VCE Accounting Question Thread!

[p.taaa]

Discount revenue is as stated by the name, classified as a revenue, or for the income statement, it goes under 'other revenues'.
It is earned when the firm pays back their trade creditor within the discount credit terms and gets a discount from them.
But a textbook definition would be, " A discount revenue is a saving in an outflow of economic benefits (cash) in the form of a decrease in liabilities (creditors control) that increases owners equity"

[smile+energy]

 I cant really remember how I would word this. But Reporting Period states the business' life must be divided into intervals of time so reports can be prepared and profit can be calculated. Profit is calculated under the the accrual accounting method. Which states profit is determinedby matching revenues earned in the period with the expenses incurred. Reporting Period ensures that only relevant revenues and expenses are included for the calculation of accurate profit.
^ say something like that, sorry I cant be of more help. But hopefully i gave you a starting point.

Your explanation is very clear, better than the textbook. Thanks

[smile+energy]

I don't really understand the accounting principle Conservatism, the definition is losses should be recorded when probable but gains should only be recorded when certain, so that liabilities and expenses are not understated and assets and expenses are not overstated. Can you explain further for me?
The accounting principle Consistency states that accounting methods should be applied..., what does the term "accounting methods" means?
I will appreciate your help, thanks

[Kuroyuki]

I don't really understand the accounting principle Conservatism, the definition is losses should be recorded when probable but gains should only be recorded when certain, so that liabilities and expenses are not understated and assets and expenses are not overstated. Can you explain further for me?
The accounting principle Consistency states that accounting methods should be applied..., what does the term "accounting methods" means?
I will appreciate your help, thanks

So for conservatism, accountants are meant to be prudent, like always on the safe side. For example, when a debt is unlikely to be recovered, like the loss is probable we write it off as a bad debt, this ensures that we are not overstating our profit for the period and the amount debtors owe us as an asset. Likewise we record our stock at cost price and only recognise the selling price after the stock has actually being sold, when the gain is certain in other words.
Accounting methods refer to how the business does accounting like using FIFO. The business shouldn't change from FIFO to any other cost assignment method, if it did reports would be inaccurate. Another example of different accounting methods is depreciation methods such as reducing balance or straight line.

[p.taaa]

Conservatism is there to account for the 'worst case scenario' so the firm can employ strategies to solve or to handle the worst possible outcome.

[TheWackyCheese]

Just quick question, in regards to the general ledger. What accounts would be affected if the business "Received from cash clients $2860, including GST of $260 (Cost of sales $1400)?" I'm thinking there are 5 accounts but I'm not sure as the transaction was already completed but only being paid now so I don't know what to put in.

[IT_Failure]

Just quick question, in regards to the general ledger. What accounts would be affected if the business "Received from cash clients $2860, including GST of $260 (Cost of sales $1400)?" I'm thinking there are 5 accounts but I'm not sure as the transaction was already completed but only being paid now so I don't know what to put in.

At the point of sale the accounts would appear as so: Debtors Control: (DR) $2680 (Individual Debtor account by same amount) Cost of Sales (DR) $1400, Sales: (CR): $2600, Gst Clearing: (CR) $260, Stock Control: (CR) $1400.

Therefore when a payment is received you are not recording the sale again but simply the receipt of debts owing to the business and the increase on bank. Therefore it will effect accounts in this way: Debtors Control: (CR) $2860 (Don't forget to record in individual debtor account too) Bank:(DR) $2680

[smile+energy]

So for conservatism, accountants are meant to be prudent, like always on the safe side. For example, when a debt is unlikely to be recovered, like the loss is probable we write it off as a bad debt, this ensures that we are not overstating our profit for the period and the amount debtors owe us as an asset. Likewise we record our stock at cost price and only recognise the selling price after the stock has actually being sold, when the gain is certain in other words.
Accounting methods refer to how the business does accounting like using FIFO. The business shouldn't change from FIFO to any other cost assignment method, if it did reports would be inaccurate. Another example of different accounting methods is depreciation methods such as reducing balance or straight line.

Wow, your explanations are excellent!
I really understand all of them now, thanks for your help

[smile+energy]

Conservatism is there to account for the 'worst case scenario' so the firm can employ strategies to solve or to handle the worst possible outcome.

I've got it, thank you

[smile+energy]

Can anyone solve the problem for me? It is from the Cambridge workbook and I don’t understand what market value is.
Q: the owner of Frosty Fridegs believes its market value is shown in the Balance Sheet as the difference between total assets and total liabilities.
Referring to one accounting principle, explain why the market value of Frosty Fridges will not be shown as the difference between total assets and total liabilities
Thanks in advance.

[TheWackyCheese]

At the point of sale the accounts would appear as so: Debtors Control: (DR) $2680 (Individual Debtor account by same amount) Cost of Sales (DR) $1400, Sales: (CR): $2600, Gst Clearing: (CR) $260, Stock Control: (CR) $1400.

Therefore when a payment is received you are not recording the sale again but simply the receipt of debts owing to the business and the increase on bank. Therefore it will effect accounts in this way: Debtors Control: (CR) $2860 (Don't forget to record in individual debtor account too) Bank:(DR) $2680

Sorry, I probably should've come back and said that I figured the answer out and there was no need for anyone to reply xD
But yeah, I got the exact same answer you worked out, thanks!

[IT_Failure]

Can anyone solve the problem for me? It is from the Cambridge workbook and I don’t understand what market value is.
Q: the owner of Frosty Fridegs believes its market value is shown in the Balance Sheet as the difference between total assets and total liabilities.
Referring to one accounting principle, explain why the market value of Frosty Fridges will not be shown as the difference between total assets and total liabilities
Thanks in advance.

Market value is the current value of an item if sold now, eg a car bought for $30000 2 years ago may now have a market value of $24000.
As Assets are recorded at historical cost, the balance sheet will not show the current value of these (even a carrying value does not directly relate to market value).

However I think this question is confusing, the difference between total assets and liabilities is the Owner's Equity (as per the accounting equation), and I don't see how this relates at all to the market value of the business at a whole.

[abcdqdxD]

Accounting reports should not be used as a valuation tool. The difference between total assets and liabilities is a number - and only a number. In theory, it represents owner's equity (the value of the owner's stake in the firm) but in practice this figure is meaningless. Owner's equity differs to market value in that market value can only be discovered at the point of sale. Market value is based on supply and demand, brand loyalty among other things and is not necessarily indicated by the value of the firm's owner's equity.

[chasej]

Do we need to know analysing charts? Like do we have to know the definition of an analysing chart etc? I know they aren't account reports but was wondering whether they would ever appear on the exam etc.

(I did a lot of practice with ledgers last year so if I don't need to know AC's I'll just skip the section.)

[abcdqdxD]

Do we need to know analysing charts? Like do we have to know the definition of an analysing chart etc? I know they aren't account reports but was wondering whether they would ever appear on the exam etc.

(I did a lot of practice with ledgers last year so if I don't need to know AC's I'll just skip the section.)

Definitely won't be assessed in the exam. For SACs, technically the school could assess anything they want but it is highly unlikely you will be asked for a definition. They may get you to fill in one though. Feel free to skip the section if you feel like you have a good grasp of double entry.