Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Private equity secondary market wikipedia , lookup
Syndicated loan wikipedia , lookup
Conditional budgeting wikipedia , lookup
Systemic risk wikipedia , lookup
Financial economics wikipedia , lookup
Global financial system wikipedia , lookup
Financial literacy wikipedia , lookup
International asset recovery wikipedia , lookup
Mark-to-market accounting wikipedia , lookup
Systemically important financial institution wikipedia , lookup
N Dark CEA Level 1 Accounting Notes StudyIt 1.1 Demonstrate an understanding of the conceptual basis of accounting A majority of these notes were straight from my head, as I’m basically revision. So please don’t expect perfection. Correct me when errors are sighted. I’ll do the rest later. I’ve got to study for Mathematics . How to obtain higher grades in this Standard. Apply your answer, by stating the business/owner and the context of the question. This should be done for every Achievement Standard. An important skill is applying Financial Concepts as well as Financial Elements, this is crucial in obtaining Achievement with Excellence. This cannot be over emphasized. Learn key definitions. View past Exam papers: http://nzqa.govt.nz/ncea/assessment/search.do?query=accounting&view= achievements&level=01 – Click on ‘View all Documents’ in order to view that particular standard. Look at the Assessment Specification in order to get an idea of what to expect this year. http://nzqa.govt.nz/ncea/assessment/search.do?query=Acco&view=achie vements&level=01 Schedules are vital in order to gain insight on what the Markers are seeking. Assessment Reports gives you information based on past years examinations. These are comments from Examiners, who report on what people have done. Assessment reports from 2004-2002 give Assessment Schedules as well. http://nzqa.govt.nz/ncea/assessment/search.do?query=Acco&view=report s&level=01 http://www.tki.org.nz/r/ncea/accountingappendix1_7dec07.pdf Formats of Financial Statements as well as clarifications on other aspects. Purpose of Accounting: To communicate financial information to interested users/parties so they can make informed decisions relating to the business Users of Accounting: Dark Government/IRD – Paying correct amount of GST and other taxes. Employees – To see if their job is secure, or capable of a pay rise. Owner – To see his/her return on investment if the business is profitable Suppliers – To see if the business has the ability to repay their debts. Banks – To see the amount of security they can provide, ability to repay their debts, any other obligations i.e. other loans. Types of Accountants: Cost Accountant - Calculates and controls the costs of producing goods and services. Managements Accountant - Provides financial information from within the business’s operations. Preparing internal budgets etc. Accounting Technician - Helps to record, process and prepare accounts and statements. Financial Accountant - Prepares, analyses and interprets financial reports. Taxation Accountant - Prepares tax returns and provides taxation advice. Auditor - Checking financial statements to ensure they show accuracy and a true and fair view of the entity’s financial results. Types of Ownerships o Soles Proprietor/Trader – A single owner who owns and runs their own business (Though may employ employees). o He/she is not a separate legal entity from the business, therefore has Unlimited Liability. However for accounting purposes, they’re separate from the business. See Accounting Entity Concept. o Advantages – 1) The owners keeps all the profits to himself after being taxed, so can take drawings out from the business whenever he feels. 2) Complete freedom in decision making, as they’re their own boss. 3) Not much legal formalities to comply with, so is faster and more convenient to set up. No auditing required. o Disadvantages – 1) Unlimited Liability, results in Owner’s personal assets being sold i.e. house, car in order to pay back the debts of the business if it gets into financial difficulty. 2) Limited access to finance, as all the finances basically come from the owner, thus is harder to expand beyond the Owner’s limited means. 3) If the Owner is sick/dies, then the business may seize to operate. 4) Not much people to discuss business matters with. o Source of Finance – 1) Owner’s own capital 2) Personal Loan from family or Banks. o Partnership – A type of ownership consisting of 2-25 members. o They are not a separate legal entity from the business, thus they have Unlimited Liability. However for accounting purposes, they’re a separate entity from the business. o Advantages 1) More access to finance, as members contribute a proportion of the business’s finance. Sleeping/Silent Partners are Dark those that don’t take part to the day to day operating of the business, but still contribute, via cash. 2) If losses occur, losses will be shared, based on agreements or equally. 3) Specialisation (I think this may be too economic – Got marked wrong) 4) If a partner is sick/absent then the business will still be able to function and operate. o Disadvantages 1) Unlimited Liability exists in the business. Failure to repay debts results in Joint and Several Liability. 2) Conflicts can arise as partners may feel as though the business should operate in a different manner. 3) Profits will be shared among partners, if there were no agreements beforehand. o Source of Finance – 1) Each member contributes; whether silent or not. 2) Loans from financial institutions such as Banks. o Company – A type of ownership that is a legal separate entity from its Shareholders who are the owners. Must have a name registered with Ltd. (A signal to suppliers.) o Advantages – 1) Has the ability to issue unlimited shares/debentures to the general public (if listed) in the Stock Exchange, therefore can accumulate large sums of capital. 2) Limited Liability means that debts will not extend to shareholder’s (owners) person assets, because they are a separate legal entity, only their amount invested (shares) in the company will be used. o Disadvantages – 1) A lot of legal formalities that have to be followed, such as Auditing 2) Shareholders get no say in the normal day-to-day operating of the business. o Source of Finance – Debentures, issuing shares via Stock Exchange, loans from financial institutions. o Community Organisation – Societies or clubs. Can be incorporated, if there are 15 or more members. o Advantages – If the business is incorporated (Inc.) they will have limited liability. o Disadvantages – Unlimited Liability if unincorporated. Can be a difficult task raising finance. o Source of Finance – Subscriptions from members, donations, legacies, sponsors etc. o …. And at Level 1, do we do Co-operatives? Financial Statements Income Statement – To calculate the profit/loss of the year by showing income and expenses. Statement of Accounting Policies – To outline the concepts and assumptions used in preparing the Financial Statements and how financial elements have been followed. (See Appendix, for Statement) Balance Sheet – To show the financial position of an entity at a particular point in time, by showing Assets less liabilities and Equity. Dark Statement of Cash Flows – To show the movements of cash receipts and payments. And also the changes in Bank Balances. Limitations to Statements – Estimates (Depreciation and some Intangible Assets), Non-monetary things like location, customer base or market share, economic situation are not included. Financial Statements uses Historical Cost, which may not end up being relevant to the end user or may not accurately reflect the business. Financial Elements Assets – Future economic benefits controlled by the entity that resulted from a past transaction. E.g. Property, Plant and Equipment, Inventory, Bank, Petty Cash, Accrued Income, Accounts Receivable, Prepayments, Goodwill, Shares, Term Deposit. Liabilities – Future sacrifices of assets that the entity is presently obliged to make that resulted from a past transaction. E.g. Bank (Overdraft), Loan, Mortgage, Income in Advance, Accounts Payable, Income – An increase in assets or decrease in liabilities that results in an increase in Equity, but not through the owner’s contributions (Capitlal). E.g. Sales, Fees, Interest Received Expenses – A decrease in assets or increase in liabilities that results in a decrease in Equity, but not through Drawings. E.g. Interest, Wages, Commission, Advertising etc. Equity – The residual value of assets less liabilities. Capital + Revenue Expenditure Capital Expenditure – Purchasing Non-Current Assets that will keep beyond the next accounting period. I.e. Property, Plant and Equipment. Includes costs such as upgrading, or getting the Non-Current ready for use. Does not affect the Income Statement, only Balance Sheet. Payments include paying off mortgage, loans etc. Revenue Expenditure – Payments spent on maintaining an asset so it can operate i.e. Petrol, rent. – Day to day expenses. Does not affect the Balance Sheet, only Income Statement. Depreciation ( STRAIGHT-LINE DEPRECIATION) The systematic allocation of historical cost less residual value over its estimated useful life. HISTORICAL COST – RESIDUAL ESTIMATED USEFUL LIFE Why use the Straight-Line Depreciation method? Because it better reflects the consumption of future economic benefits of an asset over it’s estimated useful life. Depreciation on (Name Property, Plant or Equipment) is a decrease in future economic benefits by decreasing the (Name Property, Plant or Equipment). The depreciation on (Name Property, Plant or Equipment) decreases Net Profit, which decreases Equity, and is not drawings from (owner) Conceptual Accounting (These are notes from my classroom) Dark Accounting Entity – Financial transactions of a business are kept separate and distinct from personal financial transactions of the owner, for accounting purposes. E.g. Drawings Going Concern – Financial reports are prepared on the assumption that the business is expected to continue in the foreseeable future. Period Reporting – The continuing business life is divided into nominated time periods in order to measure the entity’s financial performance, financial position and cash flow on a regular basis, usually one year. E.g.: Income Statement for the year ended 31st March 2009. Accrual Basis – The effects of transactions and other events are recognized to when they occur and are reported in the financial statements to which they relate. E.g.: Accounts Payable, Receivable, Prepayments, Accrued Expenses, Accrued Income, Income in Advance, Depreciation – BALANCE DAY ADJUSTMENTS Monetary Measurement – All transactions are recorded in a common dollar unit such as the $NZ Dollar. To allow for accuracy and consistency. Historical Cost – Transactions are recorded at their original amount to purchase or payable. SOME EXAMPLES OF APPLIED CONCEPTS AND ELEMENTS NCEA SCHEDULES The financial affairs of the members of the Aronui Marae are kept separate to the financial affairs of the Aronui Marae. Eg, the amount of insurance prepaid reduces the insurance expense for the current period in the Income statement, OR is reported as a (current) asset on balance day in the Balance Sheet at the end of the period, OR is Reported in the period it relates. Vehicle / Motor Vehicle is recorded / written / shown at its original cost / purchase cost $30 000. The life of Aronui Marae is divided into nominated periods so that financial statements can be prepared to measure performance / position to provide timely information for marae members for decision making and comparisons. Depreciation on a (delivery) van is a decrease in economic benefits in the form of a decrease / depletion of the asset (delivery) van, and decreases equity (by less profit / increased expenses OR is not owner’s drawings) Increased equity due to increase in car park / rent income / revenue / fees Requires Increase in equity and car park/rent income Tiny Tots can use the display cabinet / Tiny Tots can use the cabinet so no one else can / Tiny Tots restricts others from using display cabinet. The display cabinet is used to display the inventory in order to make sales / earn income. interest received increases equity / accumulated fund by increasing net surplus / profit from an increase Dark in the (organisation / marae) bank account asset (but not from members’ contributions). the loan was raised by Aronui Marae in the past To assess Aronui Marae’s (accept Marae’s) ability to repay a loan / security for the loan / meet their weekly repayments Magazine sales for cash increases equity by more profit and increases the asset bank (and are not from the owner). The donation increases the accumulated fund / equity (by increasing net surplus / profit)/ from (because of) an increase in the club’s bank account (but not from members’ contributions). The barbecue is depreciated to recognise use of the asset each year you have it / or the barbecue is depreciated to recognise consumption / use of the future economic benefit of the barbecue. The shop fittings (will provide future economic benefit as they) display the inventory /goods / books / magazines etc and attract customers (who buy them) and Books 4 U /this earns revenue (from the sale). The clubrooms are the result of a past transaction (a transaction such as payment for building would have been made and recorded) they are under the control of the club – only the club can benefit, and will lead to an increase in future benefit as members continue to make use of the building. (Not can be sold in the future.) Shop electricity is an expense because it decreases the asset bank (when paid for),and decreases equity by less profit, and is not drawings. The barbecue repairs decrease the accumulated fund from a decrease in the club’s bank account. the insurance expense is reduced (by $1 200) in the statement of financial performance as some of it belongs to next period, OR so we only have the expense that relates to this period reported in this period, OR the $1 200 of prepaid insurance will be reported as an expense in the next period as it belongs to that period The prepayment (of $1 200) is reported as a (current) asset in the statement of financial position / on balance day (as it represents a future benefit of insurance cover to be received). Sam records the cost of magazines taken home / for personal use as drawings to keep his personal expenses separate from his business expenses. because it is too difficult to put a dollar value on the talents of players. Only Whatipu Lodge can use the diesel generator to generate power for the use of its guests. The generator provides future economic benefit as it provides electricity for guests who are paying to stay at the lodge and want some electricity or the generator helps Whatipu Lodge must repay the loan or Whatipu Lodge owes money for the loan. Whatipu Lodge will need to use some of its money in the future to repay the loan. Dark Repairs to the generator is an expense because it is a reduction in equity other than drawings The generators are recorded in New Zealand currency in the accounting records. Ali will record the lodge supplies as a business expense and her family groceries as drawings to keep the business expenses/transactions separate from her personal expenses/transactions.