Accounting 1&2 Chapter 9-10

cash transaction

goods/services and cash are exchanged at the same time

Credit Transaction

goods/services are exchanged first, cash is exchanged later
(2 separate transactions)

Sales Invoice

source document that verifies sales of inventory/services
this is a credit sale
accounts receivable

Purchase Invoice

source document that verifies a credit purchase
this will be a credit purchase
accounts payable

credit purchase

a transaction where a business buys materials or supplies from suppliers, but are not required to pay until a later date

purchase journal

an accounting record that summarises all transactions involving the purchase of goods/services on credit

credit fees

a transaction that involves the provision of a service to a customer who is not required to pay until a later date

sales journal

an accounting report that summarises all transactions involving the sale/performing of services on credit

Why do Purchase Invoice not run in sequence

they are bot issued by the business but the supplier, who issues invoices to all their customers

why is there no GST to account for when cash is paid to accounts payable?

GST is recognised and reported only at the time the purchase is made

Revenue

increase in assets or decrease in liability that results in an increase in owner’s equity, other than those relating to contributions from the owner

Expenses

decrease in assets, or increase in liabilities that result in the decrease in owner’s equity, other than those relating to drawings to the owner.

accounting assumptions and qualitiative characteristics of Income Statement

Accrual Basis assumption

Period assumption

Relevance

calculating materials used

inventory of materials at start + credit purchases + cash purchases - inventory of materials at end

Cash Vs Profit

net increase (Decreases) in cash positions measure the difference between cash inflows and cash outflows

a net profit (loss) measures the difference between revenue and expenses

uses of income statement

1. Aids decision making about business’s operations by measuring performance

2. assess if business is meeting its revenue and expenses targets

3. assists planning for future service activities

4. assess the performance of management

to increase profit a business needs to

increase revenue
- decrease prices therefore higher volume of sales
- employ effective marketing
- improve their services

Decrease expenses
- change suppliers
- buy in bulk

You can also do a combination of both