VCE Accounting Question Thread!

[sin0001]

Yea, I meant General Ledger. Wait so since every transaction must be included in a journal, does that mean that Stock gains/losses are also recorded in the General Journal, or only in Stock cards?

[abcdqd]

Yea, I meant General Ledger. Wait so since every transaction must be included in a journal, does that mean that Stock gains/losses are also recorded in the General Journal, or only in Stock cards?

they are recorded in the general journal as well because they can't be recorded in any special journal

[sin0001]

Are drawings included in cost of sales?
Might be a stupid question, but right now I can't figure it out.

[sin0001]

When a business establishes a double-recording system and it already owns a number of assets, do these assets need to be recorded as capital? (When recording the opening balance in the General Journal)

[abcdqdxD]

When a business establishes a double-recording system and it already owns a number of assets, do these assets need to be recorded as capital? (When recording the opening balance in the General Journal)

Yes

[sin0001]

But the owner didn't just contribute them in the current reporting period, the bussiness owns them from before?

[abcdqd]

if the business already existed, and is now just switching to double entry, its assets, liabilities, and owners equity would remain the same, as this is required for the accounting equation to balance. the owner would have bought any previous assets and they would already be included in the capital.

if the business didn't exist before, how can it have assets without the owner buying them.

i'm confused, can you provide the specific question for this?

also, addressing your concern of recording opening balances, they usually give you everything except the capital, which you have to work out by recording all the assets and liabilities first then balancing the debit and credit sides.

[abcdqdxD]

You can't have assets without capital (unless 100% of your assets are funded by liabilities).

Even though you aren't contributing any new capital, the purpose of the commencement entry is to reflect your current business situation in your accounting records. To do this we record the balance of all existing A/L/OE accounts into our commencement entry. If we didn't record capital in the commencement entry, our business would have assets but no capital (which is clearly not the case!)

You don't even need to worry about the accounting equation, what I said above should make sense intuitively

[sin0001]

Ahh alright thanks guys, that makes sense. So that means we have to record every source of finance (loan aswell) in the GJ?

[abcdqdxD]

Ahh alright thanks guys, that makes sense. So that means we have to record every source of finance (loan aswell) in the GJ?

Yep

[TimmyC]

Hey guys im really stuck on this part of my upcoming sac: why establish a dbl. entry system?

[sin0001]

Main reason is to make sure that records are accurate, because with general ledgers you're recording twice, before financial info. is reported.

[TimmyC]

Main reason is to make sure that records are accurate, because with general ledgers you're recording twice, before financial info. is reported.

yeah, thanks mate

[abcdqdxD]

Main reason is to make sure that records are accurate, because with general ledgers you're recording twice, before financial info. is reported.

be careful of using the word "accurate", because accounting records can never be accurate (quoting my uni lecturer) due to the element of judgement and use of estimates (e.g. depreciation/nrv/etc.)

some advantages of double entry:

Easier detection of errors and fraud
Preparation of financial statements directly from the ledger accounts

I think it's also important to understand its limitations/disadvantages:

Every transaction is recorded twice, hence is more time-consuming
Specialised staff may be required as it is a more complex system
Extra recording may result in higher administration costs
 

[dinosaur93]

What does it mean when it says 'Stock Control' and 'Cost of Sales'?