acctg 101 cramming sesh - little...

ACCTG 101

Cramming Sesh

MODULES 1, 3, 6, 7, 8 & 9

LITTLE NOTABLES EXCLUSIVE

- VICKY TANG

MODULES COVERED • 1 – Introduction

• 3 – Business Plan: Budgeting

• 6 – Accounting System & Balance Sheet

& 7 – Accounting System & Income Statement

• 8 – Cash Flow Statement & Owner’s Equity

• 9 – Financial Statement Analysis


- VICKY TANG

MODULE 1

INTRO


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Private Enterprise

Service

Merchandising

Manufacturing

Types of Businesses


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Sources of Capital

1. Investing 2. Borrowing

3. Retained profits


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Business Forms

Business Organisations

Sole proprietorship

Partnership

Company

Listed (NZX + Market Cap.)

Unlisted

SHARES: rights

to vote +

dividends


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Types of Accounting

Mainly external

Minimum

Financial

Internal only

Detailed

Managerial

Coursebook ~ page 24 for more detail


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End Users of Accounting • Managers – evaluate business operations

• Employees – job stability, pay rises?

• Investors – dividends, good return?

• Creditors – lending security

• Government/Government agencies – eg. IRD for tax


- VICKY TANG

Reading an Annual Report

• Market capitalisation:

= Number of Shares x Share Price

• Book value:

= balance sheet figure

• Difference = intangible assets (eg. copyright,

goodwill from sale, brand name); future vs past


- VICKY TANG

Reading an Annual Report • Statement of accounting policies = keeping with standards for

comparability

• Group vs Subsidiary accounts: group = parent + subsidiary

Coursebook pg. 186 for more detail

• Independent auditors’ report expresses fairness (statements

should be presented in a true and fair view) eg. Deloitte

– Auditing resolves conflict of interest between shareholders

and directors of a company

– An unqualified opinion is a good thing

- ‘true and fair’ = GAAP, IFRS complied with

- Does not detect fraud eg. Enron


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MODULE 3

BUDGETING


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Budget Basics

• Used for evaluating business performance through

benchmarks.

• ONLY SHOW TRANSACTIONS RELEVANT TO THE

OPERATING PERIOD.

Purchase goods for

sale

Sell goods to

customers

Collect cash from customers

Cash Sales vs

Accounts Receivable

* Retail Normal

Operating Cycle *


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Structure: Debtors & Creditors

Debtors / Accounts Receivable Creditors / Accounts Payable

Opening balance Opening balance

+ Credit sales + Credit purchases

- Cash receipts - Cash payments

= Closing balance = Closing balance


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Structure: Inventory (R)

Inventory (Retailer ONLY)

Cost of goods sold

+ Closing inventory balance

- Opening inventory balance

= Purchases

You can calculate cost of goods

sold (also known as cost of sales)

by going:

Sales x COGS%

The COGS% will be given.

Eg. Sales were made in April of

$10,000. COGS is estimated to be

25% of sales.

10,000 x 0.25 = $2,500 in COGS


- VICKY TANG

Structure: Inventory (M) Inventory (Manufacturer ONLY)

Finished Goods

Inventory (Manufacturer ONLY)

Raw Materials

Cost of sales Production

+ Ending finished goods inventory + Ending raw materials inventory

- Beginning finished goods inventory - Beginning finished goods inventory

= Production = Purchases


- VICKY TANG

Structure: Cash Expenses January February March First Quarter

total

Blah 100 100 100 300

Hooplah - - 10,000 10,000

Asdfjkl 200 250 220 670

Budgeted cash

payments for

expenses

300 350 10,320 10,970

All expenses budget follow the same format. Split into selling

expenses and general/administrative expenses usually.

Blah is a fixed, ongoing expense. Eg. rent, utilities

Hooplah is a one-off transaction. Eg. loan principal repayment

Asdfjkl is an expense that has a basis. Eg. commission per unit


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Cash Collections MONTH January February March First Quarter

Total

January 10,000 20,000 10,000 40,000

February xx xx xx xxx

March xx xx xx xxx

Total cash

collections

xxx xxx xxx xxxx

Be careful about when cash is collected. If cash has

been collected in a previous month and the Q says

something like “10% of the remaining balance” DO

NOT multiply the original amount by the % given.

Eg. $50,000 in sales for January. 20% is cash sales.

The rest is on credit. 50% of credit sales is collected in

the following month, and 50% of the remaining balance

in two months after sale.


- VICKY TANG

MODULES 6 & 7

ACCOUNTING SYSTEM,

INCOME STATEMENT

& BALANCE SHEET


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Balance Sheet Basics

• Notion of entity / Accounting entity

• Transactions

• Source documents

• Monetary unit / Monetary measurement

• Historical cost


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Accounting Equation

Assets Liabilities Equity

This equation can be rearranged to:

LIABILITIES = EQUITY – ASSETS

Or

EQUITY = ASSETS - LIABILITIES

Economic Resources Claims on Economic Resources


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Format: Balance Sheet

• T-shape format:

ASSETS LIABILITIES

Current Assets Current Liabilities

CA 1

CA 2

xx

xx

xxx

CL 1

CL 2

xx

xx

xxx

Non-current Assets Non-current Liabilities

NCA 1

NCA 2

xx

xx

xxx

NCL 1

NCL 2

xx

xx

xxx

Shareholder’s Equity

Share capital

Retained profits

xx

xx

xxx

TOTAL xxxx xxxx


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Format: Balance Sheet

• Long

format:

Assets

Current assets X

Non-current assets X

Total assets XX

[Less] Liabilities

Current liabilities X

Non-current liabilities X

Total liabilities XX

Net assets XXX

Shareholder’s equity

Share capital Retained profits

X X

Total shareholders’ equity XXX


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Income Statement Basics

• Accounting period / Period reporting

• Accrual accounting / Accrual basis

• Earning and recording revenues

• Matching principle


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Again: Accounting Equation

Assets Liabilities Equity Net

income

Revenues Expenses Net

income

This is your I/S format!


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Inventory Systems

PERPETUAL •Continuous record

•Requires recording transactions

PERIODIC •Calculated COGS

•Requires stocktake


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Recognition Criteria

• For ASSETS and LIABILITIES:

PAST / PRESENT / FUTURE

• For REVENUES and EXPENSES:

INCREASE / DECREASE of ASSET / LIABILITY

• Revenue Recognition

• Matching Principle


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MODULE 8

CASH FLOWS & EQUITY


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Cash Flows Basics

• Basis is cash basis, not accrual basis.

• ONLY statement to use cash basis.

• Shows solvency and liquidity (for ratio analysis – 9)

• Shows inflows (receipts) and outflows (payments)

during nominated accounting period.


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Cash Flows Organisation C

ash

Flo

ws

Ac

tivity

Operating Everyday, routine

activities

Investing Non-current assets:

shares and PPE

Financing Capital and loans


- VICKY TANG

acctg 101 cramming sesh - little...

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