COST VOLUME PROFIT ANALYSIS
What are the two types of costs used in break-even analysis?
Fixed costs and variable costs.
Which journal records payments made by the business?
Cash Payments Journal.
What are the three sections of a Cash Flow Statement?
Operating, Investing, Financing.
If a business collects more GST than it pays, what is the balance called?
GST Payable.
What does the accrual basis assumption mean?
Record income when earned and expenses when incurred.
What does it mean when a business “breaks even”?
It covers all costs but makes zero profit
What source document is used to record a credit transaction?
Invoice.
Buying equipment falls under which section?
Investing activities.
Is GST Payable an asset, liability, or owner’s equity?
Liability.
Why are transactions classified as assets, liabilities, or equity?
To ensure accurate financial reporting.
Why might a business lower its selling price even if it increases the number of units sold?
To stay competitive or attract more customers, despite potentially lower profits.
Which journal would you use to record a cash sale including GST?
Cash Receipts Journal
Taking out a loan would be recorded in which section?
Financing activities.
What is the effect of a credit purchase on GST and liabilities?
Increases GST Paid and Accounts Payable.
How does a bank statement help a business with internal control?
Helps verify and detect errors or fraud in cash records.
Give one reason why knowing the break-even point is useful for a business.
Helps set sales targets and pricing strategies.
You purchase goods on credit. Which journal do you record this in?
Purchases Journal.
Why would Drawings appear in a Cash Flow Statement?
It’s a cash outflow affecting financing activities.
Why do businesses need to keep track of GST separately from other amounts?
To calculate what is owed to or from the ATO.
What effect does invoicing a customer for services have on the accounting equation?
Assets ↑ (Accounts Receivable), Equity ↑ (Revenue).
What happens to the break-even point if fixed costs increase but selling price stays the same?
The business must sell more units to break even.
A customer pays part of what they owe. Which journal and column would this go in?
Cash Receipts Journal, Accounts Receivable column.
What does a positive cash flow from operations suggest about a business?
It’s generating more cash than it's spending on daily operations.
How would a GST refund from the ATO be classified in the accounting records?
As a current asset (GST Receivable).
Give two reasons why profit does not always match the change in bank balance.
Timing differences (credit sales/purchases), non-cash items (e.g. depreciation).