Hi, I have an online exam on the 16th Feb. at 10 AM I would like you to answer the questions(but I don't know what the question is until that time). The exam is about questions requiring practical interpretation andapplication of concepts.No ratio formulas will be provided as no ratio calculations will be required,*****However, the interpretation is given ratio values may be required*****
500 words no reference require
In the meantime, I attached my lectures for you to study.
Topics covered in mid-session exam:
Topic 1:Introduction to accounting (Chapter 1)
Topic 2:The accounting system (Chapter 4)
Topic 3:The income statement (Chapter 7)
Topic 4:The balance sheet (Chapter 8)
Topic 5:The cash flow statement (Chapter 9)
Slide 1 Topic 2: Chapter 4 The accounting system: concepts and applications 200821: Financial Reports for Decision Making Financial accounting information and decision making Making good decisions based on information in financial statements assumes that there is agreement about what is included in those statements and how the amounts are measured. Generally accepted accounting principles (GAAP) provide the guidelines and rules that a business must follow when financial statements are prepared. Basic concepts and terms used in accounting Several basic concepts help identify the activities that the accounting process records: 1. entity concept 2. transactions 3. source documents 4. monetary unit concept 5. historical cost concept. Entity concept • This concept states that an entity is considered to be separate from its owners and from any other business. • Each business is an entity and has its own accounting system and records. Transactions • A business transaction is an exchange of property or service with another entity. • Each transaction a business engages in must be recorded, based on information from source documents. Source documents Source documents are records used as evidence that a transaction has occurred, including: • sales receipt • invoice or bill from a supplier • printout from an EFT machine • log of kilometres driven in business’ delivery truck • invoice or bill sent to a customer • payroll timesheet. Monetary unit concept • This concept states that the source documents for transactions show the value of the exchange in terms of money. • The monetary unit used depends on the national currency of the country in which the business operates. Historical cost concept This concept states that a business records its transactions based on the amount exchanged at the time the transaction occurred. Year 1 • Land acquired for $100 000 Year 2 • Value increased to $130 000 Historical cost concept • Business shows the land at acquisition cost • ($100 000) Components of the accounting equation • Assets are a business’ economic resources that will provide future benefits to the business. • Liabilities are the economic obligations (debts) of a business. • The owner’s equity of a business is the owner’s current investment in the assets of the business. Assets Liabilities Owner’s equity Economic resources Claims on economic resources Using the accounting equation The dual effects of transactions Extending the accounting equation Assets Liabilities Net income Owner’s capital Owner’s equity Revenues – expenses Demonstration Question • Check Topic 2 - Demonstration Question - this is a very detailed analysis of the impact on the accounting equation of some business transactions Slide Number 1 Financial accounting information and �decision making Basic concepts and terms �used in accounting Entity concept Transactions Source documents Monetary unit concept Historical cost concept Components of the accounting equation Using the accounting equation The dual effects of transactions Extending the accounting equation Demonstration Question Slide 1 • Topic 3: – Chapter 7 The income statement: Content and use 200821: Financial Reports for Decision Making Why the income statement is important The income statement plays a key role in the decision making of the users by communicating revenues, expenses and net income (or net loss) for a specific time period. Why the income statement is important Net income Revenues Expenses The retail business’ income statement Revenues are the prices charged to customers and result in an increase in assets or decrease in liabilities. Expenses are the costs of providing goods and services and result in a decrease in assets or an increase in liabilities. The retail business’ income statement (2) Sales revenue Whether a customer buys goods for cash or on credit, retail businesses use a Sales Revenue (or Sales) account to record the transaction. Some businesses that sell only a few products or have a computerised accounting system may use a cash register tape or a credit card receipt as the source document. If you want to see how a sales transaction is recorded, check p.281-282 for an example Sales policies Business’ may have several policies related to the sales of their goods or services: • discount policies • sales return policies • sales allowance policies. Discounts • A quantity (or trade) discount is a reduction in the sales price of a good or service. • A sales discount (cash discount) is a percentage reduction of the invoice price if the customer pays the invoice within a specified period. Sales returns and allowances • A sales return occurs when a customer returns previously purchased merchandise. • A sales allowance occurs when a customer agrees to keep the merchandise, and the business refunds a portion of the original sales price. • A credit memo is a business document that lists the information for a sales return or allowance. Net sales • At the end of the accounting period, the balance of the Sales Revenue account column includes the initial sales revenue, less the sales returns and allowances, and the sales (cash) discounts taken. • The balance of the Sales Revenue account is called Sales Revenue (net) or Net Sales, and is reported on the business’ income statement. Cost of goods sold • One of the major expenses of a retail business is the cost of goods it sells during the accounting period. • A classified income statement shows this expense as the cost of goods sold. • How a retail business calculates the amount depends on the type of inventory system it uses. Perpetual inventory system • A perpetual inventory system keeps a continuous record of the cost of inventory on hand and the cost of inventory sold. • When a business purchases inventory, it increases Inventory by the invoice cost of the merchandise plus any freight charges it paid to have the inventory delivered. • When the business sells merchandise, it reduces Inventory and increases Cost of Goods Sold by the cost of the inventory that it sold. Perpetual inventory system (2) • At the end of an accounting period, the balance of the Inventory account is included on the balance sheet. • The balance of the Cost of Goods Sold account is included on the income statement. • A periodic inventory system determines the inventory at the end of each accounting period by physically counting it. Periodic inventory system The Cost of Goods Sold is computed using the following model: Inventory cost flow assumptions In addition to deciding whether to use a perpetual or periodic inventory system, organisations also need to decide which inventory cost flow assumption they will use. Inventory cost flow assumptions can include: • Specific identification • First in, first out (FIFO) • Average cost . These different inventory cost flow assumptions are discussed in detail in Chapter 7’s Appendix (p.315-324). However, you would never be expected to complete any inventory cost flow calculations in this unit. Operating expenses Operating expenses are the expenses (other than cost of goods sold) that a business incurs in its day-to-day operations, including: • having sales staff • occupying building space • running advertisements in the newspaper. Operating expenses (2) A business may divide its operating expenses section of the income statement into two parts: • Selling expenses : • operating expenses related to sales activities (i.e. activities related to the actual sale and delivery of merchandise to customers) • General and administrative expenses: • operating expenses related to the general management of a business (eg office salaries, insurance, office supplies) Operating expenses (3) Uses of the income statement for evaluation • Investors use the income statement to help judge their return on investment. • Creditors use the income statement to help make loan decisions. • They will evaluate a business’ risk, operating capability and financial flexibility. Uses of the income statement for evaluation (2) • Risk is the uncertainty about the future earnings potential of a business. • Operating capability refers to a business’ ability to continue a given level of operations in the future. • Financial flexibility refers to a business’ ability to adapt to change in the future. Ratios Ratio analysis is where an item on the business’ financial statements is divided by another related item. Ratios are ‘benchmarks’ used to compare a business’ performance with previous periods and with other businesses. Examples include: • Profit margin • Gross profit percentage Statement of comprehensive income • The Australian Accounting Standards Board AASB 101 Presentation of Financial Statements requires that entities must present a ‘Statement of Comprehensive Income’ • Other comprehensive income comprises items of income and expense that are not recognised in profit or loss as required or permitted by other Australian Accounting Standards. Statement of changes in equity • The statement of changes in owner’s equity summarises the transactions that affected owner’s equity during the accounting period. • It links the income statement and the amount of owner’s capital reported on the balance sheet. � Why the income statement �is important Why the income statement �is important The retail business’ income statement The retail business’ income statement (2) Sales revenue Sales policies Discounts Sales returns and allowances Net sales Cost of goods sold Perpetual inventory system Perpetual inventory system (2) Periodic inventory system Inventory cost flow assumptions Operating expenses Operating expenses (2) Operating expenses (3) Uses of the income�statement for evaluation Uses of the income�statement for evaluation (2) Ratios Statement of�comprehensive income Statement of changes in equity Slide 1 • Topic 4: – Chapter 8 The balance sheet: Content, use and analysis 200821: Financial Reports for Decision Making Why the balance sheet is important • It provides information that helps internal and external users to evaluate a business’ ability to achieve its primary goals of earning