Accounting Context and Method Topic 1 - Introduction, double entry accounting and GST
Question 1 - Watch the video lecture on "Elements of Financial Statements" and answer the following questions:
a) List the three essential characteristics of an asset.
b) List the three essential characteristics of a liability.
c) To be included in the financial statements, an item not only has to meet the definition of one of the elements of financial statements but also has to satisfy two recognition criteria. What are these recognition criteria?
Question 2 - Discuss how the following underlying accounting assumptions influence the way financial statements are prepared:
- the accounting entity assumption
- the accrual basis assumption
- the going concern assumption
- the period assumption.
Question 3 - The following transactions relate to "A Lovely Surprise", a gift shop owned by Gladys Goldwyn, which is registered for the GST (relevant amounts contain GST). For each transaction, analyse which accounts would be affected, which type of account they are and whether the account would increase or decrease as a result of the transaction. Decide whether the account should be debited or credited and for what amount. Use the table below to record your answers (if you are handwriting your answers in your book draw up a table like this or print it out and write on it). Check that for each entry the amount to be debited equals the amount to be credited, that is DR = CR.
1. The owner, Gladys Goldwyn, invested $200,000 to start the business.
2. Bought gift items to put in the shop for $6,820 cash.
3. Paid $341 cashto a sign writer to paint the name of the shop on the front window.
4. Gladys took home $880 cash for her own private use.
5. Sold gift items for $2,970on credit, the items had cost Gladys $1,850 net of GST.
6. Paid the rent of $550.
7. Bought gift items to put in the shop on credit for $2,310.
8. Sold gift items for $3,905, $2,750 worth were sold on credit and the remainder for cash. The items had cost Gladys $2,450 net of GST.
9. Paid wages to the shop assistant, $440.
10. Bought a new computer to use in the business for $935 cash.
11. Purchased a year's worth of office supplies on credit for $319.
12. Sold gift items for cash for $605, the items had cost Gladys $440 net of GST.
13. Paid the telephone account of $165.
14. Gladys took home a beautiful vase which had cost the business $99 to give to her mother-in-law for her birthday.
15. Paid the electricity account of $220.
16. Received interest on the business bank account, $44.