ACC10008 Financial Information Systems

Topic 3 Goods and Services Tax

Solutions to revision questions

Hoggett, J., Edwards, L., Medlin, J., Chalmers, K., Hellmann, A., Beattie, C. & Maxfield, J.
Financial Accounting 9th ed

Chapter 3

Exercise 3.10 Recording transactions in general journal and general ledger

In December 2016, the following transactions occurred in Macchiatos Coffee Roasters business that
supplies cafs and also sells direct to the public:

Dec. 2 Michael Macchiato invested $2 650 000 into the business of Macchiatos Coffee
Roasters by purchasing a fully equipped coffee roasting business. The business
acquired consisted of the following assets and liabilities:

Land $1 200 000

Building 1 000 000
Coffee roasting equipment 420 000
Office equipment 60 000
Accounts payable 30 000

5 Purchased some new roasting equipment on credit for $160 000.

6 Collected cash from customers for the month, $220 000.
12 Paid the accounts payable owing on 2 December when Michael purchased the
14 business.
18 Purchased an insurance policy for the year for $6000 cash.
Purchased television advertising for the Christmas New Year period for $8000
23 to be paid for in 30 days.
Collected fees in cash from customers for the Christmas New Year period,
30 amounting to $46 000.
Michael withdrew $8000 cash in order to pay for private Christmas presents and
parties.

Required
A. Prepare general journal entries for each of the above transactions and events.
B. Post the entries to ledger T accounts and balance the accounts as at 31 December 2016.

A.
MACCHIATOS COFFEE ROASTERS (ignore GST)
Dec. 2 Land 1 200 000
Building 1 000 000
Coffee Roasting Equipment 420 000
Office Equipment 60 000
Accounts Payable 30 000

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 Michael Macchiato, Capital 2 650 000
Assets and liabilities contributed by the owner

5 Coffee Roasting Equipment 160 000

Accounts Payable 160 000
Purchase of roasting equipment on credit

6 Cash at Bank 220 000

Coffee Sales 220 000
Cash received for coffee sales for December.

12 Accounts Payable 30 000

Cash at Bank 30 000
Cash paid for creditor for roasting equipment.

14 Prepaid Insurance 6 000

Cash at Bank 6 000
Cash paid in advance for insurance policy.

18 Advertising Expense* 8 000

Accounts Payable 8 000
Advertising costs over the holiday period

23 Cash at Bank 46 000

Coffee Sales 46 000
Coffee sales received for the holiday period.

30 Michael Macchiato, Drawings 8 000

Cash at Bank 8 000
Cash withdrawn by owner
* Alternatively, debit Prepaid Advertising (asset), as not all of the expense applies to the month of
December.

B.
Cash at Bank
Dec 6 Coffee Sales 220 000 Dec 12 Accounts Payable 30 000
23 Coffee Sales 46 000 14 Prepaid Insurance 6 000

30 Michael
Macchiato, 8 000
Drawings
31 Balance c/d 222 000
266 000 266 000
31 Balance c/d 222 000

Land
Dec 2 Macchiato, Capital 1 200 000

Building
Dec 2 Macchiato, Capital 1 000 00
0

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 Coffee Roasting Equipment
Dec 2 Macchiato, Capital 420 000
5 Accounts Payable 160 000 Dec 31 Balance c/d 580 000
580 000 580 000
31 Balance b/d 580 000

Office Equipment
Dec 1 Michael Macchiato, 60 000
Capital

Prepaid Insurance
Dec 14 Cash at Bank 6 000

Accounts Payable
Dec 12 Cash at Bank 30 000 Dec 2 Macchiato, Capital 30 000
31 Balance c/d 168 000 5 Coffee Roasting 160 000
Equipment
18 Advertising 8 000
Expense
198 000 198 000
Dec 31 Balance b/d 168 000

Michael Macchiato, Capital

Dec 2 Various Assets 2 650 000
and Accs payable

Michael Macchiato, Drawings

Dec 30 Cash at Bank 8 000

Coffee Sales
Dec 6 Cash at Bank 220 000
Dec 31 Balance c/d 266 000 23 Cash at Bank 46 000
266 000 266 000
31 Balance b/d 266 000

Advertising Expense
Dec 18 Cash at Bank 8 000

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Problem 3.3 Preparing general ledger and trial balance

Carrying Your Load provides heavy freight services with large trucks. The following transactions
were Carrying Your Load. Ignore GST.

July 1 Craig Dienhoff invested $620 000 into Carrying Your Load organised to provide
trucking services to remote parts of Australia.
2 Purchased a truck for $540 000 on credit from P. Strickland.
4 Transferred the amount owing to P. Strickland using online banking facilities to
make a direct bank transfer.
5 Paid $1600 to R. Burton for two weeks rent to 14 July.
9 Charged White Cattle Station $12 000 for trucking services.
10 Dienhoff withdrew $4000 cash to meet personal expenses.
12 Paid $1200 for advertising on local radio.
12 Received $6200 from Outback Oil for trucking services.
13 Charged Star Company $9600 and received $9000 from Hardie Company for
trucking services provided.
14 Received a cheque for $12 000 from White Cattle Station and deposited it into the
business bank account. Paid $8800 for fuel for the truck.

Required
A. Record all transactions directly into ledger T accounts and prepare a trial balance.
B. Repeat requirement A assuming that a GST of 10% needs to be added for all appropriate
transactions.

B. (including GST)

CARRYING THE LOAD

General Ledger

Cash at Bank
1/7 C. Dienhoff, Capital $620 000 4/7 Accounts Payable $594 000
12/7 Revenue/GST Payable 6 820 5/7 Rent Expense/GST 1 760
Receivable
13/7 Revenue/GST Payable 9 900 10/7 C. Dienhoff, Drawings 4 000
14/7 Accounts Receivable 13 200 12/7 Advertising Expense/GST 1 320
Receivable
14/7 Fuel Expense 8 800
14/7 Balance c/d 40 040
649 920 649 920
14/7 Balance b/d 40 040

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 Truck
2/7 Accounts Payable $540 0
00

Accounts Receivable
9/7 Revenue & GST $13 200 14/7 Cash at Bank $13 200
Payable
13/7 Revenue & GST 10 560 14/7 Balance c/d 10 560
Payable
$23 760 $23 760
14/7 Balance b/d 10 560

GST Receivable
2/7 Accounts Payable $54 000
5/7 Cash at Bank 160
12/7 Cash at Bank 120 14/7 Balance c/d 54 280
54 280 54 280
14/7 Balance b/d 54 280

Accounts Payable
4/7 Cash at Bank $594 000 2/7 Truck/GST Rec $594 000

GST Payable
9/7 Accounts Receivable $1 200
12/7 Cash at Bank 620
13/7 Cash at Bank 900
14/7 Balance c/d 3 680 13/7 Accounts Receivable 960
3 680 3 680
14/7 Balance b/d 3 680

C. Dienhoff, Capital
1/7 Cash at Bank $620 000

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 C. Dienhoff, Drawings
10/7 Cash at Bank 4 000

Trucking Services Revenue

9/7 Accounts Receivable $120 000
12/7 Cash at Bank 6 200
13/7 Accounts Receivable 9 600
14/7 Balance c/d 36 800 13/7 Cash at Bank 9 000
36 800 36 800
14/7 Balance b/d 36 800

Rent Expense
5/7 Cash at Bank 1 600

Advertising Expense
12/7 Cash at Bank 1 200

Fuel Expense
12/7 Cash at Bank 8 800

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 CARRYING YOUR LOAD
Trial Balance
as at 14 July
Debit Credit
Cash at Bank $40 040
Truck 540 000
Accounts Receivable 10 560
GST Receivable 54 280
GST Payable $3 680
C. Dienhoff, Capital 620 000
C. Dienhoff, Drawings 4 000
Trucking Services Revenue 36 800
Rent Expense 1 600
Advertising Expense 1 200
Fuel Expense 8 800
$660 480 $660 480

Problem 3.12 Journal entries, posting to running balance ledger accounts, and trial
balance for 2 consecutive months (including GST)

Using the data in problem 3.11, complete requirements A to F assuming the addition of GST of 10%
where appropriate. Round your answers to the nearest dollar.

A. Prepare general journal entries to record the December transactions. Assume that, for the
transaction of 2 December, the loan agreement remains at $40 000. Add two new accounts:
GST Receivable 1-105 and GST Payable 2-150
B. Post the entries from the general journal to running balance general ledger accounts and
enter the posting references in the journal.
C. Prepare a trial balance as at 31 December 2016.
D. Prepare journal entries to record the January transactions.

E. Post the entries to the ledger.

F. Prepare a trial balance as at 31 January 2017.

A.

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 General Journal (December)

(GST included )

2016
Dec. 1 Cash at Bank 1-100 90 000
M.Mills, Capital 3-100 90 000
Cash invested by owner

2 Equipment 1-120 80 000

GST Receivable 1-105 8 000
Cash at Bank 1-100 48 000
Loan Payable 2-110 40 000
Equipment purchased
for cash and loan payable

4 Advertising Expense 5-110 1 500

GST Receivable 1-105 150
Cash at Bank 1-100 1 650
Cash paid for advertising

6 Supplies 1-110 6 200

GST Receivable 1-105 620
Accounts Payable 2-100 6 820
Supplies purchased on credit

15 Cash at Bank 1-100 9 240

GST Payable 2-150 840
Revenue 4-100 8 400
Cash revenue for first half of month

24 M. Mills, Drawings 3-110 720

Cash at Bank 1-100 720
Cash drawings by owner

31 Cash at Bank 1-100 11 110

GST Payable 2-150 1 010
Revenue 4-100 10 100
Cash revenue for second part of month

31 Wages Expense 5-120 2 700

Cash at Bank 1-100 2 700
Wages paid

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 31 Rent Expense 5-100 2 400
GST Receivable 1-105 240
Cash at Bank 1-100 2 640
Rent paid

B. and E.

ACCOUNT: Cash at Bank Account No. 1-100

Date Explanation Post Debit Credit Balance
Ref
2016
1 12 M. Mills, Capital 90 000 90 000
2 12 Equipment & GST Rec 48 000 42 000
4 12 Advertising & GST Rec 1 650 40 350
15 12 Revenue & GST Pay 9 240 49 590
24 12 M. Mills, Drawings 720 48 870
31 12 Revenue & GST Pay 11 110 59 980
31 12 Wages 2 700 57 280
31 12 Rent & GST Rec 2 640 54 640
2017
4 1 Accounts Payable 1 800 52 840
8 1 Advertising & GST Rec 902 51 938
13 1 M. Mills, Drawings 1 000 50 938
14 1 Revenue & GST Pay 8 580 59 518
15 1 Wages 2 400 57 118
31 1 Revenue & GST Pay 10 340 67 458
31 1 Rent & GST Rec 2 640 64 818

ACCOUNT: GST Receivable Account No. 1-105

Date Explanation Post Debit Credit Balance
Ref
2016
2 12 Equipment, Cash and Loan 8 000 8 000
4 12 Advertising & Cash 150 8 150
6 12 Supplies & Accounts 620 8 770
Payable
31 12 Rent & Cash 240 9 010
2017
8 1 Advertising & Cash 82 9 092

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21 1 Supplies & Accounts 310 9 402
Payable
31 1 Rent & Cash 240 9 642

ACCOUNT: Supplies Account No. 1-110

Date Explanation Post Debit Credit Balance
Ref
2016
6 12 Accounts Payable 6 200 6 200
2017
21 1 Accounts Payable 3 100 9 300

ACCOUNT: Equipment Account No. 1-120

Date Explanation Post Debit Credit Balance
Ref
2016
2 7 Cash and Loan 80 000 80 000

ACCOUNT: Accounts Payable Account No. 2-100

Date Explanation Post Debit Credit Balance
Ref
2016
6 12 Supplies 6 820 6 820
2017
4 1 Cash at Bank 1 800 5 020
21 1 Supplies 3 410 8 430

ACCOUNT: Loan Payable Account No. 2-110

Date Explanation Post Debit Credit Balance
Ref
2016
2 12 Equipment 40 000 40 000

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ACCOUNT: GST Payable Account No. 2-150
Date Explanation Post Debit Credit Balance
Ref
2016
15 12 Cash & Revenue 840 840
31 12 Cash & Revenue 1 010 1 850
2107
14 1 Cash & Revenue 780 2 630
31 1 Cash & Revenue 940 3 570

ACCOUNT: M. Mills, Capital Account No. 3-100

Date Explanation Post Debit Credit Balance
Ref
2016
1 12 Cash at Bank 90 000 90 000

ACCOUNT: M. Mills, Drawings Account No. 3-110

Date Explanation Post Debit Credit Balance
Ref
2016
24 12 Cash at Bank 720 720
2017
13 1 Cash at Bank 1 000 1 720

ACCOUNT: Revenue Account No. 4-100

Date Explanation Post Debit Credit Balance
Ref
2016
15 12 Cash at Bank 8 400 8 400
31 12 Cash at Bank 10 100 18 500
2017
14 1 Cash at Bank 7 800 26 300
31 1 Cash at Bank 9 400 35 700

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ACCOUNT: Rent Expense Account No. 5-100
Date Explanation Post Debit Credit Balance
Ref
2016
31 12 Cash at Bank 2 400 2 400
2017
31 1 Cash at Bank 2 400 4 800

ACCOUNT: Advertising Expense Account No. 5-110

Date Explanation Post Debit Credit Balance
Ref
2016
4 12 Cash at Bank 1 500 1 500
2017
8 1 Cash at Bank 820 2 320

ACCOUNT: Wages Expense Account No. 5-120

Date Explanation Post Debit Credit Balance
Ref
2016
31 12 Cash at Bank 2 700 2 700
2017
15 1 Cash at Bank 2 400 5 100

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C.

MIKES MINI GOLF

Trial Balance
as at 31 December 2016
Account Account 1-100 Credit
No.

Cash at bank 1-100 $54 640

GST receivable 1-105 9 010
Supplies 1-110 6 200
Equipment 1-120 80 000
Accounts payable 2-100 6 820
Loan payable 2-110 40 000
GST Payable 2-150 1 850
M. Mills, Capital 3-100 90 000
M. Mills, Drawings 3-110 720
Revenue 4-100 18 500
Rent expense 5-100 2 400
Advertising expense 5-110 1 500
Wages expense 5-120 2 700
$157 170 $157 170

D.

General Journal (January) (GST Included )

2017
Jan. 4 Accounts Payable 2-100 1 800
Cash at Bank 1-100 1 800
Payment for supplies

8 Advertising Expense 5-110 820

GST Receivable 1-105 82
Cash at Bank 1-100 902
Payment for advertising

13 M. Mills, Drawings 3-110 1 000

Cash at Bank 1-100 1 000
Withdrawal by owner

14 Cash at Bank 1-100 8 580

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 GST Payable 2-150 780
Revenue 4-100 7 800
Cash revenue for first half of month

15 Wages Expense 5-120 2 400

Cash at Bank 1-100 2 400
Payment for wages

21 Supplies 1-110 3 100

GST Receivable 1-105 310
Accounts Payable 2-100 3 410
Supplies purchased on credit

31 Cash at Bank 1-100 10 340

GST Payable 2-150 940
Revenue 4-100 9 400
Cash revenue for second half of month

31 Rent Expense 5-100 2 400

GST Receivable 1-105 240
Cash at Bank 1-100 2 640
Rent paid for January

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F.

MIKES MINI GOLF

Trial Balance
as at 31 January 2017
Account Account Debit Credit
No

Cash at bank 1-100 $64 818

GST receivable 1-105 9 642
Supplies 1-110 9 300
Equipment 1-120 80 000
Accounts payable 2-100 8 430
Loan payable 2-110 40 000
GST Payable 2-150 3 570
M. Mills, Capital 3-100 90 000
M. Mills, Drawings 3-110 1 720
Revenue 4-100 35 700
Rent expense 5-100 4 800
Advertising expense 5-110 2 320
Wages expense 5-120 5 100
$177 700 $177 700

Problem 3.14 Correction of errors

Your first assignment on your new job was to determine why the 31 December 2015 trial balance did
not balance. In your review of the records you uncovered a number of errors described below:

1. The Sundry Expense account with a balance of $245 was omitted from the trial balance.
2. A payment of $890 on the electricity account payable was not posted to the Electricity Account
Payable account, but was posted correctly to the Cash at Bank account.
3. A $2587 debit to Cash at Bank was posted as $2857.
4. A $360 credit was credited to the Accounts Receivable account but should have been made to the
Services Revenue account instead.
5. A cash receipt of $480 from customers in settlement of their accounts was posted twice to the
Cash at Bank account and the Accounts Receivable account.
6. The Accounts Payable account balance of $36 700 was listed in the trial balance as $37 600.
7. A $2560 credit to Services Revenue was posted as a $256 credit. The debit to Cash at Bank was
for the correct amount.
8. A purchase of office supplies for $350 on credit was not recorded.
9. A purchase of a delivery truck for $125 000 using a loan was posted as a debit to the Loan
Payable account and a debit to the Equipment account.
10. The Drawings account balance of $16 000 was listed as a credit balance in the trial balance.

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11. A $1300 payment to employees for their weekly salaries was credited to Cash at Bank only once
but was posted twice to the Wages Expense account.

Required

A. Indicate in the table below how each error would affect the trial balance totals. If the error
does not cause the trial balance to be out of balance and you tick no in the third column,
write equal in the Difference Between Trial Balances Totals column. Each error is to be
treated independently of the others.
B. Prepare the journal entries necessary to correct errors number 4, 5, and 8.

A.
Would the error cause the Trial Difference Between Column Having
balance to be out of balance? Trial Balance Largest Total
Error Yes No Totals ($) Debit Credit
1. 245
2. 890
3. 270
4. Equal
5. Equal
6. 900
7. 2 304
8. Equal
9. 250 000
10. 32 000
11. 1 300

B.
General Journal

4. Accounts Receivable 360

Services Revenue 360
To correct error

5 Accounts Receivable 480

Cash at Bank 480
To correct error

8 Supplies 350

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 Accounts Payable 350
To correct error

Chapter 6

Discussion question 2

Discuss the purpose and content of source documents which are used by a business registered for
GST to record the purchase and sale of inventory. How would your answer differ if the business was
not GST-registered?

For GST registered businesses, the same source documents are used as for a non-GST
registered business, except that for GST registered businesses, registered business documents
must conform to the requirements of the GST legislation, e.g. invoices must be labelled Tax
Invoice. If a business is not registered, its sales documents need not comply with GST
Regulations. However, purchases documentation could differ if goods/services are purchased
both from GST registered and non-GST registered businesses.
In any accounting system, for the purchase of merchandise, the following documents are used:
purchase requisition, purchase order, receiving report, delivery note, purchase invoice,
adjustment (debit memo), cheques, credit card slips (if not using EFTPOS). [See also Chapter
7]. For the sale of merchandise, the entity will normally use the following documents: sales
invoice, adjustment note (credit memo), cash docket, cheques received, credit card slips. In
computerised systems, many of these documents are generated by the computer rather than by
hand, thus speeding up the handling of such transactions.
For all sales in excess of $50, a tax invoice must comply with the GST legislation.
Requirements for tax invoices vary depending on whether the total amount payable on the
invoices is $1000 or more. Requirements common to all tax invoices are:
the words tax invoice stated prominently on the invoice
the ABN of the entity issuing the invoice
the date of issue of the invoice
the name of the supplier
a brief description of the items being supplied
if the invoice is for a taxable supply and either a GST-free or input taxed supply, the
invoice must show each supply, the GST payable on each supply, and the total amount
payable on the invoice as a whole.
For tax invoices where the total payable is less than $1000, there is another requirement in
addition to those above where the GST payable is exactly 1/11 of the total price, either the
total price includes GST must appear on the invoice, or alternatively the GST amount on the
supply can be shown separately.

For tax invoices where the total payable is more than $1000, the requirements in addition to
those above are:
the name of the recipient of the invoice
the ABN or the address of the recipient
the quantity of the goods or extent of the services being supplied.

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 Where the total amount is exactly 1/11 of the total price, the invoice amount should show
either a statement such as the total price includes GST or the amount of GST. A tax invoice
for a total amount less than $1000 is illustrated in figure 6.2 in the text (assuming a cash sale),
and an invoice for a total amount of $1000 or more is illustrated in figure 6.3 in the text
(assuming a credit sale with the offer of a cash settlement discount for prompt payment).

Chapter 16

Discussion question 10
GST Payable should be treated a revenue account for the entity. Discuss.
Although GST is collected when the entity makes a sale this is not part of the entitys sales. The entity
is responsible for collecting GST on behalf of the Australian Tax Office. This amount must be paid to
the ATO at specified times in the future. Therefore, this amount is a current liability for the entity that
has collected it. GST payables are offset against any GST the entity has paid on purchases.
Effectively, this means that entities are acting as collection agents for the ATO.

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