NOTES ACC1000: Principles of Accounting and Finance Monash University
Table of Contents 1 ACCOUNTING IN ACTION 5 1.1 USERS OF ACCOUNTING INFORMATION 5 1.2 ASSUMPTIONS OF FINANCIAL ACCOUNTING 5 1.3 QUALITATIVE CHARACTERISTICS OF ACCOUNTING INFORMATION 5 1.4 STRUCTURE OF BUSINESS ENTITIES 5 1.4.1 SOLE PROPRIETORSHIP/ SOLE TRADER 5 1.4.2 PARTNERSHIP 6 1.4.3 COMPANY/CORPORATION (LIMITED LIABILITY) 6 1.5 ACCOUNTING EQUATION 6 1.5.1 ASSETS 6 1.5.2 LIABILITIES 6 1.5.3 SHAREHOLDERS EQUITY 7 2 FINANCIAL STATEMENTS AND ACCOUNTING ASSUMPTIONS 8 2.1 ACCRUAL ACCOUNTING 8 2.2 CASH ACCOUNTING 8 2.3 ACCOUNTING EQUATION IN DETAIL 8 2.3.1 DOUBLE ENTRY ACCOUNTING 8 2.4 THE ACCOUNTING CYCLE INITIAL STEPS OF THE RECORDING PROCESS 8 3 RECORDING TRANSACTIONS 10 3.1 PERPETUAL INVENTORY CONTROL SYSTEM 10 3.1.1 PURCHASES 10 3.1.2 PURCHASE RETURNS AND ALLOWANCES 10 3.1.3 SALES 10 3.1.4 SALES RETURNS OR ALLOWANCES 10 3.2 PERIODIC INVENTORY CONTROL SYSTEM 11 3.2.1 PURCHASES 11 3.2.2 PURCHASE RETURNS AND ALLOWANCES 11 3.2.3 SALES 11 3.2.4 SALES RETURNS AND ALLOWANCES 11 3.3 SPECIAL JOURNALS 11 3.3.1 SALES JOURNAL 11 3.3.2 PURCHASE JOURNAL 12 3.3.3 CASH RECEIPTS JOURNAL 12 3.3.4 CASH PAYMENT JOURNAL 13 3.4 ACCOUNTING FOR G.S.T 13 3.4.1 GST PAID > GST COLLECTED: ATO OWES YOU MONEY 13 3.4.2 GST PAID < GST COLLECTED: BUSINESS ENTITY OWES THE ATO MONEY. 14 4 ADJUSTING ACCOUNTS 15 4.1 THE FULL ACCOUNTING CYCLE 15 4.2 ACCRUAL ADJUSTMENTS (STEP 5 AND 6) 15 4.2.1 EXPIRATION OF ASSETS 15 4.2.2 UNEARNED REVENUE 16 4.2.3 ACCRUAL OF UNRECORDED REVENUE 16
4.2.4 ACCRUAL OF UNRECORDED EXPENSES 16 4.3 CONTRA ACCOUNTS 16 4.3.1 ALLOWANCE FOR DOUBTFUL DEBT 16 4.3.2 DEPRECIATION 17 5 PREPARING THE FINANCIAL STATEMENT 19 5.1 WORKSHEETS 19 5.2 CLOSING ENTRIES 19 5.3 POST CLOSING TRIAL BALANCE 20 5.4 PREPARE FINANCIAL STATEMENTS 20 5.4.1 BALANCE SHEET 20 5.4.2 INCOME STATEMENT 20 5.4.3 CASH FLOW STATEMENT 21 6 FINANCIAL STATEMENT ANALYSIS 22 6.1 PERFORMANCE RATIOS 22 6.2 ACTIVITY RATIOS 22 6.3 LIQUIDITY RATIOS 22 6.4 FINANCIAL STRUCTURE RATIOS 23 6.5 ANALYTICAL METHODS 23 6.6 LIMITATIONS ON FINANCIAL STATEMENT ANALYSIS 24 7 MANAGEMENT AND CONTROL 25 7.1 NON FINANCIAL PERFORMANCE MANAGEMENT 25 7.1.1 BALANCED SCORECARD 25 7.1.2 DIVISIONAL PERFORMANCE MANAGEMENT 26 7.1.3 RESPONSIBILITY ACCOUNTING 27 7.2 FINANCIAL METHODS 27 7.2.1 ANALYSIS OF PROFIT 27 8 COST AND COSTING 28 8.1 COST BEHAVIOUR 28 8.1.1 HIGH LOW METHOD 28 8.2 CVP ANALYSIS 29 8.2.1 BREAK EVEN ANALYSIS TO FIND THE PRICE WE SHOULD SELL A GIVEN AMOUNT OF PRODUCTION FOR. 29 8.2.2 HOW TO DETERMINE NET PROFIT BEFORE TAX: 29 8.2.3 HOW TO DETERMINE THE UNITS NECESSARY TO REACH A PROFIT AFTER TAX GOAL: 30 8.3 OVERHEAD ALLOCATION: 30 8.3.1 ABSORPTION COSTING 30 8.3.2 ACTIVITY BASED COSTING 30 9 STRATEGIC MANAGEMENT ACCOUNTING TECHNIQUES 31 9.1 TQM (TOTAL QUALITY MANAGEMENT) 31 9.1.1 CONFORMANCE COSTS 31 9.1.2 NON CONFORMANCE COSTS 31 9.2 JIT PROCESSING 31 9.3 LIFECYCLE COSTING 31 9.4 TARGET COSTING 32 9.5 KAIZEN COSTING 32 9.6 CUSTOMER PROFITABILITY ANALYSIS 32
9.7 ENVIRONMENTAL MANAGEMENT ACCOUNTING 32 9.8 BUDGETING 32 9.8.1 BEHAVIOURAL ASPECTS OF BUDGETING 33 10 & 11 INTRODUCTION TO FINANCE AND FINANCIAL MATHEMATICS 34 10.1 FINANCIAL MATHEMATICS 34 10.1.1 FUTURE VALUE: 34 10.1.2 PRESENT VALUE: 34 10.1.3 EFFECTIVE INTEREST RATES 34 10.1.4 CONTINUOUS COMPOUNDING 34 10.2 CAPITAL BUDGETING 34 10.2.1 STEPS OF CAPITAL BUDGETING 35 10.2.2 NET PRESENT VALUE (NPV): 35 10.2.3 INTERNAL RATE OF RETURN (IRR): 35
1 Accounting in Action 1.1 Users of Accounting Information Users of accounting information are the people that depend on and use the financial information (provided by financial statements) to make economic decisions. 1.2 Assumptions of Financial Accounting Assumptions are the tools and principles that we assume accountant will always use when presenting and creating financial statements Relevant assumptions: Accrual Accounting Measure the performance and position of a company by recognising economic events regardless of when cash transactions occur. Going Concern A business will continue to operate for the foreseeable future Monetary Unit - Measured in common denominator Accounting Period Discrete equal periods Historical Cost Cost at initial acquisition 1.3 Qualitative Characteristics of Accounting Information Understandability Relevance Reliability Materiality Fair representation (represent what really existed/happened) Neutrality (freedom from bias) Substance over form (reflects the economic reality) Prudence (caution in estimates) Completeness (material info not omitted, not misleading) Comparability 1.4 Structure of Business Entities 1.4.1 Sole Proprietorship/ Sole trader The owner is called the proprietor Separate accounting entity Not separate legal entity
Not separate taxable entity Unlimited liability - owner personally liable for debts of business 1.4.2 Partnership Separate accounting entity Not separate legal entity Not separate taxable entity Unlimited liability - individual partners personally liable for debts of partnership 1.4.3 Company/Corporation (limited Liability) The owners are called the shareholders Separate accounting, legal and taxable entity Limited liability - shareholders personally liable up to the value of their shares 1.5 Accounting Equation A = L + SE 1.5.1 Assets Definition: Resources controlled by an entity. Ability to provide future economic benefit. As a result of a past event/transaction. Recognition: Probability item is recognised if it is probable that any future economic benefit associated with the item will flow to or from the entity i.e. more likely than less likely, not absolute certainty. AND Reliably measured item is recognised if it has a cost/value/$ figure that can be measured with reliability i.e. if item arises from a transaction and hence, possesses a cost. 1.5.2 Liabilities Definition: Present obligation of an entity. As a result of a past event/transaction. Expected to result in an outflow of resources of economic benefit
Recognition: Probability item is recognised if it is probable that any future economic benefit associated with the item will flow to or from the entity i.e. more likely than less likely, not absolute certainty. AND Reliably measured item is recognised if it has a cost/value/$ figure that can be measured with reliability i.e. if item arises from a transaction and hence, possesses a cost. 1.5.3 Shareholders Equity Definition: Residual interest in the assets. After liabilities have been deducted.
NOTES MATH1002: Linear Algebra The University of Sydney Sign up to get a free cheatsheet and view more videos and notes.