Accounting Unit 3 - SAC 1,
ACCOUNTING UNIT 3 SAC 1
What is going concern? - answer The life of the business is assumed to be continuous,
and its records are kept on that basis
What is comparability? - answer Accounting reports should be able to be compared
over time
What is understandability? - answer Accounting reports should be presented in a
manner that makes it easy for them to be understood by the users.
What is relevance? - answer Accounting reports should include all information that is
useful for decision-making
What is reliability? - answerAccounting reports should contain information that is
accurate, and free from bias or error
What is a current asset? - answerIt is a resource controlled by the entity as a result of
past events, from which a future economic benefit is expected to flow to the entity in the
next 12 months.
What is a non-current asset? - answerIt is a resource controlled by the entity as a result
of past events, from which a future economic is expected to flow to the entity for more
than the next 12 months.
What is current liability? - answerIt is a present obligation of the entity arising from past
events, the settlement of which is expected to result in an outflow of resources
embodying economic benefits in the next 12 months.
What is non-current liability? - answerIt is a present obligation of the entity arising from
past events, the settlement of which is expected to result in an outflow of resources
embodying economic benefits in more than 12 months.
What is a revenue? - answerIt is an inflow of economic benefits (or saving
in outflows) in the form of an increase
in assets (or decrease in liabilities) that
increases owner's equity, except for capital
contributions by the owner
What is an expense? - answerIt is an outflow or consumption of economic
benefits (or reduction in inflows) in the
, form of a decrease in assets (or increase
in liabilities) that reduces owner's equity,
except for drawings by the owner
Explain why the accounting equation must be redrawn after every transaction. -
answerWhen a business exchanges good and/or services with another Entity, at least
two items will change in its accounting equation and, therefore, its Balance Sheet. This
is true of every transaction that a firm could have. This means the accounting equation
and Balance Sheet will need to be rewritten after every transaction.
State the two rules of double-entry accounting. - answer- Every transaction will affect at
least two items in the accounting equation: a double entry
- After recording these changes, the accounting equation must still balance
Referring to one accounting principle, explain why cash received should not be reported
as a revenue. - answerReporting period - There even was earned in the previous
reporting period when the goods were provided to the customers. To count it as
revenue again in June would be counting it twice.
State the purpose of a Trial Balance - answerIt is a list of all the accounts in the General
Ledger, and their balances, to determine if total debits equal total credits.
Explain why a receipt from a debtor does not increase profits. - answerAssets do not
increase overall means that a receipt form a debtor cannot be recorded as revenue: it
does not fit the definition. In addition, recording a receipt from a debtor, as revenue
would be double counting; the revenue was already recorded - as a credit sale - when it
was earned.
State three errors that will be detected by the preparation of a Trial Balance. - answer-
Two entries have been recorded on the same side of the General Ledger
- Only one entry has been recorded
- Different amounts have been recorded on each side
State four errors that will not be detected by the preparation of a Trial Balance. -
answer- A transaction has been omitted altogether
- The debit and credit entries have been reversed.
- The transaction has been recorded in the wrong ledger accounts.
- An incorrect amount is recorded on both sides of the ledger
Define the term 'Goods and Services Tax (GST)'. - answerGoods and Services Tax
(GST) is a 10% tax levied by the federal government on most purchases of goods
(excluding fresh food) and services.
Explain why GST on sales creates a GST liability. - answerWhen a business charges its
customers GST, it does so on behalf of the government. As a result, any GST on sales
creates a liability - an amount of GST owed to the ATO.
ACCOUNTING UNIT 3 SAC 1
What is going concern? - answer The life of the business is assumed to be continuous,
and its records are kept on that basis
What is comparability? - answer Accounting reports should be able to be compared
over time
What is understandability? - answer Accounting reports should be presented in a
manner that makes it easy for them to be understood by the users.
What is relevance? - answer Accounting reports should include all information that is
useful for decision-making
What is reliability? - answerAccounting reports should contain information that is
accurate, and free from bias or error
What is a current asset? - answerIt is a resource controlled by the entity as a result of
past events, from which a future economic benefit is expected to flow to the entity in the
next 12 months.
What is a non-current asset? - answerIt is a resource controlled by the entity as a result
of past events, from which a future economic is expected to flow to the entity for more
than the next 12 months.
What is current liability? - answerIt is a present obligation of the entity arising from past
events, the settlement of which is expected to result in an outflow of resources
embodying economic benefits in the next 12 months.
What is non-current liability? - answerIt is a present obligation of the entity arising from
past events, the settlement of which is expected to result in an outflow of resources
embodying economic benefits in more than 12 months.
What is a revenue? - answerIt is an inflow of economic benefits (or saving
in outflows) in the form of an increase
in assets (or decrease in liabilities) that
increases owner's equity, except for capital
contributions by the owner
What is an expense? - answerIt is an outflow or consumption of economic
benefits (or reduction in inflows) in the
, form of a decrease in assets (or increase
in liabilities) that reduces owner's equity,
except for drawings by the owner
Explain why the accounting equation must be redrawn after every transaction. -
answerWhen a business exchanges good and/or services with another Entity, at least
two items will change in its accounting equation and, therefore, its Balance Sheet. This
is true of every transaction that a firm could have. This means the accounting equation
and Balance Sheet will need to be rewritten after every transaction.
State the two rules of double-entry accounting. - answer- Every transaction will affect at
least two items in the accounting equation: a double entry
- After recording these changes, the accounting equation must still balance
Referring to one accounting principle, explain why cash received should not be reported
as a revenue. - answerReporting period - There even was earned in the previous
reporting period when the goods were provided to the customers. To count it as
revenue again in June would be counting it twice.
State the purpose of a Trial Balance - answerIt is a list of all the accounts in the General
Ledger, and their balances, to determine if total debits equal total credits.
Explain why a receipt from a debtor does not increase profits. - answerAssets do not
increase overall means that a receipt form a debtor cannot be recorded as revenue: it
does not fit the definition. In addition, recording a receipt from a debtor, as revenue
would be double counting; the revenue was already recorded - as a credit sale - when it
was earned.
State three errors that will be detected by the preparation of a Trial Balance. - answer-
Two entries have been recorded on the same side of the General Ledger
- Only one entry has been recorded
- Different amounts have been recorded on each side
State four errors that will not be detected by the preparation of a Trial Balance. -
answer- A transaction has been omitted altogether
- The debit and credit entries have been reversed.
- The transaction has been recorded in the wrong ledger accounts.
- An incorrect amount is recorded on both sides of the ledger
Define the term 'Goods and Services Tax (GST)'. - answerGoods and Services Tax
(GST) is a 10% tax levied by the federal government on most purchases of goods
(excluding fresh food) and services.
Explain why GST on sales creates a GST liability. - answerWhen a business charges its
customers GST, it does so on behalf of the government. As a result, any GST on sales
creates a liability - an amount of GST owed to the ATO.
