ACC100 Introduction to Accounting

Transcription

1 ACC100 Introduction to Accounting

2 Week 2 Financial Decision Making Chapter 2 - Financial statements for decision making Study Group Australia Pty Limited, SGA1286-F2/10/12 2

3 Learning Outcomes On completion of this week s study, you should be able to: explain general accounting information explain the standard presentation and information contained in the four basic financial statements explain relationships between the four basic financial statements. 3

4 Basic Financial Statements Accounting is an information system Designed to communicate financial information To interested users For making economic decisions Financial statements Are the outcome of the accounting process Are the primary information source for users Are useful for many decisions 4

5 3 Primary Information Types Financial Performance The ability of the entity to utilise its assets effectively and efficiently to generate cash flow Financial Position The financial resources controlled by the entity, its financial structure, its liquidity and solvency Cash Movements The ability of the entity to generate cash flow 5

6 Business Activities Investing Activities The acquisition and disposal of long term assets Financing Activities The raising of funds for an entity to carry out its operating and investing activities. Operating Activities The provision of goods and services 6

7 The Balance Sheet Also known as the Statement of Financial Position. Shows assets, liabilities and equity. At a specific point in time. Represents the accounting equation. Assets = Liabilities + Equity 7

8 The Balance Sheet Account Format ASSETS DON S AUTO REPAIR Balance Sheet As at 30 June 2012 LIABILITIES Cash at bank $ Accounts payable $ Accounts receivable Mortgage payable Repair Supplies Repair Equipment Land EQUITY Building Don Brady, Capital $ $

9 The Balance Sheet Narrative Format ASSETS Cash at bank $ Assets Accounts receivable Liabilities Repair Supplies = Equity Repair Equipment Land Building TOTAL ASSETS $ LIABILITIES Accounts payable $ Mortgage payable TOTAL LIABILITIES NET ASSETS EQUITY Don Brady, Capital TOTAL EQUITY $

10 The Balance Sheet Assets Resources controlled by the entity as a result of past transactions or events from which future economic benefits are expected to flow to the entity. Liabilities Present obligations of an entity arising from past transactions or events, the settlement of which is expected to result in an outflow of resources from the entity. 10

11 The Balance Sheet Equity The residual interest of the owner/s in the assets (less liabilities) of the entity Also called Capital or Accumulated/Surplus Funds ASSETS = LIABILITIES + EQUITY ASSETS LIABILITIES = NET ASSETS NET ASSETS = EQUITY 11

12 The Income Statement INCOME EXPENSES DON S AUTO REPAIR Income Statement For the year ended 30 June 2012 Repair income $ Advertising expense $ Repair supplies expense Salaries and wages expense Rent expense Telephone expense Light and power expense PROFIT $

13 The Income Statement Income Increases in economic benefits in the form of inflows or enhancements of assets or decreases of liabilities that results in equity, other than those relating to equity participants. Expenses Decreases in economic benefits in the form of outflows or incurrences of liabilities that result in decreases in equity, other than those relating to equity participants. 13

14 Statement of Changes in Equity DON S AUTO REPAIR Statement of Changes in Equity For the year ended 30 June 2012 Don Brady, Capital 1 July 2011 $ Add: Profit for the year Less: Drawings Don Brady, Capital 30 June 2012 $

15 The Effects of Transactions on The Accounting Equation The accounting equation always balances. Transactions result in changes in assets, liabilities and owners equity. Elements of the accounting equation change with each transaction. The basic equality of the accounting equation remains unchanged. ASSETS = LIABILITIES + EQUITY 15

16 Example 1. Darren Jones deposits $ in a business bank account Cash at Bank Assets = Liabilitie s + Equity D. Jones, Capital (1) $ = $

17 Example 2. Darren purchases a vehicle and some lawn mowing and gardening equipment Cash at Bank Assets = Liabilitie s + Equity Equipment Vehicle D. Jones, Capital (1) $ = $ (2) = ($35 000) ($35 000) 17

18 Example 3. Darren purchases fuel supplies for $2500 on credit Cash at Bank Assets = Liabilitie s Equipment Vehicle Fuel Supplies Accounts Payable + Equity D. Jones, Capital (1) $ $ (2) (3) = ($37 500) ($37 500) 18

19 Statement of Changes in Equity Balance sheet as at beginning of period A 1 L 1 = Eq 1 Income statement for the period I Ex = Profit Balance sheet as at end of period A 2 L 2 = Eq Statement of owner s equity for the period Eq 1 + Profit Drawings = Eq

20 The Statement of Cash Flows CASH FLOWS FROM OPERATING ACTIVITIES DON S AUTO REPAIR Statement of Cash Flows For the year ended 30 June 2012 Cash received from customers $ Cash paid to suppliers and employees ( ) Net cash from operating activities $ CASH FLOWS FROM INVESTING ACTIVITIES Purchases of land and buildings ( ) Purchases of repair equipment ( ) Net cash from investing activities ( ) CASH FLOWS FROM FINANCING ACTIVITIES Amount borrowed under mortgage Investment by owner Drawings by owner (87 000) Net cash from financing activities Net increase (decrease) in cash held Cash at beginning of year - Cash at end of year $

21 Summary Understand general accounting information Understand the standard presentation and information contained in the four basic financial statements Understand relationships between the four basic financial statements. 21