Chapter 5 Chapter 5  Transaction analysis for double-entry accounting (with GST)  

Transaction analysis for

double-entry accounting
(with GST)
Information Procedures
IP 4.3 and 5.3
Working through this chapter will assist you to:
• classify accounts to prepare financial records
• apply accounting principles to record transactions.

INFORMATION PROCEDURES

Chapter 1
Nature of
Chapter 2
Managing
Chapter 3
Source
Chapter 4
Accounting
Chapter 5 Chapter 6
The double-
Chapter 7
Specialised
Chapter 8
Other
Chapter 9
End-of-
Chapter 10
Control
information information documents fundamentals Transaction analysis entry journals accounting period procedures
process systems reports

Key topics:
Double-entry
accounting
Goods and
Services Tax
Transaction analysis
  Focus on Business 1 Chapter 5  Transaction analysis for double-entry accounting (with GST)  

Double-entry accounting Goods and Services Tax (GST)

In the previous chapters we’ve discussed accounting systems in a general way
and the rules that these systems follow. In this chapter we will begin to look at an
actual accounting system that businesses use. We’ll see how the rules for accounts
and the accounting equation are applied to transactions in this system.
The system we are examining is known as double entry.
✦ The double-entry system of accounting states that for every transaction there is
a debit (DR) entry and a corresponding credit (CR) entry of equal value.
The double-entry system allows businesses to build safeguards into their
accounting system and to prepare detailed and varied financial reports. It also
ensures that the accounting equation remains equal.
Assets = Liabilities + Owner’s equity
DR = CR
Figure [5.1] illustrates the flow of information in a double-entry system of
accounting. In this chapter we are focusing on the thinking process involved in
recording information into the accounting system of a business. In later chapters
we’ll look at the other steps in the double-entry system.
[5.1] Double-entry accounting process
Thinking process:
transaction analysis
Every time you buy a magazine or book or go to the movies, for example, you pay
Goods and Services Tax (GST). Although businesses are also charged GST on goods
and services they purchase, they are able to claim this back from the government.
It is eventually only the final consumer who pays the GST.
The Commonwealth government introduced this tax on 1 July 2000. It applies
to most goods and services and is calculated at the rate of 10% of the total price of
the product or service. Only businesses that register with the Australian Taxation
Office (ATO) are required to charge GST. They receive an Australian Business
Number (ABN), which they must display on all their business documents.
Where a price includes the amount of GST to be paid, it is said to be GST-
inclusive. When the GST component has not yet been added to the price for a
product or service, the price is said to be GST-exclusive. Figure [5.2] shows prices
in both formats.
✦ GST-inclusive indicates that the price given for a product includes the GST
component.
✦ GST-exclusive indicates that the price given for a product has not had the GST
component added.
[5.2] A document that shows both
GST-inclusive and GST-exclusive prices

Source Financial Evaluation of

Journal Ledger Trial balance The GST-exclusive price
documents reports reports

The GST-inclusive price

Example The GST-inclusive price of a product is given as $165. In order to determine the
GST-inclusive value of GST, it is necessary to divide the price by 11 or multiply by   .
calculations Therefore, the GST component of the above product
=   × $165
= $15
  Focus on Business 1 Chapter 5  Transaction analysis for double-entry accounting (with GST)  

Example The GST-exclusive price of a product is given as $150. In order to determine the
Example Consider the following transaction:
GST-exclusive value of GST, the product selling price is simply multiplied by 10%: Purchase of an On 1 June 2007 Petra Pollack bought computer equipment for business purposes for
calculations GST = 10% × $150 asset for cash $22 000 cash (including GST). The GST included in the price paid is 1/11th of the total.
= $15 So that is 22 000 divided by 11 = $2 000. That means that the value of the equipment
Therefore, the full selling price of the product would be is $20 000, but the business has to pay $22 000 to purchase the equipment. GST that
$150 + $15 = $165. is paid by businesses on its purchases is able to be reclaimed (paid back) from the
government.
It is important to distinguish between the terms GST inclusive and GST Equipment is an asset account, which has a debit nature. Because the computer
exclusive, because the calculation of the GST component will vary accordingly. In equipment account is increasing (that is, the business has more invested in computer
this chapter, GST will be recorded in a GST account, and this account is a liability equipment than before this transaction), the computer equipment account would be
as it represents the amount of GST owed to the government. When a business debited. The GST included in the price is also debited as it is decreasing the amount
pays for goods and services it purchases, it has to pay out the total cost including the business has to pay to the government because this amount of GST can be
GST. However, as long as a business has kept correct records, it can reclaim from reclaimed by Petra’s business. Remember that you have learnt that assets are debit
the government the amount of GST it has had to pay to run its business. This then in nature and that to increase an account you do the same as its nature. On the other
reduces the GST liability. When the business makes sales of its goods or services, it hand, the bank account (an asset ) would decrease because Petra’s Peraphernalia
must collect GST. This is a liability as this amount is paid to the government. has paid money out of this account. Because the bank account is an asset account
GST is only involved in transactions that are based on the buying and selling decreasing, it is credited.
of goods and services. If the transaction does not involve buying or selling, GST is
not included. GST is also not included in financial transactions (e.g. transactions
with a bank) and some food items (generally fresh food). The following is a list of Analysing transactions involves the following questioning process:
transactions that will be included in this chapter that do not include GST:
• capital contributions by the owner (cash and other assets) 1 Which accounts does
2 What category does each
• drawings by the owner (cash only) of these accounts belong
the transaction affect?
to? (Revenue, expense,
• interest paid on a loan (names of individual
asset, liability or owner’s
accounts)
• interest received from a bank equity?)
• a loan from a bank
• a loan to another party
• payment of wages to employees. 3 Is the value of the 4 Will this increase or
Something to remember is that GST only involves sales and purchases of goods individual account going decrease lead to this
and services and that when a sale is concerned, GST is always credited because the to increase or decrease account being debited or
as a result of the credited?
liability is increasing. When purchases are made, GST is always debited because transaction?
the liability is decreasing.
If you apply this process in the table format called a transactional analysis table

Transaction analysis (see [5.3]), you will have an invaluable tool for learning the rules of double-entry
accounting.
We discussed the first step in the accounting process, the preparation of source
documents, in chapter 3. These source documents contain the details of [5.3] Transaction analysis table
transactions. The next step is to record the information about the transactions
Transaction Account Account type Increase or Debit or credit Amount
into the journals of a business. involved decrease
First, however, you need to practise the thinking process that will help you
apply the rules for accounts to transactions and ensure you enter the information
A business
activity with a
Be concise and
select the most
Revenue, ↑ or ↓ Apply the rules: Record the
amount to be
Expense, debit or credit so that
correctly into the business’s financial records. This process is called transaction financial value obvious name Asset, Debits = Credits entered into
analysis. or the common Liability or each account
name used for
Owner’s equity
✦ Transaction analysis is a process used to break down a transaction into its debit that type of
and credit parts. It is the ‘thinking process’ involved in taking information from the activity
source document/transaction and applying the rules of debit and credit so that
you can enter the details into the accounting records.
  Focus on Business 1 Chapter 5  Transaction analysis for double-entry accounting (with GST)  

We will use this table format to show how the following transactions are [5.4] Transaction analysis of contributions by the owner
analysed: Type of transaction Example Accounts Type of Increase or Debit Amount
involved account decrease or
• contributions of cash or other • withdrawals of cash by the owner credit
assets by the owner (no GST) (no GST)
Investment of cash Petra Pollack Bank Asset Increase DR $20 000
• purchases of assets for cash (GST) • purchases of assets on credit (GST) by owner invested Capital Owner’s equity Increase CR $20 000
• sales of assets (other than • sales of assets (other than $20 000 cash
inventories) for cash (GST) inventories) on credit (GST) Investment of Petra Computer equipment Asset Increase DR $25 000
• sales of inventories for cash (GST) • sales of inventories on credit (GST) assets other than contributed Capital Owner’s equity Increase CR $25 000
cash by owner computer
• sales of services for cash (GST) • sales of services on credit (GST)
equipment for
• return of inventories purchased • return of inventories purchased on business use
for cash (GST) credit (GST)
• return of inventories sold for cash • return of inventories sold on credit
(GST) (GST) RULE Asset (e.g. Bank, Vehicle, Equipment) Increase DR
• cash paid to accounts payable • purchase of supplies and services for Owner’s equity (Capital) Increase CR
(not a sale or a purchase—no GST) cash (GST)
• purchase of supplies and services
on credit (GST)
• cash received from accounts
receivable (not a sale or a activity KNOWING AND DOING 5.1
purchase—no GST)
1 What is transaction analysis?
• other cash received (may involve
2 Explain the double-entry system of accounting. Illustrate your answer.
GST e.g. commission or may not
3 What are the steps involved in analysing transactions?
involve GST, e.g. interest).
Analysing and evaluating 4 Draw a flow diagram to illustrate the steps involved in analysing transactions.
Applying
Communicating 5 What are the benefits of preparing a transaction analysis table?
Knowing and understanding
6 Distinguish between GST exclusive and GST inclusive.
Contributions of cash or other assets 7 List some items on which you pay GST.
by the owner 8 Find out which everyday items GST is not charged on.
9 Calculate the GST amount for each of the following.
Business owners usually make an investment of cash and/or other assets to start
a $700 (GST exclusive) b $440 (GST exclusive)
a business. They do this so that the business can begin purchasing the items and
c $165 (GST inclusive) d $720 (GST exclusive)
services needed to begin the business. When the owner makes an investment, the
e $1 210 (GST inclusive) f $66 (GST exclusive)
name of the account used to record these contributions is called ‘capital’ and is
10 What is the purpose of the capital account?
grouped with the owner’s equity accounts.
11 Why do we always represent transactions from the point of view of the business?
✦ Capital is the name of the account used to record the owner’s contributions to a 12 Identify the accounts involved in each of the following transactions.
business. a J Smith invested $40 000 cash into a business.
b B Clancy contributed $20 000 cash and a vehicle worth $40 000 into his
When an owner contributes cash or other assets to the business, we always
new business.
represent (and record) the transaction from the business’s point of view. As the
13 What type of account is each of the following?
transaction analysis table [5.4] shows, the assets (for example, Bank or Computer
a Capital b Bank
equipment) are said to be increasing and therefore they are debited. At the same
c Motor vehicle d Equipment
time, the amount invested by the owner is increasing and the Capital account is
e Furniture f Buildings
therefore credited.
14 Complete a transaction analysis table for the following transactions.
• Jenny Wong invested $100 000 cash into her new business.
• Nicky’s Nautical Wear received a $60 000 contribution in cash from the owner.
• Jan Lowe commenced business with a vehicle valued at $25 000, equipment
worth $10 000 and $40 000 cash.
  Focus on Business 1 Chapter 5  Transaction analysis for double-entry accounting (with GST)  

Note to teachers:
This section of Withdrawal of cash by the owner ‘Goods’ are also called
Purchase of assets—cash
Chapter 5 Transaction
A business owner may want to take out cash to use for their personal needs outside ‘inventories, stock or Just as we buy furniture or equipment (for example, washing machines or
analysis for double-
the business. When a business owner withdraws cash, a negative owner’s equity merchandise’. toasters) to use in our homes to make our lives comfortable, businesses buy assets
entry accounting (with
GST) differs slightly account called ‘drawings’ is used to record this transaction. GST is not involved in such as vehicles, furniture or equipment (for example, computers or fax machines). A
from Chapter 5 in the this type of transaction. trading business purchases goods and these goods are called inventories. Inventories
textbook. Drawings
of cash only will be are owned by the business (until they are sold) so they are also assets. GST is paid
✦ The drawings account is the name of the account where businesses record that
considered in this on all purchases of assets but the business can reclaim this amount of GST from the
the owner has withdrawn cash from the business, for personal use.
chapter as it does government at a later date.
not involve GST. This
As the transaction analysis table [5.5] shows, the drawings account is a When a business buys an asset, the value of the assets (what the business owns)
chapter only considers
drawings of cash, ‘negative’ owner’s equity account and has a debit nature because it decreases the increases. You therefore debit the asset account (for example, the Motor vehicle,
not other assets. value of the owner’s investment. At the same time, the asset account from which Inventories, Furniture or Equipment account), as [5.6] illustrates. GST is debited
GST as it applies the withdrawal is made is also decreasing and is therefore credited. because it represents a decrease in the liability of GST owed to the government
to the withdrawal of
inventories and other because GST paid on purchases can be reclaimed by a business. If the business
assets (other than cash) uses cash to buy the asset, then the Bank account will decrease because there will
is outside the scope of be less money in the account. Decreases in assets are credited.
this junior course.
[5.6] Transaction analysis of the purchase of an asset for cash
[5.5] Transaction analysis of cash withdrawn by the owner
Type of Example Accounts Type of Increase or Debit Amount
Type of transaction Example Accounts Type of account Increase or Debit Amount transaction involved account decrease or
involved decrease or credit
credit Purchase of Bought equipment for Equipment Asset Increase DR $4 000
Drawings of cash Petra withdrew $200 Drawings Negative owner’s Increase DR $200 asset for cash $4 400 cash GST clearing Liability Decrease DR $400
by owner cash for personal use equity Bank Asset Decrease CR $4 400
Bank Asset Decrease CR $200

RULE Asset (e.g. Furniture, Inventories, Motor vehicle) Increase DR

RULE Negative owner’s equity (Drawings) Increase DR Liability (GST) Decrease DR
Asset (Bank) Decrease CR Asset (Bank) Decrease CR

activity KNOWING AND DOING 5.2

Analysing and evaluating
Applying
Knowing and understanding
1 What is the purpose of the Drawings account?
2 Why do we debit the Drawings account when the owner takes out cash for
personal use?
3 Why is the Drawings account called a ‘negative’ owner’s equity?
4 Analyse the following transactions:
a Benny Koutsis withdrew $200 to pay for personal expenses.
b The owner paid for her $365 home electricity bill from her business’s bank account.
c Johnny Liu (owner) took cash of $150 for his own use.
5 Analyse the following transactions for Linda Young:
a Linda contributed a motor vehicle valued at $40 000.
b Linda withdrew $50 for personal use.
c Linda invested an additional $10 000 into the business.
d Linda paid a $400 account for her daughter’s school fees from the business’s
bank account.
10  Focus on Business 1 Chapter 5  Transaction analysis for double-entry accounting (with GST)  11

Purchase of assets—credit Sale of assets (other than inventories)—cash

If the business buys an asset on credit (that is, the business will pay for the asset Sometimes a business may find it has no further use for a particular asset, or the
at a later date), then a record of the business or person to whom the business item now uses technology that has become out of date (for example, a computer).
owes money is necessary. The individual account used to record the amount owed When a business sells its assets, the value of the business’s assets decreases.
to an individual or other business is called an ‘Accounts Payable’. This account is Therefore, we credit the individual asset account (for example, computer
classified as a liability. Therefore, because the amount that the business owes has equipment or furniture) as [5.8] shows. If the business sells the asset for cash, then
increased, it is necessary to credit the Accounts Payable account (see [5.7]). The the bank account will increase because there will be more money in this account.
GST involved in this transaction is recorded when the purchase is made. The cash Increases in assets are debited. When a business sells any of its assets it must
owing is recorded at a different time. charge GST on the sale. GST is a liability and it is remitted to the government at a
later date; and as the amount owing is increasing it is credit.
[5.7] Transaction analysis of the purchase of assets on credit
[5.8] Transaction analysis of the sale of an asset (other than inventories) for cash
Type of Example Accounts Type of Increase or Debit Amount
transaction involved account decrease or Type of transaction Example Accounts Type of Increase or Debit or Amount
credit involved account decrease credit
Purchase of Bought $2 200 worth of Inventories Asset Increase DR $2 000 Sale of asset for cash Sold equipment for Bank Asset Increase DR $770
asset on credit inventories from Mandy GST clearing Liability Decrease DR $200 (not inventories) $770 cash Equipment Asset Decrease CR $700
Taylor Accounts payable— Liability Increase CR $2 200 GST clearing Liability Increase CR $70
Mandy Taylor

RULE Asset (Bank) Increase DR

RULE Asset (e.g. Furniture, Inventories, Motor vehicle) Increase DR
Asset (e.g. Furniture, Equipment) Decrease CR
Liability (GST clearing) Decrease DR
Liability (GST clearing) Increase CR
Liability (Accounts payable—name) Increase CR

Sale of assets (other than inventories)—

activity KNOWING AND DOING 5.3 credit
1 Explain the difference between a cash purchase and a credit purchase. If the business sells an asset on credit (that is, it will receive the money for the
2 What is the rule for the purchase of an asset on credit? asset at a later date), then it needs to keep a record of the person or business owing
3 What is the rule for the purchase of inventories on credit? the money. The account used to record the amount that another business or an
Analysing and evaluating
Applying
4 What are three other names used to identify the inventories of a business? individual owes is called an ‘accounts receivable’. We classify this account as an
Knowing and understanding 5 Why are inventories an asset to a business? asset. Therefore, because the value of the business’s assets is increasing, we debit
6 What is the rule to record the purchase of goods on credit? the accounts receivable account (see [5.9]).
7 What is the rule to record the purchase of inventories for cash?
[5.9] Transaction analysis of the sale of an asset (other than inventories) on credit
8 Analyse the following transactions:
a Bought goods for $1 100 cash. Type of Example Accounts Type of Increase Debit Amount
transaction involved account or or
b Purchased stock valued at $5 500 for cash. decrease credit
c Inventories worth $2 200 were bought on credit from Wholly Suppliers.
Sale of asset on Sold motor vehicle to Accounts receivable—
d Bought stock from Tickle Co. for $11 000 on credit. credit H Nolls for $16 500 on H Nolls Asset Increase DR $16 500
e Georgia Parks purchased a new delivery van for $66 000 cash. credit Motor vehicle Asset Decrease CR $15 000
f Hao Van Nguyen bought furniture for the business for $2 200. He paid by cheque. GST clearing Liability Increase CR $1 500
g Chris Chester bought a new computer from Computer World for $3 300 on credit.
h Tommy Chan bought a new vehicle from Westside Motors for $33 000 on credit. He
RULE Asset (Accounts receivable—name) Increase DR
paid a $5 000 deposit.
Asset (e.g. Furniture, Equipment) Decrease CR
Liability (GST clearing) Increase CR
12  Focus on Business 1 Chapter 5  Transaction analysis for double-entry accounting (with GST)  13

activity Sales of inventories—cash

KNOWING AND DOING 5.4 Petra’s Paraphernalia, the business we’ve been using as an example in this book, is a
1 What is the rule to record the sale of assets (other than inventories) for cash? trading enterprise, that is, Petra buys goods and resells them at a higher price. The
2 What is the rule to record the sale of assets (other than inventories) on credit? price Petra buys goods for is called the cost price. When she sells the goods, they are
3 Explain the term ‘accounts receivable’. sold at a different price, the selling price, which is the cost price plus a mark-up
Analysing and evaluating 4 Why is an accounts receivable an asset? and with GST added on as well.
Applying
Knowing and understanding
5 Complete the following transaction analysis table:
✦ Cost price includes the cost of the goods bought and any costs of getting the
goods ready for sale.
Transaction Accounts involved Type of Increase Debit Amount ✦ Selling price is the price for which the business sells the product(s) and GST is
account or or
decrease credit
added to this price.

Sold vehicle for Bank ✦ Mark-up is an amount added to the cost price to work out the selling price before
$22 000 cash Vehicle GST is added.
GST
Businesses use both sets of prices when recording a sale of inventories. The
Bank Asset Increase $550 cost price is the value of the goods recorded in the inventories account.
Furniture Asset Decrease $500
The selling price is the value used when the business records the revenue
GST Liability Increase $50
earned from the sale.
Accounts receivable— Asset Increase $1 100
Therefore, when a sale of inventories occurs, a business makes two distinct
T Antonio
entries in the records of the business—a selling price entry (with GST) and a cost
Machinery Asset Decrease $1 000
GST clearing Liability Increase $100
price entry (no GST).
Sold equipment to
V Collins for $990 Recording the selling price
C Papadopoulos sold If a business sells goods for cash, the bank account will increase by the full
furniture worth $1 100 amount received from the customer, that is, the selling price and GST (as shown in
to B Henry on credit. [5.10]). Increases in assets are debited. The income earned by the business (that is,
Received a $200
revenue) also increases and the GST liability also increases. We call the individual
deposit
account used to record this type of income a ‘sales revenue’ account or just ‘sales’.
D Coulter sold P
Fleming a computer for
Increases in revenue are credited.
$2 200
Accounts receivable— $4 500 Recording the cost price
O Redding The business also needs to record the cost price effect of the entry. The value of
Bank $1 000 inventories is decreasing; therefore, the asset account, inventories, is credited (see
Equipment $5 000
[5.10]). An expense account called ‘cost of goods sold’ is debited as this reflects the
GST clearing $500
costs directly associated with selling the products.
14  Focus on Business 1 Chapter 5  Transaction analysis for double-entry accounting (with GST)  15

activity
[5.10] Transaction analysis of sale of inventories for cash

Type of transaction Example Accounts

involved
Type of
account
Increase or
decrease
Debit
or
Amount
KNOWING AND DOING 5.5
credit 1 Why do businesses need two prices to record the sale of inventories?
Bank Asset Increase DR $660 2 What is the rule to record the cost price of goods sold for cash?
Sales Revenue Increase CR $600 3 What is the rule to record the selling price of goods sold for cash?
Sale of inventories Sold goods for $660 GST clearing Liability Increase CR $60
for cash cash (cost price $300) Analysing and evaluating 4 What is the rule to record the cost price of goods sold on credit?
Cost of goods sold Expense Increase DR $300 Applying
Knowing and understanding 5 What is the rule to record the selling price of goods sold on credit?
Inventories Asset Decrease CR $300
6 Analyse the following transactions:
a Sold inventories for $1 100 cash (cost price $600).
RULE Asset (Bank) Increase DR b Sold stock for $1 650 cash (cost price $700).
Selling price Revenue (Sales) Increase CR c Inventories worth $2 200 were sold on credit to P Chester (cost price $1 400).
d Y Polti was sold goods on credit for $3 300 (cost price $2 000).
Liability (GST clearing) Increase CR
e N Wiseman was sold goods on credit for $880 (cost price 50% of selling price).
Expense (Cost of goods sold) Increase DR f Inventories worth $990 were sold to B Vandermeer for cash (cost price 40%
Cost price of selling price).
Asset (Inventories) Decrease CR g Cash sales $3 300 (cost price $1 600).

Sales of inventories—credit Sale of services—cash

Similarly, when a business sells inventories on credit, it must record both the When service enterprises (that is, businesses such as an auto-repair centre or
selling price (plus GST) and cost price part of the transaction. In a credit sale, an accountancy firm), sell their services, they increase their revenue. Service
however, the business has not yet received the cash, so it needs to record the name enterprises record this type of revenue in a ‘Service Fees Revenue’ account.
of the person or business who now owes it money. The account name given is GST is charged on the sale of services and remitted to the government. If the
‘Accounts receivable—name of business or person’. As shown in [5.11], we debit business provides a service for cash then the asset account, Bank, will increase
Accounts receivable (name) because this represents an increase in the business’s and, therefore, will be debited (see [5.12]). The service fees revenue earned
assets. All the other accounts involved remain the same as the ones used for cash by the business will increase and therefore be credited. As this type of transaction
sales of inventories. represents a sale, the GST owing (liability) is increasing and is credited.
[5.11] Transaction analysis of sale of inventories on credit [5.12] Transaction analysis of the sale of services for cash
Type of Example Accounts Type of Increase Debit Amount Type of transaction Example Accounts Type of Increase Debit Amount
transaction involved account or or involved account or or
decrease credit decrease credit
Accounts receivable— Sale of service for Serviced vehicle for a Bank Asset Increase DR $330
Party Planners Ltd Asset Increase DR $880 cash cash customer $330
Sold stock to Service fees revenue Revenue Increase CR $300
Sale of Sales Revenue Increase CR $800
Party Planners Ltd GST clearing Liability Increase CR $30
inventories on GST clearing
on credit for $880 Liability Increase CR $80
credit
(cost price $400) Cost of goods sold Expense Increase DR $400
Inventories Asset Decrease CR $400 RULE Asset (Bank) Increase DR
Revenue (Service fees revenue) Increase CR
Liability (GST clearing) Increase CR
RULE Asset (Accounts receivable—name) Increase DR

Selling price Revenue (Sales) Increase CR

Liability (GST clearing) Increase CR

Expense (Cost of goods sold) Increase DR

Cost price
Asset (Inventories) Decrease CR
16  Focus on Business 1 Chapter 5  Transaction analysis for double-entry accounting (with GST)  17

Sale of services—credit
If a business sells its services on credit to a customer, then (as shown in [5.13]) it
debits the Accounts receivable account for the customer because the customer
now owes the business money and this results in an increase in assets. The Service
fees revenue account will still be credited because the revenues for the business
have increased, and as GST is charged it is therefore credited.
of the returned goods. This means (as shown in [5.14]) that the bank account
will increase and, therefore, be debited. On the other hand, the inventories will
decrease because the value of business’s assets is less—decreases in assets are
credited. The GST clearing account is also affected and will be credited (opposite
to when goods were purchased).
[5.14] Transaction analysis of the return of inventories that a business had purchased for cash

Type of transaction Example Accounts Type of Increase or Debit Amount

[5.13] Transaction analysis of the sale of services on credit
involved account decrease or
Type of Example Accounts Type of Increase Debit Amount credit
transaction involved account or or Return of goods Returned damaged Bank Asset Increase DR $55
decrease credit purchased for cash inventories for $55 refund Inventories Asset Decrease CR $50
Sale of Serviced E Winters’s Accounts receivable—E Winters Asset Increase DR $220 GST clearing Liability Increase CR $5
service on vehicle for $220 on Service fees revenue Revenue Increase CR $200
credit credit GST clearing Liability Increase CR $20
RULE Asset (Bank) Increase DR
Asset (Inventories) Decrease CR
RULE Asset (Accounts receivable—name) Increase DR
Liability (GST clearing) Increase CR
Revenue (Service fees revenue) Increase CR
Liability (GST clearing) Increase CR

Return of inventories purchased on credit

activity KNOWING AND DOING 5.6
If the business originally purchased the goods on credit, the amount that the
business now owes to the supplier is reduced. This will result in a decrease in
1 What is ‘service fees revenue’? a liability account—Accounts payable—and this account will be debited (see
2 List five types of businesses in your local area that would use a Service fees revenue [5.15]). Again, the value of inventories owned by the business has decreased and
account. will be credited because the asset has decreased and GST clearing, a liability, will
Analysing and evaluating 3 What is the rule to record the sale of services for cash? be increased—credited.
Applying
Knowing and understanding 4 What is the rule to record the sale of services on credit?
[5.15] Transaction analysis of the return of inventories that a business had purchased on credit
5 Analyse the following transactions.
a Received $660 cash for services provided. Type of Example Accounts Type of Increase Debit Amount
transaction involved account or or
b $440 cash was received for accounting services provided. decrease credit
c Bookkeeping fees of $220 were provided to DH Chu on account.
Return of goods Returned goods Accounts payable—
d Security services were provided on credit to Nick’s Nightclub for $165. purchased on worth $77 Parties Galore Liability Decrease DR $77
e Design consultancy fees of $330 each were charged to G Kingley and W Quentin. credit originally bought Inventories Asset Decrease CR $70
on credit from GST clearing Liability Increase CR $7
Parties Galore

Return of inventories purchased for cash RULE Liability (Accounts payable—name) Decrease DR
Sometimes when a business purchases inventories, it may find that the goods are Asset (Inventories) Decrease CR
faulty, the wrong size or unsuitable in some other way. The business may decide Liability (GST clearing) Increase CR
to return the goods or keep them if the supplier provides an adjustment to the
price of the goods. This is called an ‘allowance’. Whether the goods are returned
or an allowance is given, the effects on the accounts are the same. If the business
originally bought the goods for cash, then it will receive a refund for the full value
18  Focus on Business 1 Chapter 5  Transaction analysis for double-entry accounting (with GST)  19

activity
[5.16] Transaction analysis of the return of inventories originally sold for cash

KNOWING AND DOING 5.7 Type of

transaction
Example Accounts
Involved
Type of account Increase
or
Debit
or
Amount

1 What is the rule to record the return of inventories purchased for cash? decrease credit
2 What is the rule to record the return of inventories purchased on credit? Return of goods $110 worth of goods Sales returns Negative revenue Increase DR $100
sold for cash were returned for a Bank Asset Decrease CR $110
3 Why is a cash refund not received when inventories originally bought on credit are
cash refund. Cost GST clearing Liability Decrease DR $10
Analysing and evaluating returned?
Applying price $55 Inventories Asset Increase DR $55
Knowing and understanding 4 Why might a business return inventories?
Cost of goods sold Expense Decrease CR $55
5 Analyse the following transactions:
a Inventories worth $330 were returned to the supplier for a cash refund.
RULE Negative revenue (Sales return) Increase DR
b $110 worth of goods was sent back to the supplier because they were the wrong
colour. Selling price Asset (Bank) Decrease CR
c The business received an adjustment note for $55 from T Hallam on goods purchased
on credit. Liability (GST clearing) Decrease DR
d The business returned $88 worth of goods to S Dimitriou. Asset (Inventories) Increase DR
Cost price
Expense (Cost of goods sold) Decrease CR

Returns of inventories sold for cash

When a customer returns goods sold for cash because they prove to be incorrect for Returns of inventories sold on credit
some reason, or are more than what the customer needs, the customer is entitled If the goods were originally sold on credit, then the records need to show a
to receive a cash refund from the business for the full price paid. Remember that reduction in the amount owed to the business by the customer (that is, the amount
the sale of the goods involved a selling price and a cost price component. Similarly, of the original credit sale). A cash refund is not appropriate as the customer has
when the goods are returned for a cash refund, the adjustments in the books of the not yet paid for the goods. Therefore, (as shown in [5.17]) a decrease in the asset
business need to reflect the selling price and the cost price parts of the transaction account—Accounts receivable—is necessary to record the reduced amount that
and the reversal of the GST originally charged (as shown in [5.16]). the customer now owes. Decreases in assets are credited. The other accounts
involved are the same as in the cash example above.
Recording the selling price of goods returned
[5.17] Transaction analysis of the return of inventories originally sold on credit
When a business provides a refund, the Bank account will decrease and the revenue
from the original sale will also decrease. The business records this decrease in sales Type of Example Accounts Type of account Increase Debit Amount
transaction involved or or
in a ‘Sales returns’ account. This is a negative revenue account because there has decrease credit
been a decrease in the revenues earned by the business. The GST clearing account Return of Party Planners Sales returns Negative revenue Increase DR $200
is also decreasing and will be debited. goods sold on Ltd returned $220 Accounts receivable—
credit worth of excess Party Planners Ltd Asset Decrease CR $220
goods. Cost price
Recording the cost price of goods returned $100
GST clearing
Inventories
Liability Decrease DR $20
Asset Increase DR $100
Because the returned goods are now back in stock, the business’s Inventories Cost of goods sold Expense Decrease CR $100
account will now increase. The cost of goods sold (or the expense associated with
the original sale) is also decreasing and therefore this account will be credited.
RULE Negative revenue (Sales returns) Increase DR

Selling price Asset (Accounts receivable—name) Decrease CR

Liability (GST clearing) Decrease DR

Asset (Inventories) Increase DR

Cost price
Expense (Cost of goods sold) Decrease CR
20  Focus on Business 1 Chapter 5  Transaction analysis for double-entry accounting (with GST)  21

activity KNOWING AND DOING 5.8

[5.19] Transaction analysis of the payment to an accounts payable with a discount received

Type of transaction Example Accounts Type of Increase Debit Amount

involved account or or
1 What is the rule to record the cost price of the return of inventories sold for cash? decrease credit
2 What is the rule to record the cost price of the return of inventories sold on credit? Accounts payable—
3 What is the rule to record the selling price of the return of inventories sold for cash? Parties Galore Liability Decrease DR $1 045
Paid Parties Galore Bank Asset Decrease CR $1 045
Analysing and evaluating 4 What is the rule to record the selling price of the return of inventories sold on credit? Cash paid to $1 045 and
Applying
Knowing and understanding 5 What is the nature of the Sales returns account? Why? accounts payable received a $55
(with discount) Accounts payable—
6 Analyse the following transactions: discount for prompt
Parties Galore Liability Decrease DR $55
payment
a A customer has returned inventories worth $440 (cost price $150) for a cash Discount revenue Revenue Increase CR $50
refund. GST clearing Liability Increase CR $5
b Customers returned stock to the value of $99 (cost price $30).
c H Major returned $220 worth of goods (cost price $110). The business issued an
adjustment note. RULE Liability (Accounts payable) Decrease DR
Revenue (Discount revenue) Increase CR
d G Fernando returned inventories to the value of $132 (cost price 40% of selling
price). Liability (GST clearing) Increase CR
e A Huang returned goods worth $990 (cost price 60% of selling price). Asset (Bank) Decrease CR

Cash paid to accounts payable activity KNOWING AND DOING 5.9

You will recall from our earlier examples that, when a business purchases an asset 1 What is the rule to record cash paid to an accounts payable?
or goods on credit, it records this credit purchase in a liability account—accounts 2 What is the rule to record the discount received from an accounts payable?
payable. This records the fact that the business owes someone money and that 3 Why is a discount given by an accounts payable?
the amount owed includes the GST that was recorded when the purchase was Analysing and evaluating 4 Why is the Accounts payable account debited when recording a discount received?
Applying
recorded. The amount of GST owed is included in the amount paid but is not Knowing and understanding 5 Analyse the following transactions:
recorded again as this transaction is not a sale or purchase – just a subsequent a Sent a cheque to C Knight for $500 in full settlement of amount owing.
payment of cash owing. b Paid P Xavier $900 in settlement of account.
c Paid B Engles $400 and received a $44 discount for prompt payment (including
[5.18] Transaction analysis of a payment to accounts payable
GST).
Type of transaction Example Accounts Type of Increase Debit Amount d P Calder was paid $900 in full settlement of a $999 account.
involved account or or e We owed W Wilson $880. He gave us a discount of 5% for prompt payment.
decrease credit
f The amount owing to C H Lai was $2 200. The account was settled in full after
Cash paid to Accounts payable— deducting a 2% discount for prompt payment.
Paid Parties
accounts payable Parties Galore Liability Decrease DR $1 100
Galore $1 100
(no discount) Bank Asset Decrease CR $1 100

RULE Liability (Accounts payable—name) Decrease DR

Asset (Bank) Decrease CR

Discount received
A discount has the effect of reducing the original transaction amount and as this
included GST, an adjustment must also be made for GST in this transaction. Due
to the GST, it may be easier to understand this transaction if done as two entries.
The first entry is the amount actually paid. The second entry is the amount not
paid which includes a component of GST in the discount.
22  Focus on Business 1 Chapter 5  Transaction analysis for double-entry accounting (with GST)  23

Purchases of supplies and services—cash [5.21] Transaction analysis of the purchase of a supply or service on credit

In the previous sections we have been discussing the purchase of assets such as Type of transaction Example Accounts Type of Increase Debit Amount
involved account or or
equipment and inventories. Businesses also need to pay for other supplies, such decrease credit
as stationery, and for services such as electricity, advertising and rent to keep Purchase of supply Bought $770 worth of Advertising Expense Increase DR $700
operating and to carry out their main activities. These costs are called expenses or service on credit advertising from SunQuest Accounts payable—
because they must be incurred in order to earn the revenue. Expenses will reduce News on account SunQuest News Liability Increase CR $770
the overall profit made by the business at the end of the accounting period. If the GST clearing Liability Decrease DR $70
business pays for the expense by cash (that is, with a cheque), then the expense
account will increase and therefore be debited (see [5.20]). The amount paid RULE Expense (e.g. Electricity, stationery) Increase DR
for these expenses will generally include GST but because the amount can be Liability (Accounts payable) Increase CR
reclaimed by the business from the government at a later date, the GST liability is Liability (GST clearing) Decrease DR
decreasing. The bank account will decrease as there will be less cash available in
this account—so the asset, Bank, is credited because it is decreasing. Wages and
interest paid to a bank do not attract GST.

[5.20] Transaction analysis of the purchase of a supply or service for cash

activity KNOWING AND DOING 5.10
Type of transaction Example Accounts Type of Increase or Debit Amount 1 What is the rule to record the purchase of a supply for cash?
involved account decrease or 2 What is the rule to record the purchase of a supply on credit?
credit
3 Explain why an expense account is debited when a supply or service is purchased.
Purchase of supply Paid $220 telephone bill Telephone Expense Increase DR $200 Analysing and evaluating
or service for cash Applying
4 Analyse the following transactions:
Bank Asset Decrease CR $220
GST clearing Liability Decrease DR $20
Knowing and understanding a Paid $440 for a telephone account.
b Sent a cheque for $220 to Energex for electricity supplied.
c Purchased advertising on account from Questfair Newspapers $990.
RULE Expense (e.g. Electricity, stationery) Increase DR
d Received a tax invoice from Busy Bookkeepers for $880 accounting fees.
Asset (Bank) Decrease CR
e Paid $1 200 wages. (There is no GST in wages.)
Liability (GST clearing) Decrease DR
f Auto Repairs Ltd charged our account $550 for repairs to the delivery van.

Purchases of supplies and services—credit

When the business buys the supply or service on credit, the expense account will
increase and, therefore, be debited (see [5.21]). The amount that the business
owes will also increase; therefore, the business’s liabilities will increase—and so
liabilities will be credited. GST will be included in the amount paid and represents
an amount that can be reclaimed from the government at a later date and is
therefore decreasing the overall GST liability account.
Cash received from accounts receivable
You will remember from our earlier examples that the sale of an asset or goods on
credit meant that the customer now owes the business money. The business records
the amount of money owing in an Accounts receivable account. This account is
an asset. When the customer settles the account, that is, pays the business the
full amount owing or part of the amount owing, the Accounts receivable (asset)
decreases and therefore is credited (see [5.22]). GST is not included in this
transaction as it has already been recorded at the time of the sale. At the same
time the Bank account will increase and therefore be debited.
24  Focus on Business 1 Chapter 5  Transaction analysis for double-entry accounting (with GST)  25

[5.22] Transaction analysis of cash received from an accounts receivable customer

Type of transaction Example Accounts Type of Increase Debit Amount

Other cash received
involved account or or Sometimes a business earns income from sources other than its main service
decrease credit
or trading activity. For example, it may rent a building to other businesses, or
Cash received from Party Planners Ltd Bank Asset Increase DR $300 it may earn interest from money invested. When the business receives cash for
accounts receivable paid us $300 for Accounts receivable—
(no discount) amount owing these other revenues, the Bank account will be debited as it is increasing, and an
Party Planners Ltd Asset Decrease CR $300
individual revenue account will be credited for the type of revenue received and
GST clearing will be credited also (see [5.24]). Interest from a bank or some other
RULE Asset (Bank) Increase DR type of investment does not attract GST.
Asset (Accounts receivable—name) Decrease CR
[5.24] Transaction analysis of cash received from other revenue

Type of transaction Example Accounts Type of Increase or Debit Amount

Discount given involved account decrease or
credit
Because the original sale to the accounts receivable included GST, if discount is Receipt of revenue Received $88 Bank Asset Increase DR $88
commission Commission Revenue Increase CR $80
now given it really means that the amount charged for the goods has decreased.
GST clearing Liability Increase CR $8
This also means that the GST we originally recorded must also decrease. It is
generally easier to do this transaction in two parts to make it more simple. The
first part of the entry deals with the cash actually paid. The second part deals with RULE Asset (Bank) Increase DR
the amount of cash not paid—the discount that has a GST component. Revenue (e.g. Rent, commission) Increase CR
Liability (GST clearing) Increase CR
[5.23] Transaction analysis of the payment from an accounts receivable customer with a discount

activity
Type of transaction Example Accounts Type of Increase Debit Amount
involved account or or

Cash received
decrease credit
KNOWING AND DOING 5.11
Received $500 cheque Bank Asset Increase DR $500
from accounts from G Zammit. $55 Accounts receivable— Asset Decrease CR $500 1 What is the rule to record cash received from an accounts receivable?
receivable (with discount was given for G Zammit 2 What is the rule to record the discount given to an accounts receivable?
discount) prompt payment 3 Why is a discount sometimes given to an accounts receivable?
Analysing and evaluating
Discount expense Expense Increase DR $50 Applying 4 Make a list of sources of revenue a business might earn other than sales or service
GST clearing Liability Decrease DR $5 Knowing and understanding fees revenue.
Accounts receivable— Asset Decrease CR $55 5 What is the rule to record cash received for other revenues?
G Zammit
6 Analyse the following transactions:
a Received $900 from T Lee in full settlement of account.
RULE Asset (Bank) Increase DR b P Reed sent a cheque for $245 to pay the amount owing on his account.
Expense (Discount expense) Increase DR c Received $1 400 from K Makris in full settlement of a $1 499 debt.
Asset (Accounts receivable—name) Decrease CR d L Jimmieson was given an $88 discount for prompt payment of a $988 account.
Liability (GST clearing) Decrease DR e M Briggs owed $1 650. She received a discount of 7  % for prompt payment.
f Received $200 interest on an investment. (There is no GST in this transaction.)
g Commission of $440 was received by cheque.
h J Nagy (a tenant) paid his monthly rent of $800.
26  Focus on Business 1 Chapter 5  Transaction analysis for double-entry accounting (with GST)  27

Summary of business transactions Sale of inventories—cash Bank

Sales Selling price
Payment from accounts
receivable
Bank
Accounts receivable—
The following table [5.25] provides an overview of the types of transactions we GST clearing name
have analysed in this chapter. Discount expense
Cost of goods GST clearing
[5.25] Summary of types of business transactions sold Cost price Accounts receivable—
Inventories name
Transaction Accounts involved Transaction Accounts involved Sale of inventories—credit Accounts Revenue received Bank
(DR entry first (DR entry first receivable Revenue account
CR entry indented) CR entry indented) —name Selling price GST clearing
Capital contributed­—cash Bank Sale of services—cash Bank Sales
Capital Service fees revenue GST clearing
GST clearing
Capital contributed Asset account Sale of services—credit Accounts receivable— Cost of goods
—assets name sold Cost price
Capital
Service fees revenue Inventories
GST clearing
Drawings of cash Drawings Goods returned—originally Bank
Bank purchased for cash (cash Inventories
refund received) GST clearing
Purchase of asset—cash Asset account Goods returned—originally Accounts payable—name
GST clearing purchased on credit Inventories
Bank GST clearing
Purchase of asset—credit Asset account Goods returned—originally Sales returns
GST clearing sold for cash (cash refund GST clearing Selling price
Accounts payable— paid) Bank
name
Inventories
Cost of Cost price
goods sold
Sale of asset—cash Bank Goods returned—originally Sales returns
Asset account sold on credit GST clearing
GST clearing Accounts Selling price
receivable
—name

Cost of goods
sold Cost price
Inventories
Sale of asset—credit Accounts receivable— Payment to accounts Accounts payable—name
name payable Bank
Asset account Accounts payable—name
GST clearing Discount revenue
GST clearing
Purchase of inventories— Inventories Purchase of supplies and Expense account
cash GST clearing services—cash GST clearing
Bank Bank
Purchase of inventories— Inventories Purchase of supplies and Expense account
credit GST clearing services—credit GST clearing
Accounts payable— Accounts payable—
name name
28  Focus on Business 1 Chapter 5  Transaction analysis for double-entry accounting (with GST)  29

Goods and Services Tax and Business Activity 6 Identify the accounts involved in each of the following transactions.

Statements (BAS) Transaction

Borrowed $40 000 from bank

Accounts involved

The business collects the GST on behalf of the ATO and pays GST when it purchases
Bought land for $100 000
goods, supplies and assets for the operation of its own business. The GST collected
is owed to the government. The GST paid by the business can be reclaimed from Sold equipment for $4 400 cash
the government. Businesses must complete a Business Activity Statement (BAS) Paid electricity $440
to determine the net GST payable to the ATO.
Received rent of $1 100

activity KNOWING AND DOING 5.12

Paid $500 wages

Received commission $330

1 What is transaction analysis?
Purchased building worth $90 000
2 Distinguish between GST exclusive and GST inclusive.
Owner contributed delivery van worth $40 000 for
3 List some items on which a business does not pay GST.
business use
Analysing and evaluating 4 Find out which everyday items GST is not charged on.
Applying
Knowing and understanding 5 Using the form provided and the financial information listed below, prepare the quarterly Paid telephone $330
Business Activity Statement (BAS) for Parties Galore at 119 Waterworks Road, Ashgrove, A direct payment of $220 was made from our bank
Qld 4060 and change dates to Quarter 1 April 2008 to 30 June 2008. Amounts are for rent
inclusive of GST.
Sold motor vehicle to G Brandt for $16 500 on credit
a Calculate the total sales for the period and insert this figure at G1 in the BAS and
tick the appropriate included/excluded box.
7 Categorise each of the following accounts into its correct group.
b Calculate the total purchases for the period and insert this figure at G11 in the BAS
<www.ato.gov.au>
and tick the appropriate included/excluded box.
Account title Type of account
c Calculate total capital purchases for the period. Add 10% GST and insert this figure
at G10 in the BAS and tick the appropriate included/excluded box. Capital
d Then turn the page of the BAS and calculate either the GST owing to the ATO, or the Bank
amount owed back to the business by the ATO.
Accounts payable
Parties Galore financial information for quarter 1 April to 30 June 2008:
Sales for each month in the quarter including GST are as follows. Accounts receivable
• Sales for April $33 000 Rent (received)
• Sales for May $22 000
Wages
• Sales for June $44 000
Interest (paid)
Parties Galore purchased inventories during the period as follows.
• Purchases for April $16 500 Advertising
• Purchases for May $11 000 Commission (received)
• Purchases for June $13 200
GST clearing
Parties Galore also purchased the following assets. The prices given here are exclusive of
GST. Commission (paid)
• Computer in April $12 000 Building
• Tailormade filing system $15 000
Mortgage on land

Equipment

Loan from AGC Finance Co.

Loan to R Thore
30  Focus on Business 1 Chapter 5  Transaction analysis for double-entry accounting (with GST)  31

8 State whether each account in the following transactions is increasing or decreasing. 9 Draw a transaction analysis table and analyse the following transactions (GST is
included when applicable).
Transaction Accounts involved Increase or decrease – Borrowed $40 000 from bank.
Bought motor Motor vehicle – Bought land for $100 000.
vehicle for $44 000 Bank – Bought inventories $1 100 cash.
cash GST clearing
– Bought inventories from W Rent on credit $330.
Bought equipment Equipment – Sold equipment for $4 400 cash.
on credit from W W Houston (accounts payable)
– Paid electricity $440.
Houston for $5 500 GST clearing
– Received rent of $1 100.
Wages – Paid $550 wages.
Paid wages $900
Bank – Received commission $220
– Purchased building $90 000.
Cleaning
– Owner contributed delivery van worth $40 000 for business use.
Paid cleaning $440 GST clearing
– Paid telephone $330.
Bank
– A direct payment of $220 was made from our bank account for rent.
Sold equipment on Eric Wise (accounts receivable)
– Sold motor vehicle to G Brandt for $16 500 on credit.
credit to Eric Wise Equipment
for $1 100 GST clearing
– Sold inventories for cash $880 (cost price $400).
– Sold inventories to G Brennan on credit for $550 (cost price $250).
Owner invested Bank
$10 000 cash Capital

Owner contributed
Equipment
equipment worth
Capital
$1 000

Received interest
Bank
of $40 on
Interest on investment
investment

Bank
Received rent $440 Rent
GST clearing
Bank
Received
Commission
commission $220
GST clearing
32  Focus on Business 1 Chapter 5  Transaction analysis for double-entry accounting (with GST)  33

Culminating GLOSSARY
activity Capital
name of the account used to record the owner’s contributions to a business
TRANSACTION ANALYSIS
Cost price
the cost of the goods bought and any costs of getting the goods ready for sale
Draw a transaction analysis table and analyse the following source documents on behalf
of Dom’s Doughnuts owned by Dominic Haddad. The cost price of goods sold is 40% of Double-entry system
Analysing and evaluating the selling price in each case. Be sure to analyse the transactions in date order. states that for every transaction there is a debit (DR) entry and a corresponding credit
Applying (CR) entry of equal value
Receipt no 78 12/03/07 Tax invoice no 258 09/03/07 Tax invoice no 944 06/03/07 Drawings account
Supplier: Mandy’s Supplies name of the account used to record the amount of assets that the owner withdraws
Credit: PA Chester Sold to: Dom’s Doughnuts Supplier: Motorworld from the business for personal use
Details: Payment of account Sold to: Dom’s Doughnuts
Cash received: $24.00 The following goods: GST-inclusive
Discount given: 4 cartons cocoa powder $9.00/carton The following goods: the price given for a product includes the GST component
Ford utility van $25 000
GST-exclusive
Cheque no 2358 11/03/07
Cash register summary 03/03/07 the price given for a product has not had the GST component added
Cheque no 2356 2/3/07

$600
Tax invoice no 698 02/03/07 Cheque no 2357 07/03/07
Supplier: Fran Flour Suppliers
Sold to: Dom’s Doughnuts
The following goods:
5 bags self-raising flour $5/bag
Tax invoice no 447 4/3/07 Supplier: Fran Flour Suppliers
Supplier: Dom’s Doughnuts
Sold to: Tommy Tucker
The following goods:
20 boxes mixed doughnuts $4.00/box
Terms of trade: 5/10; n/30
Paid to: Dominic Haddad
For: Cash drawings
This cheque: $300
Paid to: Fran Flour Supplies
For: Settlement of account
This cheque: $71
Adjustment note no 698 03/03/07
Details: Damaged goods
Re: Invoice 698
Return/allowance:
2 bags self raising flour $5/bag
7 boxes yeast $8/box
Terms of trade: 5/10; n/30
Inventories
Paid to: Energex goods a business buys for resale to customers
For: Electricity supply
This cheque: $200 Mark-up
an amount added to the cost price to work out the selling price
Receipt no 77 12/3/07 Selling price
the price for which the business sells the product(s)
Credit: Tommy Tucker
Details: Payment of account Transaction analysis
Cash received: $76.00 the process used to break down a transaction into its debit and credit parts
Discount given: $ 4.00
Tax invoice no 446 1/3/07
Supplier: Dom’s Doughnuts
Sold to: PA Chester
The following goods:
6 boxes mixed doughnuts $4.00/box

If Dom’s Doughnuts had registered to collect GST, which of the following statements
would be considered true for the month of March?
• All the transactions involving cheques would have had GST calculated. True/False
• The cash register summary figure would not include GST. True/False
• Mandy’s Supplies, Fran Flour Suppliers and Motorworld would have a GST figure
on each source document. True/False
• Each of the transactions in the above source documents would include GST. 
True/False