§-Unit

Unit 3: Managing resources for a trading GST business

8 dot points, in syllabus order. Each dot point has a focused answer, with exam-style questions and worked answers where available.

How does a trading GST business record and value its inventory so that cost of goods sold and the asset reported are accurate?

Apply the perpetual inventory system and the first-in first-out (FIFO) cost assignment method, maintain inventory cards, and report inventory at the lower of cost and net realisable value

Valuing inventory in a trading GST business. Covers the perpetual inventory system, maintaining inventory cards under first-in first-out (FIFO), recording purchases, sales and cost of goods sold, inventory write-downs to net realisable value, and the effect of valuation on profit.

6 min read →

How does a trading GST business adjust its records at balance day so that profit and position reflect the period they actually relate to?

Apply the accrual basis to record balance day adjustments for prepaid and accrued expenses, accrued and unearned revenue, and depreciation, so that the income statement and balance sheet are accurate

Balance day adjustments for a trading GST business. Covers the accrual basis, prepaid and accrued expenses, accrued and unearned revenue, the resulting current asset and current liability accounts, and how each adjustment corrects profit before the financial statements are prepared.

6 min read →

How does a trading GST business control and verify its cash resources so that recorded balances are reliable?

Apply double-entry and GST principles to record cash receipts and payments, and prepare a bank reconciliation statement to verify the cash at bank balance against the bank statement

Controlling cash in a trading GST business. Covers internal control over cash, recording GST-inclusive receipts and payments with correct double entry, the GST Clearing account, and preparing a bank reconciliation statement to verify the cash at bank balance against the bank statement.

6 min read →

How does a trading GST business record and control what it owes to suppliers so that payments are accurate, timely and verifiable?

Apply double-entry and GST principles to record credit purchases, purchase returns and payments to suppliers, and reconcile the accounts payable control account with the schedule of accounts payable

Controlling accounts payable in a trading GST business. Covers recording credit purchases with GST, purchase returns, payments and discount received, the accounts payable control account, the subsidiary ledger, and reconciling the control account to the schedule of accounts payable.

6 min read →

How does a trading GST business allocate the cost of a non-current asset over its useful life and account for its disposal?

Apply double-entry and GST principles to record the acquisition, depreciation (straight-line and reducing-balance) and disposal of non-current assets, and report carrying amount in the balance sheet

Non-current assets for a trading GST business. Covers recording acquisition cost with GST, the straight-line and reducing-balance depreciation methods, accumulated depreciation as a contra-asset, carrying amount, and the disposal entry that calculates the profit or loss on sale.

6 min read →

How should a trading GST business account for credit customers who may not pay, so that receivables and profit are not overstated?

Apply double-entry and GST principles to record credit sales, bad debts written off, and the allowance for doubtful debts, and report accounts receivable at net realisable value

Managing accounts receivable for a trading GST business. Covers recording credit sales with GST, writing off bad debts (and the GST adjustment), creating and adjusting the allowance for doubtful debts, recovering written-off debts, and reporting receivables at net realisable value under the accrual basis.

6 min read →

How does a trading GST business forecast its cash inflows and outflows so it can plan for surpluses and shortfalls before they happen?

Prepare a cash budget for a trading GST business that forecasts cash receipts and payments, calculates the budgeted closing bank balance, and informs decisions about managing liquidity

Preparing a cash budget for a trading GST business. Covers forecasting cash receipts from cash and credit sales, scheduling cash payments including GST remittance, the timing of accounts receivable collections, and calculating the budgeted closing bank balance to plan for surpluses and shortfalls.

7 min read →

How does a trading GST business report its performance and position in fully classified financial statements?

Prepare a fully classified income statement and balance sheet for a sole-trader trading GST business, applying accrual adjustments and correct classification of items

Preparing fully classified financial statements for a sole-trader trading GST business. Covers the classified income statement (cost of goods sold, gross profit, expense categories, net profit), the classified balance sheet (current and non-current assets and liabilities, equity), accrual adjustments, and the accounting equation.

6 min read →