Accounting and Finance

• The Accounting Process

  1. Transactions

  2. Journals

  3. Ledgers

  4. Trial Balance

  5. Income Statement

  6. Balance Sheet
• Journals


  Simplify and reduce the number of entries going into the ledgers
• Types of journals


  • Specialist Journal
  • General Journal
• Specialist journals


  Reduce ledger entries
• General Journal


  Does not reduce ledger entries, can be treated as a mini Trial Balance for each Transaction
• Ledger accounts


  • Cash at Bank (A)
  • Capital (P)
  • Inventory (A)
  • GST credits (A)
  • Loan- ANZ (L)
• General Journal


  1. Date

  2. Details

  3. Debit

  4. Credit
• Entry to commence business

  Where an owner starts a business with several items (Assets and Liabilities), all items are placed in the General Journal as one entry
• Ledger accounts for entry to commence business

  • Loan- ANZ (L)
  • Creditor- MM (L)
  • Cash at Bank (A)
  • Capital (P)
  • Motor Vehicle (A)
• GST at the end of a period

  1. GST Payable (CL) is owed to ATO

  2. GST Credits (CA) is owed to us by ATO

  3. Close both GST accounts to a GST control account

  4. Make the payment using Cash at Bank
• GST accounts at end of period

  • GST Payable (CL)
  • GST Credits (CA)
  • GST Control (Temporary Account)
  • Cash at Bank (CA)
• General Journal entries for GST at end of period

  1. GST Payable written off

  2. GST Credits written off

  3. GST Control paid to ATO
• Perpetual Inventory System


  New style, computer based, constant record system, compared to old style periodic system with stock takes
• Perpetual Inventory System


  • Greater stock control
  • Slow-moving and fast moving stock can be identified
  • Re-ordering of stock is efficient
  • Profit Determination
  • Stock losses and gains identified
• Disadvantages of Perpetual Inventory System

  • Additional record-keeping
  • Higher costs
  • Still need physical stocktake at end of period
• Paying a creditor with GST writeback

  1. GST writeback entry occurs when GST was included in original sale/product or a discount is given/received

  2. Divide discount amount by 11 to find writeback figure

  3. Decrease both GST account and discount account
• Purchase Return


  1. Source document is a Credit Note

  2. Accounting procedure is opposite of a purchase
• Accounts affected by purchase return

  • Inventory (CA)
  • GST Credits (CA)
  • Creditors- Dusters R US (CL)
  • Cash At Bank (CA)
  • Discount Received (-Cos)
• Sale of inventory


  1. First transaction - Debit Debtor/Cash at Bank (total includes GST), Credit Sales-Income, Credit GST Payable

  2. Second transaction - Debit Cost of sale (COS expense), Credit Inventory (Asset decreasing)
• Accounts affected by sale of inventory

  • Inventory (CA)
  • GST Credits (CA)
  • Debtor- IIU (CL)
  • Cash At Bank (CA)
  • Sales (I)
  • Cost of Sales (cos)
  • GST Payable (L)
• Perpetual inventory system


  Ongoing system where every purchase and sale of inventory is recorded, allowing for up-to-date stock levels
• Periodic inventory system


  Old style where stock takes are done at the start and end of a period, with no visibility of inventory levels during the period
• Perpetual inventory system


  • Advantages: Provides up-to-date inventory information, easier to manage stock levels

  Disadvantages: Requires more detailed record-keeping
• Periodic inventory system


  • Advantages: Simpler record-keeping

  Disadvantages: Lack of visibility on inventory levels during the period, risk of running out of stock
• For the course, only the perpetual inventory system needs to be studied
• Source document


  Evidence of a transaction, e.g. receipt for cash purchase, invoice for credit purchase/sale
• Source documents


  • Receipt

  Invoice
• Purchasing inventory on credit

  Receive invoice

  Debit Inventory and GST accounts

  Credit Accounts Payable account
• 10% discount available if invoice is paid within 7 days