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VCAA exam 2007 Q. 2.5 ...help
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shadezofemerald:
the vcaa website shows there are two ways to do this, i wanted to do the longer one but don't get how the debtor's control is $6500. I asked my teacher and she told me it shouldn't be $6500 and it wasn't very clear. So can someone explain why it's $6500 please. :(
Scarlett:
Alright I'll give explaining a go:
The question says that the total selling price of 10 treadmills is $33 000, including $3 000 GST. Therefore, each treadmill has a selling price of $3 000, plus $300 GST. If five treadmills have been delivered, the total revenue earned would be $3 000 x 5 treadmills = $15 000, which means that our Sales Revenue account has to be credited with $15 000. It also means that the GST charged upon delivery should be 10% of $15 000 = $1 500.
Still with me? Alright.
Now we know that $10 000 has already been received as Prepaid Sales Revenue. We can make a Balance Day Adjustment to record this revenue as being earned.
DR Prepaid Sales Revenue $10 000
CR Sales $10 000
As I said before, our Sales Revenue account has to be credited in total $15 000. It is therefore clear an additional $5 000 must be charged to Debtors.
DR Debtors Control $5 000
CR Sales $5 000
Now let's look at the GST. The amount of GST charged is $1 500. Therefore, this needs to be debited to Debtors Control.
DR Debtors Control $1 500
CR GST Clearing $1 500
So now we can put it all together, and we get (not taking into account subsidiary ledger entries or the Cost of Sales/Stock Control entry):
DR Debtors Control $6 500
DR Prepaid Sales Revenue $10 000
CR Sales $15 000
CR GST Clearing $1 500
The $6 500 comes from the debit entry of the $5 000 earned as sales and the debit entry of $1 500 for GST. I hope that makes sense.
shadezofemerald:
yep that makes sense! thank-you so much for taking the time to explain it so throughly!!
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