoice Required: Determine the GST Credits claimable by Harvey Trading. Chopter2 Fundamentals of Accounting and GSTSolutions to Self-Testing Exercises 4. Revenue Sales 98,000 Less Cost of Sales 15,000 Gross Profit 83,000 Less Operating Expenses Advertising 4,500 Cleaning 6,000 Electricity 3,000 General Expenses 2,000 Rent 10,000 Telephone 1,000 Wages 21,000 Net Profit 2. Assets Bank 14,000 Accounts Receivable 82,000 GST Paid 5,000 Plant and Machinery 300,000 Office Furniture 25,000 Land and Buildings 480,000 Motor Vehicles 52,000 958,000 Liabilities Accounts Payable 59,000 GST Collected 15,000 Bank Loan 320,000 Mortgage 200,000 Net Assets ‘Owner's Equity Capital - P. Griffith 305,000 Plus Net Profit 62,000 367,000 Less Drawings - 3,000 364,000 ‘Accounting Principlesee Cent eeu Current PCT Accounts Receivable Bank Inventory Beceuhey Accounts Payable | Capital Rommission | Advertsing Cash at Bank Bank Loan Drawings Interest Received | Bad Debts Computers GST Collected Net Profit Sales Cost of Sales Inventory Service Revenue | Electricity Land Freight Outwards Plant & Machinery Loan Interest paid Motor Vehicle Running Costs Office Expenses Rent Paid Repairs & Maintenance Stationery Wages 4. Cor elena al Co Peer Perea ass Cary PEAT aaa Lt Current yg Commission Received Accounts Payable Bank Overdraft Long Term Loan Investments Capital Bank Fees Motor Vehicles Commission Paid Insurance ‘on Motor Vehicle Loan Interest paid Interest Received Mortgage Loan Drawings Office Furniture GST Collected Net Profit | Sales Short Term Loan Service Revenue Patents Plant & Machinery MV running costs Postage Rates & Taxes Chapter 2 Fundamentals of Accounting and GSTee Re STA aes (a) 200.00 20.00 220.00 (b) 25.00 2.50 27.50 C} 153.00 15.30 168.30 (d) 1.20 0.12 1.32 (e) 102.50 10.25 112.75 @) 50.00 5.00 55.00 (9) 800.00 80.00 880.00 (h) 48.00 4.80 52.80 (i) 94.50 9.45 103.95 0 26,500 2,650 29,150 w&) 300.00 30.00 330.00 0) 27.00 2.70 29.70 iis GST Credit Claimed Rent for shop 300.00 Equipment 800.00 Telephone 100.00 Vehicle 675.00 Window Cleaner (not registered for GST) 0.00 Wages 0.00 ‘Accounting Principles(ely lara lO Sr ted 1. Define and give examples of: (a) Assets (b) Liabilities (c) Owner's Equity (d) Revenues Cropton? Fundamentals of Aesounting na oT(e) Expenses 2. If net profit is $1,000 and expenses total $2,150, revenue earned must be: (a) $1,150 (b) $2,150 (c) $3,150 (d) ($1,150) Answer: 3. Calculate net profit from the following information: Service revenue $192,000 Interest income 2,500 Wages 125,000 Rent expense 24,000 Other expenses 8,500 asa ats4. Determine the missing amounts: ries neti (a) $25,000 $12,000 (b) $22,000 $17,000 () $3,500 $18,500 (d) $39,000 $10,000 (e) $45,000 $12,000 () $5,000 $15,000 (g) $200,000 $80,000 5. Drawings are: (a) A Current Liability of the business (b) A decrease in Owner's Equity (c) An increase in Owner's Equity (d) A Current Asset of the business Answer: 6. Indicate which of the following transactions would not increase owner's equity: (a) Profit earned by the business (b) Payments by the owners from the business bank account for their daughter's school fees (c) The proprietor gave the business his $50,000 motor vehicle (d) A contribution of $40,000 cash by the owner Answer: 7. Prepare a list of Assets and Liabilities from the following: Motor vehicles $8,000 Accounts Payable 800 Office and Shop Furniture 7,000 Inventory 9,000 Plant and Equipment 6,000 Bank (overdraft) 14,000 Chorter2 Fundamentals of Accounting and GSTIf there were no other items in the books of the business, what would be the amount of Owner's Equity? prc EFT tg Motor vehicles Accounts payable Office & shop furniture Inventory Plant & equipment Bank (overdraft) TOTAL Owner's Equity (A - L) 8. Calculate the value of the owner's investment (Owner's equity) in each of the following businesses: (a) Assets total $330,000 Liabilities total $258,000 Owner's Equity = (b) Account Balances Cash at Bank $5,200 Accounts Receivable 2,000 Motor Vehicle 14,200 Furniture and Equipment 7,300 Accounts payable 6,000 Owner's Equity = (c) Account Balances Bank Overdraft $3,500 Accounts Receivable 8,200 Inventory 14,000 Premises 180,000 Furniture and Equipment 11,200 Accounts Payable 7,000 Bank Loan 123,000 Owner's Equity = ‘Accounting Principles9. For the following accounts, show the account type (Asset, Liability, Owner's Equity, Revenue or Expense) and the report (Balance Sheet or Income Statement) to which it belongs: Peery 1 Lead Inventory Mortgage Accounts Receivable Wages Sales Cost of Goods Sold Advertising Accounts Payable Furniture and Fittings Fees Received Capital Telephone Expense Drawings Electricity Expense Loan Motor Vehicle Cleaning Fees paid Interest Received Chepter2 Fundamentals of Accounting and ST10. From the following list of account balances for Regal Racquets, determine the Owner's Equity by completing a Balance Sheet as at 28 February. Land $90,000 Buildings 160,000 Plant 25,100 Accounts Receivable 10,900 Accounts Payable 12,900 Bank Overdraft 20,400 Mortgage 100,000 Pope edieenie eee oe acy Current Assets Non-Current Assets Total Assets Current Liabilities Non-Current Liabilities Total Liabilities Net Assets Owner's Equity ‘Accounting Principles11. Complete a Balance Sheet as at 31 March to find the value of Capital. Cash at bank Accounts Receivable Capital Machinery Land and Buildings Mortgage Accounts Payable Inventory $9,000 20,000 2 14,000 96,000 30,000 17,800 6,500 PEED) Current Assets Non-Current Assets Total Assets Current Liabilities Non-Current Liabilities Total Liabilities Net Assets Owner's Equity Chepter@ Fundamentals of Accounting and 68 i12. Fill in the blanks to complete the table. Amounts should be rounded to the nearest cent. GST rate is 10%. The first row has been completed for you. Crete Pernt nekcras A 100.00 10.00 110.00 B 50.00 55.00 c 0.20 D 10.00 11.00 E 5.50 60.50 F 160.00 16.00 G 450.00 H 81.40 1 13.20 14.52 J 4,567.00 13. Norman Trading is registered for GST and its records indicate the following payments for July. Cen ane ara mel SAA (CONSOLE vests) Claimed Rent for shop 100% Yes $6,600 $600 Equipment 100% Yes $4,400 $400 Telephone 100% Yes $1,100 $100 Vehicle 50% Yes $3,300 $300 Sign Writer (not registered 100% No $800 Nil for GST) Wages 100% No $1,650 | No Invoice Required: Determine the GST Paid claimable by Norman Trading. Rassias!Cash Receipts What You Will Learn In This Chapter Typical sources of cash receipts of a business include sales, service income, interest received, rent received and commission received. The source of the receipts for a particular business depends on the nature of that business. For example, a retailer's receipts would be mainly from sales, a plumber mainly service income, while a charitable organisation would receive grants and donations. The money could be received in cash, by cheque or electronically. This chapter looks at the accounting processes for recording cash receipts. Elements Addressed FNSACC301 Process financial transactions and extract interim reports Element 1 Check and verify supporting documentation Element 2 Prepare and process banking and petty cash documents Element 4 Prepare and post journals and batch monetary items Element 7 Prepare deposit facility and lodge flows Chapter Structure 3.1 Internal Controls over Cash Receipts 3.2 Source Documents for Cash Receipts 3.3 Cash Receipts for a Service Business 3.4 Cash Receipts for a Retail Business 3.5 Banking ReceiptsInternal Controls over Cash Receipts A simple definition of Internal Control is that it consists of “whatever methods and measures are adopted within a business to prevent irregularities and detect and correct them as they occur, to safeguard its assets and to ensure the accuracy of its accounting records”. The aim of internal control is to make sure the reports generated by the accounting system are accurate and the assets of the business are secure. ‘An example of an internal control would be not allowing one employee to be responsible for multiple functions within the system: ordering, receipt and processing of goods and cash receipts and payments. Another control might be to have two signatories to authorise the cash payments. As cash is the most liquid and transferable of the assets of a business, it obviously has to be afforded the greatest degree of protection. The essentials of good internal control of cash include: * Prompt banking of all receipts. © Immediate recording of receipts of cash and cheques by the cashier. * Prompt reconciliation of cash records and bank statements. * Separation of cash handling and accounting functions. * Effective security of cash held, including en route to the bank. © Physical protection of receipt books. Avoiding Risks of Holding Cash When handling cash, you should always: * Try to bank at least once a day if your business is small. If it is a larger business, you should bank several times a day. * Ensure that the cash and cheques held on the premises are kept to a minimum. © Remove excess cash and cheques from the till every hour. For example, if you are operating a service station, drop cash and cheques into a time-locked safe whenever you get to a certain amount (e.g. $500). Going to the Bank When taking cash and cheques to the bank it is important for security reasons to: * Vary the time and route you use to go to the bank each day. * Complete the deposit slip prior to leaving the office. © Make several bank deposits during the day in busy times. © Ensure that the person taking the money to the bank is a trusted employee of the business. * Check the bank statements to verify that deposits have been correctly entered. © Make the employee completing the bank deposits accountable for all money and cheques noted. ‘Accounting PrinciplesMany offices and businesses close after Spm by which time the bank may be closed. To ensure that there is not an excessive amount of cash held on the premises overnight, the day's takings can be deposited into a night safe at the bank. Operation of a night safe: Businesses are provided with a lockable pouch. The person preparing the pouch must make sure that all the cash and cheques are counted and the details entered on a deposit slip. The money is then placed into the lockable pouch and deposited into the bank's night safe. The following day the bank teller will collect the pouch and deposit the money into the business's bank account. The (empty) pouch is collected by the business on the next visit to the bank. Source Documents for Cash Receipts In the normal course of business, a business will collect money in the form of cash, cheques, credit card or debit card payments. Cash receipts are usually revenue, eg. Sales receipts, service revenue receipts or interest received. Other cash receipts could be contributions from the owner (capital) or proceeds received from the sale of a business asset (eg. sale of the business delivery van). Regardless of whether an organisation is large or small, a complete record must be made of all monies received. Each transaction must be acknowledged by one of the various forms of receipt. A receipt acknowledges monies received, whether in cash, by cheque or by card payment and provides evidence that the payment has taken place. Receipts can take different forms: * Areceipt issued by a cash register. * A formal receipt like the one below, issued from a receipt book. These receipts should be numbered sequentially (1000, 1001, 1002 etc). The original is given to the customer and the duplicate is retained by the business as a source document. * Some receipts will have no formal document but will exist only as a numbered transaction in a computerised system. A receipt number is generated within a computerised accounting system whenever monies are received and recorded. An example of a cash receipt: | Harry's Stationery ABN 61 123 456 789 Receipt No.1002 RECEIPT Date 10 Aug 2015 Received from: Castle & Co Accounting The sum of: Eight hundred dollars only $800.00 Cesh/Cheque For: A/c receivable $850 Disc allowed $50 Signature A Clerk Chapter Cash RecsntsCash Sale Docket Monies received for the cash sales of goods or services are sometimes evidenced separately on Cash Sale Dockets. In most instances, dockets are created by a cash register as a strip of paper, but they may also be handwritten by counter staff. These are often similar to a receipt. Manual Credit Card Vouchers Some businesses do not have online credit card facilities, in which case manual credit card transactions are made. Manual transactions may also be made in cases where the online network is not operating or not available, say at a market. With manual credit card processing, the credit card is placed on a portable machine and a triplicate voucher is inserted into the machine. The top handle of the machine is then ‘swiped’ from left to right across the voucher and an imprint of the credit card is made on the voucher. An example of a credit card sales voucher: 995544319 ° tia ceosaa | 230100/§ ‘t ODI aa 25 Peete een paver L io ° At the end of each day: * All the credit card sales vouchers are recorded on a Merchant Summary. * The Merchant Summary is also run through the machine, this time using the Merchant Identification Card to obtain an imprint of the Merchant Identification number. * The original copies of the credit card transactions are attached to the Merchant Summary and deposited with the day's banking. ‘An example of a Merchant Summary: HEBD couning PrincesEFTPOS Receipts Electronic Funds Transfer at Point of Sale (EFTPOS) is a service that is offered by many businesses ‘to customers who wish to pay for their purchases with a debit or credit card. The transactions are processed electronically through a system of EFTPOS terminals. The customer uses their card (or NFC-enabled smartphone) by either inserting a card with chip into the machine, swiping their card's magnetic strip through the machine, or tapping their Paypass, Paywave or ExpressPass card or smartphone on the machine's NFC panel. Depending on the value of the transaction the customer may need to enter their PIN (personal identification number). The use of a signature instead of a PIN to authorise credit card transactions has been phased out. Details of the sale are printed on a docket through the EFTPOS terminal. Two printed dockets of the sale are made. One is given to the cardholder and the other is retained by the merchant. The bank's record is generated by the electronic transaction. The money is transferred from the customer's bank account instantly. In the evening, after the bank runs its system close-off, the merchant's bank account will be credited with the total of all the debit and credit card transactions for the day. The EFTPOS system will check that: The card has not been reported stolen. * The card expiry date is not earlier than the current date. © The merchant has authority to accept the amount of the transaction. The cardholder is under their credit limit, or that there are sufficient funds in the customer's account. If any of these conditions are not met, the transaction will not be processed, ceipts per the Bank Statement The bank statement is a source document for the receipts of funds from: * Direct credits, which are monies directly credited to the business's bank account by customers (details of these transactions are often faxed when the payment is made, in the form of a Remittance Advice). © Bankinterest or proceeds of loans. Loans are supported by the loan application documentation and the amount received is not usually receipted by any other documentation. Before accepting a cheque payment from a customer, the cheque received should be checked ‘to ensure that it is accurate and valid. The items to check include: * The date, which should be current - check this with your bank. Depending on the bank, a cheque can be considered stale and invalid if it is dated more than 15 months ago. Likewise, a cheque may not be accepted if it is post-dated (after the current date). * The payee’s name — ensure the name is correct. The words and figures — ensure that they agree. * The signature — ensure it has been signed. The validity checking process is important as cheques that are inaccurate or invalid can prove costly to the business, especially in terms of bank charges. Crepterd Cosh ReceipesCash Receipts and Cash Payments: The Single Entry Approa For the purposes of learning to classify various receipts and payments, we will start by preparing Cash Receipts and Cash Payments Books. These records are typical of a single entry accounting system used by some small businesses. If using a single entry system, all cash receipts and cash payments are entered into the Cash Receipts or Cash Payments Book and totalled monthly. The monthly totals are then transferred to an annual summary so that by the end of the year, the totals for each receipt and payment category can be determined. From Chapter 5 onwards, our studies focus on the Double Entry System, but for now, let’s use the single entry processes to familiarise ourselves with the various revenues, expenses, assets, liabilities and owner's equity changes arising from receiving cash and making payments. Cash Receipts for a Service Business The Cash Receipts Book lists all cash received into the business bank account. For the purposes of the Cash Receipts Book, “cash” includes notes, coins, cheques, manual credit card receipts or direct credits into the business's cheque account. Ina service business, cash receipts will be mainly from service income earned in providing services to clients. In a retailing business, cash receipts will be mainly from sales of trading goods. Other cash receipts could be: * Interest earned. * Commission income. © Rental income. * Proceeds from the sale of an asset. * Contributions from the owner (capital). Source documents for each transaction provide the details for the Cash Receipts Book. Cash Receipts and the GST Businesses that are registered for the GST are required to charge GST on their sales, services and other receipts. Most receipts will include GST but there are exceptions. For example, GST does not apply to bank interest received, or residential rental income received. HEEB ccuning PrincesFeatures of the Cash Receipts Book Following is an example of a Cash Receipts Book for a service business that charges fees to clients. The business has a policy that receipts are banked daily, and that expenses are not paid from receipts prior to banking. Tata) Rent icra GST Amount i irae} Rec'd Collected Banked De tea cre det 04/03 | 66 Service Fees 500 50 550 14/03 | 67 Service Fees 100 10 14/03 | 68 Service Fees 600 60 770 15/03 | 69 Rent Received 1,400, 140 15/03 | 70 Service Fees 1,000 100 2,640 soo BE 5 5 TOTAL 2,200 1,400 = 360 3,965 * Each transaction is supported by a source document e.g. receipt or bank statement. * Date and receipt number is recorded for each transaction. * Columns for Service Fee Income, GST Collected, Interest Income and Rent Income reflect the main sources of receipts for this business. These columns will differ from business to business, depending on their activities. Column headings correspond to account names, or groupings of similar accounts. * Asundry column may be used for receipts not fitting the columns provided. Examples of less common items include receipts of capital contributions and loan proceeds. * Bank deposits are made daily for receipts from that day. Where two or more receipts are received in a day, the total amount deposited is entered into the Bank column; this assists matching the receipts against the bank statement. * The Cash Receipts Book is totalled and cross balanced at the end of the period. To cross- balance, add the totals for each column and check that they add to $3,965. Check: 2,200 + 1,400 + 5 + 360 = $3,965. This book cross-balances. Chapter 3 Cash ReceiptsExample Jack Sprat owns Jack of all Trades handyman service and also sub-lets part of his warehouse to A Tenant for $110 per week. The following cash receipts were documented for the first week in July, Banking is done daily. Jack of All Trades is registered for the GST and therefore charges 10% GST on all services provided. RecNo:01 Date: 1 July RecNo:02 Date: 1 July From: Cash services From: A Tenant For: Window repairs inc GST For: Rent inc 6ST Received $220 Received $110 RecNo:03 Date: 4 July RecNo:04 Date: 5 July From: Cash services From: Jack Sprat For: Gardening inc 6ST For: Capital Contribution Received $88 Received $1,000 Required: Enter the receipts into the Cash Receipts Book. Sc ee com Unc: Rea Seco 01/07 01 Service Fees 200 20 01/07 02 Rent Income 100 10 330 04/07 03 Service Fees 80 8 88 Capital 05/07 04 (contributed) 1,000 1,000 TOTAL | 280 100 1,000 | 38 | 1,418 Does this cross-balance? Check: 280 + 100 + 1,000 + 38 = 1,418. This does cross-balance. ‘Accounting PrinciplesSelf-Testing Exercise 1 Hilary's Book-Binding Services provides services on a commercial basis as a book binder. She also sells materials used in book binding. The following cash receipts were documented for the first week in August. Hilary is registered for the GST and therefore charges 10% GST on all services provided. Hilary banks daily. RecNo:01 Date: 04/08 From: Local Publications For: Binding - Sales inc GST Received $330 From: For: Rec No: 02 Date: 06/08 Received $44 Local Historical Society Binding Services inc GST Rec No: 03 Date: 07/08 From: Local Publications For: Binding - Sales inc GST Received $880 From: For: RecNo:04 Date: 07/08 8 Worm Binding Services inc GST Received $33 Required: Enter the receipts into the Cash Receipts Book and cross balance at 7 August. Tite ltrs] Sales Cinta: Scent ins Reesor Chester's Cash ReceiptsCash Receipts for a Retail Business A similar Cash Receipts Book can be prepared for a retailer. As the retailer will be deriving most income from selling goods, receipts will be mainly from sales. Other income may also be received. The columns in the Cash Receipts Book will again reflect the activities of the business. Example Adam's Peak is a retail outlet selling clothing for outdoors. The source documents for the various receipts of the first week in July are below. (CSD means Cash Sales Docket) csD01 Date: 03/07 | | csD02 Date: 03/07 | | csD03 Date: 04/07 Cash Sales: $2,200 | | Cash Sales: $1,760 | | Cash Sales: $1,100 (inc GST) fine GST) (inc GST) Rec No: 50 Date: 04/07 Rec No: 51 Date: 04/07 From: —S. ELLERS From: G. OONDI For: Commission Received inc GST For: Rent Received inc GST Received $660 Received The bank statement shows $15 interest received on 5 July (GST does not apply). Required: Record these cash receipts in the Cash Receipts Book. Comm Rent Interest GST Amount Rec'd | Rec'd Rec'd Collected Banked Perera Seer 03/07 |csp01 | Sales 2,000 200 03/07 |csD02_ | sales 1,600 160| 3,960 04/07 |csD03. | sales 1,000 100 4/07 |50 5. Ellers 600 60 04/07 51 G. Oondi 700 70 2,530 05/07 |B2nk Interest 15 15 [Toran 4,600; 600] 700 15| 590] 6,505 TEBE courng PinesSelf-Testing Exercise 2 Sue Barton is the owner of a small bridal boutique trading as Barton’s Bridal Wear. All cash received is recorded in the Receipt Book. Sue records her sales as either Dresses or Accessories. The following cash receipts were written in the last week in August. Barton's Bridal Wear is registered for the GST. Bank deposits are made daily. Required: Enter the receipts into the Cash Receipts Book and cross balance at 29 August. Rec No: 46 Date: 26/08 Rec No: 47 Date: 26/08 From: Cash Sale From: — Cash Sale For: Bridal dress inc GST For: Bridal cccessories inc GST Received $3,300 Received $451 Rec No: 48 Date: 27/08 Rec No: 49 Date: 28/08 From: Cash Sale From: 6 Trundle For: Bridal dress inc GST For: Commission income inc GST Received $2,200 Received $66 Rec No: 50 Date: 29/08 Rec No: 51 Date: 29/08 From: Cash Sale From: S Barton For: Bridal accessories inc GST For: Capital contribution Received $330 Received $8,000 Bridal Bridal Comm belie Nat GST Amount Date Rec# Details fe E LL cx forse choniard Cosh ReceiptsBanking Receipts Business banking can involve large sums of money, so accuracy and security are very important. Employees who deal with the funds in an organisation are made accountable for their mistakes. A bank deposit form (or deposit slip) is completed and taken to the bank with the cash, cheques and manual credit card vouchers being deposited. The bank will supply businesses with @ book of deposit forms. The deposit book will be pre-printed with the bank's name and branch details, along with the business's name and account details. The pages are usually in duplicate so that the business can retain a copy of their deposit details. If necessary, single forms are available at the bank. For security, all monies received should be banked intact daily. As a general rule, cash payments should not be made from the proceeds of trading, as this could lead to errors in the reporting of accounting information. ‘Two styles of deposit forms: fe DEPOSIT SS | See bol ‘cotuneeetesentarscay (tel L =. GREDIT consconsones ls =—— ca ear ‘Accounting PrinciplesCountry Bank ‘AczountIdenifcation Number Please filin the following particulars of cheques: proceeds wil net be availabe unl cleared. Drawer Bank Branch Amount Continued on reverse, please tu carbon sas, Deposit Paid in bySignature PITT & MARKET STREETS. Sa entered $20 Con Account detifcation Number_Agent Number (fapptcable) Cheques _ 612 358 9876 5432 ETS Erneepd SVS TOT Account Name CASTLE & CO ACCOUNTING Tota § 00300" OSEm 7897 56 78m 5576" The deposit form shows: * The date of the deposit (this should be the date the deposit was banked). * The signature of the person preparing the deposit. ‘* Details of the cheques being deposited such as bank and branch, along with the drawer's name. © The amount of cash being deposited in notes and coins. * The total amount of the manual card transactions recorded on the merchant summary. * The total value of cheques being deposited. * The total amount of deposit. EFTPOS transactions are processed online; the transaction details go directly to the bank. Therefore EFTPOS transactions are not included on the Deposit Slip. chepton3 Cosh RecipesExample Mal’s Computers receipted the following sales for 2 March. Receipt 56 Date 02/03 Receipt 57 Date 02/03 From A Baker Sum of Twenty Five Dollars $25.00 Being for Cash Sale Cash Per A Officer From T Tanks ‘Sum of One hundred and ‘Twenty Five Dollars $125.00 Being for Cash Sale Cheque 555 016-555 45575 OzBank Perth Per A Officer Receipt 58 Date 02/03 From B Burridge 50 cents $26.50 OzBank Perth Per A Officer Sum of Twenty Six Dollars Being for Cash Sale heque 54 016-511 4558995. Per A Officer Coins and notes for banking are: 1x $50 note, 1 x $20 note, 2 x $10 notes, 1 x $2 coin and 5 x $1 coins. Required: Prepare a Deposit Form for these receipts. Solution: Receipt 59 Receipt 60 Date 02/03 Date 02/03 From C Davis From F Astair ‘Sum of Seventy Two Dollars Sum of Twelve Dollars $72.00 20 cents $12.20 Being for Cash Sale Being for Cash Sale Cash Credit Card (manual) Per A Officer Receipt 61 Date 02/03, From G Rogers $65.00 Per A Officer Sum of Sixty Five Dollars Being for Cash Sale Credit Card (manual) Witch Bank Cauldron Street Sydney Mal’s Computers 015-556 2365898 Drawer Bank T Tanks OzBank B Burridge OzBank Paid in by: B Burns Branch Perth Perth Subtotal Date Notes Coins Merchant Summary Total Cheques Total Deposit $ Amount 125.00 26.50 151.50, DEPOSIT 02 March HEB Accounting Princeserieeialiare MU Centsiesl a ALU} When banking monies received, you are required to group together or ‘batch’ similar items and note the total of the batch on the deposit slip, i.e. the total value of the cheques, the total value of the cash and the total of any manually-processed credit card receipts. Nejettoelare ee) ig sy If a large number of notes are to be banked, they should be batched. That is: * Sort the notes into the same denomination, all facing the same way (with the transparent window in the bottom right-hand corner). * Bundle each denomination into groups of ten and secure the bundle with an elastic band. * The batched notes are then totalled, and their value is noted on the deposit slip. When a large number of coins are to be banked, these are commonly totalled at the bank using a coin counting machine. Alternatively the coins can be separated into denominations and placed into small plastic bags (supplied by the bank) with the quantity marked on each bag e.g. $5 in 20 cent pieces, The bank will check the amount of coins in each of the bags by weighing them, then record the amount received. The amount of notes and coins are cross-checked against the amounts noted on the bank deposit form before being deposited. Once preparations are complete, the following items should be ready to take to the bank: * The completed deposit slip. * The completed merchant summary with cash register tape if required. * The bank’s copy of each of the credit card vouchers processed manually—bundled in the order in which they are listed on the merchant summary. * Allthe cheques—bundled in the order in which they are listed on the deposit form. * Allthe bundles of notes and all the coins. Proof of Ladgement When money is deposited with the bank, the bank teller will check the cash, cheque and credit card details to ensure that they match the deposit slip. The teller will then stamp the business's copy of the deposit as evidence that the deposit has been made. The stamped deposit slip is the company's proof of lodgement. This proof of lodgement should be checked and filed. If there is a discrepancy with the banking, the deposit slip will be one source of documentation that will be checked so that any necessary corrections can be made. crepton3 Coch RecentsSelf-Testing Exercise 3 Mal's Computers receipted the following sales for 3 March. Receipt 62 Date 03/03, Receipt 63 Date 03/03 Receipt 64 Date 03/03 From B Nerd From T Board ‘Sum of One Hundred and From M Monitor Sum of Thirty Five Dollars 80 cents $17.80 $35.00 Twelve Dollars $112.00 Being for Cash Sale Being for Cash Sale Being for Cash Sale Cheque 54.016-511 Cash Credit Card (manual) OzBank Melbourne Per A Officer Per A Officer Per A Officer Sum of Seventeen Dollars 4558995, Receipt 65 Receipt 66 Receipt 67 Date 03/03 Date 03/03, Date 03/03 From C Ram From F Drive From G Mouse ‘Sum of Eighty Two Dollars 10cents $82.10 Being for Cash Sale Cheque OzBank Melbourne Per A Officer ‘Sum of Ninety Dollars 20 cents $90.20 Being for Cash Sale Credit Card (manual) Per A Officer Being for Cash Sale Cash Per A Officer Coins and notes for banking are 1 x $20 note, 3 x $10 notes, and 1 x $1 coin. Required: Prepare a Deposit Form for these receipts. Solution: Sum of Sixteen Dollars $16.00 Witch Bank Mal's Computers 015-556 2365898 Drawer Bank Branch Paid in by: B Burns Subtotal Date Notes Coins Merchant Summary Total Cheques Total Deposit $ Amount DEPOSIT FEI tcxsinina PrincesSolutions to Self-Testing Exercises 1. Hilary's Book-Binding Services Binding - Binding- GST CNur ag Sales Services Collected Banked 04/08 01 Local Publications 300 30 330 06/08 02 | Historical Society 40 4 44 07/08 03 | Local Publications 800 80 07/08 04 | B. Worm 30 3 913 TOTAL 1,100 70 117 1,287 2. Barton’s Bridal Wear b-TT-F Mie =DeT- Cm eC ee GST Amount eet SLL Collected Banked erie 26/08 | 46 | Dress 3,000 300 26/08 | 47. | Accessories 410 | 3,751 27/08 | 48 | Dress 2,000 200] 2,200 28/08 | 49 | Commission 60 6] 66 29108 | 50 | Accessories 300 30 2a08 | si |Cpitall 8,000 8,330 TOTAL 5,000| 710] 60| 8,000 577| 14,347 3. Mal’s Computers Witch Bank _ Cauldron Street Sydney Mal’s Computers 015-556 2365898 Drawer Bank Branch Amount B Nerd OzBank Melbourne 17.80 CRam OzBank Melbourne 82.10 Paid in by: B Burns Subtotal 99.90 DEPOSIT Date 03 March Notes 50.00 Coins 1.00 Merchant Summary Total 202.20 Cheques Total $ Charter Cash RecsptsChapter leview Questions 4. From the information provided below you are required to complete a receipt. Bun Burry & Co received a cheque from Al May on 1 June 2015 for the amount of $50, being payment of her account. Bun Burry & Co Date .. RECEIPT Received from: The sum of: .... Cash/Cheque For: Signature 2. From the information provided below you are required to complete a receipt. Thorn Lie Accounting received a cheque from Dave Ray on 1 June 2015 for the amount of $250, being payment of his account. Thorn Lie Accounting Date assess RECEIPT Received from: Paneer n The sum of: _... Cash/Cheque For: Signature Accounting PrincesSurveying Consultants provides surveying services and are registered for the GST. Their services are mainly surveying services: revenue accounts are set up as Surveying Fees (AC 410) and Other Fees (A/C 411). The following cash receipts were documented for the first week in August. The firm banks daily. Date: 02/08 Rec No: 02 Date: 10/08 From: Riverside Council For: Surveying Fees Received AJ Joinery Surveying Fees $330 $44 Date: 11/08 Hayes Builders For: Surveying Fees Rec No: 04 Date: 11/08 From: Mr Prior For: Surveying Fees $880 Received $33 Date: 12/08 Riverside Council Other Fees Rec No: 06 Date: 14/08 From: Hayes Builders For: Other Fees Received $33 Date: 14/08 Department of Roads Surveying Fees Rec No: 08 Date: 27/08 From: Ms Dennison For: Surveying Fees Received Received $880 Required: Prepare a Cash Receipts Book for August. Date Receipt EO mc Conny criti’ a Ly Fees Collected Banked TOTAL Chester Cosh Receipts4, Spirit Cleaning Services provides cleaning for the Spirit of Tasmania. The business is registered for GST. It not only provides cleaning services for the ferry but also provides cleaning for other customers when time permits. Its revenue accounts are Spirit Fees (A/C 410) and Other Fees (A/C 411). The following cash receipts were documented for May. Spirit Cleaning Services banks daily. Rec No: 25 Date: 07/05 Rec No: 26 Date: 10/05 From: Spirit of Tasmania From: Jan’s Corner Store For: Cleaning Services inc GST For: Cleaning Services inc GST Received $330 Received $44 Rec No: 27 Date: 14/05 Rec No: 28 Date: 21/05 From: Spirit of Tasmania From: Spirit of Tasmania For: Cleaning Services inc GST For: Cleaning Services inc GST Received $880 Received $781 Rec No: 29 Date: 28/05 Rec No: 30 Date: 28/05 From: Bayside Hotel From: Spirit of Tasmania For: Cleaning Services inc GST For: Cleaning Services inc GST Received $550 Received $33 In addition, the bank statement shows interest received as $15 on 15 May. Required: Prepare a Cash Receipts Book for May. Tat sg eee Spirit Other Interest GST Amount Ze Coe Molec TOTAL HEB courting PrincesOld Hat Antiques is a dealer in nineteenth century furniture and antiques. The owner, Mavis Darling, also sells antiques on commission. The business operates strictly on a cash basis. The business is registered for the GST and so charges 10% GST on all sales. Banking is done daily. Revenue accounts are Cash Sales and Commission Income (GST applies) The following cash receipts were written in the last week in April Rec No: 16 Date: 06/04 Rec No: 17 Date: 06/04 Fror Cash Sale From: Cash Sale For: Hall stand ine GST For: 4 Poster Bed inc GST Received $880 Received $4,466 Rec N Date: 17/04 Rec No: 19 Date: 18/04 Frot Cash Sale G Wizz For Chest of drawers inc GST Commission inc GST Received $2,200 Received $77 Rec No: 20 Date: 19/04 Rec No: 21 Date: 19/04 Fro P Piper From: M Darling For: Commission inc GST For: Capital Contribution Received $110 Received $5,000 Rec No: 22 Date: 21/04 From: Cash Sale For: Opera Glasses inc GST $539 Rec No: 23 Date: 28/04 From: D Vincent For: Commission inc GST Received $55 Received Required: repare a Cash Receipts Book for Old Hat Antiques. er (ees GST Amount Pa ae ce means eee aoe copiers cash Rees ISlicers Sharpening is a sharpening service for saws and blades. The owner is Greg Slicer who also lets the upstairs unit of his business premises for residential living, Slicer’s Sharpening is registered for the GST, but is not allowed to charge GST on the residential rent. The business uses ‘a cash accounting system and operates strictly on a cash basis, banking daily. The following cash receipts were written in August. Rec No: 33, Date: 01/08 Rec No: 34 Date: 01/08 From: Cash Sale For: Sharpening inc GST From: Cash Sale For: Sharpening inc GST Received $3,300 Received $451 Rec No: 35 Date: 01/08 Rec No: 36 Date: 03/08 From: Cash Sale For: Sharpening inc GST From: Jen Jones For: Rent Received $2,200 Received $66 Rec No: 37 Date: 03/08 Rec No: 38 Date: 05/08 From: Cash Sale For: Sharpening inc GST From: Cash Sale For: Sharpening inc GST Received $330 Received $451 In addition, the bank statement shows a capital contribution by Sam Slicer by bank transfer of $2,000 on 3 August and bank interest earned of $5 earned on 4 August. Required: Prepare a Cash Receipts Book for Slicers Sharpening. reer: es bey Details # LN Ltt rege] GST Amount je ee MEET re) iiicirag eerie cl TOTAL FEBDI) Accourting Princes7. KCC Property Investments is a property investor which manages its own property rentals. The owner, Mug Ditchin, has both residential and commercial properties that he leases. The business uses a cash accounting system and operates strictly on a cash basis. The business is registered for the GST and so charges 10% GST on commercial rents only. There is no GST on residential rent. Banking is done daily. Revenue accounts are Commercial Rent (A/C 455) and Residential Rent (A/C 456). The following cash receipts were written in April. Rec No: 11 Date: 01/04 Date: 01/04 From: Frank The Grocer ‘Smith — Residential For: Commercial Rent Received Rent Received Received $660 $400 Date: 08/04 Frank The Grocer Commercial Rent Received Date: 15/04 Frank The Grocer Commercial Rent Received Received $660 $660 Rec No: 15 Fro For Date: 15/04 Smith ~ Residential Rent Received Date: 22/04 Frank The Grocer Commercial Rent Received Received $400 $682 Date: 29/04 Date: 29/04 Frank The Grocer M Ditchin Commercial Rent Received Capital Contribution Received $682 $3,000 Cropar Cash RecipesRequired: Prepare a Cash Receipts Book for KCC Property Investments. Receipt Percy ri bey TES Psat ter Meer) GST Amount forse Rent City Koco re EEL TOTAL 8. Red Hot Musik receipted the following sales for 9 March. Receipt 26 Date 09/03 From A Capp Sum of Twenty Two Dollars 50cents $22.50 Being for Cash Sale Paid by Credit Card (manual) Per A Officer Receipt 27 Date 09/03 From T Turner Sum of One hundred and Thirty Six Dollars $136.00 Being for Cash Sale Paid by Cheque 444 016-555 45511 OzBank Perth Per A Officer Receipt 28 Date 09/03 From B Burrows Sum of Eighty Six Dollars 20cents $86.20 Being for Cash Sale Paid by Cheque 654 016-511 4111995 OzBank Perth Per A Officer Receipt 29 Date 09/03 From C Joy Sum of Twelve Dollars 40 cents $12.40 Being for Cash Sale Paid by Credit Card (manual) Per A Officer Receipt 30 Date 09/03 From F Farnham Sum of Seventy Dollars 10 cents $70.10 Being for Cash Sale Paid by cash Per A Officer Receipt 31 Date 09/03 From G Harrison ‘Sum of Sixty Three Dollars $63.00 Being for Cash Sale Paid by cash Per A Officer Coins and notes for banking are 1 x $50 note, 4 x $20 notes, 3 x $1 coins, and 1x 10c coin. FEBEI) Accounting PrincesRequired: Prepare a Merchant Summary and a Deposit Form for these receipts. Ozzi Bank Red Hot Musik 015-556 2365898 Drawer Bank Paid in by: Kangaroo Street Sydney Branch Subtotal Date Notes Coins Merchant Summary Total Cheques Total Deposit $ Amount DEPOSIT 2299358 Bees (Pe oooooo As aeocie fae | § ameeas . [.ee coven vevener] 3 say_F GO0000q) 5 ee 5 3 a Croper Cash Recaps9. April's Alterations operates a market stall performing quick alterations on clothing. April banks cash and cheques daily, and operates an EFTPOS terminal. April shares her booth with Kyle, who repairs leather items. Whenever April receives a payment (by cash, cheque or EFTPOS), she handwrites a receipt in her Receipt Book, which creates a carbon copy. The original receipt is torn from the book and given to the payer, and the carbon copy stays in the book to provide a record of transactions. April is registered for GST. The following transactions occurred on 2 February: * Altered a pair of pants for Jerry Haverford for $26.40. Jerry paid in cash. * Repaired a jacket for Kelly Fring for $49.50. Kelly paid by EFTPOS. * Knitted a replacement glove for Crystal Wong for $19.30, paid in cash. * Received a cheque for $110.00 for commercial rent for the week from Kyle Smithers. Required: Complete a Tax Invoice/Cash Receipt below for each of the above transactions. Tax Invoice/ No: 123451 Cash Receipt Date, $ From. Inc GSTS. For © Cash © EFTPOS (© Cheque © Money Order Tax Invoice/ No: 123452 Cash Receipt Date. $ From. Inc GSTS. For © Cash © EFTPOS (© Cheque © Money Order No: Date $ From Inc GST S. For © Cash © EFTPOS © Cheque © Money Order Tax Invoice/ No: 123454 Cash Receipt Date $ From Inc GST. For O Cash © EFTPOS (© Cheque © Money Order POLOOOLLDELELLYLLOLELYVELVYLOYVYYOVYOVYYOOULULLOY ‘Accounting PrinciplesEy Cash Payments What You Will Learn In This Chapter Businesses generally have a long list of payments to make, such as wages, insurance, inventory, rent or rates, advertising, accounting and legal fees, superannuation, and telephone and bank fees. They also purchase fixed assets for the business, such as computers, vehicles, shop fittings, office furniture and equipment. Cash payments require an outgoing of cash from the business. The cash payments policy will outline the business's required processes for verifying and authorising cash payments. This chapter looks at how to record cash payments in a Cash Payments Book. Elements Addressed FNSACC301 Process financial transactions and extract interim reports Element 1 Check and verify supporting documentation Element 4 Prepare and post journals and batch monetary items Chapter Structure 4.1 Internal Control over Cash Payments 4.2 Source Documents for Cash Payments 4.3 Recording Dates for Cash Transactions 4.4 Cash Payments BookInternal Controls over Cash Payments Purchasing goods and services for the daily operations of a business is a requirement of any business. Documentation evidencing purchase transactions can include purchase orders, supplier invoices and cheques and other payment documentation. It is important to have systems in place for the authorisation of payments and the subsequent recording of these transactions. The essentials of good internal control of cash payments include: * Separation of payments and accounting functions. * Recording only transactions that are valid. Inventory and other goods received should be supported by authorised purchase orders and checked on delivery. * Establishing various levels of authority to provide approval for transactions. * Valuing transactions correctly by checking catalogue prices and double-checking price extensions and invoice totals, and whether a discount is being allowed to the business. * Authorisation of the payment, preferably counter-signed. * Paying expenses by cheque or EFT. * Stamping “Paid” across supplier invoices when paid, to avoid paying twice. * Reconciling supplier accounts to ensure that expenses haven't been missed or invoices paid twice. * Reconciling supplier accounts, cash records and bank statements promptly. Source Documents for Cash Payments Source documents for cash payments provide evidence that a purchase has occurred. The details from the source documents are entered into the accounting system and will ultimately be embodied in the financial reports of the business. In more recent years, the range of payment methods has broadened and now includes: * Cash or cheque. * Payments by credit card. * Electronic funds transfer such as direct debits, Paypal, BPay. * Bank statements for payments such as bank fees and loan repayments. On entry into the accounting system, source documents are coded with the account code relevant to the transaction. For example, a rates payment would be coded with the Rates account number from the Chart of Accounts. Itis normal practice to staple the evidence of payment with the appropriate invoice and file these together. These documents need to be retained for 5 years to comply with taxation laws. Accounting PrinciplesA substantial number of business payments are still made by cheque, either handwritten or printed. For hand-written cheques, the bank provides a cheque book that is pre-printed with details of ‘the business's bank account. Details of the transaction are retained by the business in the form of a cheque butt. Typical cheque and cheque butt: Date: 08/07/2015 ; Country Bank To: Cash | Orange NSW 8th July 2015 For: Petty Cash Pay: Cash or bearer B/fwd: 5,607.00 sy Deposit: 1,250.00 Th a Sub totak 6857.00 | The sum of: Three Hundred Dollars $300.00 This Cheque: _300.00 C/twd: 6,557.00 A Clerk. Castle & Co Accounting Signature No: 100695, {100695 024 442 654987 The cheque butt, which is generally on the left side of the cheque, is the record or evidence of a cash payment by the business, and also provides the bank account balance. Self-Testing Exercise 1 Refer to the sample cheque above. Required: List the details provided on the cheque butt. Chepter4 Cash PaymentsFor cheques printed from a computer, the bank will supply forms with a counterfoil (duplicate copy) for business records. Again these will be pre-printed with details of the business's bank account. The cheque butt or counterfoil is the source document that provides evidence that the payment has been made. Cheques are numbered sequentially (1, 2, 3, 4 etc). Itis important to keep blank cheques secure and be able to account for each cheque, whether used for a payment or voided. There are three parties to a cheque: * Drawer The person who writes the cheque. * Drawee The bank holding the drawer’s bank account. * Payee The person (or organisation) the cheque is written out to. Self-Testing Exercise 2 Refer to the sample cheque on the previous page. Required: (a) Who is the Drawer? (b) Who is the Drawee?——— (c) Who is the Payee? When the business's cheque is presented to the bank, the amount on the cheque is deducted from the business's bank account and paid to the person or organisation the business has named on the cheque. A cheque may be endorsed, by crossing the cheque with two parallel lines and writing the words ‘Not Negotiable’ within these lines, making the cheque payable only to the payee’s bank account. This makes the cheque a secure method of payment which can be safely mailed. You may be surprised to know that cheques are not legal tender in the way that cash is, This means that a supplier can refuse to accept payment by cheque and insist on cash if preferred, Cheques are valid for 15 months from the date on the cheque. Cash Cheques ‘A cash cheque is a cheque with the word ‘Cash’ written as the Payee. Procedures for cashing cheques vary between banks but they all have one rule: the bank will not exchange a cheque for cash unless they are sure that the cheque is valid and that the holder is authorised to cash it. ‘An example of a ‘cash’ cheque could be for petty cash reimbursement, where cheques are usually made to “Cash” so that cash is obtained in exchange for the cheque when presented at the bank. ‘Accounting PrinciplesCredit Gard Voucher Many businesses use a credit card for making purchases for their business needs. Credit cards provide a fixed number of days credit to the holder of the card, after which date the account accrues interest at a predetermined rate, usually between 15% and 25% p.a. Businesses often use credit cards not only as a convenient method of making purchases, but also as a source of credit. The credit period can be up to 55 days, depending on the terms and conditions of the particular credit card. The credit card voucher and accompanying invoice are the source documents for the transaction. Credit card purchases are recorded in the books on the date of transaction, not the date the credit card debt is paid. Electronic Funds Transfer Electronic funds transfer (EFT) is a commonly used method for making payments. Some familiar methods used are: * BPay * PayPal * Direct Debit These types of payments allow the business to pay online and have the convenience of quick and relatively safe transfer of their funds any time of day or week. Most businesses paying electronically use onsite EFT Terminals or online banking. They process electronic payments in batches from the workplace. For example they may pay wages in a batch, and then pay their accounts payable in another batch. Details of each batch are prepared as an electronic file (.ABA file) using the accounting software. This electronic file will contain the names and account details of the employees or suppliers being paid, as well as the amounts. The electronic file is then uploaded into the EFT Terminal or online banking secure website. Authorised employees enter the relevant security codes to enable the batch of payments to be sent to the bank for processing. The bank statement will show the batch total; the business files a record of the batch, and the individual payments that are included in the batch, as well as a printout of the transaction from the terminal. This is used as a source document for inputting the cash payment into the accounting system. Chapter Gash Paymentsank Statements Information on some payments is obtained from the bank statement, for example bank fees, merchant fees, direct debits and loan repayments. Bank fees are charged according to the bank’s schedule of charges. Generally these are not subject to GST. A tax invoice will be provided where GST is applicable, for example, cheque book fees. Merchant fees arise from the business using electronic funds transfer point of sale (EFTPOS) equipment in their business. Merchant fees are charged at a percentage of the volume of transactions processed in the account for the period and are subject to GST. Direct debits are made by the bank according to instructions given by the business. Typically these amounts are for regular payments, but arrangements can be made otherwise. The bank charges a fee for this service, promising to pay the amount from the business cheque account to the payee nominated by the business on a specific date. Alternatively the business can make these payments by transacting online directly from their cheque account to the payee’s account. A printout of the payment transaction (source document) is filed with the applicable supplier invoice. Loan repayments are negotiated between the business and the finance provider at a set amount per period. The business will have documentation relating to the amounts of the repayments; the amounts are usually fixed but may rise when interest rates increase. The business will use the bank statement as proof the payment was made. Loan repayments are not subject to GST. Recording Dates for Cash Transactions Entering the correct date on payment transactions is important as it is the date that determines the period in which the expense occurs. It also has an effect on statutory returns such as the Business Activity Statement. When entering transactions into the accounting system, * Cheque purchases are dated on the date the cheque was written. For practical purposes this is the date on the cheque butt. The date the cheque is presented to the bank and listed in the bank statement is irrelevant. . Credit Card purchases are dated at the date the purchase is made. That is, the date on ‘the credit card voucher. The date of payment of the credit card liability is irrelevant. ‘Accounting PrinciplesCash Payments Book There are many reasons payments are made by businesses, including: * Purchase of trading goods (for retailing businesses) either for cash or paying an invoice. * Payment of operating expenses such as insurance, wages, phone, postage and stationery. * Purchase of assets. * Payment of private expenses by the owner (drawings). * Loan repayments. * Payment of taxes and other liabilities. The Cash Payments Book is used to record all payments of money from the business's bank account. Cash payments can be made by notes and coins, cheque, electronic funds transfer (EFT) and credit card. Ifa business operates both a cheque account and a credit card for making payments, a separate Cash Payments Book is kept for each account. This facilitates reconciling the cash records with the bank statements for each account. Cash Payments and the GST Businesses that are registered for the GST are able to claim credits for GST included on purchases on their Business Activity Statements. Most payments will include GST but there are exceptions. It is important to examine the source documents carefully: the business can only claim GST credits for the amount of GST stated on the tax invoice. If given a GST-inclusive amount, the GST is determined by taking 1/11" of the amount. Chopter 4 Cash Payments.Example Grange Homewares made the following cash payments in June. Amounts include GST where indicated. fe Ge Pree om rn 01 | 341 [Paid Rent to Eastern Real Estate v_ | $1,540 04 | 342 | Cash purchase of Stock Vv 792 06 | 343 | Paid Advert v 242 344 | Paid Telephone Account v 165 10 | 345 | Bought Stock for Cash v 363 12 | 346 | Paid Superannuation x 200 14 | 347 | Paid Wages x_|_1,100 16 | 348 | Paid Advertising v_ | 2,200 19 | 349 [Bought a Printer for Cash v 198 21 | 350 _ | Paid for Window Cleaning (supplier not registered for GST) | _ x 44 28 | 351 _|Paid Wages x_|_t,100 28 | BS | Bank Charges x 10 28 | BS [Loan Repayment x 590 Required: Prepare the Cash Payments Book for the month of June. aR (Cs | Sete eat eee] mee |r | od 01/06 | 341 [Rent 1,400 140 | 1,540 04/06 | 342 | Inventory 720 R | 792 06/06 | 343 | Advertising 220 22 | 242 06/06| 344” | Telephone 150 15 | 165 10/06 | 345 | inventory 330 33 | 363 12/06 | 346 | Superannuation 200 200 14/06 | 347 |Wages 1,100 1,100 16/06 | 348 | Advertising 2,000 200 | 2,200 19/06} 349 | Printer 180 18 | 198 21/06 | 350. | Window cleaning 4 44 28/06 | 351 | Wages 4,100 4,100 28/06| BS _| Bank charges 10 10 28/06| BS _|Loan payment 590 590 TOTAL 1,050 | 180 | 6224 | 590 | 500 | 8544 Cross balance: 1,050 + 180 + 6,224 + 590 + 500 = $8,544. Accounting Principles| Self-Testing Exercise 3 Cash Payments for a Retailer | Information from the cheque butts and bank statement for Wally Webber is listed below. All payments are listed individually as the Bank Statement will show each one as a separate amount. Required: Record these cash payments in the Cash Payments Book and cross balance. Amounts include GST where applicable. Perm ee tt eas near byret GST Amount 1 EFT | Paid Rent v $1,463, 05 | BPay | Paid Advertising v 374 06 683 _ | Bought Office Equipment v 1,342 08 684 _ | Wally Webber draws cash for his own use x 956 12 685 _| Stock Purchases v 484 14 EFT | Paid Wages x 930 18 BS _| Loan Repayment x 5 22 686 _ | Stock Purchases 7 253 25 687 _ | Stock Purchases v 682 28 EFT | Paid Wages x 1,010 30 BS _ | Bank Charges x 24 BS ¢-Tl i eT og Other GST Total Lahde Ny Cees alee SL SP Cheptend Cosh PaymentsSelf-Testing Exercise 4 Cash Payments for a Farm Business Information from the cheque butts and bank statement for farmer Terry Berry is listed below. Required: Prepare the Cash Payments Book and cross balance. Pract 7 facia eae Dp yeet GST Amount Farm supplies < Terry - soccer club membership - Bought computer Farm hand casual wages Farm hand casual wages Farm supplies Fertiliser Paid business telephone (Invoice shows GST $30) Loan repayment Soil Tiller (asset) Bank charges Loan interest charges KN ENN RRL OX Farm Other eaters Other GST Total ay sie Cee cm eet mee Accounting PrinciplesSelf-Testing Exercise 5 | Cash Receipts and Cash Payment Books The following are details of the cash receipts and cash payments for Energy Enterprises. The owner is Bonza Abs who is a personal trainer in the business. The business uses a cash accounting system and is registered for the GST. Bank deposits are made daily. Det GST Amount a1 BS _ | Loan proceeds received x 15,000 02 | CR1_ | Owner contributes cash x 8,000 06 | 111 | Cheque paid for gym equipment v 8,800 08 | 112. | Paid rent v 440 12 | 113 | Bought a computer v 1,650 14 | CR2_| Cash receipts —training v 605 18 | 114 | Paid for general cleaning (supplier not registered) | _x 50 22 | CR3_ | Cash receipts - training v 550 25. | EFT _ | Loan repayment x 500 25 115 _ | Stationery expenses : v 220 28 | CR4_ | Cash receipts — training v 660 28 | 116 | Owner draws funds for personal use x 200 30 | BS _|Bank charges x 12 30_| BS _| Loan interest charges x 100 Required: Prepare the Cash Receipts and Cash Payment Books and balance at 31 March. Cross-balance to check allocations and calculations. Cash Receipts Book of Energy Enterprises BicTul isle) Loan GST Total Date ey rere oleae tr ee) bere Peers A Chepter4 Cash PaymentsCash Payments Book of Energy Enterprises Cen ora Cesena B Supplies Assets Date Secure Lull el Solutions to Self-Testing Exercises 4. The cheque butt shows: © The date and cheque number. © The payee’s name. * A brief description of the payment and the amount of the cheque you are writing. © Any deposits and balance of the cheque account after deducting the amount of the cheque. 2. Cheque (a) Who is the Drawer? Castle & Co Accounting. (b) Who is the Drawee? Country Bank. (c) Who is the Payee? ‘Cash’ — but more commonly the name of the party being paid. Accounting Principles3. Cash Payments Book of Wally Webber rete Cr | teers pel crit ete as 01/03 | EFT |Rent 1,330 133 | 1,463 05/03 | BPay | Advertising 340 34] 374 06/03 | 683 | Office Equip 1,220 122 | 1,342 08/03 | 684 | Drawings 956 956 12/03 | 685 | Inventory 440 44] 484 14/03 | EFT | Wages 930 930 18/03 | BS __ | Loan repayment 715, 715 22/03 | 686 | Inventory 230 23] 253 25/03 | 687 | Inventory 620 62] 682 28/03 | EFT |Wages 1,010 1,010 30/03 | BS | Bank charges 21 24 TOTAL 1,290 |1,220 | 3,631 | 1,671 | 418 | 8,230 4. Cash Payments Book of Terry Berry Farm Farm 1 Lene ae eee] 06/03 111 | Supplies 700 70 770 08/03 112 | Drawings 200 200 12/03 113 | Computer 1,350 135 1,485 14/03 114 | Casual wages 120 120 18/03 115 | Casual wages 80 80 22/03 116 | Farm supplies 500 50 550, 25/03 EFT | Fertiliser 300 30 330 25/03 BPay | Telephone 335 30 365, 25/03 BS Loan payment 120 120 28/03 EFT | Soil tiller 2,000 200 | 2,200 30/03 BS Bank charges 11 11 30/03 BS Loan Interest 25 25 TOTAL 1,500| 3,350 571 320 515] 6,256 Chopter4 Cash PaymentsCash Receipts Book of Energy Enterprises Cae Loan a ae’ peer ae eee ee 01/03 BS Loan proceeds 15,000 15,000. 02/03 CR1__ | Capital (contributed) 8,000 8,000 14/03 CR2 | Training revenue 550 55 605 22/03 CR3__| Training revenue 500 50 550 28/03 CR4 = | Training revenue 600 60 660 TOTAL 7,650 | 15,000 | 8,000 | 165 | 24,815 Cash Payments Book of Energy Enterprises Details ae ert eee i 06/03 | 111 |Gymequipment| 8,000 800 | 8,800 08/03 | 112. |Rent 400 40 | 440 12/03 | 113 | Computer 1,500 150 | 1,650 18/03 | 114 | Cleaning 50 50 25/03 | EFT |Loan payment 500 500 25/03 | 115. |Stationery g 200 20 | 220 28/03 | 116 | Drawings 200 200 30/03 | BS _ | Bank charges 12 12 30/03 | BS | Loan interest 100 100 TOTAL 8,000 | 1,500 762 | 700 | 1,010 | 11,972 ai PaChapter 4: Review Questions 4. On 20th September 2015, Jo Banks, the Office Manager at Mid Land Accounting, required a cheque from the Accounts Department to pay a supplier, Bing Mee. Ms Mee has just delivered a pallet of photocopy paper to the office. The cost of the paper is $220.00 (including GST). There was a $600 deposit since the last cheque was written. (a)_ Complete the cheque below ready for signature. Date: } Country Bank es MIDLAND WA oe or: ay: Cash or bearer B/fwd: 2,000.00 Deposit: Sub total: he sum of: r This Cheque: / C/iwd: Signature Mid Land Accounting No: 100850 100850 024 442 654987 (b) On the cheque completed above: (i) Whois the drawer? (ii) Who is the drawee? (iii) Who is the payee? 2. Enter the transactions of Pepper Co into the Cash Payments Book and balance at 10 August. ‘Aug 03 Chq 555 [Rent 400 plus GST Aug 03 Chq 556 —_| Wages 500 (no GST) Aug 04 Chq 557 _| Cash purchases of stock 1,000 plus GST Aug 05 Chq 558 _| Drawings 500 (no GST) Aug 10 Chq 559 __| Office Desk 800 plus GST [Aug 10 Chq 560 | Rent 400 plus GST Chapter 4 Cash PaymentsR Cac Date Chq# Details Paid Paid TOTAL 3. _ Enter the transactions of Salt Works into the Cash Payments Book and balance at 17 May. May 03 Chq 52 Wages. 730 (no GST) May 05 Chq 53 Telephone 320 plus GST May 09 EFT Rent 820 plus GST May 12 EFT Drawings 120 (no GST) May 12 EFT Inventory 1,800 plus GST May 16 EFT Inventory 1,400 plus GST May 17 Chq 54 Wages 730 (no GST) ch) Miro) Date Chq# Details Se esa TOTAL l | | neat saga!4. Information from the cheque butts, bank statement and EFT printouts for Tim Cousins Consulting are listed below. GST Amount 02 | 481. | Paid advertising v $693 02 | 482 | Paid rates x 1,200 02 | 483. | Bought new computer v 990 08 | 484 | Tim Cousins draws cash for his own use x 200 08 | 485. | Bought stationery v 242 14 | EFT | Paid wages x 20 14 BS | Loan repayment x 365 14 | 488 _| Internet charges v 55 18 | BPay | Paid electricity v 264 18 | EFT | Paid business credit card x 498 26 | 489 | Bought stationery J 165 26 | EFT |Paid wages x 710 30 BS __| Account keeping fee x 10 Required: Record these cash payments in the Cash Payments Book an include GST where indicated. \d cross balance. Amounts GST Total Paid | Paid TOTAL | | choprar4 cash Payments5. Russell Scales commenced business as a bicycle repairer on 1 April with bank transfer of $10,000. He lets out the flat at the rear of his premises to a tenant, Mark Myword who uses the flat for his residence. Scales is registered for the GST. Amounts include GST where applicable. Deposits are made daily. Following is a list of transactions for the first week in April: oon 01/4 Cash Services Receipt 1 $1,650 02/4 From residential tenant Z| Mark Myword (GST-free) 300 Cash services a 1,210 03/4 Cash services 4 880 04/4 Cash services 5 605 01/4 Electricity CHQ No. 111 (264 02/4 Bike parts 112 88 Advertising 113 286 New workbench 114 1,100, 03/4 Wages 115 45 Paid insurance 116 165 Paid legal fees 117 242 Bike parts 118 297 04/4 Repairs to residential rental property 119 800 Maintenance of workshop. 120 440 Required: Prepare the Cash Receipts and Cash Payments Books and cross balance. Cash Receipts Book - Russell Scales C18 y NU Collected banked beri Details Receipt i Accounting PrinciplesCash Payments Book - Russell Scales GST Total Paid Paid Date Chq# Details 6. Kevin's CD Games had the following cash transactions during October. All receipts transactions include GST except bank interest. All expense payments include GST except wages and drawings. Oct 01. Paid rent of $2,200 04 Sold games for $3,300 cash 10 Paid wages $1,000 14 Owner drew cash of $300 15. Cash sales $2,200 20 Cash sales amounted to $4,620 24. Received commission income of $700 26 Cash sales $2,200 28 Purchased inventory valued at $4,400 for cash 31. Paid telephone expense of $330 31 Purchased stock for cash $1,870 31. Bank interest received $10 31. Paid insurance $550 including GST Required: Record the transactions in the Cash Receipts and Cash Payments Books. cropor cash Payments [iCash Receipts Book - Kevin's CD Games [ees A beri c3 TOTAL | Details GST Amount Collected banked Per aiet ed Cash Payments Book - Kevin's CD Games Details Accounting Principles