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ConnecL LducaLlon 2011 2

8oLh Lhe unlL 3 and unlL 4 exams wlll LesL sLudenL's ablllLy Lo apply Lhe key knowledge and
sklll ouLllned ln Lhe sLudy deslgn. 1hls means LhaL boLh Lhe pracLlcal aspecL of accounLlng,
and Lhe relaLed Lheory wlll be LesLed. lL ls essenLlal LhaL sLudenLs noL only remember Lhe
relevanL deflnlLlons, buL undersLand Lhe loglc and reasonlng behlnd Lhe acLual concepLs.
MosL Lheory quesLlons can be answered by uslng Lhe :;<!6==#.+2/:
:3&'%$7)> whaL ls Lhe relevanL prlnclple, quallLaLlve characLerlsLlc or elemenL?
;&7$'&> glve a deflnlLlon of Lhe lLem you have ldenLlfled
<$'?> ?ou llnk should Lle ln your explanaLlon wlLh key elemenLs of Lhe deflnlLlon.
SLudenLs should always alm Lo refer back Lo Lhe lnformaLlon Lhe examlners provlde abouL
Lhe buslness. Plgh-achlevlng sLudenLs wlll dlscuss and explaln sLraLegles LhaL dlrecLly relaLe
Lo Lhe parLlcular buslness LhaL has been descrlbed.
unlL 4 lnLroduces Lhe lasL sLage of Lhe accounLlng process, Advlce. 1he meLhod for Lackllng
Lhese Lheory quesLlons wlll be explored ln greaLer deLall below.
ConnecL LducaLlon 2011 13
8uslnesses are requlred by law Lo lssue refunds or reLurns lf Lhe good or servlce LhaL Lhey
sold Lo a parLlcular cusLomer falls Lo operaLe as adverLlsed. Powever, some buslnesses wlll
allow cusLomers Lo reLurn sLock for aesLheLlc or oLher reasons, even Lhough Lhey have no
obllgaLlon Lo do so. 1hls could be because Lhey wanL Lo malnLaln good relaLlonshlps wlLh
Lhelr cusLomers and encourage cusLomer loyalLy (repeaL cusLomers).
CredlL noLes are used Lo provlde evldence of a reLurn Laklng place. ln vCL AccounLlng, lL ls
assumed LhaL all reLurns are by credlL cusLomers who have ouLsLandlng debLs (cash refunds
are noL examlned).
uamaged sLock
1oo many ordered
Change of preference
Wrong sLock supplled
ln order Lo record boLh sales and purchase reLurns, Lhe accounLs affecLed need Lo be placed
ln a poslLlon as lf Lhe prevlous LransacLlon never Look place. 1herefore, sLudenLs need only
Lo do Lhe exacL opposlLe (l.e. deblL Lhe credlLs, credlL Lhe deblLs) of a credlL sale or purchase.
G"+&H'sales and purchase reLurns are recorded ln Lhe general [ournal as Lhey are an
lnfrequenL non-cash LransacLlon and cannoL be recorded ln any of Lhe speclal [ournals.
M#$%/.,&'0&+#$*H'occurs when Lhe buslness [we] reLurn sLock Lo a credlLor (for varylng reasons).
When a credlL sale Lakes place:
u8 SLock ConLrol
u8 CS1 Clearlng
C8 CredlLors ConLrol
C8 CredlLor - name
Slmply reverse Lhe enLrles uslng Lhe Ceneral !ournal.
G"+&H'1he cosL prlce ls deLermlned by examlnlng Lhe credlL noLe lssued by Lhe suppller.
SLudenLs ?"'*"+'need Lo calculaLe lL.

ConnecL LducaLlon 2011 16
!.9&,'0&+#$*H occurs when a debLor reLurns sLock Lo Lhe buslness [us] (for varylng reasons).
When a credlL sale Lakes place:
u8 uebLors ConLrol
u8 uebLor - name
C8 Sales
C8 CS1 Clearlng
u8 CosL of Sales
C8 SLock ConLrol
ln order Lo record Lhe reLurn of sLock by a debLor, we slmply reverse Lhe above enLrles, wlLh
one excepLlon. lnsLead of deblLlng Sales, we creaLe a new accounL called Sales 8eLurns (a
negaLlve revenue) and deblL LhaL lnsLead. lL operaLes Lhe same way as any expense.
CreaLlon of Lhe new accounL allows us Lo gauge Lhe overall level of sales reLurns, lnsLead of
havlng a slngle Sales flgure.
8&*&$.9'@&?S&$' !#5,1?1.$N'@&?S&$'
(.+&' (&+.19,' (&51+'V' -$&?1+'V' (&51+'V' -$&?1+'V'
!une 23 Sales 8eLurn 400
CS1 Clearlng 40
uebLors ConLrol 440
uebLor - 8. A11LL 440
SLock ConLrol xxx
CosL of Sales xxx

noLlce someLhlng mlsslng? Pow do we work ouL Lhe value of Lhe sLock LhaL ls belng
reLurned? 8emember LhaL buslnesses use Lhe lllC cosL asslgnmenL meLhod as lL would be
unreasonable and unfeaslble Lo label each sLock lLem lndlvldually wlLh lLs cosL prlce (Lhls
could also alerL cusLomers Lo Lhe mark-up LhaL has been applled). As a resulL, reference Lo
Lhe sLock card for Lhe llne of sLock belng reLurned ls requlred Lo calculaLe Lhe cosL prlce.
ConnecL LducaLlon 2011 30
G"+&H'Lvery correspondlng enLry wlll be ulsposal of _______
CeL rld of Lhe asseLs hlsLorlcal cosL (or lLs prevlous purchase prlce).
AsseLs have a deblL balance, and Lherefore we musL credlL Lhem Lo reduce Lhe accounL
balance Lo 0.
8&*&$.9'@&?S&$' !#5,1?1.$N'@&?S&$'
(.+&' (&+.19,' (&51+'V' -$&?1+'V' (&51+'V' -$&?1+'V'
!an 1 ulsposal of CompuLer SysLem 3 000
CompuLer SysLem 3 000

CeL rld of Lhe assoclaLed accumulaLed depreclaLlon.
!an 1 Acc. uep'n of CompuLer
2 230
ulsposal of CompuLer
2 230

' '
ConnecL LducaLlon 2011 31
An accounLlng reporL LhaL shows esLlmaLes of revenues, expenses and Lhus proflL over a
speclflc perlod of Llme ln Lhe fuLure.
4#?S&+&?'8alance SheeL as aL 30 !une 2010
-#$$&*+'.,,&+,' V' V' -#$$&*+'91.5191+1&,' V' V'
8ank 2 300 CredlLors ConLrol 1 000
SLock ConLrol 34 000 CS1 Clearlng 400
repald 8enL Lxpense 300 Accrued Wages 200
Accrued lnLeresL Lxpense 300 repald Sales
uebLors ConLrol 2 300 39 800 Loan - AnZ
1 200 3 300

Loan - AnZ
60 000
LqulpmenL 30 000 Y`*&$6,'&L#1+N
Less. Acc. uep'n of
2 440

27 360

CaplLal' 23 300
Add neL roflL 860
' 24 360
Less urawlngs 300 23 860

:"+.9'F,,&+,' V' _e'DXE' :"+.9'ZL#1+1&,' V' _e'DXE'

ConnecL LducaLlon 2011 37
1hls ls Lhe one area of vCL AccounLlng whlch allows sLudenLs Lo use Lhelr creaLlvlLy.
Lxamlners wlll be LesLlng sLudenLs' undersLandlng Lhe raLlos and Lhe sLraLegles LhaL Lhey can
come up wlLh Lo address Lhe lssues.
As long as sLudenLs [usLlfy Lhelr responses, Lhey wlll be able Lo use any feaslble examples ln
Lhelr responses.
As Lhls area ls all abouL raLlo analysls, lncreaslng or decreaslng Lhese raLlos ls slmply a
maLLer of lncreaslng or decreaslng Lhe numeraLor or denomlnaLor. SLudenLs should always
ldenLlfy `/.+'ls requlred: for example, ln order Lo lncrease Lhe 8Cl, Lhere could be an
lncrease ln neL roflL. 1hls ls a slmple explanaLlon LhaL Lhe ma[orlLy of Lhe sLaLe ls able Lo
reach. Powever, lL ls noL nearly speclflc enough Lo be consldered a greaL answer. Plgh-
achlevlng sLudenLs wlll go furLher by provldlng a speclflc sLraLegy LhaL relaLes Lo Lhe
1he sLraLegy should alm Lo provlde a [usLlflcaLlon of'/"`'Lhe buslness can lncrease lLs neL
roflL. lor example, lL could lmprove Lhe managemenL of lLs employees, ensurlng LhaL
wages expense ls mlnlmlsed as much as ls reasonably posslble. 1he 'how' should provlde
examlners wlLh a loglcal meLhod Lo reallse or achleve Lhe 'whaL'.
Whenever sLudenLs answer Lhese Lypes of quesLlons, lL ls essenLlal LhaL Lhey lnclude boLh a
'whaL' and a 'how', Lhereby provldlng examlners wlLh a succlncL response LhaL addresses all
Lhe crlLerla.
G"+&H'WaLch ouL for resLrlcLlons. 1he examlners wlll someLlmes expllclLly sLaLe LhaL some
lLems are noL Lo be used (excludlng adverLlslng"), and oLher Llmes, lL ls lmpllclL ln Lhe
quesLlon lL self (e.g. lncrease ln n/AsseLs vs. decrease ln Sales/AsseLs, means asseLs cannoL
be used).