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ACCOUNTING
BASIC REPORTS
 PREFACE
Accounting: Basic Reports is a companion text to Accounting: To Trial Balance. It is designed
specifically for students studying Prepare Financial Reports as part of the Financial Services
Training Package. The text is also suitable for other accounting courses in basic undergradu-
ate accounting, in TAFE colleges and in the secondary school area.
In order to satisfy the requirements of the Financial Services Training Package, this text
follows closely the structure of the unit of competency. Its main emphasis is on building
skills associated with recording balance day adjustments and closing entries, and on prepara-
tion of financial reports for single-owner business entities that are not reporting entities. It
provides comprehensive material covering Generally Accepted Accounting Principles and
Accounting Standards, as well as accounting entries for balance day adjustments, reversals
and closing entries, and preparation of final reports for various sole trader businesses (ser-
vice and retail). To meet the requirements of the unit of competency, a chapter covering
accounting for depreciable assets has also been included in the book. All material has been
written in strict accordance with current accounting standards.
All units contain full topic introductions, illustrative examples, extensive graded ques-
tions in a learning sequence and solutions to some key questions. A solutions manual con-
taining those solutions not currently provided in the text is also available directly from
Cengage Learning Australia. Note further that some questions have been adapted to accom-
modate the application of MYOB Accountright software.

GST
The treatment of GST as it relates to balance day adjustments and final reports is in line
with current accounting practice and meets legislative requirements.

Accounting standards
This edition has been updated to reflect the recent introduction of Australian equivalents of
International Financial Reporting Standards (IFRS).

viii
ABOUT THE AUTHORS
Dr Nicholas A Mroczkowski
PhD (Finance) Monash, MAcc (Finance) RMIT, BBus (Accounting) Swinburne, DipBus (Financial
Accounting) Ballarat, BEd Hawthorn Inst Ed, FCPA, Chartered Accountant.
Nick is a Senior Academic in the Faculty of Business at the Australian Catholic University,
Melbourne (ACU). He has more than 30 years of professional experience in Australia and
abroad, encompassing a variety of technical disciplines including auditing, financial account-
ing, finance and education. Prior to joining ACU, Nick was a Senior Lecturer in Finance and
Accounting at Swinburne University of Technology, Lecturer in Accounting and Finance at
Monash University, and a Senior Lecturer in Accounting at Deakin Business School. Nick has
also held senior positions in professional practice, including the position of Technical Director
(Audit and Accounting) for a major chartered accounting firm for a period of 15 years. His
client base includes banks, non-financial institutions, governments, educational bodies and a
range of medium-to-large companies in the private sector.

David Flanders
CPA, BCom, BEd
David Flanders has been an accounting teacher at Kangan Institute for more than 20 years.
His main teaching areas are computing accounting, financial accounting, budgeting and corpo-
rate governance. He has co-authored several textbooks across different accounting areas for
more than 10 years and has been extensively involved in writing materials for students via
distance learning.

ACKNOWLEDGEMENTS
The publisher and the authors would like to thank Daryl Fleay and Neville Poustie for their
contribution to the previous edition.
Their work has provided a tremendous platform for future editions to follow. They have
also assisted in reviewing and providing valuable feedback to the current edition.
We would also like to thank Silvana Disisto for completing a technical edit of the
textbook.

ix
x
Resources guide

xi
 COMPETENCY GRID
This text covers the following competencies from the FNS10 Financial Services Training Package:
• BSBFIA401: Prepare financial reports.
The following grid maps the elements of the above unit to the relevant chapters of this text.
BSBFIA401: Prepare financial reports
Element Chapter
1. Maintain asset register 2, 5
2. Record General Journal entries for balance day adjustments 2, 3, 4, 5
3. Prepare final ledger accounts 2, 3, 4
4. Prepare end of period financial reports 2, 4

Visit http://www.cengagebrain.com and search for this book to access the

bonus study tools on the companion website for Accounting Basic Reports 10e.

xii
1
INTRODUCTION TO
ACCOUNTING: REGULATIONS,
REPORTS AND SYSTEMS

Learning objectives
Upon completion of this chapter you should be able to:
• briefly describe the accounting Conceptual Framework
• briefly explain the term ‘GAAP’
• briefly explain the role of the Statements of Accounting Concepts
• briefly explain the role of Australian accounting standards
• define and explain the purpose and role of the following statements:
– statement of financial position for a sole trader business for both external accounting and
internal management purposes
– statement of comprehensive income for a sole trader business for both external accounting
and internal management purposes
• explain the basic factors that influence the design of an accounting system and the role of a
chart of accounts as part of the management information system for a sole trader business.

1
 Accounting Basic Reports

The need for financial reporting

The preparation of financial reports is often considered to be the most important part of the accounting pro-
cess, since the information gleaned from them can be used by several different parties for making informed
decisions regarding the business entity. These parties include management, shareholders, suppliers, custo-
mers, finance providers, regulatory authorities, employees and the general public. A financial report can be
any report that highlights financial data, such as a statement that shows total money received and paid by
the entity (receipts and payments report), or that shows the total sales for a particular period by the entity
(a sales report for example). Typically, however, the term ‘financial report’ relates to specific types of finan-
cial statements required to be prepared by the entity, and usually for the benefit of parties external to the
entity; for example, investors, suppliers of credit, lending institutions and other interested parties such as
those described above.
An authoritative definition of the term ‘financial report’ is provided in the Corporations Act 2001 (Cth)
(discussed below), which states that a financial report must consist of the financial statements for the year
and the notes accompanying the financial statements. Financial statements are defined as those required by
accounting standards, and include the statement of financial position, the statement of comprehensive
income, the statement of changes in equity and the statement of cash flows. Notes accompanying the
financial statements include specific disclosures required by various regulations (such as the Corporations
Act) and accounting standards; they may include any additional information and notes required to further
explain particular items disclosed in the financial statements. In more conventional terms, this means that
entities that are required to prepare a financial report must, as a minimum, actually prepare four reports
and provide additional information explaining the various items disclosed in those reports. Furthermore,
to avoid duplication of terminology, the four individual reports that make up the financial report are more
commonly referred to as statements rather than reports and include the following:
• a statement that shows the assets, liabilities and equity of the business, commonly known as the balance
sheet, but now more formally known as the statement of financial position
• a statement that shows the income and expenses of the business and the resulting profit or loss for the
period, commonly known as the profit and loss statement, but now more formally known as the statement
of comprehensive income
• a statement that shows all movements in equity (put simply, the amounts owing to the owners of the
business), formally known as a statement of changes in equity, and
• a statement that shows the flows of cash (by category) in and out of the business, formally known as
the statement of cash flows.
From a user’s perspective, all four statements can provide useful information regarding various aspects of
the business entity’s activities. For instance, the statement of comprehensive income can reveal whether
the firm is profitable and this information could prove invaluable to various parties that may wish to assess
whether the level of profit (and return on their investment) is sufficient in relation to comparable firms
and investments. The statement of financial position will provide useful information relating to the

2
 Chapter 1 Introduction to accounting: Regulations, reports and systems

financial stability of the business entity – in particular, whether or not the entity has the potential to sur-
vive in the short term and in the long term. The statement of changes in equity will show the changes that
have affected the owner’s claims on the business entity during the year. Finally, the statement of cash flows
will provide valuable information allowing users to assess the quality of the earnings generated during the
period and also to determine what financing and investing decisions have been made by management dur-
ing the period. The focus of this text will be the preparation of two of the primary statements described
above: the statement of financial position and the statement of comprehensive income.
While it may appear to be a simple process, the preparation of financial reports, particularly reports
prepared for the benefit of external parties, can often be a very complex task even for the most qualified
and experienced accounting practitioner. This stems mainly from the many rules and regulations relating
to financial reporting and the size and nature of the business entity itself. Indeed, many countries have
extensive and complex financial reporting regulations and Australia is no exception in this regard. Often
the arguments for greater regulation in financial reporting arise from the need for greater transparency
and disclosure of vital information, particularly for entities in which the general public may have consid-
erable exposure. For example, large public companies listed on the Australian Securities Exchange will
have a considerable number of shareholders (hundreds and sometimes thousands) whose interests need
to be monitored and protected by financial reporting regulations and by other means. While many of
these rules and regulations are outside the scope of this text, it is important for students of accounting
to have a general understanding of the financial reporting framework within a specific country, albeit at
a basic level. In this regard, the following paragraphs briefly examine the general financial reporting envi-
ronment in Australia.

GAAP
‘GAAP’ is the acronym for Generally Accepted Accounting Principles and traditionally it was taken to mean all
of the basic principles and conventions of accounting. For instance the principle of historical cost, the
concept of the accounting period, the doctrine of conservatism, the entity convention, the principle of
accrual accounting and all of the other elementary principles underlying the fundamentals of accounting
were collectively known as GAAP. More recently, however, the term has been given a wider meaning, both
internationally and within Australia. What GAAP now stands for is the entire financial reporting framework
specific to a particular country including, in the case of Australia, relevant Acts of Parliament, accounting
standards and pronouncements, securities exchange listing rules, internal rules of the accounting professional
bodies (for instance, CPA Australia, the Institute of Chartered Accountants in Australia, and the Institute of
Public Accountants), statements and guidance releases issued by regulators, and various concepts statements
and interpretations issued by those bodies that set accounting standards, such as the Australian Accounting
Standards Board. Some of the components of Australian GAAP, also commonly abbreviated as A-GAAP, are
considered overleaf.

3
 Accounting Basic Reports

Corporations legislation
Generally, in Australia the Corporations Act 2001 is at the top of the financial reporting hierarchy for com-
panies and other specific entities required to comply with the reporting provisions of the Act (such as listed
trusts). Therefore, when determining what the financial reporting requirements are for an individual busi-
ness entity, the first step is usually to identify the structure and/or legal form of the entity itself. If, for
instance, the entity is a company, then the Corporations Act will apply, since the legislation is intended to
regulate the affairs of all companies and provide detailed rules and regulations ranging from basic registra-
tion procedures and day-to-day management to complex periodic financial reporting requirements. The
Corporations Act is a Federal Act of Parliament that applies to companies and other entities required to
report under the Act; for example, all entities listed on the Australian Securities Exchange (whether they
are companies or not). Entities that are not companies typically include listed trusts and other investment
schemes that raise funds from the general public by issuing a prospectus. Companies often also issue a
prospectus (an offer document) to raise funds from public investors. In simple terms, a prospectus is a
legal document inviting the public to invest in shares, units or interests in profit-making schemes.
The financial reporting requirements for companies (other than small private companies that are specifi-
cally defined in the Corporations Act 2001) are extensive and will usually require the application of all of the
GAAP rules, including compliance with the full reporting provisions of the Corporations Act. For this rea-
son, the comprehensive financial statements of large companies are often referred to as statutory accounts
(that is, the external financial statements that are required by the law). In contrast, detailed financial state-
ments required for internal and specific purposes are often referred to as management accounts. These inter-
nal financial statements are rarely (if ever) made available to the general public. Companies and other
entities required to prepare financial reports must also have their financial statements audited. Stated
simply, an audit is an examination of the financial affairs of the entity by an independent auditor who will
provide an opinion on whether the financial statements are presented fairly (that is, whether they present a
true and fair view of the financial affairs of the entity).
It is noted that, while the financial reporting requirements of companies and other similar entities are impor-
tant for an understanding of GAAP, the focus of this text is on the preparation of financial reports for sole
traders. The general financial reporting requirements for sole traders are explained at the end of this chapter.

Accounting standards,
pronouncements and concepts
The Corporations Act 2001 also requires companies and other entities that are required to prepare a financial
report to comply with relevant accounting standards and other pronouncements issued by the Australian
Accounting Standards Board (AASB). The AASB, which was first established by the Commonwealth govern-
ment in 1989, has the responsibility for developing accounting standards and making other important

4
 Chapter 1 Introduction to accounting: Regulations, reports and systems

pronouncements relating to financial reporting for companies and other entities in the private sector.
Accounting standards can be described simply as authoritative rules of accounting, which can include spe-
cific methods of accounting practice such as the manner in which particular types of transactions and
other events should be reflected in the financial statements. For example, there are specific accounting stan-
dards that prescribe accounting methods and procedures for such items as inventory (stock), depreciation,
property, plant and equipment and the like, and some of these standards also require certain information
to be disclosed in the financial statements. In the case of property, plant and equipment for instance, the
method of valuation of such assets is required to be disclosed in the notes accompanying the financial
statements. Note that the application of AASB standards is a legal requirement for all companies and
other entities that are required by the Corporations Act to prepare financial reports. Non-compliance with
AASB standards in preparing and presenting financial statements may result in serious consequences for
the entities concerned.

The Conceptual Framework

The AASB is also responsible for developing the Conceptual Framework, which is simply a set of basic con-
cepts and principles that provide the foundations for financial reporting. These include concepts that:
• identify the types of business entities that need to prepare financial reports
• explain the objectives of financial reporting and identify relevant parties interested in financial reports
• outline the basic qualities of financial information
• define the fundamental elements of financial reporting (that is, assets, liabilities, equity, income and
expenses).
On a basic level, concepts can be regarded as the building blocks of financial reporting, which have been pro-
gressively developed over time into an overall framework for the preparation and presentation of financial
reports. The existing conceptual framework in Australia has taken more than 30 years to advance to its cur-
rent state and continues to evolve in line with ongoing changes to economic, commercial, technological and
legal environments both in Australia and abroad. Among these developments, standards and pronounce-
ments issued by international accounting standards setting bodies such as the International Accounting
Standards Board (IASB) have played a significant role in shaping the conceptual framework and accounting
standards in Australia.
One of the first concept statements in the Conceptual Framework is primarily concerned with identify-
ing reporting entities. These are business entities with particular characteristics, which are required to prepare
comprehensive financial reports: for example, large public companies listed on the Australian Securities
Exchange. Comprehensive financial reports, which are also (and more accurately) referred to as General
Purpose Financial Reports (GPFRs), are detailed financial reports that comply with all of the requirements of
GAAP. The reporting entity concept has been developed and issued in the form of a statement titled State-
ment of Accounting Concepts SAC 1 Definition of the Reporting Entity. Similarly SAC 2, (although now
repealed and thus withdrawn) dealt with the objectives of financial reporting, and was issued as an

5
 Accounting Basic Reports

authoritative statement; its full title was Statement of Accounting Concepts SAC 2 Objective of General
Purpose Financial Reporting.
It is worth noting the genesis of the Conceptual Framework in Australia. Prior to 1 January 2005, the
AASB’s Conceptual Framework consisted of four statements of accounting concepts: not only SAC 1 Definition
of the Reporting Entity and SAC 2 Objective of General Purpose Financial Reporting as mentioned above, but
also Statement of Accounting Concepts SAC 3 Characteristics of Financial Information and Statement of
Accounting Concepts SAC 4 Definition and Recognition of the Elements of Financial Statements. However, follow-
ing Australia’s decision to adopt the Australian equivalents of International Financial Reporting Standards
(AIFRS) from 1 January 2005, both SAC 3 and SAC 4 were withdrawn. The former SAC 3 identified the
‘qualitative characteristics’ of financial information that should be contained in GPFRs. Qualitative character-
istics are the ‘ideal’ qualities that a financial report should possess in order to be useful in making commercial
decisions, whereas the objectives of the former SAC 4 were ‘to establish definitions of the major elements of
financial statements and to specify criteria for their recognition’. It should be noted however that, while both
SAC 3 and SAC 4 have been withdrawn, the substance of the statements has been included in the AASB’s
current Framework for the Preparation and Presentation of Financial Statements (usually abbreviated simply as
‘the Framework’ or ‘the AASB Framework’). The Framework is an extensive individual document which (prior
to December 2013) was the third component of the Australian Conceptual Framework and was, and still is,
largely based on the International Accounting Standards Board’s (IASB’s) Conceptual Framework for the Prepa-
ration and Presentation of Financial Statements (the framework which Australia adopted when AIFRS first
became applicable from 1 January 2005). The major financial reporting elements addressed in the Framework
are assets, liabilities, equity, income and expenses, and these have been given brief coverage in the companion
text, Accounting: To Trial Balance. However, the detailed definitions and criteria for recognition of the various
elements in the Framework are lengthy and complex, and beyond the scope of this text.
In summary, the Conceptual Framework in the Australian financial reporting context prior to December
2013 consisted of three components:
1 Statement of Accounting Concepts SAC 1 Definition of the Reporting Entity
2 Statement of Accounting Concepts SAC 2 Objective of General Purpose Financial Reporting, and
3 AASB Framework for the Preparation and Presentation of Financial Statements.
Furthermore, the status of the Conceptual Framework within the GAAP hierarchy is that concepts statements
in their own right do not have mandatory status. This means that there are generally no legal or other
requirements that compel preparers of financial statements to comply with any of the concepts statements.
Despite this, SACs have developed as an important source of guidance for practitioners; for example, SAC 1
is currently used to help identify reporting entities. Also, SACs do have some status indirectly because defini-
tions and other aspects of concepts statements are now very much a part of GAAP and, as discussed above,
many of the components of GAAP are compulsory for many types of business entities. For instance, most of
the definitions relating to financial reporting in concepts statements (assets, liabilities, equity and so forth)
are now included in accounting standards that are mandatory for companies and other entities required to
prepare financial reports under the Corporations Act 2001.
Given the discussion above, it is important for students of accounting to be aware of the various con-
cepts statements and perhaps, for more advanced students, to have a detailed knowledge of the various

6
 Chapter 1 Introduction to accounting: Regulations, reports and systems

sections within the specific concepts statements. For the purposes of this text, a brief description of both
SAC 1 and SAC 2 and the AASB Framework is provided below, although it should be noted that SAC 2
has recently been absorbed into the AASB Framework for the Preparation and Presentation of Financial
Statements following an amendment issued by the AASB in December 2013 (see further details below).

Statement of Accounting Concepts SAC 1

SAC 1 defines reporting entities as those entities in which it is reasonable to expect that there will be users
who depend on GPFRs for information that will aid them in making and evaluating commercial decisions.
What this means is that a reporting entity exists where there are users dependent on financial information;
that is, they are only able to obtain information for their specific needs through comprehensive financial
reports prepared by the business entity. Entities that fall into this category are usually large companies
and listed trusts in which the general public has considerable exposure. General GPFRs are further
explained below, but as a general rule, it can be assumed that most entities are reporting entities except
the following types:
• sole traders
• partnerships
• family trusts
• small proprietary companies.

Statement of Accounting Concepts SAC 2

(withdrawn December 2013)
When operative, SAC 2 defined a General Purpose Financial Report as ‘a financial report intended to meet
the information needs common to users who are unable to command the preparation of reports tailored so
as to satisfy, specifically, all of their information needs’.
Put simply, this means that a GPFR is essentially a comprehensive set of financial statements prepared
in accordance with GAAP; that is, all the legislative requirements and all accounting standards and pro-
nouncements issued by the regulators and by the AASB. It should further be noted that financial reports
other than GPFRs are referred to as Special Purpose Financial Reports (SPFRs) and may take many shapes or
forms depending on the needs of the users who are able to command specific information. For instance, an
SPFR may simply consist of a cash budget requested by a lending institution, or a set of basic financial
statements prepared on a cash basis. Management or internal reports would also be included within the
definition of SPFRs.
SAC 1 requires all reporting entities to prepare GPFRs. Non-reporting entities, however, are not required
to prepared GPFRs and accordingly would normally prepare SPFRs. Thus the financial reports for sole
traders, partnerships, family trusts and small proprietary companies are most likely to be SPFRs.

7
 Accounting Basic Reports

As a result of the AASB issuing AASB CF 2013–1 Amendments to the Australian Conceptual Framework in
December 2013, SAC 2 was withdrawn and no longer applies in Australia. The consequential effects of
these amendments, however, have been to include updated contents of the former SAC 2 into the AASB
Framework for the Preparation and Presentation of Financial Statements.
When the amendments were issued, they had the effect of bringing the Australian Framework in line
with the IASB amendments to the international framework issued in September 2010. (This has now been
renamed the IASB Conceptual Framework for Financial Reporting.) It should be noted that the AASB has not
accepted the IASB’s new title for their amended framework, and thus continues to use the IASB’s former
title Framework for the Preparation and Presentation of Financial Statements. Moreover, the AASB did not
accept the contents of the amended IASB The Conceptual Framework for Financial Reporting issued in 2010,
but rather opted to effect the changes progressively by issuing separate amendment documents, the first
of which is AASB CF 2013–1 Amendments to the Australian Conceptual Framework issued in December 2013.
Thus, as from December 2013, Australia’s conceptual framework consists of the following documents:
• Statement of Accounting Concepts SAC 1 Definition of the Reporting Entity (discussed above)
• the AASB’s existing Framework for the Preparation and Presentation of Financial Statements (i.e. not includ-
ing the IASB’s 2010 amendments), and
• AASB CF 2013–1 Amendments to the Australian Conceptual Framework, which is to be read in conjunction
with the existing conceptual framework document above.

The Framework for the Preparation and

Presentation of Financial Statements
As explained in the introduction to the AASB Framework, the purpose of the Framework is to set out the
concepts that underlie the preparation and presentation of financial reports for external users. The Frame-
work must always be read in consultation with any amendments issues by the AASB, including amendment
‘AASB CF 2013-1 Amendments to the Australian Conceptual Framework’ issued in December 2013. In this
regard, the Framework is primarily concerned with the following:
• objectives of financial statements
• assumptions underlying the preparation of financial statements and reports
• qualitative characteristics of financial reports
• elements of financial reports
• recognition criteria for the elements of financial statements.
While an in-depth discussion of the Framework is not covered in this chapter, brief comments in the fol-
lowing paragraphs should help to provide a basic understanding of the major features of the Framework.

Status of the Framework

Consistent with the non-mandatory application of concepts discussed above, the Framework states that
concepts are not set out as requirements for the preparation of GPFRs and also that the Framework is not

8
 Chapter 1 Introduction to accounting: Regulations, reports and systems

an accounting standard. Rather, the intent of the Framework is to provide guidance and assistance to a
range of parties, including preparers of financial reports, auditors and users of financial reports.

Objectives of financial reports

Objective 1
The objective of general purpose financial reporting forms the foundation of the
Framework. Other aspects of the Framework – a reporting entity concept, the
qualitative characteristics of, and the constraint on, useful financial information,
elements of financial statements, recognition, measurement, presentation and
disclosure – flow logically from the objective.
AASB Framework p. 11

Interestingly, the Framework is specifically concerned with general purpose financial reporting, although it
also states that the Framework may be applied in the preparation of SPFRs where requirements permit.

Objective 2
The objective of general purpose financial reporting is to provide financial infor-
mation about the reporting entity that is useful to existing and potential inves-
tors, lenders and other creditors in making decisions about providing resources
to the entity. Those decisions involve buying, selling or holding equity and debt
instruments, and providing or settling loans and other forms of credit.
AASB Framework p. 11

Assumptions underlying the preparation of reports

Two important bases for the preparation of financial reports are identified by the Framework:
1 the going concern basis, which assumes that the entity is a going concern (i.e. not ceasing to operate)
and will continue operations into the foreseeable future
2 the accrual basis, which requires the effects of transactions to be recognised when they occur (that is,
not necessarily when cash is received or disbursed) and recorded in the periods to which they relate.
Note that the 2013 amendments remove the accrual accounting concepts as a basis for the preparation of
financial statements, but include the following commentary.
Accrual accounting depicts the effects of transactions and other events and circum-
stances on a reporting entity’s economic resources and claims in the periods in which
those effects occur, even if the resulting cash receipts and payments occur in a differ-
ent period. This is important because information about a reporting entity’s economic
resources and claims and changes in its economic resources and claims during a
period provides a better basis for assessing the entity’s past and future performance
than information solely about cash receipts and payments during that period.
AASB Framework p. 15

9
 Accounting Basic Reports

Qualitative characteristics
The 2013 amendments have completely removed the sections covering qualitative characteristics of finan-
cial statements in the existing Framework and have replaced these with new sections tabled in an Appendix
to the amendments. In the introduction to qualitative characteristics, the amendments state that:
The qualitative characteristics of useful financial information discussed in this chapter
identify the types of information that are likely to be most useful to the existing and
potential investors, lenders and other creditors for making decisions about the report-
ing entity on the basis of information in its financial report (financial information).
AASB Framework p. 18

Briefly, the Framework requires that, as a minimum, financial statements should include information that
displays two fundamental qualitative characteristics:
1 information needs to be relevant, and
2 information needs to be faithfully represented if it is to be useful.
The amendments further state that ‘Comparability, verifiability, timeliness and understandability are qualitative
characteristics that enhance the usefulness of information that is relevant and faithfully represented’.
In effect, financial statements should as a minimum be:
• readily understandable
• relevant to the needs of users
• reliable and free from error and bias, and
• comparable.
Further detailed explanations are provided for each of these fundamental and enhancing qualitative charac-
teristics in the Framework.

Existence and recognition of elements of

financial reporting
As already mentioned, assets, liabilities, income, expenses and equity are covered in some depth in the com-
panion text: Accounting: To Trial Balance. Therefore, only a brief summary of the definition of each element
is provided here for the sake of completeness.
• Assets – The Framework defines assets as ‘resources controlled by the enterprise as a result of past
events and from which future economic benefits are expected to flow to the enterprise’.
• Liabilities – The definition of liabilities provided in the Framework states that ‘liabilities are present
obligations of the enterprise arising from past events, settlement of which is expected to result in an
outflow from the enterprise of resources embodying economic benefits’.
• Income – The Framework generally defines income as ‘increases in economic benefits during the
accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result
in increases in equity, other than those relating to contributions from equity participants’.

10
 Chapter 1 Introduction to accounting: Regulations, reports and systems

• Expenses – These are generally defined as ‘decreases in economic benefits during the accounting period
in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in
equity, other than those relating to distributions to equity participants’.
• Equity – This is defined as ‘the residual interest in assets of the enterprise after deducting all its
liabilities’.

International Financial Reporting

Standards (IFRS)
With the ever-increasing importance of international trade, Australian standard setters had the foresight in
the early 1990s to recognise the need for comparable accounting standards between countries. The potential
benefits to be gained from Australia having similar financial reporting rules to those of its major trading
partners are substantial, particularly in regard to the facilitation of trade and investment between countries.
Indeed, foreign traders and investors will be able to trade more freely and with less uncertainty with
Australian entities that prepare financial statements using similar rules to those used internationally. Less
uncertainty usually means that the entity will have a lower risk profile, and will therefore be able to borrow
funds at more competitive interest rates and also attract investors requiring more stable rates of return. This
in turn will lower the cost of raising capital and result in considerable cost savings for the entities concerned.
The process of preparing and adopting comparable accounting standards first started in 1996 when the
AASB issued policies that would eventually result in compatibility between Australia and New Zealand’s
accounting standards. This process was referred to as harmonisation, which in general terms was intended
to reduce the differences between accounting standards of different countries. With the increasing impor-
tance and global application of international accounting standards issued by the IASB, Australia’s harmoni-
sation program soon extended to include international accounting standards relevant to the Australian
financial reporting environment. In 2002, the Australian Financial Reporting Council (a statutory body
that oversees the role of the AASB) issued a directive stating that Australia would fully adopt international
accounting standards by 1 January 2005. Full adoption involved a detailed process of convergence, whereby
International Financial Reporting Standards would be used as the stable platform for Australian accounting
standards. This meant that Australia would adopt substantially all of the content and wording of the inter-
national standards, but would include additional text or requirements, or amend the standards, to reflect
conditions specific to the Australian financial reporting environment (for instance, requirements for not-
for-profit entities, which are not specifically covered in the IASB framework). In this sense, then, Australia
has not adopted international standards per se, but has issued Australian equivalents to International
Financial Reporting Standards (hence the use of the popular acronym ‘AIFRS’). Note also that there is a
small number of standards in Australia that do not have an international equivalent, but continue to be in
force for Australian reporting purposes (for example, AASB 1039 Concise Financial Reports). By February
2006, the task of internationalising Australian accounting standards had largely been completed.

11
 Accounting Basic Reports

Compliance with GAAP

While there are several mechanisms in Australia that require entities to comply with the various compo-
nents of GAAP, two are most prevalent: the Corporations Act 2001, which requires certain types of compa-
nies and other entities to prepare financial reports and comply with accounting standards, and the by-laws
of the various professional bodies. The Australian Securities Exchange (not covered in this text) also has
extensive reporting requirements for all entities listed on the Exchange.
The role of professional bodies is an important aspect of any compliance regime. The accounting profes-
sion in Australia is represented by a number of self-regulated bodies, including:
• CPA Australia
• Institute of Chartered Accountants in Australia (ICAA)
• Institute of Public Accountants (IPA).
Membership of a professional body provides accountants with numerous benefits, including professional
recognition and community standing. In return for these benefits, members must comply with strict ethical
by-laws, which ensure that their professional conduct is maintained at the highest level. By-laws also require
members to comply with accounting standards and other pronouncements when preparing financial reports
for certain types of business entities.
Professional bodies also provide members with an extensive body of current technical knowledge
through ongoing research and education. In this respect, CPA Australia and the ICAA have joint respon-
sibility for the operation of the Australian Accounting Research Foundation (AARF), which is a body that
currently undertakes research, formulates auditing standards and reviews legislation that has an impact on
financial reporting.

Reporting requirements for

sole traders
As already mentioned, sole traders are typically non-reporting entities and, except for the owner of the
business and perhaps an external party (for instance, a finance provider) that may have a specific interest
in the entity, there are generally no dependent users. Furthermore, there does not appear to be any manda-
tory or legal requirement for sole traders to prepare financial statements, although it would be most
unusual for them not to do so. Often, for instance, sole traders may compile financial statements to accom-
pany the lodgement of a taxation return (which is mandatory) that may show details of income and
expenses, and also key details of assets and liabilities (for example, balances of stock and written-down
values of property, plant and equipment). More commonly, owners wishing to exercise good management
will often prepare detailed financial reports to better understand and to monitor the operating performance

12
 Chapter 1 Introduction to accounting: Regulations, reports and systems

and financial stability of the business. While these reports are generally regarded as management or internal
reports, it is not uncommon for these reports to reflect all of the conventional accounting principles and
concepts embodied in GAAP; for instance, accrual accounting, historical cost, entity convention, monetary
convention, definitions of the elements of financial reporting and so on. In reality, while this is not manda-
tory, some sole traders will often also apply the methods and procedures prescribed in some accounting
standards to provide greater scope and depth of financial reporting. For instance, the application of mea-
surement standards dealing with inventory, property, plant and equipment, and impairment of assets, is
common. Moreover, other examples include identifying and disclosing material items in preparing specific
financial reports such as the statement of comprehensive income.
In this text, the preparation of basic financial reports for sole traders will reflect the general principles of
accounting embodied in GAAP together with the application of sound accounting practices prescribed by
accounting standards, where relevant.

Design of an accounting
system: Basic issues
To meet the many different requirements for preparing financial reports, an entity must have a well-
designed accounting system that captures information appropriate to the size and nature of the entity. As
outlined in Chapter 1 of Accounting: To Trial Balance, an accounting system consists of the various proce-
dures and records used by an entity to perform its accounting function.
An accounting system must be designed to meet the needs of the users of accounting information.
These will often be determined by several factors, including:
• the nature of the business – For example, the accounting reports prepared for a motor vehicle manufac-
turer would place considerable emphasis on the production function, whereas reports for a legal practice
would emphasise the costs of providing services.
• the size of the business – For example, the accounting reports of a large mining business would be con-
siderably more complicated than those of a small retail business.
• the variety of accounting reports required – The degree of complexity of an accounting system will be
greater, for example, for a public company listed on the Australian Securities Exchange, due to the strin-
gent reporting requirements discussed above.
As a general rule, the more complex the reporting requirements are, the more likely it is that the accounting
system will be computer-based. Computerised accounting systems are now more affordable and most busi-
nesses now have some access to technology-based systems. Computer-based systems offer considerable
advantages over traditional manual systems, including point-of-sale recording, controls over the recording
process, preparation of extensive reports, timely reporting, flexibility in reporting formats and regular sys-
tem upgrades.

13
Another random document with
no related content on Scribd:
yell of triumph, perhaps untimely given, she had sprung against the
wall, and faced her enemies with a stern defiance that proclaimed to
them that she asked no quarter, expected none, and none would
give. Startled at her demeanor, the seven—for Wacomet, with his
fertile budget of lies, had joined the band—paused before the hunted
one, with drawn knives and uplifted tomahawks, eager to drink her
blood. They scarce expected resistance on the girl’s part; they
thought that their numbers would awe her into submission; but in
such thought they found themselves sorely mistaken.
While thus the Death League stood, inwardly admiring the bravery
and seeming rashness of the hunted girl, the ornamented rifle shot to
her shoulder, a loud report filled the cavern, and the Speckled Snake
shrieked and fell dead upon the stones!
Then the Death League were roused to action; then the rifle of the
Girl Avenger described rapid circles around her head, for, with a cry
of defiance, she had sprung from the wall; and the battle for the
mastery, against the greatest odds that pale-face ever fought, raged
in that gloomy place.
When Nanette darted forward, she kicked the dying brands into the
faces of her foes, through whose numbers her clubbed rifle cut a
swath, that closed a moment later, and had to be opened again. At
length, with half of her enemies placed hors du combat, she reached
the opposite wall, and the remainder darted forward to end the
conflict.
No clubbed rifle met them; they brought up suddenly against the
limestone rock, and realized that the young She-Wolf was gone!
Turkey-foot, whose cheek the lock of the Girl Avenger’s weapon had
dreadfully mangled, was the first to regain his composure. He
snatched an ember from the floor and fanned it into a flame by
whirling it over his head.
“The She-wolf shall not escape the Death League!” he cried, darting
forward, followed by Wacomet and several others.
The torch revealed a passage leading into the rock, and with a shout
of triumph the chief sprung into it.
The corridor was almost devoid of angles, and suddenly Turkey-foot
reached its termination against rocks that gave forth no hollow
sound.
With a cry of dismay the chief turned to his brethren, and all threw an
inquiring stare into each other’s faces.
Had the She-wolf dissolved into the damp air that filled the passage?
While this mental interrogative puzzled the brains of the revengers, a
shout from behind drove an ejaculation of horror from their lips.
The Girl Avenger was in their rear.
 CHAPTER XI.
THE END OF THE BATTLE.
Turkey-foot was the first to regain his composure, and consequently
the first to speak.
“Watchemenetoc aids the young She-wolf,” he said, as calm as the
zenith of a summer’s sky, “but we are strong enough to vanquish
both. Three of our band lie stiff and cold in her den, and shall she
advance, though all the beings of darkness aid her, and shoot us
down like sheep? Shall the Death League be exterminated ere the
dawn of light? Shall none live to meet the Black Snake on the field of
battle? Let my brothers answer. ’Tis Turkey-foot, the Ottawa, that
speaks.”
By Leather-lips, the sorcerer, the chief’s speech was answered.
“We shall not die ignobly,” he cried. “If we can, let us escape and
hunt her down at another time. Now she stands by the small hole
ready to strike us down, one at a time, before our arms can reach
her. She can not long escape us; we can, we will hunt her down
before we meet the Black Snake. Let us escape.”
But now arose the question by what avenue should they gain
freedom?
The Girl Avenger did not press her new success; she seemed
confident of ultimate triumph—that every fleeting moment brought
the quartette nearer the dark river. She stood with ready rifle, knife
and tomahawk, at the orifice and awaited with strange patience for
the approach of the doomed band. Around her, easily distinguishable
in the light of a number of dying brands, lay the forms of three
members of the League of Death, and not far away stood as many
more suffering from wounds that laid bones bare. Her right foot
rested upon Speckled Snake, whose warm scalp bled in her girdle
beside those of his red brethren whose brains the butt of her
avenging rifle had dashed against the limestone walls. Her escape
from the corridor that now confined the remainder of the League was
easily accomplished. The cave, as I have before mentioned, was far
below the surface of the cliffs, and consisted of gloomy apartments
above one another like the rooms of some great hotel. All of the dark
passages had never been explored by the Girl Avenger; but she had
examined enough for utility and comfort. In the roof of the particular
corridor above mentioned, was the orifice of a passage whose
tortuous track brought the traverser to the main cave through one of
the somber niches. With a view to future use in times of danger, the
Girl Avenger, by means of strong wooden levers, had rolled a loose
stone to the edge of the opening, over which it could be pushed with
the strength of her slender arms. When she reached the termination
of the corridor she threw herself up into the higher passage, gave the
stone a trial of her strength, and heard—for it was too dark to see—it
settle down over the cavity.
Then taking the right corridor, for others led different ways from the
aperture, she gained the cave again, and gave forth the shout which
drove the color from the faces of her foes.
By excessive manipulation Turkey-foot’s torch burned with a bright
flame, and revealed to their eyes the avenue by which their bitter
enemy had escaped; but the great stone completely blocked it now.
The next moment Leather-lips, the Hercules of his nation, sprung
forward, put his shoulders against the bowlder, and exerted all his
strength, which did nothing more than to move it a hair’s breadth.
With a cry of anger he struck it with his tomahawk, and the sound of
the blows were wafted to the ears of the avenger in the cave.
The stone must be moved: without its removal the League of Death
would become extinct. They knew that a passage above them led to
the main cave, for events had just demonstrated this, and could they
gain the passage they could assail the Girl Avenger from two points,
and the battle would result favorably to them, after all.
“Now all hands to the stone!” cried Joe Girty, who had observed the
result of Leather-lips’ performance. “Leather-lips moved it a bit, and
can we not throw it entirely back? I can throw near half a ton over my
head, or could a short time since, though now I may be even
stronger than ever. Now, braves, for your lives summon all the
strength you ever possessed. If we move that stone our hands will
grow redder than ever in her heart; if we fail, her hands will bathe in
ours. Now! Snakes! I wish I was Samson!”
The band exerted all its strength, and the result was almost
unexpected—the stone was raised, and before it could settle down
again, a second putting forth of strong hands had rolled it from the
aperture.
In the glare of the torch every sweaty face glowed with triumph and
revenge.
“Now!” said Turkey-foot, “she is ours, the Manitou put new strength
into our limbs, and the power of Watchemenetoc could not prevail
against it. We must now fight her. Wacomet and Leather-lips will
creep back and crouch in the gloom beyond her eyes and the fires,
in this dark hole. Turkey-foot and the white Ottawa will climb up into
the hole over our heads, and attack her in the rear. Now go. She
knows not that we have moved the stone; and when the hoot of the
owl pierces your ears, spring from the blackness upon her.”
Before Wacomet and Leather-lips turned to their mission, they saw
the chief and the renegade draw themselves up into the opening,
after extinguishing the torch.
In the darkness near the orifice of the lower corridor crouched
Wacomet and the sorcerer, waiting for the attacking signal. They
knew that the Girl Avenger still occupied her post, for they could
distinguish the barrel of her rifle between them and the torches.
Once or twice Wacomet was on the point of rushing forth, but
Leather-lips restrained him and bade him wait for the signal.
At last it came, seemingly from the wooded banks of the stream
beyond the cave, which circumstance the twain did not pause to
note, but darted forward.
Leather-lips was in the advance and grasped the glittering rifle-barrel
as he bounded from the corridor. It fell on easy prey; there was no
hand to contend with him for the possession of it, and no form, save
those of his slaughtered countrymen, greeted him in the great cave.
Where was the Girl Avenger, and where Girty and the Ottawa chief?
Surely the latter had given the signal, for it had pierced their ears
and impelled them forward. In the center of the cave, splendid
targets for the unerring aim of the Girl Avenger, and statues of
indecision, stood the two chiefs gazing into each other’s faces. The
torches—or rather the brands which had now assumed the office of
torches—bathed the entire cave in a mellow light and revealed every
object to the statuary pair.
While thus they stood, the signal—the hoot of the night-owl—was
thrice repeated, now in an imperative and half-angry tone, and a cry
of astonishment mingled with the darkly mysterious, parted the
chief’s lips. Why did not the others show themselves, and cease
repeating the signals which had been obeyed? Were they to fight the
She-wolf alone, or had Turkey-foot and his white friend wandered off
into other dark passages in which the twain believed the earth
overhead to abound?
Suddenly the peculiar scream of the white heron came to their ears,
and a few minutes later a footstep faintly sounded in the main
corridor. Leather-lips clutched his companion’s arm, and drew him
back into the niche, where they crouched with eyes fixed upon the
main passage.
Presently a head—a human cranium—no further from the ground
than the head of a cur, became visible in the corridor, and the two
chiefs almost uttered a cry when they recognized it as the head of
Kenowatha! It appeared to them but for a moment—just long enough
for the keen eyes of the white Indian to take a quick survey of the
cave—then was withdrawn. The red watchers held their breath, and
waited further developments, believing that fate intended to play the
boy into their hands. If he had not encountered the Girl Avenger, he
would become more bold after a spell, and enter the cave. For this
they waited, and in their eagerness to secure the boy, forgot their
brethren wandering about in unexplored passages, which might lead
to death too horrible to contemplate.
At length the head again appeared, and this time it was followed by
the entire figure of Kenowatha. He crept forward on all fours, his rifle
clutched in his right hand, and dragging at his side his tomahawk in
his left. Presently, seemingly satisfied that no foes lurked near
enough to take his life, the White Fox rose to his feet and stood over
the dead Indians. He had gazed upon them long enough to see the
scarlet crescent upon their brows, when the two chiefs darted
forward. The great hand of the red sorcerer gripped the boy’s arm;
but with an agility and strength entirely unexpected by the savages,
he tore himself away, sprung to the further side of the cave, and
threw his rifle to his shoulder. Instantaneous with this latter action on
the part of the youth Leather-lips darted forward; but the rifle broke
the demi-silence and the sorcerer measured his giant length on the
stones.
The chief had scarcely touched the floor of the cave when
Kenowatha sprung upon Wacomet. The fire of vengeance flashed
from the youth’s eyes, and the Indian upon first thought felt disposed
to meet him. But when his mind recurred to the prisoners he had
borne from the cave a short time previous—to the reward he could
obtain for the stricken soldier—to the prize in the person of Effie St.
Pierre which he would lose should the battle prove disastrous to him,
he retreated to the main corridor, into which he darted, as
Kenowatha’s gun tore a ghastly furrow down his naked back.
Knowing that it would be useless to follow Wacomet, Kenowatha
turned to place his mark—the bloody cross—upon Leather-lips’
brow, to behold the spot where the sorcerer had fallen untenanted!
“Kenowatha’s bullet did not find his heart,” he said, in a tone of bitter
disappointment, “and the red sorcerer has fled. But Kenowatha will
meet him again—when the broad sunlight falls upon his face, and
then—then the mark shall crown his head. Ha!” and the speaker
suddenly sprung to the opposite wall, his eyes fastened upon
something thereon.
Suddenly he paused before that which had excited his curiosity, and
read, in French, the words that Effie had traced upon the limestone
with the keil:
“We are the prisoners of Wacomet, the Ottawa—destined for a
hidden place somewhere.”
The handwriting on the wall sent a thrill to Kenowatha’s heart. Who
were included in the word “we?” If Nanette was a prisoner why had
she been permitted to mark the dead Indians—still more, why were
they still lying in the cave? The information was enveloped in
mystery to Kenowatha, and the longer he gazed upon the words the
more mysterious they grew. Prisoners of Wacomet alone! Why not of
the entire League of Death, and why was Wacomet present but a
moment since, and not with his prisoners?
Unconscious, in the attempt to solve the mystery, that he was
exposing his person to the balls and tomahawks of those who sought
his life, Kenowatha stood before the wall until a footstep suddenly
aroused him and caused him to face the niche in his rear.
Immediately upon the precipitate retreat of Wacomet, the White Fox
had rammed a bullet home, and now his rifle was directed at a spot
just below a tuft of feathers in the niche. There he knew was a face,
and whose face save that of one of his bitterest foes?
A moment later might have sealed the doom of the person, when his
name, pronounced as softly as woman ever spoke, came from the
niche:
“Kenowatha.”
He sprung forward, a figure darted from the niche, and in the center
of the cave he met the Girl Avenger!
“The battle is ended, Kenowatha,” she said, touching the trio of fresh
scalps in her girdle. “They dreamed of an easy victory, not of a
disastrous defeat. The Death League will never forget this night. But
a moment since I saw Turkey-foot, the white Ottawa and Wacomet
meet on the edge of the stream. The great chief and the white
Ottawa got lost in the many dark paths above our heads, and at last
found their way through passages which they could never traverse
again, to the water. I heard them lift the stone away, and I glided to a
spot which they could not reach. Ah! Kenowatha, I wished for you at
my side when the red devils surrounded me. Oh, we would have
annihilated the red League; but, boy, their time is fast coming. They
may fill up their ranks whenever we strike, but soon there will be no
ranks to fill. See! where are my string of scalps? where the guns I
tore from hands cold in death, where all my trophies? Gone, boy,
gone! Oh, I’ll have a terrible revenge now: for every scalp the
demons burned to-night I will have two, and I swear that the League
of Death shall melt away before my rifle.”
“Before our rifles say, girl,” said Kenowatha, clutching her arm as he
looked up into her face.
“Ours, then, be it,” she cried. “But, Kenowatha, where’s the White
Rose and the bad red-coat?”
Kenowatha pointed to the writing on the pale wall, and Nanette soon
mastered it.
“I read the past through those words,” she said, turning to the youth,
who waited with impatience for her to speak. “Wacomet must have
entered the cave in advance of his brethren. Seeking the honor
promised by his tribe to the Indian who should rid the world of me, he
came hither alone, I say, found the girl and the major here, and took
them captives. ‘Destined to a hidden spot somewhere,’ writes the
pale girl on the stones. That place must be discovered, boy—ay,
discovered before the white spy returns, else what will he think of us
—of our promise, that we would watch the girl and well. I know you
are with me, Kenowatha,” and her little hand stole into his, which
action sent a thrill to his heart, “and when I swear that I will give my
feet no rest until Effie is torn from the snares of the red snake, I know
that your heart, beating in unison with mine, responds, amen.”
“Yes, yes, our lives have grown into one existence, Nanette, and we
will rescue the girl that she may receive the kiss of pure love when
her brave lover returns. But, girl, how long will your vengeance last?”
The eyes of the Girl Avenger sought the stones, and wandered over
them with a listless stare.
“I don’t know, Kenowatha,” she said, at length, a pearl-drop
glistening upon her cheek. “Why did you ask?”
It was his turn now to avert his eyes, and in his silence she read
what he would yet feared to speak.
“Boy,” she said, breaking the silence that reigned in the cave, “I know
all that you would say, and, for your sake, I promise this one thing—
that when you sheathe the knife of vengeance in your girdle, I will
say, ‘enough!’”
He turned his eyes upon her with a flash of joy, gently drew her to his
heart, and rained warm kisses on her dimpled cheek.
“Have no fears that you shall not have your fill of vengeance, girl,” he
said; “for not until the Death League is exterminated—not until the
Indians have made bloody reparation for the loss you have sustained
to-night, will I sheathe the blade of vengeance. Only I wanted some
one to love me, girl—some bright future to look ahead to, beyond
these dark days. I have it, I am happy!”
After awhile she said to him:
“Were you to the British fort?”
“No. In the dark wood, something told me that all was not right here.
The further I went, the stronger that something’s voice grew, and my
mind knew no peace until I turned my face toward you. I gave our
signal, which did not reach you in your hiding-place, I suppose.”
“I heard it not, boy,” she answered, and her lips moved to speak on,
when the cry of the heron—twice repeated, came from beyond the
cave to their ears.
Undoubtedly it was a signal.
“Come,” said Nanette; “we might as well commence our hunt for the
white Rose to-night as any other time. Wacomet will not return to his
people without visiting his prisoners. He is playing a double game,
and unless yon words were read by the White Ottawa during the
fight—which I think improbable—the secret of captivity remains with
Wacomet and ourselves. Ha! the white heron again. Come! The red
demons can have this cave now; thank God, ’tis the only hiding-
place on earth.”
A minute later, the twain glided from the cave, now tenanted by the
three corpses that formed a ghastly group in the center.
 CHAPTER XII.
THE BRITISH MAJOR’S PLOT.
A short time after gaining the bottom of the cliffs with his captives,
Wacomet the Ottawa paused before what seemed to be a dense
net-work of creepers attached to the gray rocks. It was near midnight
now, and an ominous silence brooded everywhere. When first the
traitor left the cave, he heard Leather-lips and Speckled Snake
signaling the other braves; but now the signals were no longer
heard, and, fearing that the two wings had come together, the
Ottawa hurried his prisoners over the stones faster than ever, taking
good care to keep in the shade of the cliffs, for the moon was scaling
the eastern horizon, and would soon make objects in the deep ravine
easily distinguishable.
The two captives drew long breaths of relief when at last the Indian
halted, and Effie found herself wondering if his home was not near,
for she was much fatigued, and her feet were sore. She was about to
question Wacomet regarding the location of the hidden spot, when
he suddenly strode forward toward the tangled vines, and his
captives were surprised to see him part the long hangers with his
right hand, and display an opening leading straight into the rock.
“The hidden spot,” ejaculated Effie St. Pierre, looking up into the
major’s face. “The sharpest spy in the world would pass and repass
this place a thousand times and never discover it.”
The sharp ear of Wacomet caught the girl’s words, uttered scarce
above a whisper, and he said, as he pushed his captives into the
gloom, springing after them himself:
“Yes, the serpent has crawled by Wacomet’s hole in the ground, and
never entered, for his sharp eyes saw it not. Wacomet tracked the
she-grizzly here once, entered boldly, slew her with his knife, and
brought thither his red mistress.”
The corridor leading to the main cave proved a tortuous way; but at
last the party reached the termination. A light burned in the center of
the apartment, and before it, arranging gaudy feathers in her long
black hair, sat Wacomet’s red queen. She arose to greet her master,
but when her dark, lustrous eyes fell upon the beauteous Effie St.
Pierre, her hands clenched involuntarily, and her lips quivered with
passion.
“Who does Wacomet bring to his cave home?” she demanded, a
flush of anger mounting to her temples.
“The spies of the accursed Black Snake hunt for the pale flower; they
have pierced the fair one’s lover with their balls, but Wacomet saved
her and the Briton and they are here till the coming of another night.”
“And they shall go, then?”
“Yes, Wacomet swears it; when the stars sleep and shine again, they
shall go.”
Then the outlaw drew Ewana aside, and for a few moments they
conversed in low tones.
“Guard the prisoners well until I return,” said Wacomet, in a tone loud
enough to reach the captives’ ears, at length, “and at the first show
of attempts at escape, shoot them down, like dogs.”
Then, satisfied that he had dissipated Ewana’s jealousies, and that
all would go on swimmingly at the cave until his return, the Ottawa
glided off to join his comrades in their search for the young She-wolf.
Ewana proceeded to bind the captives’ feet with deer-thongs, and
made them separate couches between which she sat, and again
resumed the arranging of her hair.
In the silence which followed, Effie St. Pierre, tired and sore, fell
back on the pillow of mink-skins, stuffed with the small soft feathers
of the river snipe, and soon was fast asleep. Her last thoughts were
that the Girl Avenger and Kenowatha would read her writing on the
wall when they returned, and would give no rest to their feet until she
was snatched from Wacomet’s hands.
The thoughts and condition of Major Runnion were far different from
those of the hopeful girl.
Contrary to her, he did not close his eyes, nor did he lie down upon
the skinny couch. For many minutes he occupied a half-reclining
position, studying Ewana as she arranged her hair. When he had
arrived at a certain conclusion, he gently whispered the Shawnee
girl’s pretty cognomen.
She turned and moved nearer him.
“Nearer, Ewana,” he said, when she had paused; “the pale flower
must not hear what I have to say.”
This drew the red girl to the edge of the couch, where she paused
and looked inquiringly down into the Briton’s face.
“What would the scarlet soldier of the king have with Ewana?” she
asked, while the major, for a moment thrown from his plots by her
radiant, voluptuous loveliness, was contemplating her face, the
fairest one save that which he coveted he had ever met in the forest.
“I want to tell Ewana that Wacomet’s tongue has traveled from the
trail of truth.”
She shot him a look of indignation, and he saw the flood of jealousy
rise in her dark orbs, as she glanced at the pale-faced sleeper.
“It can not be,” she murmured; “Wacomet has lived with Ewana for
many moons, yet has his tongue never wandered from the truthful
trail.”
“There are times when the best red-skins are false,” continued
Runnion, “and this is one of Wacomet’s false times. Now I will tell
you the truth, Ewana.”
The narration that followed need not be written here, though the
substance might not prove uninteresting. The major dwelt at length,
though bespoke rapidly, on Wacomet’s passion for Effie St. Pierre,
how he had been driven from the trading-post at the muzzle of old
Mitre’s rifle—how he had sworn to make the white girl his bride to the
total exclusion of his red mistress, whom he no doubt intended to
assassinate when the proper time should arrive. All this Rudolph
Runnion poured into the ears of the red girl, whose jealous passions
were so aroused that she drew a tiny knife from her bosom, and
hissed into the Briton’s ear:
“The Pale Flower shall not nestle on Wacomet’s cheek when he
returns; he shall find her withered, beautiful no longer, as cold as the
white flowers that grow by the frozen rivers.”
The soldier noted the mad girl’s vengeance-ladened glance at Effie
St. Pierre, and his hand closed on the arm that held the knife aloft.
“No, no,” he said, rising himself despite the irritation it caused his
wounds, and placing his mustached lips at Ewana’s ear. “The
Manitou by other means than the knife will rid the red girl of her pale
rival. I have become an outlaw; my people offer a price for my head,
and Wacomet has said that he would lead me to them, or them to
me. Cut these bonds; then, the bonds of the girl, too, and I will bear
the girl away. Over in Canada, the lands of my king, I have strong
people, and they will protect me from the white and red man-hunters.
Let me carry the white girl from Wacomet’s cave, for if I don’t he will
make her his bride.”
For a moment the red girl was undecided how to act; above all things
she wished to get rid of her white rival, yet she did not want to incur
Wacomet’s hatred. She believed all the soldier had poured into her
ears regarding her master’s love, yet she loved him as she had ever
done since the days of childhood.
“Haste!” cried Runnion, taking advantage of the girl’s indecision;
“Wacomet may return, and then what becomes of poor Ewana! Shall
she live to see a white snake steal Wacomet’s smiles from her? I
thought Ewana was a Shawnee.”
The glistening knife descended, and the bonds that bound the
major’s feet fell apart!
Casting a thankful look into the girl’s face he sprung to his feet. No
time was to be lost, for it was now near dawn, and Wacomet was
liable to return at any moment. He stepped to Effie’s couch, and
touched her arm. She opened her eyes with a start, and for a
moment did not comprehend her situation.
“Girl, it is I,” he said. “We must leave at once. Ewana believes that
Wacomet loves you—that he intends to murder her and make you
his bride. See! she whets her already keen knife upon a stone. I
have succeeded in freeing myself, and, girl, we must fly at once.
Better in the forest, though it swarm with dangers, than in the power
of a jealous squaw. Come!”
Mechanically the young girl yielded; while, obedient to the
instructions of the soldier, Ewana did not notice their movements.
The soldier supplied himself with hunting accouterments, a quantity
of ammunition; then they glided into the gloomy corridor, and out into
the recesses of the forest.
“Whither are we going?” asked Effie.
The Briton turned suddenly upon her, and a faint smile played with
his sensual lips as he answered:
“I might as well tell you first as last,” he said. “We’re bound for
Canada.”
Effie could not repress the light cry that welled to her lips, and the
word that followed was hissed forth with all the bitterness she could
summon:
“Villain!”
 CHAPTER XIII.
WACOMET’S DEATH-SONG.
The Briton had not escaped any too soon, for, ere a half-hour had
passed, the Ottawa’s form darkened the opening. Advancing
hurriedly to the chamber he paused, his face contorted with sudden
passion. Then a half-howl, half-shriek burst from his lips.
Startled by the cry, Ewana sprung to her feet to find a great hand
closed upon her beautiful throat, and a choking sensation almost
rendering her unconscious.
“Where’s the white girl and the red-coat?” shrieked Wacomet, as he
shook the girl at arm’s length, still griping her throat. “Tell Wacomet
what’s become of his captives, or he’ll shake Ewana till her eyes
drop from her head.”
He released her throat to clutch her arm with his left hand, while his
clenched right one itched to beat the life out of her frame.
“Now speak!” he hissed, “speak before the Ottawa’s hand gives you
but one eye.”
As he uttered this threat he raised his iron fist.
“They’re—gone,” she said, gaspingly, instinctively shrinking from the
irate chief. “Wacomet intended to make the white girl his squaw, and
so the red-coat bore her from his cave.”
“Where was Ewana, then?”
“Braiding her hair,” was the truthful reply, couched in a courageous
tone.
“And you let them go?” yelled Wacomet, at the top of his voice, for
his passion was now utterly ungovernable. “You listened to the tale
that lying dog breathed into your ears and turned your face away
while they went?”
“Ewana did all this—she did it because she loved Wacomet—
because she did not want a White Rose to nestle in his bosom.”
A shriek of rage that would have done credit to demons was the
Ottawa’s reply, and his clenched hand descended upon the girl’s
face once, twice, thrice in rapid succession.
Then he hurled her from him, drew his tomahawk and darted upon
the body.
But not to strike.
Two pairs of eyes had followed his steps through the woods and two
pairs of stealthy feet had penetrated the dark corridor.
Kenowatha and the Girl Avenger were there!
As the Ottawa whirled his weapon to strike it was knocked from his
grasp by a blow that broke his strong right arm.
With a shriek of mingled rage and pain, he dropped the senseless
girl, and turned upon his antagonists. The Girl Avenger’s rifle
covered his heart, while Kenowatha looked upon the dramatic
tableau with folded arms!
“Wacomet, your time has come at last,” said the Girl Avenger, calmly,
yet with an unconcealed tone of triumph. “One night four years ago,
come the 24th of November, a band of red-skins surrounded a cabin
near the mouth of the Maumee. The flames of their happy home was
the first warning of the inmates’ danger, and when they sprung from
their beds the butchery had begun. A father, crippled by disease, an
aged mother, two brothers, and three sisters, fell beneath the
hatchets of the red demons, and but one of that sweet household—
one destined by God to be the avenger of her race—escaped the
work of death. Unseen by the butcherers she flew to the forest, and
has since been a terror to your accursed race. Wacomet, you were
there; I saw you strip Josie’s golden scalp from her baby head, and I
swore that this hand should take yours.
“Of all who participated in that dark night’s work, but three are left:
yourself, Turkey-foot, and Joe Girty, the white dog, for in the woods,
this night we have met and slain the wolf’s whelp, Leather-lips. Not
one has died a natural death—all have fallen by my hand—these
fingers have torn their black scalps from their heads. Your time is
here, and as you are the bravest chief in the red tribe, I grant you
what I have granted to no red-man—time to sing his death-song.
Therefore, Wacomet, soon to see Watchemenetoc, if you would, sing
while there is yet time.”
The Girl Avenger spoke in the Ottawa tongue, but not a muscle
moved on the doomed chief’s face. He knew that his last hour had
come, knew, too, that his doom was just, and presently from his lips
pealed the first notes of his death-song. He did not make it tedious;
in few words, he recounted his warlike deeds, craved a corner in the
Manitou’s lodge, besought victory for his countrymen again Wayne,
regretted that he could not prove a red whirlwind against the pale-
faces in the coming struggle, and then closed.
The avenger of her slaughtered race glanced at Kenowatha, as the
chief finished, then her gaze flitted along the glistening barrel, and a
report no louder than the bursting of a percussion-cap broke the
stillness, and Wacomet was with his fathers!
“But two left!” she murmured, as she turned to Kenowatha, “and ere
many hours they, too, will be gone. But, boy, we must rouse that girl
and gain from her all the information we can about Effie and that
villainous major. I scarcely doubt but that ere this he has struck the
Canada trail.”
A moment later the twain bent over senseless Ewana, whom they at
length restored to herself.
“Speak fast, Ewana,” said Nanette. “Where are the White Rose and
the red-coat?”
“In the great woods going toward the homes of the king’s white
people,” was the reply, when the girl recovered from her
astonishment, at seeing the two forms bending over her.
“When did they leave, Ewana?”
“Just before Wacomet came to his cave. What! is he dead?” and her
eyes flashed with triumph, when they fell upon the motionless form
of the Ottawa. “Then Ewana can go back and kiss her old father
before he dies.”
The death of the chief whom she once loved now seemed a relief to
the poor red girl.
“We must leave Ewana,” said Nanette, “and she can now go back to
her parents. We seek the White Rose and the red-coated dog.”
The Indian girl stretched forth her hands, the youthful avengers
grasped them in a silent, fervent pressure, and left her alone with her
dead chief.
“They can not be far away,” said the Girl Avenger, as she and
Kenowatha glided through the dark corridor. “We will soon overtake
them, and should the red-coat raise his hand against us or the girl,
there’ll be no hanging in Fort Miami. I’m so glad that it is broad
daylight now, for we can follow their trail faster than they can travel.”