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Principles of Accounting and Finance Acc1000 Principles Of

Accounting and Finance Cheatsheet

Principles Of Accounting And Finance (Monash University)

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CHEAT SHEET

ACC1000: Principles of Accounting and Finance Accounting Equation A = L + SE 3) Post to Ledger

Monash University 4) Pre-Closing Trial Balance
Asset: 5) Adjusting Entries
1 Accounting in Action Definition: Resource controlled, Provide future 6) Adjusted Trial balance
Users - People that depend on and use the financial economic benefit, Result of past event 7) Closing Entries
information (provided by financial statements) to Recognition: Probable economic benefit, Reliably 8) Post-Closing Trial Balance
make economic decisions. Measured 9) Financial Statements
Assumptions of Financial Accounting Liability:
Accrual Accounting Definition: Present Obligation, Outflow of future 3 Recording Transactions
Going Concern economic benefit, Result of past event Perpetual Inventory System - Continually records
Monetary unit Recognition: Probable outflow of economic benefit, the impact of transaction on COGS and Inventory
Accounting Period Reliably Measured control accounts.
Historical Cost Shareholders Equity: Purchase Returns and Allowances
Qualitative Characteristics Definition: Residual Interest DR Inventory
Understandability CR Cash/ Accounts Payable
Relevance 2 Financial Statement and Accounting OR
o Materiality Assumptions DR Purchase Returns and Allowances
Reliability Accrual Accounting Record economic impact of CR Accounts Payable
o Fair representation (represent what transaction as they occur Sales Returns or Allowances
really existed/happened) Cash Accounting Record impact of transaction at DR Sales Returns and Allowances
o Neutrality (freedom from bias) time of cash flow CR Cash/ Accounts Receivables
o Substance over form (reflects the A L Rev. Exp. SE DR Inventory
economic reality) CR COGS
Increase DR CR CR
o Prudence (caution in estimates) Write off:
Decrease CR DR DR
o Completeness (material info not DR inventory write-down
omitted, not misleading) Balance DR CR CR DR CR CR COGS
Comparability Periodic Inventory System Need to deduce COGS
Business Entities: Sole Proprietor, The Accounting Cycle: using the formula:
Company/Corporation, and Partnership 1) Source Document COGS = O/B INVENTORY + PURCHASES - C/B
2) Journal Entries INVENTORY (AFTER A END OF YEAR Stock take).

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Accrual of Unrecorded Revenue - 6 Financial Statement Analysis

Purchase Returns and Allowances - DR Accrued Revenue Analytical Methods
DR Cash/ Accounts payable CR Service Revenue Horizontal/ Trend Analysis: Evaluate series of
CR Purchase Returns and Allowances Accrual of Unrecorded Expenses - financial statement data over period of time
Sales Returns and Allowances - DR Wages expense Vertical Analysis: Expressing each item in financial
Sales Returns or Allowance: CR Accrued Wages statement as % of base amount
DR Sales Returns and Allowances Contra Account - Are accounts that record any Ratio Analysis: Expresses Relationship among
CR cash/ accounts receivable detraction from the historical cost of an asset or selected items of financial data
Sales Journal - Records only credit sales during a liability control account Useful Ratios
period. Allowance for Doubtful Debt Performance Ratios
!"#$%&'() !"#!"# !"#$%" !"#
Purchase Journal - Records only credit purchases Creating Allowance for Doubtful Debt Return on Assets =
!"#$% !""#$"
during a period DR Bad Debt Expense
Cash Receipts journal - Records entries, which debit CR Allowance for Doubtful Debt Activity Ratios
cash at bank Writing Off Bad Debt !"#$% !"#"$%"
Asset turnover rate =
Cash Payment Journal - Records all entries that DR Allowance for Doubtful debt !"#$% !""#$"

credit cash at bank CR Accounts Receivable

Liquidity Ratios
Accounting For GST Depreciation !"##$%& !""#$
Current ratio =
GST Paid = Represents the amount owed to DR Depreciation Expense !"##$%& !"#$"%"&'

you by the ATO CR Accumulated Depreciation

GST Collected = Represents the amount you Financial Structure Ratios
!"#$% !"#$"%"&"'(
owe the ATO 5 Preparing the Financial Statements Debt to Equity Ratio = !"#$% !!!"#!!"#$%& !"#$%&
Closing Entries - Temporary accounts are closed to Du Pont Analysis
4 Adjusting Accounts leave them with zero balances in preparation for the ROE =
Expiration of Assets - next reporting period.

DR Insurance Expense Post Closing Trial Balance - Lists all permanent

CR Prepaid Insurance accounts and their balances. Limitations

Unearned Revenue - Prepare Financial Statements Estimates
DR Unearned Revenue Prepare Balance Sheet Atypical Data
CR Service Revenue Income Statement Diversification of Entities
Statement of Cash Flows

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7 Management and Control Cost Behaviours 9 Strategic Management Accounting

Non Financial Performance Management Variable Costs - Costs that vary directly, TQM - Reducing costs in the above phases, but at the
Balanced Scorecard: Formulated to translate an proportionately with changes in activity levels same time, increasing quality/customer satisfaction
organisations mission/strategies into Fixed Costs - Costs that remain the same, regardless JIT Processing - Management of inventory, in
objectives/performance measures of changes in activity levels. particular, reducing it.
4 Perspectives: High Low Method Lifecycle Costing - Estimating and accumulating the
Financial Change in Total Costs (Highest Cost period Lowest Cost Period) costs of a product over its entire life
Highest Activity Level Lowest Activity Level
Customer =
Target Costing
Internal Business Process CVP Analysis =
Learning and Growth !"#$% !"#$
= Units needed
Divisional Performance Management: !"#$ !"##$%& !"#$%!!"#$ !"#$"%&' !"#$
Kaizen Costing - Making incremental improvements
1) Evaluate a divisions performance during the production phase (e.g. improving
!"#$% !"#$#
2) Evaluate performance of managers in those + s = Unit Selling Price processes, reducing costs in production/from
!"#$%&%' !"#$%
divisions suppliers, collaborative employee teamwork &
3) Evaluate level of investment in each division expertise) when large innovations may not be
+
Responsibility Accounting: Hold managers (1 ) possible.
accountable for the performance of their business l Behavioural Aspects of Budgeting
units =
Bias: Tension between upper and lower management
Only consider controllable costs (cost that the Participation: encourage participation by lower
manager can exert control over). Ignore Overhead Allocation
management when setting budgets
uncontrollable costs (manager cant exert control Absorption Costing:
Slack: Temptation to inflate costs or depress sales
over these costs). forecast

Financial Methods
!"#$%& =
R.O.I = 10 & 11 Introduction to Finance and
!"#$%&'$"& (!"#$%&$' !"#$%"&) Activity Based Costing:
Financial Mathematics
Uses cost pools to accumulate the cost of significant
Residual Income = ( business activities, allocating costs from these cost
)  Steps of Capital Budgeting
pools to products based on cost drivers, which
1) Estimate all Cash Flows (both inflows and
measure each products/services demand for
8 Cost and Costing outflows).
activities.
2) Assess the riskiness of these Cash Flows.

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3) Determine the borrowing costs of the project, by

comparing such costs with the WACC Weighted
Average Capital Cost.
4) Find Net Present Value (NPV) and Internal Rate of
Return (IRR).
5) Accept the project if: NPV > 0, IRR > WACC.

NPV
Calculates the expected net monetary gain or
loss from a project by discounting all
expected cash flows to the present
The amount of interest deducted is
determined by the desired rate of return
IRR
IRR is the rate of return that a company can
expect to earn by investing in a project

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