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4.4       Explain what test bank is transposition error is and identify how you can detect that one has occurred.

A transposition error occurs when two of the digits recorded in the transaction are transposed (switched). For example, if stationery was purchased for $276 and the entry to record stationery was made for $267. The error can be identified as a transposition error as the difference is divisible by 9. i.e. 276-267 = 9. Similarly, if the same amount was entered as $726 then the difference is 726-276 = 450. The figure 450 again is divisible by 9.

4.5       Distinguish between personal transactions and business transactions. Illustrate with five examples of each test bank is available.

Business transactions involve an exchange of goods between the business entity and another entity.  Examples of business transactions include the following:

·    Payment of rent of building

·    Purchase of goods from supplier

·    Sale of goods on credit to customer

·    Payment of tax to the Australian Taxation Office

·    Payment of test bank to employees

Personal transactions of the owner, partners or shareholders do not involve an exchange of goods between the business entity and another entity. They involve a transaction between the individual and another entity. An example of a non-business transaction could include the following textbook solutions:

·   Payment of personal health insurance

·   Purchase of family car

·   Taking the family on an overseas holiday paid for in cash

·   Sale of personally owned shares in Coles Myer

·   Purchase of tickets to the AFL Grand final by the individual

It is important to keep business transactions separate to those of the owner(s) as the financial reports for the entity should reflect the performance, position and cash flow of the entity only and not include personal assets.

If payments for these types of transactions are made out of business funds the amount should be treated as a reduction in the owner’s equity (drawings) and it is therefore recorded as a business transaction of textbook solutions.

4.6       Explain what is meant by an ‘arm's length business transaction’ when a business buys accounting software on credit.

An arm’s length distance can be described as ‘where the parties are dealing from equal bargaining positions, neither party is subject to the other’s control or dominant influence, and

the transaction is treated with fairness, integrity and legality. An arm’s length transaction is recognised when there has been an exchange of resources between the company and another entity, such as a company purchasing accounting software on credit from a supplier. In this situation neither the company nor the supplier is under the 'control' of the other entity, there is no undue force in the transaction.

4.7       What is the purpose of an income statement for an entity? List typical items that you would see in an income statement for a florist.

The Income statement reports on the revenues less the expenses for the entity. Revenue would be  flower sales. Examples of expense items include cost of flowers sold, wages, rent, interest expense, depreciation of fittings, electricity, internet and insurance for textbook solutions is available.

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