The owner of a very small, part-time business is very disorganised and doesn’t like filing invoices, accounts and receipts. ‘What is the point of keeping all that paper work?’ he asks. ‘Once the details have been recorded in the accounting system why waste time and space filing everything?’
Explain to the small business owner why it is important to keep supporting documentation and how such records are likely to be useful for future decision making and provide an example.
Recently, a new student of accounting was overheard making the following remarks: ‘Why are we learning how to use the double-entry system of recording in the accounting cycle? Surely there are good computer packages available these days which can handle all of these details.’
Provide a suitable reply.
Brian Kelly has spent many years of his life panning for gold, with little success. On several occasions, he has found small traces of gold along the usual river banks that he is licensed to pan. However, on his last trip to the Ballarat River, almost by accident he managed to find a very promising piece of rock which he placed in his satchel. He took the rock into town to be examined and valued by experts, who assured him that the rock was a valuable gold nugget and that it was worth at least $60 000. Brian was elated and opened a bottle of champagne to celebrate with his friends.
About 2 weeks later, he sold the nugget to a jeweller for $75 000 in cash.
Based on the Conceptual Framework, decide whether and when revenue exists and the appropriate time for this revenue to be recognised in the accounts of Brian Kelly, Gold Prospector.