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BSBFIA401

Prepare Financial Reports

Learner Guide

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TABLE OF CONTENTSThis is an interactive table of contents. If you are viewing this document in Acrobat, clicking on a heading will transfer you to that page. If you have this document open in Word, you will need to hold down the Control key while clicking for this to work.

TABLE OF CONTENTS............................................................2CHAPTER 1. INTRODUCTION..................................................3

1.1. Learning Outcomes.........................................................................31.2. Legislation, Regulations, Standards and Codes..............................5

CHAPTER 2. ACCOUNTING BASICS........................................142.1. Accounting 101.............................................................................142.2. Accounting Rules...........................................................................182.3. Accounting Systems......................................................................242.4. Accounting Records......................................................................26

CHAPTER 3. PREPARE AND MAINTAIN AN ASSET REGISTER. . .273.1. Introduction to Assets...................................................................273.2. Calculate Depreciation..................................................................313.3. Maintain Asset Register and Depreciation Schedule....................43

CHAPTER 4. RECORD GENERAL JOURNAL ENTRIES................584.1. Introduction to Journal Entries.....................................................584.2. The Disposal of the Asset Journal Entry........................................67

CHAPTER 5. TRANSFERS TO GENERAL LEDGERS....................80CHAPTER 6. PREPARE THE TRIAL BALANCE..........................88CHAPTER 7. PREPARE END-OF-PERIOD FINANCIAL REPORTS. .91CHAPTER 8. RECORDING TRANSACTIONS IN MYOB..............95GLOSSARY OF TERMS.......................................................115

BSBFIA401 Learner Guide Version No. 1.2 Australian College of Business and Accounting

CHAPTER 1. INTRODUCTION1.1. Learning Outcomes

By the time you have completed this Learner Guide, you will have covered the following topics:

1. IntroductionThis introductory chapter will acquaint you with several of the general concepts in financial reporting, and introduce the primary pieces of legislation, regulation, standards, and codes that affect financial reporting and your workspace.

2. Prepare and Maintain an Asset RegisterThis chapter will explain what an asset is, and guide you through the process of creating and maintaining an asset register. It also explains how to calculate an asset’s depreciation.

3. Record General Journal EntriesThis chapter looks at several financial reporting concepts in greater depth. You will learn about general and specialist journals, and how to transfer the information from specialist journals into the general journal. Also covered is how to record depreciation, adjustments and bad and doubtful debts in the general journal.

4. Prepare Final General Ledger AccountsThis chapter will explain how to post journal entries to the general ledger and create a trial balance to check the accuracy and provide a summary of the ledger accounts.

5. Prepare End of Period Financial ReportsCreating the profit and loss statement and the balance sheet is covered in this chapter. You will also learn about identifying and correcting errors in the financial reporting process.

This learner guide will be followed by an assessment workbook where you will be answering questions about the knowledge underpinning this unit, and completing practical assessments that will demonstrate your ability to competently perform all the processes involved in preparing financial reports.


Introduction to Financial Reporting

This unit will enable you to record general journal adjustment entries and prepare the end of period financial reports. It will show you how to manually undertake the required tasks, and then guide you through the same process using MYOB accounting software.

Before you begin, it is important to know and understand several main concepts used throughout this unit – the General Journal and the General Ledger.

General JournalA general journal is used to record ‘general’ transactions. These are transactions that do not fit into specialist journals, such as the cash payments journal and sales journal. However, a business may operate by simply recording all transactions through the general journal. (RMIT University)

More examples of a general journal will be provided in Chapter 4 below.

General LedgerA ledger is a summary of all the amounts entered in supporting journals which list individual transactions by date. Every transaction flows from a journal to one or more ledgers, and then financial statements are generated from summary totals in the ledgers. (Haber)

A general ledger is known as the backbone of an organisation’s accounting system. It contains all the accounts for recording transactions relating to a company’s assets, liabilities, equity, revenue and expenses. Amounts relating to these categories are posted (recorded) as credits or debits.

The general ledger should contain the date, description and balance of each account. It is usually divided into a number of sub-ledgers to show additional details of these accounts

Subsidiary LedgerA subsidiary ledger is a group of similar accounts whose combined balances equal the balance in the corresponding general ledger control account. The general ledger account that summarises a subsidiary ledger’s account balance is called a control account or master accounts. Examples of subsidiary ledgers are Debtors, Creditors and Inventory.


1.2. Legislation, Regulations, Standards and Codes

Business operations can be affected by legislative and regulatory provisions, standards and codes.

The Australian Accounting Standards BoardThe Australian Accounting Standards Board (AASB) a government agency responsible for developing, issuing and maintaining accounting standards that must apply within Australia. Accounting standards are important, so that information from different businesses is comparable, rather than information being presented in many different ways.

You will be referred to several different accounting standards throughout this learner guide. One important standard that will affect much of what you are learning in this unit is AASB 101. It details many of the rules surrounding the presentation of financial statements.

For more information on the AASB and accounting standards, visit their website: www.aasb.gov.au.

Auditing and Assurance Standards BoardThe Auditing and Assurance Standards Board (AUASB) is an independent statutory body responsible for developing, issuing and maintaining national auditing and assurance standards. These standards establish requirements on responsibilities of an auditor and other assurance services within the financial industry.

For more information on the AUASB, visit their website: www.auasb.gov.au.

Tax Practitioners Board – Registration of BAS agents and Tax AgentsThe Tax Practitioners Board (TPB) is a national body responsible for the registration and regulation of tax agents, BAS agents and tax (financial) advisers (collectively referred to as ‘tax practitioners’). The TPB is also responsible for ensuring compliance with the Tax Agent Services Act 2009 (TASA), including the Code of Professional Conduct (Code).

For more information on the TPB, visit their website at www.tpb.gov.au.

Australian Taxation OfficeThe Australian Taxation Office (ATO) is tasked with the management and administration of taxation and key elements of superannuation legislation. Within this role, they provide for the assessment and collection of various BSBFIA401 Learner Guide Version No. 1.2 Australian College of Business and Accounting

http://www.tpb.gov.au/

taxes including but not limited to income tax and the Goods and Services Tax (GST).


Institute of Certified Bookkeepers – Code of Professional ConductThe Institute of Certified Bookkeepers has endorsed a code of professional conduct, the purpose of which is to provide an understanding of what is and is not acceptable behaviour and practice for a professional bookkeeper to maintain the dignity and respect of the profession.

Privacy LawsPrivacy legislation has been enacted at both the Commonwealth and state and territory level to protect the personal information privacy concerns of people in Australia.

Relevant federal privacy legislation you should be aware of includes:

Privacy Act 1988 Privacy Regulations 2013

State and territory legislation are relevant based on the state or territory in which your workplace is operating; the following table shows some relevant privacy legislation based on each state and territory.

State or Territory Appropriate Legislation

Australian Capital Territory Health Records (Privacy and Access) Act 1997

New South WalesPrivacy and Personal Information Protection Act 1998

Health Records and Information Privacy Act 2002

Northern Territory Information Act 2002

Queensland Information Privacy Act 2009

South Australia No State legislation applicable

Tasmania Personal Information Protection Act 2004

Victoria Information Privacy Act 2000

Western Australia No State legislation applicable


Key ProvisionsThe key provisions of privacy laws in Australia are set out in the 13 Australian Privacy Principles (APPs), which are summarised below.

Note: The APPs replaced the previous NPPs on 12 March 2014.

APP 1 – Open and transparent management of personal information

Take reasonable steps to implement practices, procedures and systems relating to the entity’s functions or activities that will ensure compliance with the APP and enable inquiries or complaints to be dealt with

You must have a clearly expressed and up to date policy about the management of personal information

Take reasonable steps to make your APP privacy policy available free of charge and available in an appropriate form (usually available on the website)

APP 2 – Anonymity and pseudonymity

Individuals must have the option of not identifying themselves, or of using a pseudonym

o This does not apply if you are required or authorised under an Australian law, or court/tribunal order, to deal with individuals who have identified themselves; or

o If it is impracticable for you to deal with individuals who have not identified themselves or who have used a pseudonym

APP 3 – Collection of solicited personal information

Do not collect personal information unless it is reasonably necessary for one or more of your functions or activities

Do not collect sensitive information about an individual unless:

The individual consents to collection and the information is reasonably necessary for one or more of your functions or activities

Only collect personal information by lawful and fair means

Only collect personal information about a person from that person unless it is unreasonable or impracticable to do so


APP 4 – Dealing with unsolicited personal information

If you received personal information and did not solicit (ask for) the information, you must determine whether or not you could have collected the information under APP 3

If you could not have collected the personal information, and the information is not contained in a Commonwealth record, you must destroy the information or ensure it is de-identified

APP 5 – Notification of the collection of personal information

Take reasonable steps to notify the person:

o Your identity and contact details

o If you collect information from someone other than the individual, notify of the fact that you have collected the information and how

o If personal information is required or authorised under an Australian law or a court/tribunal order, notify of that fact

o The purposes for which you collect the personal information

o The main consequences (if any) for the individual if all or some of the personal information is not collected by you

o Anyone else to whom you normally disclose personal information

o That your APP privacy policy contains information about how to access and correct personal information

o That your APP privacy policy contains information about how to complain about a breach of the APPs and how you will deal with that complaint

o If you are likely to disclose personal information to overseas recipients and where


APP 6 – Use or disclosure of personal information

Only use or disclose personal information for the primary purpose it was collected for, unless:

o That person has consented to the use or disclosure of the information; or

o That person would reasonably expect you to use or disclose the information for another purpose, and that purpose is directly related to the primary purpose; or

o o Use or disclosure is required or authorised by, or under, an Australian law or a court/tribunal order

Exceptions – this principle does not apply to the use or disclosure of personal information for direct marketing or government related identifiers

APP 7 – Direct marketing

Do not use or disclose personal information for direct marketing unless:

o You collected the information from that person; and

o They would reasonably expect you to use or disclose the information for that purpose; and

o You provide a simple way for that person to easily request not to receive direct marketing communications from you; and

o That person has not made such a request to you

APP 8 – Cross-border disclosure of personal information

Before you disclose any personal information about a person to an overseas recipient, you must take reasonable steps to ensure they do not breach the APPs

APP 9 – Adoption, use or disclosure of government related identifiers

Do not adopt a government related identifier of a person as your own identifier of that person

Do not use or disclose a government related identifier of a person unless it is reasonably necessary for you to verify their identity, or necessary for you to fulfil your obligations to a State or Territory


authority


APP 10 – Quality of personal information

Take reasonable steps to ensure that personal information you collect, use or disclose is accurate, up-to-date and complete

APP 11 – Security of personal information

Take reasonable steps to ensure that personal information you hold is protected from misuse, interference and loss, and from unauthorised access, modification or disclosure

If you no longer need the information and are not required to retain it, take reasonable steps to destroy the information or to ensure that the information is de-identified

APP 12 – Access to personal information

If you hold personal information about a person, you must give them access to that information upon request

APP 13 – correction of personal information

Take reasonable steps to correct the information to ensure that, having regard to the purpose for which it is held, the information is accurate, up to date, complete, relevant, and not misleading

*This is a summary only and NOT a full statement of obligations required under the act.

All workplaces in Australia are subject to privacy legislation, as are workplaces in many other parts of the world. As such, it is important for all workers to be aware of and comply with privacy legislation which applies to them when dealing with various records of information.

Further information regarding this legislation and the APPs can be found at the Office of the Australian Information Commissioner website: http://www.oaic.gov.au/.


Regulations, Standards and Codes of practice associated with the preparation financial reports Regulations include the following:

ASIC RG 43 Financial reports and audit reliefRG 43.2

The purpose behind requiring entities to prepare and lodge with ASIC financial reports that comply with the requirements of AASB is to make information available that is useful to a wide range of users, to help them make economic decisions. The legislative policy underlying these requirements indicates an expectation that there are ‘users’ of the financial reports. The Regulatory Guide also covers situations where a company may apply for relief from the financial and audit requirements of the Corporations Act.

Refer to Supplementary Material - RG 43

ASIC RG 68 New financial reporting and procedural requirementsRG 68.21

ASIC may consider case by case relief for an entity to synchronise its financial year with that of newly acquired controlled entities which:

(a) represent the largest part of an economic entity;

(b) have a seasonal business which necessitates a particular financial year; or

(c) are foreign companies which are not able to change their financial years in their place of origin.

Refer to Supplementary Material - RG 68

Standards which tackle the preparation of financial reports are as follows:

AASB 108 – Accounting Policies, Changes in Accounting Estimates and ErrorsAASB 108 delves into accounting policies adopted by an entity. How an entity considers and treats areas such as accounts receivable, accounts payable, inventory (if they have any) and other aspects of the business are disclosed as part of the notes to the financial statements. This will generally be listed in Note 1 of the financial statements. Notes appear to provide further detail regarding the profit and loss, balance sheet and


statement of cash flows of the entity. This provides users with additional information so that users of the financial statements can further understand the assumptions made in various areas of the business. Examples such as trade terms, treatment of bad or doubtful debts, valuation method of inventory and other aspects would be included within the financial statements. The accounting standard also deals with the usage of estimates in preparing financial reports, such as items that may be estimated. Estimation involves judgments based on the latest available, reliable information.

Refer to Supplementary Material - AASB 108

AASB 1034The standard listing the basic information that must be included in a financial report applies to all companies and other entities that are required by the Corporations Law to prepare financial reports.

These include both generic and specific treatment and disclosure of various areas of the business. These include:

- type of entity and the country of incorporation;- nature of the business operations;- name of parent entity; and- details on the number of employees.


Codes of practice that support the preparation of financial reports are:

Institute of Certified Bookkeepers Code of Professional ConductThe Institute of Certified Bookkeepers have implemented a code of conduct or an explicit standard of expectations that members are to comply with. This would partly be because ‘professional conduct’ can be seen as a subjective term for which different people may interpret differently and with different standards There are both fundamental principles and more specific public practice (where a bookkeeper provides services to the public at large) requirements. Further details regarding their code of conduct are listed at ICB Code of Professional Conduct.

ePayments Code The ePayments Code is a Code administered by ASIC that applies to several types of payments made by consumers. These include:

- EFTPOS transactions;- Credit card transactions;- ATM transactions;- BPay, online, internet and mobile banking payments.

Participants to the voluntary Code (such as banks, financial institutions, credit providers) agree to compliance with the code including terms and conditions, unauthorised transactions and mistaken internet payments.

This provides consumers with a level of confidence that they have protections should any of the above situations occur.

Participants must also comply with annual reporting requirements. Reporting includes data on unauthorised transactions must be reported to ASIC.


https://www.icb.org.au/Membership/Code-of-Conduct

https://www.icb.org.au/Membership/Code-of-Conduct

CHAPTER 2. ACCOUNTING BASICS 2.1. Accounting 101

Assets are items a business owns or controls that will provide a future economic benefit in other words items (physical or not) which have monetary value that a business owns, benefits from, or has use of and which have the potential to earn future income for the business.

They may be physical items (like cash, equipment and property), a legal claim against others (like monies owed to the business from debtors) or certain intellectual property rights (like patents and trademarks).

Liabilities are moneys owed by the business to individuals or organisations that are external to the business. They hold legal obligations on the business in relation to the money it owes to others. These include monies owed to suppliers, loan funders and invoices (purchases on credit terms) that have not yet been paid (e.g. Income Tax payable, accounts payable). As a rule you can assume, if an account name includes the descriptor ‘payable’, then it contains liability.

Equity Also known as owners’ equity, capital accounts or equity accounts or net worth, it is simply the owner’s right to the assets of the business. It is what would be left over if a business or organisation sold all the assets and paid off all the liabilities. Owners’ equity is made up of the investments made by the owners’ and is increased by profits from the business and decreased by owners withdrawing their equity via drawings (personal takings) or dividends (payments to shareholders).

Revenue is money flowing into the business from trading and can also include interest from investments. The payment by others for goods and services that have been provided by the business. Revenue is typically generated by the sale of merchandise or goods or the provision of services.

Cost of Goods Sold is the direct cost of the generation of revenue. These are normally grouped together and generally form part of “products”. Cost go goods sold is a “special type of expense in which you wish to track the specific costs associated with generation of the sales.


Expenses are the day to day operating costs of the business. Those assets and supplies that have been consumed in the earning of income or incurred in order to earn income. Some good examples of expenses include the cost of goods sold, supplies used, electricity, wages and rent.

All accounting systems (manual and computerised) use these main types of accounts and then depending on the business needs splits them further in the Chart of Accounts.

Points to Remember there are only 5 account types A L OE R E – (Assets, Liabilities, Capital, Revenues and Expense) the other “header account names” simply allow us the ability to classify groups of like information for the purpose of financial reports.

Secondly the chart and types of account assist in the core and fundamental principle of accounting – reporting of financial and economic information in order to have transparent and reliable information in which to make decision upon. Example Charts of Accounts Assets Current Assets

Long Term Assets or Fixed Assets

Liabilities Current Liabilities

Long Term Liabilities

Owner’s Equity Owner 1

Owner 2

Drawings Owner 1

Drawings Owner 2

Revenues You can group these in any many that suits the needs of the business

Expenses You can group these in any many that suits the needs of the business

Other RevenueAccounts classified here are still revenue but is out of the ordinary course of BSBFIA401 Learner Guide Version No. 1.2 Australian College of Business and Accounting

business- an example would be a legal win in which the business was paid financial compensation, this would be outside the normal operations of the business as they don’t get a legal win daily.

Other ExpensesSimilar to other revenue, the other expenses are out of the normal expenses in the course of doing business.

Both other revenue and expense still form part of the tax obligations for a business when look at profit and losses made by a business.

Real World Chart of Accounts Example (Extracted)


The nature of each account group of accounts can be classified as either debit or credit. The way the account changes (whether it increases or decreases in value) when it is credited or debited will depend on its classification. This can be confusing at first because, depending on their classification, accounts do not behave in the same way.

Each of these account groups is given a default nature of either debit or credit; the following table identifies the nature of each of these groups.

Assets Debit Revenue Credit

Liabilities Credit Cost of Goods Sold Debit

Equity Credit Expenses Debit

Accounting is dealt with in terms of debits and credits, rather than in terms of pluses and minuses. What this means is we must first identify the nature of the account to which a value is being posted, and then secondly, we must identify whether the amount being posted is posted as either a debit or a credit entry.

The following table identifies what happens when we apply a debit or a credit entry is applied to a general ledger account based on the Nature of the account group.

If the GL default nature is…

…and a DEBIT is applied

…and a CREDIT is applied

DEBIT The GL balance increases.

The GL balance decreases.

CREDIT The GL balance decreases.

The GL balance increases.


2.2. Accounting Rules

There are two basic accounting rules, and these are:

1. The Accounting Equation - An important element of the accounting system is the relationship between assets, liabilities and capital/owners’ equity. This relationship is represented in the accounting equation as follows. What we own (assets) is a measure of what we owe (liabilities), and the owners’ equity is whatever is left over. Assets = Liabilities + Equity and can also be expressed as Assets – Liabilities = Equity

Account Name

Debit (DR) side means:

Credit (CR) side means:

Increase in an asset Decrease in an asset

Increase in an expense

Decrease in an expense

Decrease in a liability

Increase in a liability

Decrease in income Increase in income

2. The Double-Entry Principles – Which is every transaction will affect a minimum of two or more general ledger accounts with an equal and opposing increase or decrease. It is used to satisfy the accounting equation Assets = Liabilities + Equities. To maintain this relationship each transaction recorded must have the sum of all debits equalling the sum of all credits.

Double-entry bookkeeping is fundamental to recording and reporting on the financial affairs of an organisation. The basic principle of double-entry bookkeeping is that every transaction that an organisation records affects/changes a minimum of two accounts. The way that each transaction changes the accounts is classified as either a debit or a credit depending on the nature of the account and whether its value is increased or decreased by the transaction.

Double-entry bookkeeping is a closed accounting system where the


inflow and outflow of money can be accounted for internally. When successfully implemented, double-entry bookkeeping allows organisations to track the movement of financial assets because both sides of the transaction (the debit and the credit) have been recorded. The total amount debited (to one or more accounts) must equal the total amount credited (to one or more accounts). Every debit must have a corresponding credit and vice versa.

D ebits Credits

a. Duality principle

The dual effect happens and is recorded at the same time. A transaction has two sides: something of economic value is provided (credit) and something of equal value is received (debit). The basic principle of double-entry bookkeeping is that there are always at least two entries for every transaction. They are known as debit and credit entries. The recorded values (must be) are equal.

b. Separate entity principle

The owner of business, for accounting purposes, is completely separate from the business itself. Even if the business owner is an individual (ie. sole trader) there is a distinction between business and ‘personal’ transactions. Personal transactions such as family holidays are not included as part of the business.

An example of this in action in a very simplified form can be shown below.

If we sell a stock item for $100 plus GST to a customer, and we offer credit terms we would work through the following steps.

The following questions can be asked to assist with the creation of the general ledger entries:

Which general ledger accounts will this transaction affect?

o Sales, GST collected, and debtors

Which general ledger account will hold the whole value?

o Debtors, as the amount owed that is the sale plus GST will be the total BSBFIA401 Learner Guide Version No. 1.2 Australian College of Business and Accounting

amount owed by the debtor.

What is the default nature of the debtor account?

o Debtors fall into the asset group, and the asset group is debit by nature.

In which direction I want this account to move, up or down, increase or decrease?

o I would want this account to increase because there will be more money owed by debtors to the business

What do I need to apply, debit or credit, to make the account moved in this direction?

o Debit, as a debit applied to a debit by nature account will increase in balance.

If the debtor holds the whole value, it is debit by nature, and I have increased it by applying a debit entry, what must I applied to the other two accounts to balance this entry?

o Credit is applied to both Sales and GST Collected as the balancing entries.


The most straightforward transaction that demonstrates debits and credits within a closed accounting system is the transfer of funds from one bank account to another. The account that contained the funds is debited and the account that the funds are destined for is credited. One increases in value by exactly the same amount that the other decreases by.

Despite the complexity of the transaction, every credit is balanced by and equal and opposite debit and vice versa.

The number and the type of accounts that an organisation uses will vary greatly from organisation to organisation, however all accounts fall into five broad account groups discussed earlier.

Further confusion is complicated by the use of the terms ‘creditor’ and ‘debtor’. All we can say to this is welcome to accounting – same words have different meaning in different contexts.

Creditors are people or businesses that an organisation owes money to. Typically, creditors are suppliers who provide goods and services to the accounting entity. They are called creditors because we credit their account when we record the money owed to them. Because creditors are people or businesses that an organisation must pay, their records are referred to in the accounting process as the accounts payable.

Debtors are people or businesses that owe money to the organisation. Typically, these are the customers who purchase goods and services from the organisation. They are called debtors because we debit their account when we record the money they owe. As debtors are people or businesses that an organisation expects to receive money from, their records are referred to in the accounting process as the accounts receivable.

Two tables explaining the behaviour of each account group have been included below. The tables contain the same information organised in different ways, in order to avoid confusion, you should use whichever makes the most sense to you.

Account group

Nature of the account

Increase in value

Decrease in value

Assets Debit Debit CreditLiabilities Credit Credit DebitOwners’ equity

Credit Credit Debit


Revenue Credit Credit DebitExpenses Debit Debit Credit

Debit Credit

Increase in expense accounts Decrease in expense accounts Increase in asset accounts

Decrease in asset accounts Decrease in equity accounts Increase in equity accounts Decrease in revenue accounts

Increase in revenue accounts

Decrease in liability accounts Increase in liability accounts

A key question to consider when approaching the third step is whether an account balance has increased or decreased as a result of the financial transaction. As you start out, you will find the account classification tables above very useful. As you gain experience and become more confident, you will begin to know instinctively whether accounts are being debited or credited.

Owners' equity

Assets

Liabilities


The following shows the process of analysing the transaction:

Account Account Category Increase/Decrease Debit Credit

Debtors Asset Inc $110.00

Sales Revenue Inc $100.00

GST Collected Liability Inc $10.00

The journal entry would then look like this:

GL Account Affected Debit Credit

Debtors $110.00

Sales $100.00

GST Collected $10.00

If we were to process a $10 plus GST refund for the above transaction, the process of analysing the transaction would be as follows:

Account Account Category

Increase/Decrease

Debit Credit

Sales Revenue Dec $10.00

GST Collected

Liability Dec $1.00

Debtors Asset Dec $11.00

The journal entry would then look like this:

GL Account Affected Debit Credit

Sales $10.00

GST Collected $1.00

Debtors $11.00


2.3. Accounting Systems

Business information is systematically coded, classified and checked through an information system. At the heart of the accounting system, lies the accounting process, which is detailed below.

Source document > Journal > General Ledger > Trial Balance > Financial Statements

An information system, whether in a manual or computerised platform, accepts input called transactions captured from source documents, which are then converted through processes into output information that goes to users.

Manual accounting system

A manual accounting system is where the flow of a transaction as it passes through the accounting system is performed by hand or is not automated. This may be either with paper or even a spreadsheet. The use of a computer does not immediately imply that we have an ‘electronic’ or automated accounting system. A manual accounting system makes use of cash, credit and general journals to make the task of recording the day to day transactions in specialised journals. As the specialised journals capture a similar type of transaction, it is easier to record similar individual transactions into such a journal. Generally, at the end of the month, specialised journals are summarised and once entered into the general journal, entered into the general ledger.

Electronic accounting system

An electronic accounting system (computerised) makes use of the speed of computing systems to process the day to day transactions as they are entered into the general ledgers immediately. The important distinction is that an electronic accounting system captures the process as stated above from entry of a source document all the way to the preparation of financial statements.

Key Features of Integrated Computerised Accounting Systems 1. Speed


Data entry onto the computer with its formatted screens and built-in databases of customers and supplier details and stock records can be carried out far more quickly than any manual processing.

2. Cost

Computerised accounting programs reduce staff time entering and preparing accounts and reduce audit expenses as records are structured, up-to-date and accurate.

3. Accuracy

There is less room for errors as only one accounting entry is needed for each transaction rather than two (or three) for a manual system. The accounting system may also have internal checks and balancing that will ensure that incorrect entries are not processed.

4. Information management

Reports can be produced which will help management monitor and control the business, for example, the aged debtors analysis will show which customer accounts are overdue, trial balance, trading and profit and loss account and balance sheet.

5. Integrated system

When a business transaction is entered into an electronic accounting information system, it is recorded in a number of different accounting records at the same time.


2.4. Accounting Records

Accounting records serve as the key sources of information and evidence used to prepare and verify financial reports. The two (2) basic accounting records are the general journal and the general ledger.

General journal General ledger

Definition

Used in the transferring of financial data from source documents

Used in the transferring of financial data, taken from the general journal to the ledger

Entries Can be a simple or compound entry

Can have more than one (1) debit or credit accounts and amounts

Simple entries

Parts Debit, credit, date, source document, short notation

Date, particulars, folio or reference, debit or credit

Example


CHAPTER 3. PREPARE AND MAINTAIN AN ASSET REGISTER3.1. Introduction to Assets

An accounting definition of an asset is any resource that is owned or controlled by an organisation that will produce an economic benefit. Assets are made up of both current and non-current assets.

Current assets are those items that are expected to be used, consumed or turned over in the current period. The current period for the purpose of this analysis is the current financial year, July to June. Current assets are comprised of bank accounts, petty cash, debtors, PAYGI prepaid tax instalments and inventory.

Non-current assets are items of property that are held for more than one period and contribute to the running and operations of the business. Items in this group are things like plant and equipment, buildings, office equipment and motor vehicles. It is the items in this group that the asset register is used for.

What is an asset register?An asset register is a document that is used to record all of the details of an asset from its acquisition to its disposal. The basic details will include the asset category to which the asset belongs, used to group depreciation information and maintain asset reconciliations, the purchase date, the GST exclusive cost, the annual depreciation claimed, accumulated depreciation and written down value, also used in the asset reconciliation process for each accounting period.

Other critical information an asset register contains is repairs and maintenance on the asset and asset disposal information such as, date of disposal, disposal price, any gain or loss on the disposal of that asset which will allow for the creation of the journal entries that relate to the asset. This information will be used later in this Learner Guide as we look at the disposal of an asset.

A properly maintained asset register is critical to understanding exactly what assets are owned by an organisation and the ability of the bookkeeper to maintain asset reconciliation. The asset register can assist management to make decisions on when it is economically viable to replace an asset with a new one or recondition an existing one.


Depreciable CostsTo calculate the depreciable cost of an item, an account needs to include the following amounts:

The purchase price, which will include any stamp duties and Luxury Car Tax (LCT) taxes, less any trade discounts, rebates and GST.

Any costs are directly attributable to bringing the asset to the location and getting the asset into the condition necessary for it to be used in the manner intended by management.

GST is not to be included in any of the above costs. Additional information on recognition, elements and recognition of cost, depreciation etc. can be found in AASB-116 Property Plant and Equipment (2013).


What is included in an asset register?• The group to which an asset belongs

• Cost of the asset

• Date of purchase

• Estimated effective life of the asset

• Serial number or other identifying number

• Depreciation rate and method

• Annual depreciation claimed and accumulated depreciation

• Date asset was sold or scrapped

• Recovery value on disposal

• Gains or losses on the disposal of the asset

How is an asset register used by a bookkeeper?The asset register is used by the bookkeeper to record the

historical cost

the annual depreciation claim for the current period that will be used in the annual depreciation schedule,

record the total depreciation claimed and

the written down value that will be used to reconcile the asset registers with balance sheet values

The depreciation schedules will include the written down values of individual assets as well as the whole of the asset group. Where an asset is disposed of, the register will show the available depreciation available up to the date of the sale, the disposal value and the bookkeeper can then calculate the gain or loss on that sale, along with the values to be used to remove the asset from the general ledger accounts.


ExampleA company (ABC Ltd) has purchased a car, and you need to create the corresponding asset register. You have received the following tax invoice:

Zupps Motor Group

ABN: Supplied

Tax Invoice 1234

Date 1/12/2016

To ABC Ltd

GST Inclusive

Total Motor Vehicle Price {Reg 501GGK} 33,000.00 GST

Stamp Duty 900.00 N-T

Total 33,900.00

The completed asset register card is provided on the next page. Note that the stamp duty is included in the depreciable cost of the asset and that the written down value is excluding the GST.

At this point, no other information will be entered into this register. More information will be included when discussing annual and pro-rata depreciation.


Asset Suzuki Motor Vehicle

Asset Number Purchased from Zupps Motor Group

Asset Category Motor Vehicle at cost New/Second-hand New

Depreciable Cost $30,900 Effective Life 8 Years

Serial Number 501GGK Depreciation Method Prime Cost

Purchase Date 1-Dec-16 Depreciation % 12.50%

Date DetailsCost

Depreciation Accumulated Depreciation

Written-Down ValueExclusive GST

1-Dec-16 Purchase 30,900.00 3,000.00 0.00 30,900.00

3.2. Calculate Depreciation

Having seen the example above, you may be asking yourself some of the following questions: What is depreciation? How is it calculated? What should I know about depreciation? What are the rules relating to depreciation and how should it be calculated?

Once you complete this section, you should have a better understanding of how depreciation works and how to calculate it.

What is Depreciation?Most assets other than land have only a limited lifespan. Consider different assets, such as office equipment, motor vehicles, furniture and fixtures, and plant and equipment. There will be a point of acquisition, maintenance over its useful life and a point of disposal, replacement or scrapping of the asset. Therefore, these assets are called ‘depreciable assets’. Depreciation is the “assigning or allocating of an asset’s cost to expenses over the accounting periods that the asset is likely to be used.” In order to calculate depreciation, you will need to know the following things:

The original asset’s cost, commonly referred to as its historical cost;

The asset’s effective life, or ‘its’ useful life; and


Which method of depreciation will best reflect the usage of the asset.


Effective and Useful lifeThe Commissioner of Taxation provides his determination of the effective life of many specific depreciating assets. This information is currently provided in Taxation Ruling TR 2016/1, which replaces the previous TR 2015/2. You can locate a copy of the current ruling by searching the legal database at www.ato.gov.au.

You may choose to use the Commissioner’s determination of the effective life of a depreciating asset, or you may make your own estimate. An asset’s useful life can vary from the tax department’s effective life where a belief exists that the asset will be used for either:

Longer than the effective life of the asset

Or the asset is believed to provide a recovery cost at the end of the stated ATO effective life

The reason that a business may choose to vary the life of an asset has everything to do with the asset is going to be used. If an asset has been depreciated for the term of its effective life and is disposed of with a gain realised over, and above the depreciated value, then the tax deductions that have been claimed over and above this disposal value will be subject to the repayment of the deductions previously claimed.

As an example, say an asset was purchased for $125,000.

For the purpose of this exercise, let’s assume this is depreciable on a straight-line calculation over 5 years.

Depreciation claimed over 5 years would amount to the total value of the asset, $125,000

Let’s assume the asset is disposed of for $20,000

The tax deduction already claimed for this value will be required to be declared as an assessable adjustment to the ATO

As it can be seen from this example, careful consideration needs to be given to whether an effective or useful life value will be used.

Section 40-95 of the Income Tax Assessment Act 1997 indicates that you may only estimate depreciation that provides for a longer life than the minimum effective life indicated by the Australian Tax Office in TR 2019/5. It is also important to consult your tax agent for any and all tax implications of making your own effective life estimate as opposed to using the ATO effective life.


If you decide to make your own estimate, the explanation of how the Commissioner has reached his estimate, provided in TR 2019/5, may assist you to make your own estimate of an asset’s effective life.

Methods of DepreciationThe two main methods for calculating depreciation are:

the prime cost method (or ‘straight-line method’);

the diminishing value method (or ‘reducing balance method’); and

units of production method.

The prime cost method assumes the value decreases uniformly over its effective life, whereas the diminishing value method assumes the value decreases more rapidly earlier on. Company policy will describe which method of depreciation to use for different assets. For example, the policy might look something like this:

a) Office equipment at cost will have effective life of five years, with a diminishing value rate of 40%

b) Motor vehicles will have an effective life of eight years, using a straight line with the depreciation.

When using a method that is based on time (such as the straight-line or diminishing value method) it is important that the calculations are performed based on the number of days in the year rather than weeks or months. You will also need to adjust for days in a financial year where you either purchase or sell an asset in a leap year (ie. based on 366 days instead of 365 days). There is no impact on depreciation for an asset that is held for the full financial leap year as depreciation is calculated for the full year.

Straight-Line MethodThis method is also known as the Prime Cost method. Depreciation is calculated using this method by multiplying the original asset cost by the depreciation rate every year that it is owned. If an asset is purchased or disposed of during the year, you will need to calculate the pro rate amount for the depreciation. To calculate the pro rata amount for the actual period, you owned the asset you will need to work out how many days that the asset was owned during the year.

The formula for the prime cost method is:


AssetCost × Days Held365

× 100%Effective Life

When calculating the number of days an asset was held, a date calculator like the one at <http://www.timeanddate.com/date/duration.html> can be very helpful! Remember to include the date of purchase and the day of disposal. If an asset needs to be installed, the calculation starts on the day that the asset is fully functional.


In the example shown below, the values have been drawn from the asset register above, the car cost, inclusive of stamp duty and other landed costs, but exclusive of GST, on-road costs and finance costs, is $30,900 and the effective life has been set at eight years. This will mean a depreciate rate of 12.5% of its cost for each full year that the asset is held, or $3,862.50, in each of the eight years, except for the first and final year. The first year depreciation would need to be a pro-rata calculation for the period held, and the final year the balance of the asset value that has not yet been claimed. Remember that the first year is calculated on a pro-rata basis (from 1-Dec- 16 to 30-Jun-17 only). When calculating depreciation, the result is simply rounded down to whole dollars.

The First Year

AssetCost × Days Held365

× 100%Effective Life

30,900× 212365

×100%8

30,900×0.5808×0.125

¿2,243.42

Years 2 to 8

30,900× 365365

× 100%8

30,900×1×0.125

¿3,862.50

Final Year 9

30,900−Accumulated DepreciationYears1¿8−(29,280.92 )

¿1,619.08


Below is the completed Asset Register Card for the 8 years of its expected life. Please note the pro rata for year one and the pro rata for year 9 make up a total of 1 year or 365 days.







Date Details

Cost



1-Dec-16 Purchase 30,900.00 3,090.00 0.00 30,900.00

30-Jun-17 Depreciation 2,243.42 2,243.42 28,656.58

30-Jun-18 3,862.50 6,105.92 24,794.08

30-Jun-19 3,862.50 9,968.42 20,931.58

30-Jun-20 3,862.50 13,830.92 17,069.08

30-Jun-21 3,862.50 17,693.42 13,206.58

30-Jun-22 3,862.50 21,555.92 9,344.08

30-Jun-23 3,862.50 25,418.42 5,481.58

30-Jun-24 3,862.50 29,280.92 1,619.08

30-Nov-24 1,619.08 30,900.00 0.00


If the asset is disposed of in any of the intervening years, a pro-rata calculation for depreciation will need to be made in that year. For the purpose of this demonstration, an assumption is that the asset is disposed of on the 12th of March in the third year of ownership. This can be seen in the asset register below:

30,900× 255365

× 100%8

30,900×0.6986×0.125

¿2,698.34







Date Details

Cost



1-Dec-16 Purchase 30,900.00 3,090.00 0.00 30,900.00


30-Jun-18 3,862.50 6,105.92 24,794.08

12-Mar-19 2,698.34 8,804.26 22,095.74

Note: You will be using this information in the Depreciation schedule later in this Learner Guide.


Diminishing Value MethodThis method is also known as the reducing balance depreciation method. Depreciation is calculated each year by reference to the written down value of the asset, rather than the original cost as was used in the (Straight Line) prime cost method. The asset value reduces each year by the depreciation claimed on that asset.

The formula for the diminishing value method is:

Written DownValue× Days Held365

× 200%EffectiveLife

Let’s use the diminishing value method to calculate the depreciation of the same example above.

The First year

30,900× 212365

× 200%8

30,900×0.5808×0.25

¿4,486.68

The asset written down value is now $26,413.32.

Using the diminishing value method, the amount of depreciation in the first year is $4,486.68 compared to $2,243.42 in the straight-line method. This high depreciation value in the early years is offset with much lower values in the latter years of the asset’s life. This type of depreciation follows the assumption that an asset will lose greater value early in its life than the latter part of its life.


The Second year

26,413.32× 365365

× 200%8

30,900×1×0.25

¿6,603.33

The asset written down value is now $19,809.99.

This value is higher than the first year depreciation because the first year was a pro- rata depreciation year as the asset was not held for the whole year.

The following years will look something like this:






Purchase Date 1-Dec-16 Depreciation % 25%

Date Details

Cost



1-Dec-16 Purchase 30,900.00 3,090.00 0.00 30,900.00


30-Jun-18 6,603.33 11,090.01 19,809.99

30-Jun-19 4,952.50 16,042.51 14,857.49

30-Jun-20 3,714.37 19.756.88 11,143.12

30-Jun-21 2,785.78 22,542.66 8,357.34

30-Jun-22 2,089.34 26,632.00 6,268.00

30-Jun-23 1,567.00 26,199.00 4,701.00

30-Jun-24 1,175.25 27,734.25 3,525.75

30-Nov-24 881.44 28,255.69 2,644.31


As you can see, there is a substantial difference in the written down value of the car depending upon whether we use the straight line or the diminishing value method. This highlights the importance of understanding the organisational requirements, policies, and procedures and current taxation legislation as you create the asset register. Once a depreciation method has been started for an asset, it cannot be changed!

Low-value poolsThe ATO’s uniform capital allowance (UCA) system allows for the creation of a low-value pool (LVP). The rules for this pool are as follows:

Once a low-value pool has been created, all LVP qualifying assets must be allocated to this pool

Assets with a value of less than $1,000 and more than $300 can be calculated through this pool.

New assets brought into the pool can only be depreciated at 18.75% for the first year, which is half the pool rate. This is regardless of the acquisition date during the year.

Assets in a low-value pool held in the second and subsequent years can be depreciated at the rate of 37.5%

Assets costing $300 or less can be claimed as an immediate deduction provided the business is not following the simplified tax system of 2007 or earlier.

Example:An organisation purchases three depreciable assets, costing $900, $600 and $750 respectively and allocates all three to a low-value pool. The total value of the pool amounts to $2,250.

The First Year: $2,250 x 18.75% = $421.87 (amount of depreciation)

The Second Year: $1,828.13 x 37.5% = $685.54 (amount of depreciation)

In the third year, the organisation allocates another asset costing $500 to the low- value pool. Because it is the first year in which the new $500 asset was allocated to the pool, we use 18.75% to calculate its depreciation, but 37.75% for the other assets.


The Third Year:

$500 x 18.75% = $93.75 (amount of depreciation on the new asset)

$1,142.59 x 37.5% = $428.47 (amount of depreciation on the other assets)

The total LVP depreciation claimed in the third year is $522.22


Important!Not everything under $1,000 can be added to a

low-value pool!“You cannot allocate the following assets to a low-value pool:

assets for which you previously calculated depreciation deductions using the straight line or diminishing cost methods

horticultural plants, including grapevines

assets for which you have claimed deductions under the simplified tax system of 2007 or earlier

assets costing $300 or less that you can claim an immediate deduction for

certain assets you use to conduct research and development activities

portable electronic devices (including laptops, portable printers, personal digital assistants, calculators, mobile phones and portable GPS navigation receivers), computer software, protective clothing, briefcases and tools of the trade, if:

o the item was provided to you by your employer, or

o some or all of the cost of the item was paid for or reimbursed by your employer, and

o the provision, payment or reimbursement was exempt from fringe benefits tax.”


The 2015 federal budget ‘Simplified depreciation for Small business’ was announced. Under these rules, you can

Immediately write-off – deduct their full cost on the year you buy them – most depreciation assets that cost less than $20,000 each that were bought and used, or installed ready for use from 7.30pm on 12 May 2015 until 30 June 2017

Pool most other depreciating assets that cost $20,000 or more in a small business pool and claim

o 15% deduction in the first year (regardless of when you purchased or acquired them during the year)

o 30% deduction each year after the first year

Write-off the balance of your small business pool at the end of the income year if the balance – before applying any other depreciation deduction – is less than $20,000

These threshold rules have since been extended and a table is provided by the ATO of timeline and amounts here.

(Australian Taxation Office)

Units of Production Method

The ‘units of production’ method is unique to the previous two methods as it does not calculate depreciation based on useful life in years. This method measures the useful life of an asset by the number of units it can produce.

If we were to take the unit of production method, we would possibly look at the number of kilometres the motor vehicle will travel prior to sale of the vehicle instead of the time we were to keep the vehicle for.

Suppose the vehicle was to be sold when the vehicle reaches a total of 150,000 kilometres travelled. The car had travelled 22,500 kilometres during the year.

The depreciation calculation would look at the number of units used as a proportion of the total units of production for the asset.

30,900× 22,500150,000


https://www.ato.gov.au/Business/Depreciation-and-capital-expenses-and-allowances/In-detail/Depreciating-assets/Simplified-depreciation---rules-and-calculations/?page=4#Instant_asset_write_off

= $4,365This method is suitable where the value of the asset is usually measured by the usage of the asset. An example could be heavy machinery and plant.


3.3. Maintain Asset Register and Depreciation Schedule

You should now have an understanding of what assets are, what an asset register is for and what an asset register looks like. Once an asset register has been set up, maintaining an asset register involves calculating annual depreciation, recording maintenance performed, and recording the disposal of an asset in the register.







Date Details

Cost



1-Dec-16 Purchase 30,900.00 3,090.00 0.00 30,900.00


30-Jun-18 6,603.33 11,090.01 19,809.99

30-Jun-19 4,952.50 16,042.51 14,857.49

The next step is to calculate and record the annual depreciation values onto the asset register; this can be seen in the following register. The calculations can be seen on the green border. Try this exercise for yourself to ensure that you have grasped the concepts and can do this task.

You have already learned about asset registers and depreciation; the next step is what to do when an asset is disposed of or is scrapped.

Disposal of an AssetWhen an asset is no longer held, it is said to be disposed of. Disposal may include selling, trading in, or writing off (e.g., throwing away) an asset. Once an asset is disposed, you should write the following details in the asset register: the date of disposal, disposal price and gain/loss on disposal. These pieces of information are critical for recording the disposal information into our accounts.

Let’s say the vehicle was disposed of on 12 March 2019 for $20,000.00. We will begin by calculating the amount of depreciation up to the date of BSBFIA401 Learner Guide Version No. 1.2 Australian College of Business and Accounting

disposal, shown circled in green above. (Note that we are using the straight-line depreciation method).

By calculating the depreciation, you can see the written-down value at the time of disposal is $22,116.78. Because the vehicle was sold for $20,000, it was sold at a loss of $2,116.78 (circled in red). The loss was determined by subtracting the disposal price from the written-down value. Here, because the sale price was less than the written-down value a loss was made. If the sale price had been greater than the written-down value, then a gain would have been made instead.







Date Details

Cost



1-Dec-16 Purchase 30,900.00 3,090.00 0.00 30,900.00


30-Jun-18 3,862.50 6,105.92 24,794.08

12-Mar-19 2,698.34 8,804.26 22,095.74

Date of Disposal 12-Mar-19 Disposal Price (excluding GST) 20,000.00

Authorised by Gain/(Loss) on Disposal (2,095.74)

We are now in a position to complete the entries to the accounting system for this asset disposal. This entry will include the following four steps:

1. Record the depreciation to date of sale. This can be seen in the asset register above and is the depreciation value calculated for the period 1 July 2018 to the date of disposal, 12 March 2019.

2. Record the sale of the item. This is the value received from the sale of the asset which will include GST. In this instance $22,000 GST Inclusive.

3. Record the loss or gain on the asset sale. This is shown on the register as


$2,095.74 loss.

4. Remove the asset from the balance sheet.

Shown below is the journal entries generated from the above process.

General Ledger Account Debit Credit

(Expenses) Depreciation 2,698.34

(Assets) MV Accumulated Depreciation 2,698.34

(Assets) Bank 22,000.00

(Assets) MV at Cost 20,000.00

(Liabilities) GST Collected 2,000.00

(Expenses) Loss on Sale of Asset 2,095.74

(Asset) MV at Cost 2,095.74

(Assets) MV Accumulated Depreciation 8,804.26

(Asset) MV at Cost 8,804.26


The following examples show the changes to the general ledger accounts as a result of the above entries. Remember the starting point on July 1, 2018, has $30,900 in assets at cost and (-6,095.34) in accumulated depreciation. This starting point is shown below:

1-1100 Suncorp Bank (Asset)

Date Particulars Ref Debit Credit Balance

1-1600 Motor Vehicle @ Cost (Asset)


Balance B/F 30,900.00 30,900.00

1-1650 Motor Vehicle Accumulated Depreciation (Asset)


Balance B/F 6,105.92 6,105.92

2-1310 GST Collected (Liability)


6-6500 Depreciation (Expense)


6-6970 Loss on Sale of Asset (Expense)



The entry of the depreciation to date would result in the following:





Balance B/F 30,900.00 30,900.00



Balance B/F 6,105.92 6,105.92

12-03-19 Depreciation 2,698.34 8,804.26





12-03-19 Motor Vehicle Accumulated Depreciation

2,698.34 2,698.34




The entry of the asset sale would result in the following:



12-03-19

Sale of Motor Vehicle 22,000.00 22,000.00



Balance B/F 30,900.00 30,900.00

12-03-19

Suncorp bank 20,000.00 10,900.00



Balance B/F 6,105.92 6,105.92

12-03-19

Depreciation 2,698.34 8,804.26



12-03-19

Suncorp bank 2,000.00 2,000.00



12-03-19

Motor Vehicle Accumulated Depreciation

2,698.34 2,698.34




The entry of the loss on sale would result in the following:



12-03-19

Sale of Motor Vehicle 22,000.00 22,000.00



Balance B/F 30,900.00 30,900.00

12-03-19

Suncorp bank 20,000.00 10,900.00

Loss on sale of asset 2,2095.74 8,804.26



Balance B/F 6,105.92 6,105.92

12-03-19

Depreciation 2,698.34 8,804.26



12-03-19

Suncorp bank 2,000.00 2,000.00



12-03-19

Motor Vehicle Accumulated Depreciation

2,698.34 2,698.34



Motor vehicle sold at cost 2,095.74 2,095.74


The entry to remove the asset from the balance sheet would result in the following:



12-03-19 Sale of Motor Vehicle 22,000.00 22,000.00



Balance B/F 30,900.00 30,900.00

12-03-19 Suncorp bank 20,000.00 10,900.00

12-03-19 Loss on Sale of Asset 2095.74 8,804.26

12-03-19 Motor Vehicle accumulated Dep

8,804.26 0.00



Balance B/F 6,105.92 6,105.92

12-03-19 Depreciation 2,698.34 8,804.26

12-03-19 Motor Vehicle @Cost 8,804.26 0.00



12-03-19 Suncorp bank 2,000.00 2,000.00



12-03-19

Motor Vehicle Accumulated

Depreciation

2,698.34 2,698.34




12-03-19 Motor Vehicle sold at cost $ 2,095.74 2,095.74

These steps show the logical process of this disposal from within the accounts. Data from this entry will also be used on the annual depreciation schedule that will be submitted with the end of financial year tax return. The completed asset register will also be used to reconcile the business assets. This reconciliation looks at the registers, the schedule and the balance sheet to ensure that all of these agree with each other.

Now that the understanding has been gained of asset registers, depreciation and asset disposal, the next step is to look at depreciation schedules and gain an understanding of what these are for, why we complete them and how to complete them. This is what we will be looking at in the next section.

A depreciation schedule is a table that summarises the annual depreciation of all assets for the current financial year. This means that the only depreciation data shown in summary is at the end of the current financial year. A completed Schedule will be used when describing the schedule elements in the following text.

Included in this schedule will be the information shown in the low-value pool section for the third year. The new purchase in the current financial year is $500 that was depreciated at 18.75% and the carry-over from the previous year is $1,142.59 that is depreciated at 37.5%. See the schedule that shows this recorded.

The Suzuki motor vehicle depreciation for the current 2019 financial year, calculated up to the date of disposal that was calculated and shown on the asset register is now brought forward to the schedule.

Included in this schedule will also be two other items that have not been looked at in the preceding text but are shown here on their respective asset registers. These are shown here as an example of the construction of the depreciation schedule.


Asset Office Equipment

Asset Number Purchased from A to Z Office Equipment

Asset Category Toshiba Photocopier New/Second-hand New


Serial Number TE235496821 Depreciation Method Diminishing Value

Purchase Date 1-Apr-17 Depreciation % 40.00%

Date DetailsCost



1-Apr-17 Purchase 25,000.00 2,500.00 0.00 25,000.00






Asset Category Multi-Function Printer New/Second-hand New

Depreciable Cost $4,000 Effective Life 4

Serial Number BR63976MFC453159 Depreciation Method Diminishing Value

Purchase Date 16-Sep-18 Depreciation % 50.00%

Date DetailsCost



16-Sep-18 Purchase 4,000.00 400.00 0.00 4,000.00



The purpose of this schedule is to group all assets together and summarise the depreciation that will be claimed for that year. It is from this schedule that the journals for the end of year entries will be created. It will also be used at the end of year tax returns that will be submitted by the Accountants/Tax agents.


A description of the depreciation schedule follows:

1. The depreciation start date is the date that the depreciation is calculated from for the schedule you are working with, for example, if we are working in the 2019 financial year the start date is the 01/07/2018. If this asset were purchased in the current financial year, this would be the date that the item was purchased.

2. The depreciation end date is the date that the depreciation finished for the schedule. If this asset has been held for the rest of the financial year, then this will be 30th of June. If this asset was disposed of at some point during this current financial year, this date would be the date of disposal.

3. Depreciation days claimed is the number of day’s depreciation that is being claimed against this asset. If the asset has been held for a whole year than this will be 365 days, but if the asset was either purchased or disposed of during this current financial year than the number of days being claimed is the number of days either from purchase to 30 June this year or from 1 July last year to the date of disposal. It is not uncommon for leap years to be disregarded when calculating depreciation. Refer to the company policies and procedures.

4. Useful life is provided to support the depreciation percentage shown at point seven.

5. The depreciation method shown here is the second factor that supports the depreciation percentage shown at point seven.

6. The original cost is the value of the purchase price for each of the assets listed in each of these asset groups on this schedule.

7. The depreciation percentage is the percentage that is used in either the diminishing value method or the straight-line method as identified for the asset at point five.

8. The opening written down value is the value that is either the value that the item was written down to at the end of last financial year or the purchase price of the asset if it was purchased in the current financial year. It is also the closing value of the pool at the end of last year, and also includes the value of items purchased in the current financial year that have been allocated to the pool.

9. The depreciation claimed is the value of depreciation being claimed against each asset item or pool.

10.The closing written down value is the value of each asset item in each group after the depreciation claim for this current financial


year. It will also include the written down value of the first year item values allocated to this tool as well as the written down value of the items that have been held in the pool for the whole year.

11.This identifies each asset group on the balance sheet and then identifies each item that has been allocated to that group for depreciation purposes. These groups are used in the asset reconciliation process. (Not covered in this text)

12.This point identifies each of the asset group totals that will be used to create the end of financial year depreciation journals for each of these groups. These figures will be used in the asset reconciliation process. (Not covered in this text)

13.This item identifies the closing written down values not only for each of the individual items within each asset group but also the group totals. These figures will be used in the asset reconciliation process. (Not covered in this text)

14.This point identifies the original costs for each of the asset groups and the opening written down value for the pool as totals. These figures will be used in the asset reconciliation process. (Not covered in this text)

15.This point shows all of the totals for all items on the disused depreciation schedule.

The general journal entry that will be created from the schedule is shown below:


Depreciation (Expense account) 10,200.24

Office Equipment Accum Dep (Asset Account)

6,979.68

Motor Vehicles Accum Dep (Asset Account) 2,698.34

Low-Value Pool (Asset Account) 522.22


There is one point that we need to keep in mind at this time when creating the journal entries for depreciation for each of the asset groups. For each asset that has been disposed of at some point during the current year, the depreciation may have already been taken into account in the journal entries created for the disposal of that asset, which would mean that you would need to take care to ensure that it was not included a second time.

An example of this is the motor vehicle that was disposed of on 12 March and as such the depreciation value of $2,698.34 would be dealt with in the journal entry created for the disposal of that asset. You will recall we dealt with this disposal in the journals shown to you. This means that we need to make an adjustment for the journal shown above to remove the depreciation for the motor vehicle that was entered into our accounts when the vehicle was disposed of.

The journal that we will create that takes this into account is shown below:


Depreciation (Expense account) 7,501.90

Office Equipment Accum Dep (Asset Account)

6,979.68

Low-Value Pool (Asset Account) 522.22

If this were not picked up at this point, the asset reconciliation process, which will not be covered in this text, would highlight this as an error for us. It is a common practice for bookkeepers not to be involved in this process and leave it to the accountant. This seems like a great idea that can save us some time and effort, but the accountant very rarely, if ever, provides this information back to the bookkeeper to enter this information into the accounts of the business. The net result of this is that when an asset is disposed of, there is no basis on which to establish what they entries should be. In the ad since of asset registers, the business owner who is charged with the responsibility of making sound business decisions on accounting information does not have this information at their fingertips and therefore, in most instances, the decisions to replace assets are not based on sound financial data that can be accessed from a well-kept accounting system maintained by a well


informed and competent bookkeeper.

Note the depreciation schedule for the financial year is usually provided to business owners as part of the business tax return and appropriate journals can be created from it.


DEPRECIATION SCHEDULE 1 2 3 4 5 6 7 8 9 10

Depreciation

Description

Acquisition Date

Depreciation Start Date

Depreciation End Date Days Claimed

Days in

YearUseful Life

Depreciation Method

Original Cost

Depreciation Percentage

Opening Written

Down ValueDepreciation

ClaimedClosing Written

Down Value

Office Equipment

Toshiba Photocopier 1-Apr-17 1-Jul-18 30-Jun-19 365 365 5 Diminishing Value

$25,000.00 40.00% $13,504.20 5,401.68 $8,102.52

Multi-Function Printer 16-Sep-18

16-Sep-18 30-Jun-19 287 365 4 Diminishing Value

$4,000.00 50.00% $4,000.00 $1,578.00 $2,422.00

$29,000.00 $17,504.20 $6,979.68 $10,524.52Motor Vehicle

Suzuki Motor Vehicle 1-Dec-16 1-Jul-18 12-Mar-19 365 365 8 Straight-line $30,900.00 12.50% $24,794.08 $2,698.34 $22,095.74

$30,900.00 $24,794.08 $2,698.34 $22,116.78


DEPRECIATION SCHEDULE

1 2 3 4 5 6 7 8 9 10

Depreciation

Description

Acquisition Date


Depreciation End Date Days Claimed

Days in

YearUseful Life

Depreciation Method

Original Cost

Depreciation Percentage

Opening Written

Down ValueDepreciation

ClaimedClosing Written

Down Value

Low-Value Pool First Year

1st Year Diminishing Rate

18.75% $500.00 $93.75 $406.25

Low-Value Pool Subsequent Years

Subsequent Years

Diminishing Rate

37.50% $1,142.59 $428.47 $714.12

$1,642.59 $522.22 $1,120.37

$59,900.00 $43,940.87 $10,200.24 $33,740.63Legend:

Green 12

Red 13

Orange 14

Blue 15


CHAPTER 4. RECORD GENERAL JOURNAL ENTRIES 4.1. Introduction to Journal Entries

A general journal is the representation of a transaction in accounting terms showing how and what is going to be posted to the general ledger accounts. The general journal entry stipulate the ledger accounts that are involved in the transaction and indicates which side of the ledger is being affected on a line by line basis. The journal entry must comply with the double entry principle of debits equalling credits.

As a general rule, a business simplifies the recording of business transactions using six specialist journals and one general journal.

The specialist journals are:

The sales journal

o This journal is used to record sales to customers on credit only.

The sales returns journal

o This journal is used to record the return of any items that were sold to a credit customer that was recorded originally in the sales journal.

The purchases journal

o This journal is used to record purchases from suppliers on credit only.

Purchases returns journal

o This journal is used to record the return of any items that were purchased from a supplier that was originally recorded in the purchases journal.

The cash receipts journal

o This journal is used to record all cash flowing into the business from whatever source. This can mean cash sales, receipt of payments from previous sales to debtors, and could also include cash loans and contributions by owners or shareholders in cash.

The cash payments journal

o This journal is used to record all cash flowing out of business for whatever purpose. This can mean cash purchases, cash payments to suppliers for payment of goods previously


purchased on credit, and could include other cash outlays for expenses, assets or other items that are paid for in cash such as repayments on loans.


The final journal is:

The general journal

o This journal is used for the recording of information that would not normally be able to be recorded on any of the above six specialist journals.

For the purpose of this exercise, we will be converting all transactions to general journals, and then using these general journals to post to the general ledger. This will require you to analyse each of the six specialist journals presented and converting them into General Journal entries for posting them to the general ledger.

The first step is to download the spreadsheet document that contains worksheets for the general journal, the general ledger, the trial balance and the P&L and balance sheet.

The first activity that we are going to enter into our journals is taken from the asset register for the recent purchase of a multifunction printer, see below:



Asset Category Multi-Function Printer New/Second-hand New

Depreciable Cost $4,000 Effective Life 4

Serial Number BR63976MFC453159 Depreciation Method Diminishing Value

Purchase Date 16-Sep-18 Depreciation % 50.00%

Date DetailsCost

Depreciation Accumulated Depreciation Written-Down Value

Exclusive GST

16-Sep-18 Purchase 4,000.00 400.00 0.00 4,000.00


The journal entry is shown below using the rules and instructions in section 2:

Date Folio Particulars Debit Credit

16-Sept-2019 1-1500 Office equipment at cost 4,000.00

2-1330 GST paid 400.00

1-1100 Bank 4,400.00

Purchase of Multi-Function Printer

The second item will be the conversion of the sales journal to a general journal entry. This journal will be summarised in a general journal entry shown below:

Sales Journal – June 2019

Date DebtorInvoiceNumber Sales

GSTCollected Debtor Total

8/6 Red Traders 5711 8,070 807 8,877

12/6 Blue Lake Pty Ltd 5712 5,400 540 5,940

22/6 Green & Co 5713 2,500 250 2,750

Totals: 15,970 1,597 17,567



30-June-2019 1-1200 Debtors 17,567 00

1-1310 GST collected 1,597.00

4-4100 Sales 15,970 00

Credit Sales June


The next item will be the conversion of the purchases journal to a general journal entry. This journal will be summarised in a general journal entry shown below:

Purchases Journal – June 2019

Date Creditor InvoiceNumber

Purchases GST Paid Creditor Total

12/6 Catering Services 887 1,500 150 1,650

27/6 Office Supplies P/L 7896 3,300 330 3,630

Totals: 4,800 480 5,280



30-June-2019 5-5200 Purchases 4,800.00

2-1330 GST paid 480.00

2-1200 Creditors 5,280.00

Credit Purchases June

The next item will be the conversion of the cash receipts journal to a general journal entry. This journal will be summarised in the general journal entry shown below.

The cash receipts journal is shown on the next page. This journal is broken into two basic elements:

1. The first is the main cash receipts journal shown to the right and bounded by a green border.

2. The second is the discounts provided on early payments of debtor accounts, and this section is bordered by a red border.


You will notice that these two sections of the journal both include the debtor column. This is because the debtors column is the link between the debtors subsidiary ledger and the main ledger. In the green element of the journal, the entry will be made up of debtors + sales + GST collected + sundries income = bank. In the red element of the journal, the entry will be made up of discounts given + GST collected = debtors. Both of these elements must balance.

The other thing to note is that the journal is not fully displayed, with the absent information able to be identified easily. It can be noted that there is a total of sales and GST collected though no data is shown in the journal itself. From this, we can deduce that there were sales made over the month totalling $1500 and the GST collected on the sales was $150. The specific details of the entries are not required as the data will be posted as at 30 June regardless of the actual date of the sales. This is sufficient information for the creation of the general journal entry.

Cash Receipts Journal – June 2019 4-4200 Discount 2-1310 2-1310

Date ParticularsFolio(For

Sundries)Receipt

NoDiscount

GivenGST

CollectedDebtor1-1200

Sales4-4100

GST Collected

Sundries (Use Folio)

Bank1-1100

17/6 John Earl 120 50 5

5445 5,445

27/6 Loan Receipt 2-2700 10,000 10,000

Totals 50 5 5,445 1,500 150 10,000 17,095


The journal entry is shown below using the rules and instructions in section 2.

You'll notice the two elements of the receipts journal are included in the same general journal, but they are separated from for ease of understanding. It is always suggested that these entries are NOT consolidated, which means that the two values posted to debtors combined and the two posted to GST collected combined are not posted as a single entry.


30-June-2019 1-1100 Bank 17,095.00

2-2700 Loan 10,000.00

2-1310 GST collected 150.00

4-4100 Sales 1,500.00

1-1200 Debtors 5,445.00

4-4200 Discounts given 50.00


1-1200 Debtors 55.00

Cash Receipts June

The next item will be the conversion of the cash payments journal to a general journal entry. This journal will be summarised in a general journal entry shown below.

The cash payments journal is shown on the next page. This journal is broken into two basic elements:

1. The first is the main cash payments journal shown to the right and bounded by a green border.

2. The second is the discounts taken on early payments of creditor accounts, and this section is bordered by a red border.


You will notice that these two sections of the journal both include the creditor column. The reason for this is that it is common to be a main journal and the discounts taken. In the green element of the journal, the entry will be made up of creditors + purchases + GST paid + wages + sundries expense = bank. In the red element of the journal, the entry will be made up of discounts taken + GST paid = creditors. Both of these elements must balance.

The other thing to note is that the journal is not fully displayed, with the absent information able to be identified easily. It can be noted that there is total for purchases and GST paid though no data is shown in the journal itself. From this, we can deduce that they were purchases made over the month totalling $2,500 and the GST paid on my sales was $250 the specific details of the purchases are not required as the data will be posted as at 30 June regardless of the actual date of the purchases. This is sufficient information for the creation of the general journal entry.

Cash Payments Journal – June 2019 5-5250 Discount2-1330 GST Paid

2-1330

Date ParticularsFolio(For

Sundries)Chq. No Discount

Taken GSTPaid

Creditor2-1200

Purchases 5-5200

GSTPaid

Wages6-6900

Sundries(Use Folio)

Bank1-1100

17/6 ABC Company 58 10

1

1,199 1,199

22/6 Lease of Premises 6-6600 59 100 1,000 1,100

Totals 10

1 1,199 2,500 350 1,000 5,049



You'll notice the two elements of the payments journal are included in the same general journal, and they are separated for ease of understanding. I always suggest these entries are NOT consolidated, that means the two values posted to creditors combined and the two posted to GST paid combined are not posted as single entries.


30-June-2019 6-6600 Lease of Premises 1,000.00

2-1330 GST paid 350.00

5-5200 Purchases 2,500.00

2-1200 Creditors 1,199.00

1-1100 Bank 5,049.00

2-1200 Creditors 11.00

2-1330 GST paid 1.00

5-5200 Discounts taken 10.00

Cash Payments June


The next item is the posting of an invoice for insurance that covers the next 12 months. The business policy is to allocate a section of this insurance value to each month. The invoice is shown below:

Business Insurance Services

ABN: Supplied

Tax Invoice 22581

Date 1/6/19

To Your Business Pty Ltd

GST Inclusive

12 months Insurance 1st June 2019 to 31st May 2020 1,320 GST

Stamp Duty 12 N-T

Total 1,332

This entry is made up of two basic components:

1. The premium which includes GST

2. The stamp duty that does not include GST



01-June-2019 1-1300 Prepaid Expenses (Asset Account) 1,200.00

1-1300 Prepaid Expenses (Stamp Duty) 12.00

2-1330 GST paid 120.00

1-1100 Bank 1,332.00

Prepaid Insurance

Stamp duty is separated from the actual premium because it is not subject to GST which ensures that the GST reconciles with the premium value. The stamp duty and the premium amounts are both posted to the same ledger account in the ledger.


4.2. The Disposal of the Asset Journal Entry

The disposal of an asset is made up of four basic steps, these are:

1. Calculation for the depreciation from 1 July passed, up to the point of sale

2. The actual sale of the asset

3. The loss or gain on the sale of the asset

4. The removal of the asset from the balance sheet

All of these entries except item 2 can only be established on the basis that an asset register has been kept for the asset item. This should clearly establish for every bookkeeper the absolute need to keep asset registers for or assets.

The asset register is shown below:

value, then a gain would have been made instead.







Date Details

Cost



1-Dec-16 Purchase 30,900.00 3,090.00 0.00 30,900.00


30-Jun-18 3,862.50 6,105.92 24,794.08

12-Mar-19 2,698.34 8,804.26 22,095.74

Date of Disposal 12-Mar-19 Disposal Price (excluding GST) 20,000.00

Authorised by Gain/(Loss) on Disposal (2,095.74)


This asset register shows that depreciation calculated from 1 July through to the date of disposal in March is $2,698.34.

The vehicle was sold for $20,000 plus GST, and we will assume this to be received in cash.

The difference between the written down value at the point of disposal and the sale price is shown as $2,095.74.


The above information identifies three of the four elements of this transaction. The final element of this transaction which is the removal of the item from the balance sheet needs to be calculated. This is done in the following way:

The original cost tax exempt of the asset 30,900

Deduct the loss or add the gain on the sale or add of the asset 2,095.74

Deduct the sale value tax exempt of the asset 20,000

Adjusted asset value 8,804.26

Total accumulated depreciation 8,804.26

This calculation provides you with the value to write out of the accounts.



12-Mar-19 6-6500 Depreciation 2.698.34

1-1650 Motor vehicle accumulated 2,698.34

1-1100 Bank 22,000.00


1-1600 Motor vehicle at cost 20,000.00

6-6970 Loss on sale of asset 2,095.74


1-1650 Motor vehicle accumulated 8,804.26


Disposal of motor vehicle

Each element of this transaction is separated from each other with a red line so that it is easy for you to recognise each element of the journal. You will also note that no Journal consolidation has been done. Again to


reiterate the reason for this is that a journal entry unconsolidated is far easier to read and interpret than one that is consolidated.


The next transaction entry we will look at is the entry of the annual depreciation for the remainder of the assets. In doing this, You will be using depreciation schedule to draw these values from. An extract of that is shown below:

DEPRECIATION SCHEDULE 1 2 9 10

Depreciation

Description Acquisition Date


Depreciation End Date

Depreciation Claimed

Closing Written

Down Value

Office EquipmentToshiba Photocopier 1-Apr-17 1-Jul-18 30-Jun-19 5,401.68 $8,102.52Multi-Function Printer 16-Sep-18 16-Sep-18 30-Jun-19 $1,578.00 $2,422.00

(1) $6,979.68 $10,524.52Motor VehicleSuzuki Motor Vehicle 1-Dec-16 1-Jul-18 12-Mar-19 $2,698.34 $22,095.74

(2) $2,698.34 $22,095.74

Low-Value Pool First Year

$93.75 $406.25Low-Value Pool Subsequent Years $428.47 $714.12

(3) $522.22 $1,120.37

$10,200.24 $33,740.63

The three green areas in the table above are expressed below1. This value represents the total depreciation claimed against office

equipment and will be used to create this end of year depreciation adjustment.

2. This value will not be used because it has already been used and entered in the journal entry for the disposal of this vehicle.

3. This value represents the total depreciation claimed against the low-value pool and will be used to create this end of year depreciation adjustment.




30-June-2019 6-6500 Depreciation 7,501.90

1-1550 Office Equipment Accum Dep 6,979.68

1-1800 Low-Value Pool 522.22

Depreciation Adjustment EOY

The next item is the posting of the monthly insurance adjustment that needs to take place as a result of the prepayment of 12 months insurance and the policy to spread this over the year to expenses each month.

You will remember that the insurance was $1,200 GST exempt and $12 in stamp duty giving a total of $1,212 that needs to be broken down into 12 individual components to be posted monthly. This means that $101 per month will be transferred from the prepaid expenses asset account to insurance expense.



30-June-2019 6-6980 Insurance 101.00

1-1300 Prepaid expense (Asset account and stamp duty)

101.00

Insurance adjustment June

The next issue is to assume that we have a debtor who has been declared bankrupt owing a total of $1,650. This debt needs to be written off and will be done through the following journal entry. Using a manual system as we are here, the bad debt information would be posted to the debtor subsidiary ledger. In this subject, we will not be dealing with the subsidiary ledger at a manual level. Remember that when this is done in MYOB, it cannot be done through the use of a journal as it is here. It is BSBFIA401 Learner Guide Version No. 1.2 Australian College of Business and Accounting

interesting to note that in MYOB the subsidiary ledger must be dealt with and as we progress with MYOB further on in this unit, the subsidiary ledger will be adjusted as well as the debtor control account. The name of the debtor, Andrew Stimpson, is included in the memo on this journal so that it can be transferred to the correct subsidiary ledger for this debtor.




30-June-2019 6-6300 Bad debts 1,500.00

2-1310 GST Collected 50.00

1-1200 Debtors 1,650.00

Andrew Stimpson bad debt

The next issue that we will look at is where wages are accrued for-time work in this current financial year, but will not be paid until the following financial year.

This means that the expense can be claimed in this financial year, but once the year is rolled over and prior to the wages being paid in the new year, a reversal of this entry will need to be made in this new financial year in preparation for the pay run which will include the wage costs claimed in this financial year through the use of this journal entry.

Let's assume for this example the wage expense total up to 30 June amounts to $4250.



30-June-2019 6-6900 Salaries & Wages 4,250.00

2-2500 Accrued expenses 4,250.00

Wages not yet due for payment


The next transaction will be for the purchase of an asset that will be allocated to the low-value pool. A network drive at a value of $550.00 tax inclusive paid in cash.



30-June-2019 1-1800 Low value pool 500.00

2-1330 GST Paid 50.00

1-1100 Bank 550.00

Purchase new network drive

The next issue will be an accrual for income earned but not yet billed as at 30 June. The income is recommended to be in the period ending 30 June because the expenses in labour have been paid in the period ending 30 June. It can also be argued that the goods and/or services have been provided and as such the revenue has been earned even if it was not invoiced prior to the end of the year. In this way, it means that both the income and the expense items for it are kept together in the same period.

Let's assume for the purpose of this exercise that the income that we can bill amounts to $850 tax exempt.



30-June-2019 1-1350 Accrued income 850 .00

4-4100 Sales 850 .00

Accrued sales

The accrued income is an asset account, and when this is actually built next year, the invoice allocation will be to accrued income rather than a sales account. When this is invoiced, GST will be accounted for at that point.


The next item will be a journal adjustment for stock on hand. For the purpose of this exercise, we are going to assume that at the beginning of the year stock amounted to $67,000 and after the stock take on 30 June, the stock was valued at $53,000.



30-June-2019 5-5100 Opening stock 67,000.00

1-1400 Stock on hand 67,000.00

Opening stock transfer


30-June-2019 1-1400 Stock on hand 53,000 .00

5-5300 Closing stock 53,000 .00

Closing stock

The journals that have been created above have now been brought together to make it simpler to follow the general journal to general ledger posting process discussed in the next section. These journals show which general ledger account to post to by using both the folio number and the account name, how much to post and whether it is posted as a debit or credit entry.


What will be demonstrated here is the posting of the first journal that we created. Shown below is the journal entry, and below those other relevant elements of the general ledger accounts to which this journal entry has been posted.

Date Folio Particulars

Debit Credit

30-Jun-19 1-1500 Office Equipment 4,000.00

2-1330 GST Paid 400.00

1-1100 Bank 4,400.00

Purchase of multi-function printer

1-1500 Office equipment at cost Assets (Debit by nature)


Balance b/f 25,000.00 25,000.00

30-Jun-19 Purchase Multifunction Printer GJ 4,000.00 29,000.00

2-1330 GST Paid Liabilities (Credit by nature)


Balance b/f 4,400.00 -4,400.00

30-Jun-19 Purchase Multifunction Printer GJ 400.00 -4,800.00

1-1100 Bank Assets (Debit by nature)


Balance b/f 20,000.00 20,000.00

30-Jun-19 Purchase Multifunction Printer GJ 4,400.00 15,600.00


You will notice that the memo used in the journal is used in all general ledger postings for that transaction. Also, the folio in the general journal entry matches with the account number where the amounts are being transferred to the ledger.

The posting of the remaining journals will follow the same principles. You will find all of the general journal postings after these general ledgers without further explanation. These transfers are self-explanatory; however, if you are having difficulties, contact your trainer.


30-Jun-19 1-1500 Office Equipment 4,000.00

2-1330 GST Paid 400.00

1-1100 Bank 4,400.00

Purchase of multi-function printer

30-Jun-19 1-1200 Debtors 17,567.00


4-4100 Sales 15,970.00

Credit Sales June

30-Jun-19 5-5200 Purchases 4,800.00

2-1330 GST paid 480.00

2-1200 Creditors 5,280.00

Credit Purchases June

30-Jun-19 1-1100 Bank 17,095.00

2-2700 Loan 10,000.00


4-4100 Sales 1,500.00

1-1200 Debtors 5,445.00


4-4200 Discounts given 50.00


1-1200 Debtors 55.00

Cash Receipts June

30-Jun-19 6-6600 Lease of Premises 1,000.00

2-1330 GST paid 350.00

5-5200 Purchases 2,500.00

2-1200 Creditors 1,199.00

1-1100 Bank 5,049.00

2-1200 Creditors 11.00

2-1330 GST paid 1.00

5-5250 Discounts taken 10.00

Cash Payments June

1-Jun-19 1-1300 Prepaid Expenses (Asset Account) 1,200.00

1-1300 Prepaid Expenses (Stamp Duty) 12.00

2-1330 GST paid 120.00

1-1100 Bank 1,332.00

Prepaid Insurance

12-Mar--19 6-6500 Depreciation 2,698.34

1-1650 Motor vehicle accumulated depreciation 2,698.34

1-1100 Bank 22,000.00




6-6970 Loss on sale of asset 2,095.74


1-1650 Motor vehicle accumulated depreciation 8,804.26


Disposal of motor vehicle

30-Jun-19 6-6500 Depreciation 7,501.90

1-1550 Office Equipment Accum Dep 6,979.68

1-1800 Low-Value Pool 522.22

Depreciation Adjustment EOY

30-Jun-19 6-6980 Insurance 101.00

1-1300 Prepaid expense (Asset account and stamp duty) 101.00

Insurance adjustment June

30-Jun-19 6-6300 Bad debts 1,500.00

2-1310 GST Collected 150.00

1-1200 Debtors 1,650.00

Andrew Stimpson bad debt

30-Jun-19 6-6900 Salaries & Wages 4,250.00

2-2500 Accrued expenses 4,250.00

Wages not yet due for payment


30-Jun-19 1-1800 Low value pool 500.00

2-1330 GST Paid 50.00

1-1100 Bank 550.00

Purchase new network drive

30-Jun-19 1-1350 Accrued income 850.00

4-4100 Sales 850.00

Accrued sales

30-Jun-19 5-5100 Opening stock 67,000.00

1-1400 Stock on hand 67,000.00

Opening stock transfer

30-Jun-19 1-1400 Stock on hand 53,000.00

5-5300 Closing stock 53,000.00

Closing stock


CHAPTER 5. TRANSFERS TO GENERAL LEDGERS

1-1100 Suncorp Bank Asset


Balance B/F 20,000.00 20,000.00

12/3/2019 Disposal of motor vehicle GJ 22,000.00 42,000.00

1/6/2019 Prepaid Insurance GJ 1,332.00 40,668.00

30/6/2019 Purchase of multi-function printer GJ 4,400.00 36,268.00

30/6/2019 Cash Receipts GJ 17,095.00 53,363.00

30/6/2019 Cash Payments GJ 5,049.00 48,314.00

30/6/2019 Purchase new network drive GJ 550.00 47,764.00

1-1200 Debtors (Accounts Receivable) Asset


Balance B/F 22,000.00 22,000.00

30/6/2019 Credit Sales GJ 17,567.00 39,567.00

30/6/2019 Cash Receipts GJ 5,445.00 34,122.00

30/6/2019 Cash Receipts GJ 55.00 34,067.00

30/6/2019 Andrew Stimpson Bad Debt GJ 1,650.00 32,417.00

1-1300 Prepaid Expenses Asset


Balance B/F 0.00

1/6/2019 Prepaid Insurance GJ 1,200.00 1,200.00

1/6/2019 Prepaid Insurance GJ 12.00 1,212.00

30/6/2019 Insurance Adjustment GJ 101.00 1,111.00


1-1350 Accrued Income Asset


Balance B/F $0.00

30/6/2019 Accrued Sales GJ 850.00 850.00

1-1400 Stock on Hand Asset


Balance B/F 67,000.00 67,000.00

30/6/2019 Opening Stock Transfer GJ 67,000.00 $0.00

30/6/2019 Closing Stock GJ 53,000.00 53,000.00

1-1500 Office Equipment at cost Asset


Balance B/F 25,000.00 25,000.00

30/6/2019 Purchase of multi-function printer GJ 4,000.00 29,000.00

1-1550 Office Equipment - Accumulated Depreciation

Asset


Balance B/F 11,495.80 11,495.80

30/6/2019 Depreciation Adjustment End of Year GJ 6,979.68 18,475.48


1-1600 Motor Vehicles at cost Asset


Balance B/F 30,900.00 30,900.00



12/3/2019 Disposal of motor vehicle GJ 8,783.22 0.00

1-1650 Motor Vehicles - Accumulated Depreciation

Asset


Balance B/F 6,105.92 6,105.92


12/3/2019 Disposal of motor vehicle GJ 8,804.26 0.00

1-1800 Low-Value Pool Asset


Balance B/F 1,142.59 1,142.59

30/6/2019 Depreciation Adjustment End of Year GJ 522.22 620.37


2-1200 Creditors (Accounts Payable) Liability


Balance B/F 9,000.00 $9,000.00

30/6/2019 Credit Purchases GJ 5,280.00 14,280.00

30/6/2019 Cash Payments GJ 1,199.00 13,081.00

30/6/2019 Cash Payments GJ 11.00 13,070.00


2-1310 GST Collected Liability


Balance B/F 5,200.00 5,200.00


30/6/2019 Credit Sales GJ 1,597.00 8,797.00

30/6/2019 Cash Receipts GJ 150.00 8,947.00

30/6/2019 Cash Receipts GJ 5.00 8,942.00

30/6/2019 Andrew Stimpson Bad Debt GJ 150.00 8,792.00

2-1330 GST Paid Liability


Balance B/F 4,400.00 4,400.00

1/6/2019 Prepaid Insurance GJ 120.00 4,520.00

30/6/2019 Purchase of multi-function printer GJ 400.00 4,920.00

30/6/2019 Credit Purchases GJ 480.00 5,400.00

30/6/2019 Cash Payments GJ 350.00 5,750.00

30/6/2019 Cash Payments GJ 1.00 5,749.00


2-2500 Accrued Expenses Liability


Balance B/F 0.00

30/6/2019 Wages not yet due for payment GJ 4,250.00 4,250.00


2-2700 Bank Loan Liability


Balance B/F 25,000.00

30/6/2019 Cash Receipts GJ 10,000.00 35,000.00

3-3100 Capital Capital


Balance B/F 43,640.87 43,640.87

4-4100 Sales Revenue


Balance B/F 220,000.00 220,000.00

30/6/2019 Credit Sales GJ 15,970.00 235,970.00

30/6/2019 Cash Receipts GJ 1,500.00 237,470.00

30/6/2019 Accrued Sales GJ 850.00 238,320.00

4-4200 Discounts Given Cost of Goods Sold


Balance B/F 0.00

30/6/2019 Cash Receipts GJ 50.00 50.00


5-5100 Opening Stock Cost of Goods Sold


Balance B/F 0.00

30/6/2019 Opening Stock Transfer GJ 67,000.00 67,000.00

5-5200 Purchases Cost of Goods Sold


Balance B/F 90,000.00 90,000.00

30/6/2019 Credit Purchases GJ 4,800.00 94,800.00

30/6/2019 Cash Payments GJ 2,500.00 97,300.00

5-5250 Discounts Taken Cost of Goods Sold


Balance B/F 0.00

30/6/2019 Cash Payments GJ 10.00 (10.00)

5-5300 Closing Stock Cost of Goods Sold


Balance B/F 0.00

30/6/2019 Closing Stock GJ 53,000.00 53,000.00


6-6300 Bad Debts Expense


Balance B/F 0.00

30/6/2019 Andrew Stimpson Bad Debt GJ 1,500.00 1,500.00

6-6500 Depreciation Expense


Balance B/F 0.00


30/6/2019 Depreciation Adjustment End of Year GJ 7,501.90 10,200.24

6-6600 Lease of Premises Expense


Balance B/F 0.00

30/6/2019 Cash Payments GJ 1,000.00 1,000.00

6-6900 Salaries and Wages Expense


Balance B/F 60,000.00

30/6/2019 Wages not yet due for payment GJ 4,250.00 64,250.00


6-6970 Loss on Sale of Asset Expense


Balance B/F 0.00


6-6980 Insurance Expense


Balance B/F 0.00

30/6/2019 Insurance Adjustment GJ 101.00 101.00


CHAPTER 6. PREPARE THE TRIAL BALANCE The purpose of the trial balance is to verify that all of the postings to the general ledger do in fact balance. What this is checking is that all debit entries equal all credit entries.

What needs to happen is for all of the general ledger account ending balances to be transferred to the trial balance with the balance being posted to the appropriate column as per the ending balance of the general ledger account. So, for example, the bank account is showing a debit balance at the end of the period and would be posted to the debit column of the trial balance. Accounts with credit balances will appear in the credit column of the trial balance. At the end of this process, the debit column should equal the credit column. Remember that this is one of the fundamental rules of accounting.

The general ledger account folio number and name circled in red, and the balance of the account circled in green, are the elements of information transferred to the trial balance. The nature of the account determines whether the account balance is placed in the debit or credit column of the trial balance.


FOLIO ACCOUNT NAME DEBITS CREDITS

1-1100 SunCorp Bank 47,764.00

1-1200 Debtors (Accounts Receivable) 32,417.00

1-1300 Prepaid Expenses 1,111.00

1-1350 Accrued Income 850.00

1-1400 Stock on Hand 53,000.00

1-1500 Office Equipment at cost 29,000.00

1-1550 Office Equipment - Accumulated Depreciation 18,475.48

1-1600 Motor Vehicles at cost 0.00

1-1650 Motor Vehicles - Accumulated Depreciation 0.00

1-1800 Low Value Pool 1,120.37

2-1200 Creditors (Accounts Payable) 13,070.00

2-1310 GST Collected 8,792.00

2-1330 GST Paid 5,799.00

2-2500 Accrued Expenses 4,250.00

2-2700 Bank Loan 35,000.00

3-3100 Capital 43,640.87

4-4100 Sales 238,320.00

4-4200 Discounts Given 50.00

5-5100 Opening Stock 67,000.00

5-5200 Purchases 97,300.00

5-5250 Discounts Taken 10.00

5-5300 Closing Stock 53,000.00

6-6300 Bad Debts 1,500.00

6-6500 Depreciation 10,200.24

6-6600 Lease of Premises 1,000.00

6-6900 Salaries and Wages 64,250.00

6-6970 Loss on Sale of Asset 2,095.74

6-6980 Insurance 101.00

414,558.35 414,558.35


What steps should you take when the trial balance does not balance?

1. Check that you have transferred each general ledger balance to the trial balance correctly.

2. Check that a general ledger account balance was not entered into the incorrect side of the trial balance.

3. Check that the journal entries have been entered into the general ledger correctly.

Common causes of an unbalanced trial balance include:

A general ledger account balance has been brought forward incorrectly

A number has a transposition error. This means that the two digits in a number will have been reversed inadvertently, for example, $847 entered as $874.

One way to check for a transposition error is to take the larger balance of the trial balance and subtract away the lower balance of the trial balance, and if the number will divide equally by nine, then there is a high chance that you are looking for a transposition error. Using the numbers provided in this example $874 - $847 = $27. If we then divide by nine, we find the result is three with no decimal carryover.

A general ledger balance entered on the wrong side. To find this kind of error we take the lower trial balance number away from, the higher trial balance number and then divide by two. If a number is placed on the incorrect side, it is this number that we are looking for.

Let's assume on our trial balance shown above the $847 loss on the sale of the asset was placed on the credit side instead of the debit side. This would mean that the credit side would be $336,899.59 and if we subtract the debit total of $335,205.59 we have a difference of $1694 and if we divide this by two we find that we are looking for $847.

Calculations for the general ledger balances are incorrect. These calculations should be checked prior to transfer to trial balance.

A calculation error on the trial balance.


CHAPTER 7. PREPARE END-OF-PERIOD FINANCIAL REPORTS From the trial balance, we will prepare the two principal financial reports for a business that will provide information in an understandable form for use by management and also financiers and investors.

The Balance Sheet The Trading Statement (Profit & Loss)

There are then a number of different financial reports that can be created from the profit and loss and balance sheet depending upon what information is required by the management of the business. From these two principal reports, a ratio analysis can then be carried out to provide a more in-depth understanding of the business and its performance. It is through these two reports that we will focus upon in this section showing how these are created from the trial balance.

A balance sheet is also known as a position statement which identifies the value of assets, the levels of debt and equity that fund those assets. Within a business that is continuously trading, a balance sheet is out of date as soon as it is sent to the printer which is why the report is usually referred to as a snapshot of the business at a point of time. The reason for this is that the balance sheet changes with every sale, expense entry as well as any balance sheet adjustment.

Profit and loss statement is also known as a revenue statement, income statement, trading statement, or statement of financial performance. It is a financial statement that reports a company’s revenues, cost of sales and expenses during a particular period. It also shows the net profit or loss for the period.

“profit and loss statement is a great tool for identifying items of high expenditure or expenses that were unproductive in producing a profit. By analysing the profit and loss statement, you can better control business expenditure and thereby potentially increase profits.”

Profit and loss statement uses a basic formula:

Revenue – Cost of Goods Sold (COGS) = Gross Profit – Expenses = Net Profit


Net profit is then carried over to the balance sheet as current earnings.

1 2 3ASSETS

Current Assets

SunCorp Bank 47,764.00

Debtors (Accounts Receivable) 32,417.00

Prepaid Expenses 1,111.00

Accrued Income 850.00

Stock on Hand 53,000.00 135,142.00Noncurrent Assets

Office Equipment at cost 29,000.00

Office Equipment - Accumulated Depreciation (18,475.48)

Motor Vehicles at cost 0.00

Motor Vehicles - AccumulatedDepreciation 0.00

Low Value Pool 1,120.37 11,644.89TOTAL ASSETS 146,786.89

LIABILITIES

Current LiabilitiesCreditors (Accounts Payable) 13,070.00

GST Collected 8,792.00

GST Paid (5,799.00)

Accrued Expenses 4,250.00 20,313.00

Noncurrent LiabilitiesBank Loan 35,000.00 35,000.00 55,313.00TOTAL LIABILITIES

CAPITAL

Capital 43,640.87

Net Income 47,833.02 91,473.89146,786.89


It can be noted that the current earning value has been drawn from the net profit on the Profit and Loss statement. A description of the columns can be found on this page.

1 2 3Sales 238,320.00

Discounts Given (50.00) 238,270.00Cost of GoodsSold

Opening Stock 67,000.00

Purchases 97,300.00

Discounts Taken(10.00)

Closing Stock (53,000.00) 111,290.00Gross Profit 126,980.00Expenses

Bad Debts 1,500.00

Depreciation 10,200.24

Lease of premises 1,000.00

Salaries and Wages 64,250.00

Loss on Sale of Asset 2,095.74

Insurance 101.00 79,146.98

47,833.02

The net profit from this report is transferred to the balance sheet in current earnings as part of equity.


What do the numbers columns mean at the top of the columns?

1 These are the individual account balances brought forward from the trial balance.

2 The individual general ledger values in column 1 produce this sub-total in each section.

3

On the Balance Sheet, this column shows:

The total assets (Current Assets + Non-Current Assets) The total Liabilities (Current Liabilities + Non-Current

Liabilities) The Net Assets (Total Assets – Total Liabilities) Total Equity (which should equal Net Assets)

On the Trading Statement, this column shows:

the gross profit (Revenue-COGS); and the net profit (COGS – Expenses)

Estimating items in a financial reportMany of the items in a financial report can only be estimated rather than measured with any precision. The AASB has provided guidance in estimation for this purpose.

AASB 108, Clause 32 tells us that estimation involves judgments based on the latest available, reliable information. Examples of estimates you may make are:

Bad Debts

The fair value of Assets or Liabilities

Inventory that can be no longer used

The useful life of an asset or expected rate of consumption

Warranty obligations


CHAPTER 8. RECORDING TRANSACTIONS IN MYOBThe next step in this process is to enter the same transactions that we have done manually into Journals from which we have produced the General Ledger, Trial Balance, Balance Sheet, and Profit and Loss Statements.

This will give you a unique opportunity to understand why it is important to have a sound knowledge of the manual accounting process and see that, in an electronic environment, some things are a little different in the way that they are processed. At the end of the MYOB entry process, we will be able to compare the trading statement and balance sheets produced with those produced manually.


The first thing that has been done is to enter the opening balances in MYOB from “Setup”, “Balances”, and “Account Opening Balances.”

There is no need to create a data file and do this unless you wish to do so. The purpose here is to provide you with a step-by-step demonstration of how this is done, and how all of the entries are placed in the MYOB.

Use the general journal entries created as your base reference for each of the following transactions that we will enter into MYOB. If there is a need to direct you to the original journals, then an indication will be given to you to reference the particular journal required along with its


page number so that you can best follow along.

Purchase of Multifunction PrinterThis entry can be processed into MYOB using a spend money transaction, and that entry is shown below along with its created general journal entry to the right.


Credit SalesThe next step is to enter the credit sales which are recorded in the sales journal. The reason that these need to be done through a sales invoice is that this is an electronic accounting way of being able to deal with the subsidiary ledger. These entries in MYOB are shown below along with the journal entry created by MYOB.


Credit PurchasesThe next step is to enter the credit purchases which are recorded in the purchases journal. The reason that these need to be done through a purchase invoice is that this is an electronic accounting way of being able to deal with the subsidiary ledger. These entries in MYOB are shown below, along with the journal entry created by MYOB.


Cash Receipts JournalThe next item to deal with is the entry into MYOB of the cash receipts journal. Because there is an inclusion here, that includes debtor payments and debtor discounts, these elements needed to be broken away and entered into MYOB through receive payments in the sales area. The remainder can be entered through the use of receive money in MYOB under the banking command centre.


The first element of this journal that will be entered is the loan received because it needs to be allocated to its own GL account, 2-2700 loans. This could be done through either a general journal entry or a received money entry. For the purpose of this example, we will use a receive money transaction which is shown below along with the MYOB general journal entry created.

If the focus is then placed on the main elements of this journal, we can eliminate the $10,000 from this journal, which means we can make an adjustment to the bank column total, and the journal remains in balance $5,445 plus $1,500 plus $150 equals $7,095.

The next step is to enter the cash sales which we can do through receive money in the banking command centre. The MYOB entry along with its created Journal is shown below.


If the focus is again placed on the main elements of this journal, we can also eliminate the $1,500 in sales and the $150 in GST collected from this journal. This means that we can make an adjustment to the bank column total, and the journal remains in balance $5,445 equals $5,445. This is the amount that we received in payment from a debtor.

The last step is, of course, to enter this debtor receipt into MYOB which is done through the sales command centre under receive payment.

The MYOB entry of this transaction is shown below along with its journal entry. We also note that there was a $55 discount that was given to this debtor, John Earl, for early payment which will also be taken into account automatically as it is entered into MYOB.

1. The date of payment

2. The amount received

3. The value of the discount including GST

4. The calculated amount due after discount (done by MYOB)

5. The amount of the payment shown at point 2 that has been applied to this invoice


When recording this payment, there will be three journal entries automatically created by MYOB. These are shown after the identification of each of these journal entries below, these are:

1. A credit invoice for the $55 discount

2. A settlement of the credit invoice to the original invoice to which it applies

3. The physical cash payment received


Cash Payments JournalThe next item to deal with is the entry into MYOB of the cash payments journal. Because there is an inclusion here that includes creditor payments and creditor discounts these elements needed to be broken away and entered into MYOB through pay bills in the purchases area. The remainder can be entered through the use of spend money in MYOB under the banking command centre.

The first element of this journal that will be entered is the lease of premises payment because it needs to be allocated to its own GL account, 6-6600 Lease of premises. This could be done through either a general journal entry or a spend money entry. For the purpose of this example, we will use a spend money transaction which is shown below along with the MYOB general journal entry created.


If the focus is then placed on the main elements of this journal, we can eliminate the $1,100 sundries value from this journal, as well as make a $100 adjustment to the GST Paid total, because this GST has been accounted for in the $1,100 payment. This means, we can make an adjustment to the bank column total, and the journal remains in balance $1,199 plus $2,500 plus $250 equals $3,949.

The next step is to enter the cash purchases which we can do through spend money in the banking command centre. The MYOB entry, along with its created Journal, is shown below:


If the focus is again placed on the main elements of this journal we can also eliminate the $2,500 in sales and the $250 in GST Paid from this journal. This means that we can make an adjustment to the bank column total, and the journal remains in balance $1,199 equals $1,199. This is the amount that we paid in a payment to a creditor.

The last step is, of course, to enter this creditor payment into MYOB, which is done through the purchases command centre under pay bills.

The MYOB entry of this transaction is shown below along with its journal entry. We also note that there was an $11 discount that was taken from this creditor ABC Company, for our early payment, which will also be taken into account automatically as it is entered into MYOB.

1. The date of payment

2. The amount paid

3. The value of the discount including GST

4. The calculated amount owed after discount (done by MYOB)

5. The amount of the payment, shown at point 2 that has been applied to this invoice


When recording this payment, there will be three journal entries automatically created by MYOB, and these are shown after the identification of each of these journal entries below, these are:

1. A credit invoice for the $11 discount

2. A settlement of the credit invoice to the original invoice to which it applies

3. The physical cash paid


Pre-payment of InsuranceThe next journal entry to be entered into MYOB is the prepayment of the insurance for the year. This can be done through a spend money transaction and is shown below along with the journal entries that MYOB will create. Make a note of the memo that identifies each element; this is important for BAS checking and creation.

The next journal entry will be for the depreciation sale of the asset loss on the sale and the removal of the asset from the balance sheet. This entry will be done through a general journal entry which is shown below. The journal entry created by MYOB will not be shown separately here as it is exactly the same as we enter it. Take note of the line memos that are valuable for later references to this entry.


1. This indicates that this is a sale and not a purchase which means that any GST within the journal entry will be recorded on the GST collected account rather than the GST paid account which will ensure that GST reconciliation will balance at BAS time.

2. This indicates that value is shown in the journal as GST inclusive if GST is applicable to any or all elements.

3. Indicates the date of entry

4. Indicates the basic description recorded in the accounts

5. Indicates a description of each element of the entry which becomes extremely valuable when we are referencing the transaction at a future time, and when doing the appropriate checks prior to submitting a BAS statement.

The next journal entry will be for the annual depreciation on the office equipment and the low-value pool. This entry will be done through a general journal entry which is shown below. The journal entry created by MYOB will not be shown separately as it is exactly the same as we entered it.


The next transaction that we enter into MYOB will be the insurance adjustment for the end of June, and this will be entered as a MYOB general journal entry.

The next transaction we enter into MYOB will be the Andrew Stimson bad debt. As this is an item that affects the debtor subsidiary ledger, it will need to be entered into MYOB through a credit invoice and a credit allocation of this invoice to be outstanding invoices so that the subsidiary ledger is appropriately dealt with. In a manual accounting system, a credit invoice would not be required, only a general journal entry with the subsidiary ledger manually updated. These entries are shown below.


Once this credit has been created, it needs to be applied to the original invoice using the returns and credits function in the sales register.

The next transaction is an end of the period entry that adjusts the outstanding salaries and wages, not yet due for payment through the management requires it to be entered into the accounts of the business, as this forms part of the current period expenses.


This transaction will be entered into MYOB using a general journal entry which is shown below.

The next entry is the purchase of a new network drive which will be entered through spend money in the banking command centre. This entry is shown below along with the journal entry created by MYOB.

The next entry is an accrual for sales which has not yet been invoiced, but management wishes it to be included in the current period. This entry will be shown below entered as a general journal entry.


The next entry for closing the period is to transfer the stock on hand to opening stock. This entry will be done as a general journal entry and is shown below.

The last entry will be the take up of the new stock on hand value shown on the current stock take for 30th of June. This transaction will be entered as a general journal entry into MYOB and is shown below.

The balance sheet from MYOB is shown on the following page, and if you would like to check that against the balance sheet created on page 78 of this learner guide, you should find that the total assets, the total liabilities, the net assets and total equity on both reports are equal. However, note that it is also possible to achieve different results between the manual and computerised methods of calculations.


The Profit and Loss Statement from MYOB is shown below, and if you would like to check that against the balance sheet, you should find that the total assets, the total liabilities, the net assets and total equity on both reports are equal. However, note that it is also possible to achieve different results between the manual and computerised methods of calculations.

You should now be in a position to be able to complete your assessment for this subject.


GLOSSARY OF TERMS AASB – Australian Accounting Standards Board

Account Nature – Refers to whether the account whole is either a debit or a credit nature by default.

Asset –Items a business owns or controls that will provide a future economic benefit

Asset Register – Used to record all of the details of an asset from its purchase to its disposal

AUASB – Auditing and Assurance Standards Board

Bad Debt - A debt owing that that cannot be recovered

Balance Sheet – A summary of a company’s financial position at a single moment in time

Cash Payments Journal - A journal that records all cash outflows from the business regardless of purpose

Cash Receipts Journal - A journal that records all cash inflows into a business regardless of source

Depreciation – A reduction in the value of an asset over time, due to wear and tear and age.

Depreciation Schedule - A table that summarises the annual depreciation claim for each asset item and each asset group for the purpose of creating the accounting adjustment journals and the business tax return

Doubtful Debt – a debt that appears unlikely to be recovered, though all avenues of recovery have not yet been completed

End of Period Adjustments - Adjustment is made at the end of an accounting period to correct for errors or account adjustments that need to be made

General Journal – is used to record ‘general’ transactions that do not meet the criteria to be entered into any specialist journals

General Ledger – is the core of the accounting system and the ultimate destination of the breakup of all business transactions. It is the general ledger that provides understandable information to be used in the management processes of a business

Low-Value Pool - A pooled group of assets costing more than $300 and less than

$1000 tax-exempt that is used to simplify the depreciation process


Prepayment - A payment that is made by the business for goods or services not yet delivered or used


Profit and Loss Statement – a financial statement that reports a company’s trading performance over a chosen period

Purchasers Journal - A journal that records all credit purchases made by the business

Purchasers Returns Journal - A journal that records any returns of purchases made on credit and recorded on the purchases journal

Sales Journal - A journal that records all credit sales made by the business

Sales Returns Journal - A journal that records any returns of sales made on credit and recorded in the sales journal

Trial Balance - A form used that lists all debit and credit general ledger account balances for the purpose of checking for a balance of the accounts


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