WHAT IS ACCOUNTING?

Accounting is the recording of financial transactions:

WHAT IS ACCOUNTING?

Purchases of stock Purchase of cars

Loan repayments

GST

Investments Wages paid

Cash salesLoansRent

Phone bill Credit salesElectricity

Accountants then turn these transactions into three important reports:

WHAT IS ACCOUNTING?

Income

StatementBalance Sheet

Cash Flow

Statement

These reports are prepared for several users of accounting

information…

WHAT IS ACCOUNTING?

Management

Employees

Owners

Investors

Tax Office CustomersSuppliers

Government

These reports are then used to analyse the business so users can make

informed decisions…

WHAT IS ACCOUNTING?

How much profit did the business

make?

Does the business have enough

cash?

Which stock is selling well/poorly? Can the business afford to expand?

Are the firm’s shares over or under-

valued?What does the business own?

What are the firm’s debts and when

are they due?

What return is the firm making on

the owner’s investment?

Decisions

WHY STUDY ACCOUNTING?

Accounting is not just for accountants

Myth – only people wanting to study Accounting at university should study VCE Accounting

Accounting is broader than that – whichever profession you do, a background in Accounting and Finance is essential in many careers such as:

Small business owner

Banking

Lawyer

Stockbroker/trader

Engineer

Marketing and advertising

Retail

Sports management

WHY STUDY ACCOUNTING?

Accounting is not just for accountants

Myth – qualified or “chartered” accountants work in a range of industries…

WHY STUDY ACCOUNTING?

38%

35%

3%

12%

In Accounting Practices In Industry (Commerce) In the Public Sector Overseas

Where do Chartered Accountants work?

Accounting is essential for studying Commerce at university

WHY STUDY ACCOUNTING?

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

Natural andphysicalsciences

Informationtechnology

Engineering Architectureand building

Agriculture andenvironment

Health Education Managementand commerce

Society andculture

Creative arts Hospitality andfood

2012 First Preferences by Field of Interest - All Students

Accounting is essential for studying Commerce at university

WHY STUDY ACCOUNTING?

0

1000

2000

3000

4000

5000

6000

7000

8000

Natural andphysicalsciences

Informationtechnology

Engineering Architectureand building

Agricultureand

environment

Health Education Managementand

commerce

Society andculture

Creative arts Hospitalityand food

2012 First Preferences by Field of Interest - Male

Accounting is essential for studying Commerce at university

Every Management and Commerce Degree has Accounting as a core subject…

WHY STUDY ACCOUNTING?

Bachelor of Commerce

ACT10001 Accounting Reports and Analysis

Bachelor of Commerce

MAA103 Accounting for Decision-Making

Bachelor of Business

BUS1AFB Accounting and Finance

Bachelor of Business

ACCT2105 Accounting in Organisations

Accounting is essential for studying Commerce at university

Every Management and Commerce Degree has Accounting as a core subject…

WHY STUDY ACCOUNTING?

Bachelor of Commerce

AFC1000 Principles of Accounting

Source: http://www.buseco.monash.edu.au/future/why.html

Want more info? Join the ICAA One Network for high school students…

WHY STUDY ACCOUNTING?

http://www.charteredaccountants.com.au/Students/OneNetwork

THE VCE ACCOUNTING

COURSE

Do I need to be good at Maths to study Accounting?

Accounting requires only basic arithmetic – there are no mathematical formulas or functions…

THE VCE ACCOUNTING COURSE

You only need a basic calculator – graphics calculators

are BANNED in SACs and Exams because you don’t

need them

Accounting isn’t a “scoring ” subject

Myth – every subject is a scoring subject !

All VCE subjects give you a study score from 1-50 based on:

How well you perform

How well you perform compared to everyone else in your class

How well you perform compared to everyone else in the state

Your score from 1-50 wil l then be scaled so it can be compared to other subjects…

http://www.vtac.edu.au/pdf/scaling_report.pdf

THE VCE ACCOUNTING COURSE

Accounting isn’t a “scoring ” subject

So how is Accounting scaled?

THE VCE ACCOUNTING COURSE

Year Mean 20 25 30 35 40 45 50

2012 30.5 19 24 30 35 41 46 50

2011 30.4 18 24 30 36 41 46 50

2010 30.4 19 24 30 36 41 46 50

2009 30.2 18 24 30 35 41 46 50

2008 30.2 18 24 30 35 41 46 50

2007 30.0 18 24 30 35 41 46 50

Year Mean 20 25 30 35 40 45 50

2012 30.5 19 24 30 35 41 46 50

2011 30.4 18 24 30 36 41 46 50

2010 30.4 19 24 30 36 41 46 50

2009 30.2 18 24 30 35 41 46 50

2008 30.2 18 24 30 35 41 46 50

2007 30.0 18 24 30 35 41 46 50

Year Mean 20 25 30 35 40 45 50

2012 30.5 19 24 30 35 41 46 50

2011 30.4 18 24 30 36 41 46 50

2010 30.4 19 24 30 36 41 46 50

2009 30.2 18 24 30 35 41 46 50

2008 30.2 18 24 30 35 41 46 50

2007 30.0 18 24 30 35 41 46 50

Year Mean 20 25 30 35 40 45 50

2012 30.5 19 24 30 35 41 46 50

2011 30.4 18 24 30 36 41 46 50

2010 30.4 19 24 30 36 41 46 50

2009 30.2 18 24 30 35 41 46 50

2008 30.2 18 24 30 35 41 46 50

2007 30.0 18 24 30 35 41 46 50

Year Mean 20 25 30 35 40 45 50

2012 30.5 19 24 30 35 41 46 50

2011 30.4 18 24 30 36 41 46 50

2010 30.4 19 24 30 36 41 46 50

2009 30.2 18 24 30 35 41 46 50

2008 30.2 18 24 30 35 41 46 50

2007 30.0 18 24 30 35 41 46 50

Year Mean 20 25 30 35 40 45 50

2012 30.5 19 24 30 35 41 46 50

2011 30.4 18 24 30 36 41 46 50

2010 30.4 19 24 30 36 41 46 50

2009 30.2 18 24 30 35 41 46 50

2008 30.2 18 24 30 35 41 46 50

2007 30.0 18 24 30 35 41 46 50

Year Mean 20 25 30 35 40 45 50

2012 30.5 19 24 30 35 41 46 50

2011 30.4 18 24 30 36 41 46 50

2010 30.4 19 24 30 36 41 46 50

2009 30.2 18 24 30 35 41 46 50

2008 30.2 18 24 30 35 41 46 50

2007 30.0 18 24 30 35 41 46 50

Year Mean 20 25 30 35 40 45 50

2012 30.5 19 24 30 35 41 46 50

2011 30.4 18 24 30 36 41 46 50

2010 30.4 19 24 30 36 41 46 50

2009 30.2 18 24 30 35 41 46 50

2008 30.2 18 24 30 35 41 46 50

2007 30.0 18 24 30 35 41 46 50

Accounting gives you f inancial l i teracy ski l ls

Which shares should I buy out of these two companies?

THE VCE ACCOUNTING COURSE

Total Sales Net Profit

$3,119

million

$141

million

$1,868

million

$101

million

Net Profit Margin

4.5%

5.4%

Company A

Company B

Financial Analysis and Performance:

• Unit 2

• Unit 4

Accounting gives you f inancial l i teracy ski l ls

How do I read these documents?

THE VCE ACCOUNTING COURSE

Financial Reporting:

• Unit 1 and 2

• Unit 3 and 4

Accounting gives you f inancial l i teracy ski l ls

I need to prepare a budget for the future… how do I do that?

THE VCE ACCOUNTING COURSE

Budgeting:

• Unit 1

• Unit 4

Accounting gives you f inancial l i teracy ski l ls

I want to run my own business one day but I have no idea how to complete a BAS Statement?

THE VCE ACCOUNTING COURSE

GST and BAS Statements:

• Unit 1 and 2

• Unit 3

Accounting gives you f inancial l i teracy ski l ls

How do I do my income tax? What can I claim? Did you know…

You can claim $1 for every t ime you wash your work uniform during the year provided it has the company logo on it (e.g. McDonalds)?

THE VCE ACCOUNTING COURSE

Taxation:

• Unit 1

Accounting gives you f inancial l i teracy ski l ls

How do I do my income tax? What can I claim? Did you know…

You can get your money back for anything you wear that is essential for the job (e.g. protect ive equipment)?

THE VCE ACCOUNTING COURSE

Taxation:

• Unit 1

Accounting gives you f inancial l i teracy ski l ls

How do I do my income tax? What can I claim? Did you know…

You don’t have to pay tax on lotto winnings, gifts or gambling wins?

THE VCE ACCOUNTING COURSE

Taxation:

• Unit 1

Accounting gives you f inancial l i teracy ski l ls

How do I do my income tax? What can I claim? Did you know…

You can claim money when your boss asks you to travel from work to another location?

THE VCE ACCOUNTING COURSE

Taxation:

• Unit 1

HEARD OF THESE

COMPANIES?

What have these companies al l got in common?

These are al l case studies covered in VCE Accounting…

HEARD OF THESE COMPANIES?

Bankruptcy

The case of Lehman Brothers…

An investment bank and financial services firm

Over 150 years old

HEARD OF THESE COMPANIES?

247,816 260,336

312,061

357,168

410,063

503,545

691,063

2001 2002 2003 2004 2005 2006 2007

Lehman Brothers - Total Assets (in $ Millions)

HEARD OF THESE COMPANIES?

6,7

36

6,1

55

8,6

47

11

,57

6 1

4,6

30

17

,58

3

19

,25

7

1,2

55

97

5

1,6

99

2,3

69

3,2

60

3,9

41

4,1

92

2001 2002 2003 2004 2005 2006 2007

Lehman Brothers - Revenue and Profit (in $ Millions)

Revenue

Profit

HEARD OF THESE COMPANIES?

But for years, Lehman’s had an exceedingly high level of debt…

24

7,8

16

26

0,3

36

31

2,0

61

35

7,1

68

41

0,0

63

50

3,5

45

69

1,0

63

23

9,3

57

25

1,3

94

29

8,8

87

34

2,2

48

39

3,2

69

48

4,3

54

66

8,5

73

2001 2002 2003 2004 2005 2006 2007

Lehman Brothers - Total Assets and Liabilities (in $ Millions)

TotalAssets

TotalLiabilities

HEARD OF THESE COMPANIES?

And in September 2008…

Lehman’s went bankrupt in one weekend in September 2008

The biggest bankruptcy in US history

Total Liabilities

$768 Billion

Total Assets

$639 Billion but…

HEARD OF THESE COMPANIES?

Assets Liabilities<

Lehman Brother Case Study

• Unit 3

Who was Enron?

Created in 1985

Sold and traded in electricity and gas

Tremendous growth during the mid to late 1990s

HEARD OF THESE COMPANIES?

By 2001, Enron was America’s 7 th largest company with assets valued

at $65.5 bil l ion

HEARD OF THESE COMPANIES?

6.8

21.7

31.334.0

42.045.0

65.5

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

Apple McDonalds Johnson &

Johnson

Hewlett

Packard

Boeing Disney Enron

2000 Assets in $US Billion

HEARD OF THESE COMPANIES?

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

1994 1995 1996 1997 1998 1999 2000

Enron Assets 1994 - 2000 ($US million)

HEARD OF THESE COMPANIES?

0

200

400

600

800

1,000

1,200

1994 1995 1996 1997 1998 1999 2000

Enron Profit 1994 - 2000 ($US million)

And then this happened…

HEARD OF THESE COMPANIES?

$-

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

$70.00

$80.00

$90.00Enron Share Price ($US)

By November 28 th 2001, Enron was bankrupt

Largest bankruptcy in US history: $US 63 bil l ion

HEARD OF THESE COMPANIES?

Video - Trailer

How could this happen?

January 2001 – Enron is America’s 7 th largest company

2000 Revenue = $100.7 billion

2000 Profit = $979 million

2000 Assets = $65.5 billion

November 2001 – Enron is bankrupt

HEARD OF THESE COMPANIES?

How could this

happen?

There were always

key signs that

something was wrong

with the business

All anyone had to do

was analyse and

interpret the

financial reports a

little closer

HEARD OF THESE COMPANIES?

Enron Case Study

• Unit 4

HEARD OF THESE COMPANIES?

ABC Learning:

Founded by Eddie Groves

Grew from one childcare centre in 1988

At its peak, ABC Learning was opening

up four new centres per week

HEARD OF THESE COMPANIES?

43 94 187

327

660

1,257

2,238

-

500

1,000

1,500

2,000

2,500

2001 2002 2003 2004 2005 2006 2007

ABC Learning – No. of centres at year end

HEARD OF THESE COMPANIES?

3.3 6.8 12.1

21.4

52.3

81.0

143.1

-

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

2001 2002 2003 2004 2005 2006 2007

ABC Learning – Net Profit ($m)

HEARD OF THESE COMPANIES?

ABC Learning:

Despite being highly profitable in 2007 , by February 2008 the share pr ice

dropped rapidly from a high of over $8.00 to a low of $1 .15…

HEARD OF THESE COMPANIES?

ABC Learning:

In early November 2008 the firm went into administrat ion

Overnight, the firm’s shares became worthless

Creditors and

banks were

owed over

$1 billion

HEARD OF THESE COMPANIES?

ABC Learning:

How could ABC Learning go b roke in 2008 when i ts p rofi ts and cash were growing?

52.3

81.0

143.1

45.7

88.0

123.1

-

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

2005 2006 2007

Net Profit

($m)

Net

Increase/

Decrease in

Cash ($m)

HEARD OF THESE COMPANIES?

ABC Learning:

43.2 89.2 206.9

-454.0

-851.3

-1579.4

456.5

850.1

1495.6

-2,000.0

-1,500.0

-1,000.0

-500.0

-

500.0

1,000.0

1,500.0

2,000.0

2005 2006 2007

ABC Learning – Net Cash Flows ($m)

Operating

Activities ($m)

Investing

Activities ($m)

Financing

Activities ($m)

COURSE BREAKDOWN

COURSE BREAKDOWN

• Course structure…

Unit 1 – Establishing and operating a service

business

• Area of Study 1 – Going into business

• Area of Study 2 – Recording financial data

and preparing financial reports

Unit 2 – Accounting for a Trading Business

• Area of Study 1 – Recording financial data

and preparing financial reports

• Area of Study 2 – ICT in accounting

• Area of Study 3 – Evaluation of business

performance

Unit 3 – Recording and Reporting for a

Trading Business

• Area of Study 1 – Recording financial data

• Area of Study 2 – Balance-day

adjustments and interpreting financial

information

Unit 4 – Control and Analysis of Business

Performance

• Area of Study 1 – Extension of recording

and reporting

• Area of Study 2 – Financial planning and

decision-making

COURSE BREAKDOWN

• Unit 3/4 structure…

Unit 3 SACs,

25%

Unit 4 SACs,

25%Exam, 50%

0% 50% 100%

• Unit 3/4 structure…

Unit 3 SACs, 25% Unit 4 SACs, 25% Exam, 50%

0% 50% 100%

COURSE BREAKDOWN

70% 30%

• Unit 3/4 structure…

COURSE BREAKDOWN

70% 30%

Unit 3 SACs, 25% Unit 4 SACs, 25% Exam, 50%

0% 50% 100%

• Any quest ions please contact me…

Michael Allison

Off i ce R113 (bet ween R13 and R14)

allisonm@trinity.vic.edu.au

COURSE BREAKDOWN

Create space on intranet for

this presentation and show

screen dump here