Column One
The owners or shareholders of a company are only liable for the company's debts up to the amount they have invested in it. Their personal assets (e.g., home, car, savings) are protected and cannot be used to settle business debts, usually a Private or Public company.
What is limited liability?
These are summary accounts in the general ledger that reflect the balances of the related subsidiary ledgers.
What are control accounts?
The discipline that measures, records and processes financial and other information about an entity and reports and interprets that information to interested parties to enable them to make appropriate decisions.
What is Accounting?
The principle that states all assets are initially recorded at the amount of cash or cash equivalent paid at the time of acquisition. The assets, particularly long-term assets can be recorded at their original cost for a long period of time even though the value of the asset may have increased or decreased over that period.
What is the historical cost principle?
When every transaction entered into accounts, where total debits equal total credits.
What is Double Entry?
What is the ownership structure where the owner supplies most of the funds to commence the business, runs the business, is responsible for its debts and takes all its profits and bears all losses.
What is a Sole Trader
This provide evidence for both internal and external auditors as to the validity of transactions They are used as the basis for the accounting records. These collect and transmit information on transactions that usually occur in a section of the business different from where the accounting entries are made.
What is a source document?
This principle states that all transactions are recorded in the common monetary unit in use (dollars and cents). Transactions that cannot be quantified in financial terms are not recorded in the financial reports.
What is the Monetary Principle?
This involves immediate payment at the point of sale. The transaction is settled right away, and there is no outstanding liability or receivable.
What is a Cash Transaction?
What is profit?
Companies which are often family concerns.
What is a Private Company?
The outflow of money or the cost of the the business.
What is an Expense?
It contains detailed accounts of all transactions organised by account categories (eg Assets, Liabilities, Owner's Equity, Revenues and Expenses)
What is the General Ledger?
The owner/s of the business are responsible for all of the business' debts.
What is unlimited liability?
The tax a business collects from sales and can claim back on purchases.
What is the Goods and Services Tax?
Profit can be seen as the reward or return on the capital invested into a business. The more capital a company has (or invests), the more potential it has to generate revenue, which leads to higher profit. Profits earned by a business can be reinvested into the business as additional capital. This reinvestment helps the business grow, expand, and improve its financial stability over time.
What is the relationship between profit and capital?
What is capital?
The inflow of money to the business.
What is a Revenue?
Amounts owed to external parties.
What is a Liability?
Items of value owned and controlled by a business.
What is an Asset?
Accounting information is vital for investors (owners/shareholders) and other stakeholders as it provides a clear financial picture of a company. Investors use this information to assess the company's profitability, liquidity, and overall financial health, helping them make informed decisions about buying, holding, or selling shares. Other stakeholders include the Australian Taxation Office (ATO) and the Australian Bureau of Statistics (ABS). Accounting information supports decision-making, planning, and evaluating organizational performance.
How is accounting information used by investors and stakeholders?
Re-add the Trial Balance
Check that each account has a balance of it's normal nature.
Compare the balances in the ledger account with what is recorded in the Trial Balance.
Subtract the total debits from the total credits and look for the difference which can indicate a omitted posting.
Check the balance in each of the ledger accounts by readding the debits and credits and checking the subtraction to determine the balance.
Check all postings back to the journal and source documents.
What are the steps to check an unbalanced Trial Balance?
The owner takes out cash or inventories for personal use.
What is Drawings?
Control accounts provide a summarized total, while subsidiary ledgers maintain the detailed transactions that make up those totals. This helps in tracking individual transactions whilst keeping the general ledger concise and clear for reporting. Reconciliation between the control accounts and the subsidiary ledgers ensures accuracy in the financial records.
What is the relationship between the general ledger and control accounts?
It involved deferred payment. The buyer receives the goods or services but agrees to pay at a later date creating a liability for the buyer and a receivable for the seller.
What is a credit transaction?