An increase in an asset is a debit. An increase in an asset is a debit. An increase in an asset is a debit. I must admit I have not spent a minute a day writing down the three things to memorise, however going off of what Martin said this week in our workshop (if you know the first two you can work out the rest), I think I will be set. Coming from ACCT11059 I had already memories the extended accounting equation (assets + expenses = equity + revenue + liabilities), so I focused on memorising an increase in assets is a debit and wrote it down 40 times during the workshop. I don’t know why I was so surprised that it worked, but later when going through questions in PeerWise I came across a question asking if an increase in the RHS was a credit or debit, I already knew that assets were on the LHS of the equation and the line ‘an increase in an asset is a debit’ just popped into my brain – my bad hand writing and all.
Ledgers and journals
I work in a small coffee shop; we receive 2 to 3 deliveries a week from our coffee bean supplier and our supplier in turn delivers to dozens of other cafes in the area. I can’t imagine how many invoices they send out in any given week. Now what would happen if they didn’t input the invoices/transactions into a general ledger? Would they have to rely of the honesty of their customers? How would they be able to keep track of the money? How can a firm expect to stay in business if they are unable to keep track of revenue that should be coming in? I suspect that they not only have an Accounts receivable general ledger but also subsidiary ledgers for each café they supply to – they have been in business for a number of years and are expanding in size and products. What happens if your records and ledgers get destroyed? The Australian Government recommends backing up your records, most commonly with digital backup either online/in the cloud or at a secure facility that is designed for data storage.
When it comes to putting each transaction into a journal or ledger, are programs smart enough now to take a transaction inputted into a specialised journal and automatically add it to the general journal? Or is it a simple as checking a box ‘add to general journal’? I understand the reason for specialised journals and their use in adding more details and keeping the general journal neater and less messy, but with everything a simple computer search away are general journals required to be as neat as they once were when we used pen and paper?
Taxed
Sales tax or GST in Australia appears to be very simple and straightforward compared to other countries, like the USA. I was always curious just why the prices in most of their stores never included tax in the prices, apparently, it’s because cities and governments are allowed to determine the tax of an item. If I was to shop in Chicago for a loaf of bread and travel to Dallas the next day, the price of the same loaf of bread might be different due to their tax rates. How is that fair? Why does the US Government not have a set sales tax? How do they determine their rates? What other countries are like this?
When it comes to the tax a firm owes to the government or can claim back from the government from the GST paid to their suppliers, is the time limit the same as a standard tax year? The ATO can be a little overwhelming for someone who has questions but doesn’t really know what they are or the answers they’re looking for…
How Firms Account for GST
GST appears to be a key topic in business and accounting, it’s interwoven in sales, purchases and earnings as a start and while a little finicky in the small details the overarching point of GST is, to me at least, is it’s not money that belongs to the business but the government. Each firm collects GST on taxable items, when the money comes in the revenue and GST are separated and put into different accounts so the firm can keep track of how much GST they have been paid and therefore owe the government. Accounts receivable and accounts payable are GST inclusive because the total money owed or paid includes GST, i.e. our customers owe us GST and we owe our suppliers GST. The GST is essentially revenue for the Australian Government.
Accounting 101 