Topic 1: Preparing and Presenting Accounting Information

Balance day adjustments apply the accrual basis at year end: accrued and prepaid expenses, accrued and unearned revenue, depreciation and doubtful debts are recorded so that profit and position are stated correctly.

The income statement reports profit, the balance sheet reports financial position, and the cash flow statement reports cash movements. Together they present a complete picture of a business.

GST is collected on sales and paid on purchases. The business holds it on behalf of the ATO, so GST collected is a liability and GST paid reduces that liability; the net is remitted, not treated as revenue or expense.

The perpetual system updates inventory at every transaction; the periodic system counts at period end. FIFO assigns the earliest costs to cost of goods sold, leaving the most recent costs in closing inventory.

Transactions flow from source documents into journals, are posted to ledger accounts, and are summarised in a trial balance. This is the recording cycle that produces reliable financial information.

The accounting equation, Assets = Liabilities + Owner's Equity, underpins all recording. Double-entry means every transaction affects at least two accounts and keeps the equation in balance.