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
LITTLE NOTABLES EXCLUSIVE
- VICKY TANG
MODULE 1
INTRO
LITTLE NOTABLES EXCLUSIVE
- VICKY TANG
Private Enterprise
Service
Merchandising
Manufacturing
Types of Businesses
LITTLE NOTABLES EXCLUSIVE
- VICKY TANG
Sources of Capital
1. Investing 2. Borrowing
3. Retained profits
LITTLE NOTABLES EXCLUSIVE
- VICKY TANG
Business Forms
Business Organisations
Sole proprietorship
Partnership
Company
Listed (NZX + Market Cap.)
Unlisted
SHARES: rights
to vote +
dividends
LITTLE NOTABLES EXCLUSIVE
- VICKY TANG
Types of Accounting
Mainly external
Minimum
Financial
Internal only
Detailed
Managerial
Coursebook ~ page 24 for more detail
LITTLE NOTABLES EXCLUSIVE
- VICKY TANG
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
LITTLE NOTABLES EXCLUSIVE
- 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
LITTLE NOTABLES EXCLUSIVE
- 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
LITTLE NOTABLES EXCLUSIVE
- VICKY TANG
MODULE 3
BUDGETING
LITTLE NOTABLES EXCLUSIVE
- VICKY TANG
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 *
LITTLE NOTABLES EXCLUSIVE
- VICKY TANG
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
LITTLE NOTABLES EXCLUSIVE
- VICKY TANG
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
LITTLE NOTABLES EXCLUSIVE
- 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
LITTLE NOTABLES EXCLUSIVE
- 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
LITTLE NOTABLES EXCLUSIVE
- VICKY TANG
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.
LITTLE NOTABLES EXCLUSIVE
- VICKY TANG
MODULES 6 & 7
ACCOUNTING SYSTEM,
INCOME STATEMENT
& BALANCE SHEET
LITTLE NOTABLES EXCLUSIVE
- VICKY TANG
Balance Sheet Basics
• Notion of entity / Accounting entity
• Transactions
• Source documents
• Monetary unit / Monetary measurement
• Historical cost
LITTLE NOTABLES EXCLUSIVE
- VICKY TANG
Accounting Equation
Assets Liabilities Equity
This equation can be rearranged to:
LIABILITIES = EQUITY – ASSETS
Or
EQUITY = ASSETS - LIABILITIES
Economic Resources Claims on Economic Resources
LITTLE NOTABLES EXCLUSIVE
- VICKY TANG
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
LITTLE NOTABLES EXCLUSIVE
- VICKY TANG
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
LITTLE NOTABLES EXCLUSIVE
- VICKY TANG
Income Statement Basics
• Accounting period / Period reporting
• Accrual accounting / Accrual basis
• Earning and recording revenues
• Matching principle
LITTLE NOTABLES EXCLUSIVE
- VICKY TANG
Again: Accounting Equation
Assets Liabilities Equity Net
income
Revenues Expenses Net
income
This is your I/S format!
LITTLE NOTABLES EXCLUSIVE
- VICKY TANG
Inventory Systems
PERPETUAL •Continuous record
•Requires recording transactions
PERIODIC •Calculated COGS
•Requires stocktake
LITTLE NOTABLES EXCLUSIVE
- VICKY TANG
Recognition Criteria
• For ASSETS and LIABILITIES:
PAST / PRESENT / FUTURE
• For REVENUES and EXPENSES:
INCREASE / DECREASE of ASSET / LIABILITY
• Revenue Recognition
• Matching Principle
LITTLE NOTABLES EXCLUSIVE
- VICKY TANG
MODULE 8
CASH FLOWS & EQUITY
LITTLE NOTABLES EXCLUSIVE
- VICKY TANG
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.
LITTLE NOTABLES EXCLUSIVE
- VICKY TANG
Cash Flows Organisation C
ash
Flo
ws
Ac
tivity
Operating Everyday, routine
activities
Investing Non-current assets:
shares and PPE
Financing Capital and loans
LITTLE NOTABLES EXCLUSIVE
- VICKY TANG