ACCTG 101 Cramming Sesh MODULES 1, 3, 6, 7, 8 & 9
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
MODULE 1 INTRO
Types of Businesses Service Private Enterprise Merchandising Manufacturing
Sources of Capital 1. Investing 2. Borrowing 3. Retained profits
Business Forms Business Organisations Sole proprietorship Partnership Company SHARES: rights to vote + dividends Listed (NZX + Market Cap.) Unlisted
Types of Accounting Financial Managerial Mainly external Minimum Internal only Detailed Coursebook ~ page 24 for more detail
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
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
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
MODULE 3 BUDGETING
Budget Basics Used for evaluating business performance through benchmarks. ONLY SHOW TRANSACTIONS RELEVANT TO THE OPERATING PERIOD. * Retail Normal Operating Cycle * Purchase goods for sale Cash Sales vs Accounts Receivable Collect cash from customers Sell goods to customers
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
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
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
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
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.
MODULES 6 & 7 ACCOUNTING SYSTEM, INCOME STATEMENT & BALANCE SHEET
Balance Sheet Basics Notion of entity / Accounting entity Transactions Source documents Monetary unit / Monetary measurement Historical cost
Accounting Equation Assets Liabilities Equity Economic Resources Claims on Economic Resources This equation can be rearranged to: LIABILITIES = EQUITY ASSETS Or EQUITY = ASSETS - LIABILITIES
Format: Balance Sheet T-shape format: ASSETS Current Assets CA 1 CA 2 Non-current Assets NCA 1 NCA 2 xx xx xx xx xxx xxx LIABILITIES Current Liabilities CL 1 CL 2 Non-current Liabilities NCL 1 NCL 2 Shareholder s Equity Share capital Retained profits TOTAL xxxx xxxx xx xx xx xx xx xx xxx xxx xxx
Format: Balance Sheet Long format: Assets Current assets Non-current assets Total assets [Less] Liabilities X X XX Current liabilities Non-current liabilities Total liabilities Net assets X X XX XXX Shareholder s equity Share capital Retained profits Total shareholders equity X X XXX
Income Statement Basics Accounting period / Period reporting Accrual accounting / Accrual basis Earning and recording revenues Matching principle
Again: Accounting Equation Assets Liabilities Equity Net income Revenues Expenses Net income This is your I/S format!
Inventory Systems PERPETUAL PERIODIC Continuous record Requires recording transactions Calculated COGS Requires stocktake
Recognition Criteria For ASSETS and LIABILITIES: PAST / PRESENT / FUTURE For REVENUES and EXPENSES: INCREASE / DECREASE of ASSET / LIABILITY Revenue Recognition Matching Principle
MODULE 8 CASH FLOWS & EQUITY
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.
Cash Flows Activity Cash Flows Organisation Operating Investing Everyday, routine activities Non-current assets: shares and PPE Financing Capital and loans