Free VCE Accounting Flashcard Review
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What are the debit and credit rules for ASSET accounts?
Debit increases assets; Credit decreases assets. Example: Debit Cash when receiving money; Credit Cash when paying out.
What are the debit and credit rules for LIABILITY accounts?
Debit decreases liabilities; Credit increases liabilities. Example: Debit Accounts Payable when paying a creditor; Credit Accounts Payable when receiving goods on credit.
What are the debit and credit rules for EQUITY accounts?
Debit decreases equity; Credit increases equity. Example: Credit Capital for owner investment; Debit Drawings for owner withdrawal.
What are the debit and credit rules for REVENUE accounts?
Debit decreases revenue; Credit increases revenue. Example: Credit Sales Revenue when goods sold; Debit Sales Returns as contra-revenue.
What are the debit and credit rules for EXPENSE accounts?
Debit increases expenses; Credit decreases expenses. Example: Debit Rent Expense when paid; Debit Depreciation Expense when recorded.
What is the GST Clearing Account and when is it used?
Temporary account collecting input GST (purchases) and output GST (sales). Credit balance means GST owed to ATO; Debit balance means GST recoverable at reporting date.
How is GST on purchases recorded in the journal?
Debit Asset/Expense (excl. GST) | Debit GST Clearing | Credit Accounts Payable (incl. GST). Example: $100 purchase: Dr Purchases $100, Dr GST $10, Cr AP $110.
How is GST on sales recorded in the journal?
Debit Accounts Receivable (incl. GST) | Credit Sales Revenue (excl. GST) | Credit GST Clearing. Example: $100 sale: Dr AR $110, Cr Sales $100, Cr GST $10.
When and how is GST paid to the ATO?
End of tax period (quarterly). Payment = Output tax minus Input tax. Debit GST Clearing | Credit Cash. Reduces GST payable liability.
How is a GST refund recorded when input tax exceeds output tax?
Debit Cash | Credit GST Clearing. Asset (refund due) is cleared by cash received. Example: Refund $500: Dr Cash $500, Cr GST Clearing $500.
What are the correct column headings for a Sales Journal?
Date | Customer Account | Debit Accounts Receivable | Credit Sales Revenue | Credit GST Clearing. AR and GST posted individually; Sales totalled monthly.
What are the correct column headings for a Purchases Journal?
Date | Supplier Account | Debit Purchases | Debit GST Clearing | Credit Accounts Payable. Purchases and GST totalled; AP posted individually to subsidiary ledger.
What is the purpose of a subsidiary ledger and how is it cross-referenced?
Records individual customer/supplier accounts. GL control accounts show totals; subsidiary ledger shows detail. Cross-reference: GL control totals equal sum of all subsidiary ledger balances.
Explain FIFO cost assignment for inventory.
First In, First Out: oldest inventory costs allocated to COGS first. Assume oldest units sold first. Example: 100 units at $10, 100 units at $12. Sell 80: COGS = 80 times $10 = $800.
How is the sale of goods recorded under FIFO accounting?
Debit COGS (oldest purchase price) | Credit Inventory. COGS debited at cost of oldest inventory. Example: Sell 50 units at $10 cost: Dr COGS $500, Cr Inventory $500.
How are purchase and sales returns handled under FIFO?
Debit Inventory | Credit COGS. Use FIFO cost of returned units. Cost reversal matches original cost removed. Example: Return 20 units at $10: Dr Inventory $200, Cr COGS $200.
What is Balance c/d (balance carried down)?
Balance at END of period brought forward to next. Shown on opposite side to normal account side. When totals match, represents period's closing balance.
What is Balance b/d (balance brought down)?
Opening balance for next period on normal account side. Continues previous Balance c/d. Example: Debit balance c/d becomes Debit balance b/d next period.
Explain the steps to balance a ledger account.
1. Total debits and credits separately. 2. Insert Balance c/d on opposite side if unequal. 3. Total both sides until equal. 4. Insert Balance b/d on normal side for next period.
What is a Trial Balance and what is its purpose?
List of all GL account balances (debit/credit) at a date. Purpose: verify double-entry accuracy (debits = credits); identify posting errors; provide balances for statements.