Professional Documents
Culture Documents
Coordinators: Connie Vitale & Kerrie Mezzina Email for unit: 200111@uws.edu.au
Campbelltown lecturer: Connie Vitale
-Room
Learning Objectives
1. Identify the common types of business entities 2. Understand and identify the functions carried out by managers 3. Identify the basic financial statements used in business to report to users for decision-making purposes
4. Explain the main assumptions made in the preparation of financial statements 5. Analyse the effects of business transactions on the accounting equation and on financial statements
What is Accounting ?
Accounting is a service activity It is the process of identifying, measuring, recording, analysing & communicating quantitative (economic) information to permit informed judgements and economic decisions by users of the information
Period assumption
Profit determined for a period of time
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owner
Partnership
partner
Company/Corporation
shareholder
Financial Accountants use these Basic Financial Statements Income statement (Statement of Comprehensive Income)
Operating efficiency over a period of time
Cash flows
(inflows and outflows of cash over a period of time) Operating activities Investing activities Financing activities
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Accounts
Assets are the economic resources controlled by an entity that will provide a future economic benefit. Assets are recorded at their historical (original) purchase cost. Assets may be current (economic benefit is used within 12 months) or non-current (provide economic benefits for more than 12 months). Liabilities represent the debts of an entity. They reflect a current obligation to sacrifice economic benefits at some given time in the future. Liabilities are also classified as either current (payable within 12 months) or non-current (due over 12 months). Owners Equity is the net assets of a firm (ie Assets liabilities)
Account types
Revenue: inflows of economic benefits, ie income earned
from performing services or selling goods Expenses: outflows of economic benefits, ie the costs incurred in operating a business
Expenses
Under the current accounting standards we must report using accrual accounting principles
Examples of Accounts
Account Type Account Name (some examples only)
Current Assets: Cash, A/c receivable, Inventory, Supplies Non-current Assets: Furniture, Motor vehicles, Building Current Liabilities: A/c payable, Rent payable Non-current Liabilities: Bank Loan, Mortgage Share capital, Retained earnings, Dividends (for a company) ORCapital and Drawings (for a sole trader or partnership) Sales revenue, Service revenue, Interest revenue, Rental revenue, Advertising revenue etc Wages expense, Electricity expense, Supplies expense, Rent expense, Bank charges, Fuel expense, Telephone expense etc
This is not a complete list but provides some examples of accounts that may be affected by business transactions
Types of transactions
Business transactions
External transactions: exchange of economic resources and/or obligations involving an external party Internal transactions: exchange of economic resources and/or obligations that do not involve an external party eg WIP in a manufacturing environment.
Non-Business transactions
Private (personal) transactions Transactions which result in no exchange of economic resources / economic value. Eg legal contracts
Worked Example
Example will be completed in the Lecture.
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DONS AUTO REPAIRS Statement of Changes in Equity For the year ended 30 June 2010 Don Brady, Capital - 1 July 2009 Net profit for the year Less: Drawings Don Brady, Capital - 30 June 2010 $ 237 330 94 350 331 680 45 000 $ 286 680
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For the year ended 30 June 2010 CASH FLOWS FROM OPERATING ACTIVITIES Cash received from customers $424 710 Cash paid to suppliers and employees (342 000) Net cash from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Purchase of land and buildings (315 000) Purchase of repair equipment (110 700) Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Amount borrowed under mortgage 201 000 Investment by owner 237 330 Drawings by owner (45 000) Net cash from financing activities Net increase (decrease) in cash held Cash at beginning of year Cash at end of year
$ 82 710
(425 700)
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