Accounting Assignment

Task 1

Explain the basic principle of double entry bookkeeping. 

The basic principle of double entry bookkeeping is that every account should have two corresponding entries, which are the debit and the credit. It is used to check if there are any issues regarding the accuracy of financial records. If the sum of debits doesn’t match the sum of credits, something in the process should be reviewed. 

 

Describe the principle of cash accounting and one advantage and one disadvantage of this method of accounting.  

The principle of cash accounting is to record all the receipts (revenue) as soon as they come up, on the other hand, the expenses should be recorded in the moment they are getting payed.  

The advantages of this method include making sure the company has received the amount to pay the expenses, guaranteeing cash flow and enough fund for transactions. 

The disadvantages are regarding the difficulty of tracking dates for purchases and sales. Apart from that, this is not an exact method and sometimes companies receive payments in different dates other than when they were supposed to and the bills obviously won’t wait until you receive payments to be settled. 

 

Describe the principle of accrual accounting and one advantage and one disadvantage of cash accounting 

This principle is the exact opposite than the one described above. It states that every financial transaction should be recorded when they actually happen. The advantage of this method is that it provides a more realistic approach about the whole financial period. However, sometimes the invoices don’t come when they supposed to, and therefore the accountant needs to make an estimative of when they’ll occur in order to keep this record on their balance.

Explain the two accounting principles on which the calculation and reporting of deprecation is based. 

The two principles are: 

Matching principle: states that the monetary cost of an asset should be split up according to its life cycle and every time this asset is actually used. The idea is to check how useful this asset was in terms of ROI. 

Cost principle: believes that the cost of the asset should be recorded in the moment it is acquired. 

 

Identify and explain three key features of A New Tax System (GST) Act 1999. 

According to The Treasure of the Australian Government, the new tax system has three key features, which are: 

Tax Periods – Tax Invoices 

“A GST-registered entity must hold transaction documents that satisfy the tax invoice requirements of the GST Act in order to substantiate creditable acquisitions over $55. An entity must hold a tax invoice for such acquisitions in order to attribute the input tax credit to a tax period.” 

Financial supplies 

Under the GST Act, financial supplies are input taxed. This means that no GST is charged on the financial supply and that the financial supply provider is not entitled to any input tax credits for any GST included in the price of anything acquired or imported to make the supply. 

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acquired or imported to make the supply. 

Reduced input tax credits 

“Division 70 of the GST Act allows a reduced input tax credit for certain acquisitions made by financial suppliers. Generally, input tax credits are not available where the acquisition or importation is used for making financial supplies. 

However, Part 70 of the regulations allows the financial supply provider to claim a reduced input tax credit for certain acquisitions. The acquisitions eligible for the reduced input tax credit and the rate of the reduced input tax credit are specified in Part 70 of the regulations.” 

Reference:   

Identify and then explain the four main taxation and superannuation obligations for a business. Briefly discuss each obligation. 

When hiring staff, businesses have more obligations than just paying their salary. According to the ATO, the business obligations are:

withhold tax (PAYG withholding) from their wages and report and pay the withheld amounts to us

pay super, at least quarterly, for eligible employees

report and pay fringe benefits tax (FBT) if you provide your employee with fringe benefits.

In case of contractors:

they generally look after their own tax obligations, so you don’t have to withhold from payments to them unless they don’t quote their ABN to you, or you have a voluntary agreement with them to withhold tax from their payments

you may still have to pay super for individual contractors if the contract is principally for their labour

you don’t have FBT obligations.

Reference:

According to GST legislation, list four items that do not attract GST. 

Water, sewerage and drainage 

Exports 

Farmland 

Sales through duty-free shops 

 

Explain the process by which a business reports GST to the Australian tax office. 

 

Depending on a company’s revenue, they can choose to either report GST monthly (GST turnover of $20 million or more), quarterly (GST turnover of $10 million or more) or annually (GST turnover under $75,000). 

Basically, the business needs to provide the numbers of total sales, GST on sales and GST on purchases and they should be reported according to the company’s revenue. 

ATO provides a series of options depending on the type of business, and you can choose to record the information electronically or manually. The Australian Taxation office also states that “records must not be manipulated or altered. If you change your system, you still need to be able to access the original data. You don’t need to keep paper records, unless a particular…

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