Assessment need to be done on given word document. Its consist of 12 pages + 3 pages which are not assessment.Assessment is are word document, which is essentially one form to be completed.
5 ACCOUNT types (2).docx 5 ACCOUNT TYPES · ASSETS - items owned/controlled by Business · Debit balance · EXPENSES – cost incurred in gaining income (money spent) outflows from business · Debit balance · OWNER’S EQUITY (Proprietorship)- owners investment · Credit balance · REVENUE – inflows/earnings to a business · Credit balance · LIABILITIES - amounts owed by business to others · Credit balance Generally accepted accounting principles v2015.docx G.A.A.P (Generally Accepted Accounting Principles) ConventionsDoctrines (General Agreements) (Principles, Truths) Accounting Standards (Rules) CONVENTIONS ACCOUNTING ENTITY CONVENTION: · the business is separate from the owner ACCOUNTING PERIOD CONVENTION: · Reporting is split into equal time periods. GOING CONCERN: · Business assumed to have an endless life MONETARY: · Money is the measuring unit of Accounting HISTORICAL COST: · Transactions are recorded and maintained at original cost. RECOGNITION OF LAW: · Adherence to law of the land. DOCTRINES CONSISTENCY: · Same accounting methods used DISCLOSURE: · Disclose all material information MATERIALITY: · Do not clutter reporting with unimportant detail CONSERVATISM: · Adopt a conservative approach to accounting. Accounting & Finance/ Introductory Accounting/ GAAP/v1 2nd Semester 2015 BN Page 1 Accounting Doctrines conventions (1).docx 1.2: Accounting principles Accounting is based upon a number of basic underlying principles. These principles serve as a guide to the procedures that are adopted by the accounting profession when preparing accounting reports. There are ten concepts listed below. These are divided into conventions and doctrines. Conventions Conventions are general agreements in accounting, which especially relate to standards or procedures. Accounting entity convention The financial information and accounting of a business is treated separately to the owners’ personal finances. That is, the business is a separate entity to the owner and their financial information should not be combined or mixed in any way. For example, the owners’ bank account or house are not recorded in the books of the business. Accounting period convention The reporting of the business is divided into equal periods, of no longer than one year. This allows the stakeholders in that business to see how it is performing at a point in time. This is also required by law as a business must lodge tax returns and other reports for interested parties. Going concern convention Accounting and financial reports are prepared on the basis that the business will continue to operate indefinitely. That is, the business will continue to be able to pay its bills as and when they fall due and there are no plans for the business to cease operating. Monetary convention All transactions are recorded in a single currency that is appropriate to that business. In Australia, all businesses must record their transactions in Australian dollars. If a transaction is in a foreign currency it must be translated to Australian dollars (AUD). If the item cannot be expressed in monetary value, it cannot be recorded. Historical cost convention The amount recorded in the books of a business is the amount that is actually paid or received. This assumes the buying capacity of the dollar is constant and does not take into account inflation. Recognition of law Any laws relating the business and its accounting records must be followed. This includes taxation laws, accounting standards that are applicable, as well as corporation laws and any other law that will apply. Doctrines Doctrines are principles which are fundamental truths. Doctrine of consistency The accounting principles used to prepare financial information and statements must be applied the same way for each accounting period. This is so that information is reliable and can be compared across accounting periods. Doctrine of disclosure The accounting reports should contain sufficient detail to allow the owner or other interested parties to clearly understand the true financial position of the business. For example, if an asset is sold it must be clear how much the asset was sold for and if it was sold for a profit or a loss. The amount cannot be ‘lumped’ into a general revenue account. What if this was an important asset to the business? Doctrine of materiality All items that are significant to a business must be recorded. The significance or importance of an amount depends on both the size of a business and the importance of the item being considered. For example $500 would be material to a business that only sells $1,000 worth of goods a day, but it would not be material to a business that sell $1,000,000 of goods per day. I may have made a $500 loss on selling an asset. The amount may not be significant, but the fact that I sold that an asset may be, so this would need to be reported. Doctrine of conservatism Where there is uncertainty in the results to be reported, the preference is to understate the profit rather than overstate it. It is important though, that the results of a business are not distorted by not including an item of which you are not 100% sure. Here we use the terminology ‘more than likely’ or ‘not likely’. 1.3: Accounting standards Accounting standards set the formats and rules to be followed in recording financial information and preparing financial reports. The Australian Accounting Standards Board (AASB) is responsible for setting the accounting standards for Australian entities. Accounting standards must be applied to any business that is nominated as a ‘reporting’ entity as determined under the Corporations Act 2001. All members of professional bodies are required to abide by accounting standards as part of their membership. For more information, you can visit the AASB website http://www.aasb.gov.au/ 1 REPORT on financial activity 2021 v6 (1).docx THE BUSINESS ENVIRONMENT – an entity-shop, trade person, govt dept, dentist, hairdresser, electrician, tech companies, mining – service industry/retail business Types of business: Sole Trader - tax on profit is up to 47% The business is owned by one person only. He/she contributes all finance to start the business, is responsible for all decisions about the business, receives all the profits and suffers all losses. Partnership - tax on profit is up to 47% The business is owned by two or more people. They jointly contribute finance (not necessarily equally), share the decisions about the business and share profits and/or losses. Sole traders and partnerships have unlimited liability. This means that if the business is insolvent/bankrupt and owes money to other people/businesses, then the owner(s) must contribute from personal funds and property in order to pay those debts. Company = public company/ proprietary co - size – tax is 27.5% or 30% The business is owned by shareholders, but has a separate legal status under Corporations Law. Finance to start/expand the business is obtained through the selling of shares in the business. Management is through the Board of Directors, which is elected by the shareholders. Shareholders receive their share of profits in the form of dividends. Proprietary Ltd Companies - PTY LTD shareholders are limited - private company not listed on the stock exchange Public company – listed on the stock exchange – unlimited shareholders. A company, however, has limited liability. This means that if the company is insolvent/bankrupt (liquidate) and owes money to other people/businesses, the shareholders may lose the money they paid/owe for their shares – however they cannot lose any of their personal property that is not connected to the business. Co-operatives These are owned by members who have similar interests. The members receive benefits from the co-operative such as discounts on goods and services. Clubs and Societies These are usually not-for-profit (sporting and community) organisations that are established for the benefit of the members. Government Organisations These include federal, state and local government organisations as well as semi-government and statutory authorities. Federal – Prime Minister – Scott Morrison - surplus State Government – Premier - Gladys Berejiklian Local – council - Mayor Definition of Accounting 1. Accounting is the recording, classifying and summarising of the business transactions, that enables the measurement, reporting and communication of financial information The end result of this process are the financial reports that enable interested parties to make decisions for the future based on the information contained in the reports. 2. Accounting includes: · Keeping records · Interpretation of Accounting Reports · Planning and conduct of business activities Exercise 1 Make a list of those people/organisations who are interested in, and use, the information contained in financial reports: Practical examples of use of Accounting Information by a Shopkeeper · Record of cash coming in and out of the business ie cash-flow · Record of sales, purchases and operating expenses – profit · Valuation of stock/inventory on hand · List of assets and their value · List of liabilities Assets These are items of value owned by the business or owed to the business. A business uses its assets to generate income – for example machinery and equipment. Exercise 2 Make a list of assets that you think a business would own. Liabilities These are debts that the business must pay to other people/organisations at some point in the future; they are amounts of money owed by the business – for example a loan from a bank. Exercise 3 Make a list of the liabilities that you think a business would have. Further classification of assets and liabilities Assets and liabilities must also be classified as either current or non-current. Generally speaking: Current means that an asset is expected to be held by the business for less than twelve months (such as cash or stock) or that a liability is expected to be paid within twelve months (such as accounts payable). Non-current assets are expected to be held by the business for more than 12 months whereas non-current liabilities are expected to remain unpaid for longer than 12 months. Exercise 4 Classify the following items as current assets, non-current assets, current liabilities, or non-current liabilities: CA, NCA, CL, NCL. Balance sheet – what you own what you owe Cash/BankBuildingsDebtors Motor VehiclesMortgageStock of trading goods CreditorsPetty CashBank Overdraft Computers Current Assets Current Liabilities Non-Current Assets Non-Current Liabilities Revenue and Expenses Most businesses exist in order to make a profit for their owners. - Income statement Profit=Revenue- Expenses Revenue (also known as Income) is the amount that a business earns through the supply of goods and/or services to customers. Common revenue items are sales, interest income, rent income and commission income. It is important to distinguish between cash and revenue. Cash or money is an asset – in accounting there are two sides to every transaction; so if we earn income and are paid cash, one side is the receipt of an asset (cash) and the other side is the earning of income. Service industry – revenue – service fee / retail industry – revenue -sales Expenses are the amounts incurred in earning revenue. Common expense items are