Chapter 3
Year 12 Accounting – Unit 3
Chapter 3 Study/Summary Notes
Analysis and Designing Accounting Systems
To design an accounting system you need the purpose of the system.
GST – introduced in 2000 and is a 10% surcharge tax applied to most products (except
fresh food). Due to the introduction of GST a tax invoice is necessary.
A tax invoice should contain
 Name of business providing goods and services
 ABN (Australian Business Number)
 Words “tax invoice”
 Pre-printed document number
 Date
 Description of goods and services
 If more than $1000, purchaser’s name and ABN
 GST exclusive amount, GST amount, & GST inclusive amount
Small businesses may not provide credit, as they may only deal in cash sales therefore a
cash receipt will be issued. This must include the GST amount. Business owners must
record all receipts and payments of GST.
Source Documents
Definition: Basic business documents used often in day-to-day transactions. They are
the source of the original accounting data. Eg. A cash receipt provides information of
cash flow.
Cash Transactions
It is customary to write the words and numbers on a receipt to make the amount totally
clear and to prevent fraud. Eg. It will stop people adding zeros to numbers.
It is common business practice to make cash payments by cheque. This automatically
provides the firm with a permanent record of all its payments. The business can verify
payments with cheque butts.
Credit Transaction
Most trading firms purchase their stock on credit. One reason for this is that cash
purchases drain liquidity and credit purchases provide time for the business to sell some
goods before paying back creditors.
The source document used is an invoice. An invoice informs a credit customer of the
total cost charged for goods provided. (see page 39 of text book for an example)
Memorandum for Internal Transactions
A memorandum is used for transactions that only affect the business and the owner.
External parties are not involved. Eg contributions/withdrawal of assets by the owner
Chapter 3
(except cash), such as the withdrawal of stock, donation of stock for advertising, charity.
The cost of such donations must be recorded on a memorandum. Why? To satisfy the
demands of reliability. Refer to example on pg 40.
Statement of Account
Statement of Account summarises transactions involving a credit customer over a given
period of time and are usually issued monthly. They should include references to source
documents. See pg 41 for an example.
Other Business Documents
The main business documents are invoices, cheques and receipts however other business
documents used include order forms and quotations. These are not yet source
documents as they are not final and can be changed. See pg 42 for an example. The
business should check details of an order form against the invoice to ensure the correct
goods have been received.
Other business documents include cash register rolls, delivery dockets, employee payslips
and bank statements.
Information flows
As information will be transmitted between entities, it is important that management
follows and organised approach which results in a successful accounting system. See pg
43 for a sample.
Overview of Accounting System (see page 44 for diagram)
Where does double entry occur? In the general ledger as a debit entry and a credit entry.
Why do we make balance day adjustments? The accrual method of accounting defines
profit as revenue earned less expenses incurred. This is different to revenue received and
expenses paid therefore adjustments need to be made.
Manual Vs Computerised Accounting
The principle of double entry is the same for both.
Advantages of Computerised Accounting
 Process data rapidly
 Data storage highly efficient
 Highly reliable and accurate
Disadvantages of Computerised Accounting
 More expensive than manual
 Requires some knowledge of computers
The benefits should be weighed up against the costs of installing and using a manual
system. A computerized system may not be a good idea for a small business as the costs
may outweigh the advantages.
Why has the need for computerised systems increased since 2000? Introduction of GST
Do computerised systems mean accountants are out of jobs? No, as there is still a need to
analyse and evaluate reports.
Chapter 3