VCE Accounting cheat sheet

Accounting equation: Assets = Liabilities + Owner's Equity; every transaction preserves this equality, so a change on one side must be matched by an equal change on the same side or an opposite change on the other side.

Double-entry rule: total debits must equal total credits for every transaction; debit entries increase assets and expenses and decrease liabilities, equity (capital) and revenue; credit entries do the reverse.

GST treatment: GST paid on purchases is a debit to GST Paid (a current asset/clearing account); GST collected on sales is a credit to GST Collected (a current liability); the net difference is remitted to or refunded by the ATO.

Source documents and their roles: tax invoice (credit purchases/sales), receipt (cash received), cheque butts (cash paid), memo (internal adjustments such as drawings of stock), bank statement (direct credits and debits).

Inventory recording under the perpetual method: purchase of stock debits Inventory; sale records two entries - debit Cash/Accounts Receivable and credit Sales, plus debit Cost of Goods Sold and credit Inventory at cost.

Prepaid and accrued items at balance date: prepaid expense is an asset (benefit still to be consumed); accrued expense is a liability (benefit already consumed, unpaid); prepaid revenue is a liability; accrued revenue is an asset.

Depreciation for Units 1–2: straight-line = (cost − residual value) ÷ useful life; reducing balance = carrying amount × rate; the entry debits Depreciation expense and credits Accumulated depreciation (a contra-asset), never the asset account directly.

Balance sheet classification: current assets/liabilities are expected to be converted or settled within 12 months; non-current items beyond 12 months; owner's equity comprises capital plus profit (or minus loss) less drawings.

Ratio and report analysis for Units 1–2: working capital = current assets − current liabilities; current ratio = current assets ÷ current liabilities; debt ratio = total liabilities ÷ total assets; interpret each against prior periods or benchmarks.

Recording and reporting framework: transactions are recorded in journals, posted to ledgers, and summarised in the trial balance; the accounting equation and double-entry principles underpin every entry across the reporting period.

Inventory cost-flow methods: FIFO assigns earliest costs to cost of goods sold and leaves latest costs in closing inventory; identify cost of goods sold = opening inventory + purchases − closing inventory (adjusted for returns and freight).

Perpetual inventory entries: purchase returns debit Accounts Payable and credit Inventory (and GST Paid/Collected as applicable); sale returns debit Sales Returns and credit Accounts Receivable, plus debit Inventory and credit Cost of Goods Sold at cost.

Bad debts and doubtful debts: write-off debits Bad Debts and credits Accounts Receivable; allowance method debits Doubtful Debts expense and credits Allowance for Doubtful Debts; net receivables = accounts receivable − allowance.

Depreciation and disposal: carrying amount = cost − accumulated depreciation; on disposal, record proceeds, remove cost and accumulated depreciation, and recognise gain (proceeds > carrying amount) or loss (proceeds < carrying amount) in the income statement.

Accrual and cash bases: accrual recognises revenue when earned and expenses when incurred; cash recognises only when cash is received or paid; adjusting entries at balance date convert cash records to accrual for the income statement and balance sheet.

Financial indicators for Units 3–4: gross profit margin = gross profit ÷ sales; net profit margin = net profit ÷ sales; return on owner's equity = net profit ÷ average equity; asset turnover = sales ÷ average total assets; inventory turnover = cost of goods sold ÷ average inventory; receivables turnover = credit sales ÷ average accounts receivable.

Budgeting and variance analysis: cash budget records expected cash receipts and payments only (excluding non-cash items such as depreciation); variance = actual − budget; a favourable variance increases profit or cash, an unfavourable variance decreases it; investigate material variances.

Decision rules for report users: compare indicators across periods and against benchmarks; a rising gross profit margin with falling net profit margin suggests rising operating expenses; a declining current ratio may signal liquidity pressure; ethical and sustainability disclosures supplement financial data.