June 2026
The 2025 VCE Accounting exam rewarded students who could do more than process numbers.
High-scoring responses showed control over the full accounting process: interpreting source documents, identifying the correct transaction, applying assumptions accurately, recording entries precisely, and explaining the effect on business performance.
This is what made the 2025 exam so revealing. The paper did not simply test whether students could memorise formats. It tested whether they understood why a particular accounting treatment was required.
A credit note had to be recognised as a sales return. A prepaid expense had to be adjusted correctly. A delivery cost had to be treated as part of inventory. An inventory write-down had to consider net realisable value. A budgeted cash flow statement had to be separated from profit. A business decision had to consider financial and ethical factors.
In VCE Accounting, marks are awarded for accounting judgement as well as calculation.
Source documents drove the accounting treatment
Question 1 began with a credit note issued by MainRoad Electrics to Queensville Motel for a returned electric toaster. The business used a 100% mark-up on inventory.
This question looked procedural, but it required careful interpretation.
The credit note represented a sales return, not a sale, purchase return or bank transaction. Because the document showed the selling price of $60 plus $6 GST, students also had to work backwards using the 100% mark-up to determine the cost price of the returned inventory.
A correct entry required:
- Sales Returns of $60
- GST Clearing of $6
- Accounts Receivable of $66
- Inventory of $30
- Cost of Sales of $30
The Examination Report noted that common errors included recording the transaction as a sale or purchase return, treating Accounts Receivable as Bank, or reversing Inventory and Cost of Sales.
That is the lesson.
In Accounting, the source document determines the accounting treatment. Students cannot simply recognise a familiar business event and rush to an entry. They must read the document, identify the transaction type, apply the business information and then record the entry.
The mechanics only work after the interpretation is right.
Mark-up had to be applied, not ignored
The credit note in Question 1a gave the selling price of the returned toaster, not its cost price. Because MainRoad Electrics used a 100% mark-up on inventory, the $60 selling price represented twice the cost price. The cost price was therefore $30.
That calculation mattered because the sales return did not only reverse revenue and Accounts Receivable. It also required the inventory to be returned to the records and Cost of Sales to be reduced.
Students who ignored the mark-up could not complete the inventory side of the entry accurately.
This is a common Accounting issue. The exam rarely gives information randomly. If a mark-up, reporting period, GST treatment, inventory method or credit term is included, it is likely to matter.
High-scoring students notice those details and use them.
Non-financial indicators needed business interpretation
Question 1b asked students to explain how credit notes can be used as a non-financial indicator of business performance.
This was not asking for the dollar value of sales returns. It was asking how the number of credit notes could provide information about the business.
A higher number of credit notes may indicate customer dissatisfaction, poor product quality, dispatch errors, delivery issues or problems with order handling. A lower number may suggest improved customer satisfaction or fewer issues with products and processes.
The report noted that some students referred to financial indicators, such as the value of sales returns. Others identified customer satisfaction but did not explain how credit notes reflected it.
This distinction matters.
A non-financial indicator is not measured in dollars. It provides performance information that may still be highly valuable for decision-making.
In Accounting, business performance is not only profit. It includes customer satisfaction, inventory management, supplier relationships, efficiency and the quality of business processes.
Strong responses recognised that credit notes are evidence. They show where customer experience and internal systems may be failing.
Prepaid advertising required balance-day thinking
Question 1c asked students to show the Prepaid Advertising and Advertising accounts after an adjusting entry was made.
MainRoad Electrics paid $16,500 including GST on 10 February for a three-month advertising contract commencing 1 March. Because GST is not part of the expense or asset, the prepaid advertising amount was $15,000. At 31 March, one month of the three-month contract had expired, so $5,000 had become Advertising expense and $10,000 remained Prepaid Advertising.
This question rewarded students who understood balance-day adjustments, not just ledger format.
The Prepaid Advertising account needed to show the original payment, the transfer of $5,000 to Advertising, and the remaining balance of $10,000. The Advertising account needed to show the $5,000 expense and its closing to Profit and Loss Summary.
The report noted errors such as treating the bank transaction as an opening balance, including GST in the ledger amount, posting Advertising on the wrong side, or failing to balance and close accounts.
These errors show why Accounting preparation must include process fluency.
Students need to know what happens when a payment is made before the benefit is consumed. They also need to know how that treatment flows through the ledger at balance day.
Qualitative characteristics required exact terminology
Question 1d asked students to explain the importance of documents in the accounting process with reference to one qualitative characteristic.
The relevant qualitative characteristic was verifiability.
A strong response needed to explain that source documents provide evidence that allows independent and knowledgeable observers to reach a consensus that an event has been faithfully represented.
This is a technical Accounting idea. It cannot be replaced by a vague statement that documents are “proof” or “help make records accurate”.
The report noted that higher-scoring responses identified verifiability and applied its definition to source documents. Weaker responses often knew the general idea but did not express it using the correct accounting terminology.
This is a recurring feature of VCE Accounting theory questions.
Students need to write in the language of the subject. The examiner is not only looking for common sense. They are looking for conceptual accuracy.
Inventory loss questions required attention to constraints
Question 2 concerned Yumm Petfoods, which had inventory on hand of $240,000, an inventory turnover of 90 days, inventory loss of $12,000 and net profit of $63,000. The industry averages were significantly stronger: inventory turnover of 49 days, inventory loss of $4,000 and net profit of $111,000.
Question 2a stated that the owner believed inventory loss was mostly from theft, then asked for two other possible reasons.
The constraint mattered.
Students could not repeat theft. Acceptable reasons included undersupply by suppliers, oversupply to customers, recording errors, unrecorded wastage or unrecorded damage.
The report noted that some students referred to theft despite the question excluding it. Others gave reasons that did not clearly explain how an inventory loss would occur.
This is an exam technique issue as much as an Accounting issue.
Students must read the restriction in the question and work inside it. When VCAA says “other than theft”, that phrase is part of the assessment.
Internal controls had to be described, not just named
Question 2b asked students to describe one internal control procedure that could reduce inventory theft, other than security cameras and bag checks already used by the business.
Again, the constraint mattered.
A student could not simply say “install cameras” because the business already had them. Stronger responses described alternatives such as security tags, locked display cabinets for expensive items, or security guards.
The word describe also mattered. Naming an internal control was not enough. Students needed to explain what the control involved and how it would reduce theft.
For example, security tags on high-value items could alert staff if products were removed without payment and discourage theft by increasing the likelihood of detection.
That is a complete response.
It identifies the control and explains its operation.
Inventory turnover analysis needed business consequences
Question 2c asked students to analyse the likely effects on business performance of having an inventory turnover much slower than the industry average.
This was one of the stronger business analysis questions in the paper.
Yumm Petfoods had an inventory turnover of 90 days compared with the industry average of 49 days. That means the business was holding inventory for far longer than comparable businesses.
The consequences could be significant.
A slower inventory turnover may create liquidity pressure because cash is tied up in inventory for longer. If suppliers’ credit terms are shorter than the inventory turnover period, the business may need to pay suppliers before receiving cash from customers. This can make it harder to meet short-term obligations such as wages, rent and accounts payable.
It can also increase the risk of inventory loss or write-downs, especially for pet food. Inventory may approach expiry dates, become damaged, require additional storage, or become less saleable. This can increase expenses and reduce profit.
The report noted that higher-scoring responses linked slow turnover to both sales and inventory loss or write-downs. The best responses applied the analysis to the business rather than giving a generic ratio explanation.
That is the key.
A ratio only matters because of what it reveals about business performance.
FIFO was an assumption, not the physical movement of inventory
Question 2d asked students to justify the accountant’s suggestion that changing from the Identified Cost inventory cost assignment method to FIFO would improve efficiency.
This question exposed a common misunderstanding.
FIFO is a cost assignment assumption. It does not necessarily mean that the business physically sells the oldest inventory first.
For a pet food business, using Identified Cost would require individual items to be labelled or tracked by cost. This could be time-consuming and inefficient, especially where inventory consists of relatively low-cost, high-volume items. FIFO is likely to be more efficient because it can use product information from barcode readers and update inventory records more easily.
The report noted that some students incorrectly argued that FIFO would improve efficiency because it would ensure older inventory was sold first and reduce expiry issues. That confuses the cost assignment method with actual inventory movement.
This is a powerful Accounting lesson.
The method used to assign cost in the records is not always the same as the physical flow of goods in the business.
High-scoring students keep that distinction clear.
Product costs had to include delivery
Question 3a asked students to record the purchase of football jumpers by Top Sportz. The supplier’s invoice showed 45 jumpers at $80 each plus GST, and delivery of $90 plus GST.
The correct inventory value was not just the cost of the jumpers. It included the delivery cost.
That is because delivery was a product cost: a cost incurred to get inventory into a condition and location ready for sale, which could be logically allocated to the inventory.
The correct Inventory amount was therefore $3,690, with GST Clearing of $369 and Accounts Payable of $4,059.
The report noted that some students recorded delivery separately or treated the transaction as paid by Bank rather than Accounts Payable.
This question tested whether students understood product costing, not just journal layout.
If delivery is necessary to bring inventory to the business and can be logically allocated, it is included in Inventory. That treatment affects cost of sales, gross profit and inventory valuation later.
Inventory write-down required net realisable value
Question 3b asked students to record Memo 63, where football jumpers had a cost price, a reduced selling price, and a free coffee cup to be given away with each jumper sold.
This required an inventory write-down.
The business had 30 football jumpers on hand. Based on the purchase from Question 3a, the cost per jumper was $82, because the $90 delivery cost was allocated across 45 jumpers, adding $2 per jumper to the $80 cost.
The jumpers would now be sold for $75 each. A coffee cup costing $5 would be given away with each jumper. This reduced the net realisable value to $70 per jumper.
Cost was $82. Net realisable value was $70. The write-down was therefore $12 per jumper, or $360 for 30 jumpers.
The report noted that some students did not include the coffee cups when calculating net realisable value, or recorded the adjustment as an inventory loss rather than an inventory write-down.
This distinction matters because the cause of the decrease was a fall in net realisable value, not a physical loss of inventory.
Accounting treatment depends on the nature of the event.
Narrations had a purpose
Question 3b also required a narration.
The report noted that some responses did not refer to the football jumpers or Memo 63 in the narration. This weakened the answer.
A narration is not filler. It explains the transaction and identifies the source document. In this case, the narration needed to make clear that the entry recorded the inventory write-down of 30 football jumpers to net realisable value, based on Memo 63.
This is another example of VCE Accounting rewarding process discipline.
Students need to understand not only the numbers in an entry, but also the documentation and explanation supporting that entry.
Accounts payable turnover showed supplier risk
Question 3c provided a chart showing Top Sportz’s Accounts Payable Turnover becoming slower from July to September, while supplier credit terms remained constant. By September, the business was paying well outside the supplier’s credit terms.
The likely consequences were serious.
Suppliers may withdraw credit facilities, require cash payments, reduce supply, or refuse to continue providing inventory. The business’s credit rating may worsen, making it harder to negotiate favourable terms in future. If the business cannot access inventory, sales and profit may fall. If it must pay debts immediately, liquidity may weaken further.
The report noted that higher-scoring responses identified the trend and described more than one consequence.
This is what ratio and indicator analysis should do.
It should not stop at “the Accounts Payable Turnover is slower”. It should explain why that trend matters for the business.
Budgeting questions required separation of cash and profit
Question 4 involved Dizzies Metalworks and required students to work with a Budgeted Income Statement, balance sheet extracts, GST, Accounts Receivable, Allowance for Doubtful Debts and the Operating Activities section of a Budgeted Cash Flow Statement.
This question tested one of the most important Accounting distinctions: cash flow is not profit.
Budgeted Net Profit may include non-cash expenses, such as depreciation and bad debts, as well as accrued or prepaid items. Budgeted Net Cash Flow from Operating Activities records actual expected cash inflows and outflows.
The report’s discussion of GST also shows the precision required. Students needed to identify which amounts included GST, which amounts required adjustment, and what GST would actually be paid in November.
This is where students often lose marks. They may know the formats, but the figures require careful classification.
Accounting is not only about placing numbers into headings. It is about knowing what each number represents.
Business decisions required financial and ethical judgement
Question 5 concerned Gazza’s Gas, a service station open 24 hours a day in a regional town. The owner considered whether to continue the 10 pm to 6 am shift, which was the least profitable but provided a valuable all-night service to the town and employment for local university students.
This question required both financial and ethical considerations.
Financially, students needed to calculate whether the night shift generated enough profit to justify continuing, including the possible 20% wage increase. Ethically, students needed to consider the value of the service to the community, the income provided to local students, staff safety, and the antisocial behaviour occurring after 10 pm.
This type of question is important because VCE Accounting is not just mechanical recording. It includes business decision-making.
A strong response needed a recommendation supported by both numbers and ethical reasoning.
The best Accounting students can move from calculation to judgement.
Profitability indicators needed deeper explanation
Question 6 focused on Earthwrkx, where Return on Assets was decreasing while Asset Turnover and Sales were increasing.
This question tested whether students could interpret conflicting indicators.
A decline in Return on Assets is concerning because it suggests the business is generating less profit from the assets it controls. Even if sales are rising and assets are being used more efficiently to generate revenue, profitability can still fall if expenses rise faster than sales or if profit margins decline.
This is a sophisticated business performance idea.
Sales growth alone does not guarantee improved profitability. Faster Asset Turnover does not guarantee a higher Return on Assets. If expenses increase, mark-up falls, inventory write-downs rise or profit margins weaken, Return on Assets can decline despite higher sales.
High-scoring responses needed to explain the relationship between the indicators rather than treating each one separately.
Balance-day adjustments required careful classification
Question 7 required adjustments for inventory, wages, insurance, depreciation, electricity and a customer deposit.
This kind of question rewards technical control.
Students needed to distinguish between assets, liabilities, revenue, expenses and GST. They needed to recognise accrued wages, expired insurance, depreciation using the reducing-balance method, an unpaid electricity bill and a cash deposit received before goods were provided.
The $800 deposit was especially important. Because the goods had not yet been provided to the customer, the business had not yet earned the revenue. The amount received created a liability, often treated as Unearned Sales Revenue or a deposit received in advance.
This is the accounting assumption at work.
Revenue is recognised when the performance obligation has been satisfied, not merely when cash is received.
Students who rely only on cash movement will misclassify this kind of transaction.
Disposal of assets required sequencing
Question 8 involved the trade-in of an old delivery van and purchase of a new one.
This required students to calculate depreciation to the date of disposal, complete the Disposal of Delivery Van account, calculate depreciation for the year and show the cash flow statement effect.
This is a sequencing task.
Before a non-current asset is disposed of, depreciation must be updated to the date of disposal. Then the asset’s cost and accumulated depreciation are transferred to the Disposal account. The trade-in allowance is recorded, and the resulting profit or loss on disposal is determined.
Students also needed to distinguish the non-cash trade-in allowance from the cash paid for the new van when reporting the cash flow effect.
This is a common Accounting challenge. Students need to know the order of events, not just the final formula.
What the 2025 exam teaches future Accounting students
The 2025 VCE Accounting exam shows that high performance depends on technical accuracy and accounting reasoning.
Students need to:
- interpret source documents correctly
- apply mark-up, GST and cost price information accurately
- distinguish product costs from period costs
- understand balance-day adjustments
- use qualitative characteristics precisely
- analyse business performance using indicators
- distinguish inventory loss from inventory write-down
- understand FIFO as a cost assignment assumption
- separate cash flow from profit
- consider ethical and financial factors in decisions
- classify assets, liabilities, revenues and expenses correctly
- sequence depreciation and disposal entries properly
The strongest students did not simply memorise formats.
They understood the accounting treatment behind the format.
How ATAR STAR approaches VCE Accounting
At ATAR STAR, VCE Accounting is taught as a process of interpretation, recording and explanation.
Students learn how to read source documents, identify the correct accounting treatment, apply assumptions and qualitative characteristics, and explain how accounting information supports business decision-making. They also practise the technical skills that determine exam marks: journals, ledgers, adjustments, inventory valuation, budgeting, cash flow and performance analysis.
The 2025 Examination Report confirms why this matters. High-scoring responses were precise, well-sequenced and grounded in accounting principles.
They did not just calculate.
They understood what the numbers meant.