Unit 2

Question 1

Taxable supplies

Answer 1

Taxable supplies are those goods and services that are subject to GST. May also include supplying information or advice, providing hire equipment or leasing business premises.

Taxable supplies include furniture, clothing, computers, stationary, telephone, electricity, food eaten in a restaurant, accounting, legal fees, investment advice and taxi fares.

Question 2

GST-free supplies

Answer 2

GST-free supplies are those that are not taxed. They are defined by legislation.

GST-free supplies include basic food, education, water and sewerage, exports, eligible childcare, businesses bought as a going concern, non-commercial activities of charitable institutions, religious services, international air and sea travel, inwards duty-free items, international mail, grants of freehold by government, cars for use by disabled people and most health services.

Question 3

Input taxed supplies

Answer 3

This is a supply that the seller cannot charge GST on and also cannot claim any GST incurred in relation to that supply.

Input taxed supplies include financial supplies (interest and bank charges), sale of residential premises, residential rent and he sale of food in school tuckshops and canteens.

Question 4

GST registration

Answer 4

GST registration is necessary if an entity has an annual turnover of $75000 and a not-for-profit entity has an annual turnover of $150000.

To register for GST an entity must also have an Australian Business Number (ABN)

Question 5

Sales

Answer 5

The sales a/c is a revenue account and so it has a credit nature.

It records the sales of goods.

Question 6

Perpetual inventory system

Answer 6

The perpetual system keeps the stock records up-to-date on a continuous basis, instead of merely updating the records at the end of each period.

It provides much greater control over the asset ‘inventories’, and allows costly and time-consuming physical stocktakes to be reduced to a minimum.

Question 7

First-in First-out (FIFO) inventory

Answer 7

Under this method it is assumed that the first items to come into the business are the first items to go out of the business.

Because prices change, the quantity of items purchased at each different price must be tracked so that the oldest items are sold first.

Question 8

Weighted average costing method

Answer 8

Under this method it is assumed inventory items are completely intermingled so a new weighted average cost price is calculated, generally after each item of purchase.

This is the most common method used in computer systems as it is easier to calculate a new average rather than to track the quantity of each item purchase at each different price.

Question 9

Trading business

Answer 9

Trading entities purchase inventories/stock with the express intention of reselling that product at a profit

Question 10

Cost of goods sold

Answer 10

The cost of goods sold a/c is an expense account, so it has a debit nature.

It keeps a continuous record of all costs associated with the inventories sold.

As sales are made, the cost of the goods sold is recorded as an increase on the debit side. If inventories are returned, this account must be credited (as the inventories have not really been sold and the expense has not really been incurred).

Question 11

Inventories

Answer 11

The inventories a/c is an asset account. It has a debit nature and balance.

Goods that are held for sale in the ordinary course of the normal operations of the business.

The inventories a/c increases, because of the inward movement of goods (due either to purchases or to goods being returned by customers).

The inventories a/c decreases, because of outward movement of goods (due to either sales or to goods being returned to other businesses).

Question 12

GST

Answer 12

The goods and services tax (GST) is a broad-based tax of 10 per cent on the supply of most goods and services consumed in Australia. It is designed to be collected by enterprises but eventually paid by consumers.

Question 13

GST collected

Answer 13

The GST a/c is a liability account, so it has a credit nature.

It records the GST that is collected on sales and supplies, and is payable to the ATO.

Question 14

GST Credits Received

Answer 14

The GST Credits Received a/c is a negative liability a/c for the business because it reduces the amount owing to the ATO. It has a debit nature.

It records the input tax credits claimed on the purchases of acquisitions.

Question 15

Input tax credits

Answer 15

Input tax credits are the amounts claimed back from the government for the GST paid on acquisitions used by a GST-registered business.

Question 16

Stocktake

Answer 16

A stocktake is the process of listing, counting and valuing unsold inventories on hand.

Question 17

Sales returns and allowances

Answer 17

The sales returns and allowances a/c is a negative revenue account and so it has a debit nature.

It records the returns of goods or allowances.

Question 18

Business activity statement (BAS)

Answer 18

Reporting to the ATO is done through the completion of a business activity statement (BAS). The BAS summaries the GST charged and collected, along with details of the input tax credits and other taxation matters for the tax period and determines what payment (if any) must be made to the ATO.

All registered entities must lodge this statement, the frequency depends upon the size of the entity in terms of annual turnover.

Question 19

Adjustment note

Answer 19

An adjustment note is a source document issued if an adjustment occurs in relation to a taxable supply. They are sometimes called a credit advice or credit note.

Question 20

Tax invoice

Answer 20

A tax invoice is a source document issued if a supplier makes a taxable supply.

A tax invoice is necessary if a business wish to claim an input tax credit for a credible acquisition.

Question 21

Bank deposit

Answer 21

A bank deposit is the receipt of money by the business through an electronic funds transfer.

Question 22

Bank payment

Answer 22

A bank payment is the payment of money by the bank through electronic funds transfer

Question 23

GST-inclusive goods

Answer 23

Refers to the value of the goods after GST is added

Question 24

GST-free goods

Answer 24

GST-free, this means that no GST is payable on the goods by the customer.

Question 25

Reliable competent personnel

Answer 25

An accounting system is only as good as the individuals who implement and maintain it
Employ qualified personnel and ensure that they are given duties and responsibility commensurate with their abilities

Question 26

Verification

Answer 26

Checking the accuracy of accounting records by some independent means by comparing the physical asset with the accounting record relating to it

Question 27

Authorisation

Answer 27

Person in the position of responsibility/authority will validate a course of action
Such as purchasing assets granting credits and paying bills

Question 28

Responsibility

Answer 28

Fix responsibilities for the functions to be performed in confer to authority necessary to carry them out
Each employee should do their own responsibilities or problems may arise

Question 29

Separation/Rotation of duties

Answer 29

Separation is physically handling the asset with two more people. People who authorise a transaction should not be involved in recording or handling the asset vice versa
With the separation of duties two or more people need to collaborate to commit fraud so it makes it harder

Question 30

Adequate and accurate documents and records

Answer 30

Documents are necessary to capture the information that is to enter the accounting system. Inadequate documentation can cause control problems.

Question 31

Physical controls and security

Answer 31

These are physical safeguards of the assets

Safes, security guard, cameras, cash registers, adequate insurance