Financial Accounting and Reports

The material in this communication may be subject to copyright under the Act. Any further reproduction or communication of this material by you may be the subject of copyright protection under the Act. Do not remove this notice. This page deliberately left blank. USFP Other Transactions and Financial Reports Accounting A Course Outline and Timeframe Topic Time Week Overview of Accounting A What is Accounting? Types of Accounting 1 lesson 1 TOPIC ONE: Basic Accounting Concepts 1. Transactions defined 2. Accounting/Business Entity Principle 3. Types of Businesses 4. The Accounting Elements 5. The Accounting Equation 6. Effect of Transactions on the Accounting Equation 7. Transaction Analysis (part one) 8. The Expanded Accounting Equation 9. Forms of Business Ownership 2 weeks 2–3 3 ½ weeks 4–7 TOPIC THREE: Other Accounting Transactions 1. A, L and OE at Commencement Date 2. Purchases Returns and Allowances 3. Sales Returns and Allowances 4. Withdrawals by the Owner 5. Discount Revenue and Expense 6. Interest Charge on Overdue Accounts 7. Bad Debts 2 weeks 8–9 TOPIC FOUR: Financial Accounting Reports 1. Internal and External Stakeholders 2. Profit and Loss Statement – classified 3. Balance Sheet – classified 4. The Accounting Period and Profit Determination 5. Cash versus Accrual Accounting 6. Balance Day Adjustments 7. Depreciation 8. Bad and Doubtful Debts 9. Comprehensive Financial Reports 10. Statement of Cash Flows – classified 7 weeks 10 – 16 TOPIC TWO: Double Entry Accounting 1. The Accounting System 2. Double Entry Accounting 3. Accounts and Ledgers 4. Nature of Accounting Elements 5. Transaction Analysis (part two) 6. Posting to the Ledger and Cross Referencing 7. Rules for Balancing Accounts 8. Nature and Purpose of a Trial Balance 9. Columnar Ledgers Note: please see Study Smart for the Assessment grid for this subject. You are learning from a Taylors College Study Guide 1 Accounting A Other Transactions and Financial Reports USFP Learning Outcomes Through the study of Accounting A, students will develop… knowledge and understanding about: K1. K2. the nature and functions of financial accounting recording processes and the different needs that various businesses and stakeholders have for accounting services K3. the nature, components and structure of financial statements and reports K4. the use of accounting principles U1. the nature of accounting and its use in business and society U2. the language and terminology used by accountants and the skills to: S1. S2. S3. S4. S5. apply basic accounting methods and procedures appropriately correctly record and classify accounting data to prepare appropriate financial reports apply mathematical concepts appropriately in business situations communicate accounting information ideas using relevant terminology and concepts in appropriate forms (including ICT skills) work independently or with others to achieve goals in set time frames Guide to Study Guide Activities (SGAs) Go to Study Smart for other resources and exercises Language Across the Curriculum (LAC) – practise your reading, writing, speaking, listening Work together – class discussion, in pairs, in groups Exam style practice/hand in task 2 You are learning from a Taylors College Study Guide USFP Other Transactions and Financial Reports Accounting A Directive Terms Subject outcomes, objectives and examination questions have key words that state what students are expected to be able to do. Using the glossary below will help you understand what is expected in responses to examinations and assessment tasks. Term Meaning Account (for) State reasons for; give an example to support your answer Analyse Identify components and the relationship between them; relate effects. Identify reasons for, consequences of Calculate Work out the amount/number from given facts, figures or information Clarify Make clear or simple Classify Arrange or include in groups/categories Comment (on) Remark on; make an observation about Compare/ Contrast Show how things are similar or different Define State the meaning of Describe Provide characteristics and features without explanation or judgement Differentiate/ Distinguish Show a difference between two things (do not simply define one, & then define the other) Identify issues and provide points for and/or against, reaching a conclusion Discuss Evaluate Make a judgement; give your opinion (with reasons) Explain Relate cause and effect; make the relationships clear; provide why and/or how Identify/State Recognise and name/list Interpret Draw meaning from; explain the meaning of something usually giving your own judgement Justify Support an argument or conclusion Outline State in general terms; indicate the main features of Propose Put forward (for example a point of view, idea, argument, suggestion) for consideration or action Recommend Provide a suggestion (or suggestions) with reasons Suggest Propose or offer an idea (or ideas) for consideration Summarise State the main points SOURCE: Adapted from NESA Glossary of Key Words https://educationstandards.nsw.edu.au/wps/portal/nesa/11-12/hsc/hsc-student-guide/glossarykeywords You are learning from a Taylors College Study Guide 3 Accounting A Other Transactions and Financial Reports USFP Other Key Directive Terms The following terms may also be used in practice questions, assessment tasks and examinations to direct you in your written responses: Directive Term What…..? Why….? How to/might/would/can….? Why are/is…..? Why might…..? How….? To what extent? Meaning describe explain – implications, relationships, analysis, cause& effect explain – cause & effect evaluate, make a judgement evaluate Financial Accounting – Overview of Accounting A Accounting is an information and communication system that provides financial information to interested parties for decision making purposes. Traditionally, accounting is divided into two fields – financial accounting and management accounting. Both fields deal with the economic activities of a business and communicate the financial results of these activities to interested parties. Financial Accounting is: • Recording, classifying and summarising every day transactions (Bookkeeping) • Preparation of general purpose financial reports and statements (Profit & Loss Statement, Balance Sheet, Statement of Cash Flows) mainly for external users • Introduced in Accounting A Management Accounting (or Managerial Accounting) is: • Preparation of information required for effective and efficient management of business resources (information for planning, organising, directing, controlling and evaluating business activities and operations) • Providing specific purpose information (financial and non-financial) to internal decision makers (managers at all levels) • Introduced in Accounting B Main features of Financial Accounting (OR what makes financial accounting different to management accounting!): Main Users Types & frequency of reports Purpose of reports Content of Reports Auditing (verification process) Both internal (managers, heads of departments/divisions, supervisors, team leaders and workers) and external (creditors, financial institutions, government agencies etc.) stakeholders Classified Financial Statements e.g. Profit and Loss, Balance Sheet, Cash Flow – prepared quarterly, 6 monthly, annually General purpose information for all users Summarised, aggregated information from double entry accounting – prepared according to generally accepted accounting principles (GAAPs) Annual independent audit by external auditor Accounting A introduces students to some of the key Financial Accounting tools and techniques used by a business to measure, record, summarise and report on its financial resources and activities. Study Guide 2 introduces Other Transactions and Financial Reports. 4 You are learning from a Taylors College Study Guide USFP Other Transactions and Financial Reports Accounting A Topic Three: Other Accounting Transactions Note that ledger examples are in columnar format in this section. Please see Study Guide 1 for more detail on columnar ledgers. Assets and Liabilities at Commencement Date（公司开业日） At the commencement (start) of a business, the owner may contribute various Assets and Liabilities. When this occurs, the Capital account needs to be adjusted to show the value of the owner’s contribution. For example, assume that on 1 April 20X9 Terry Crown started his business, Crown and Co with the following assets and liabilities: Cash at Bank A Creditor – G Freeborn L Debtor – M Martin A Motor Vehicle A Mortgage L Computer A Furniture A $ 15 000 920 890 18 000 25 000 2 500 10 000 If we calculate Owner’s Equity (Capital) for Crown and Co from the information provided above, we would see the following: OWNER’S EQUITY 20 470 = = ASSETS – 46 390 LIABILITIES 25 920 Using these amounts, we can prepare an analysis chart for Crown and Co. Date Type of Account ↑/↓ Cash at Bank A ↑ 15 000 DR Furniture A ↑ 10 000 DR Computer A ↑ 2 500 DR Debtor – M Martin A ↑ 890 DR Motor Vehicle A ↑ 18 000 DR Mortgage L ↑ 25 000 CR Creditor – G Freeborn L ↑ 920 CR OE ↑ 20 470 CR Accounts Affected Amount $ DR/CR 20X9 April 1 Capital – T Crown The next step is to record these amounts in the ledger for Crown and Co. We can simply use the words “Sundry Assets and Liabilities” in the particulars column of the Capital account rather than listing each of the assets and liabilities contributed by the owner You are learning from a Taylors College Study Guide 5 Accounting A Other Transactions and Financial Reports USFP individually. The assets and liabilities are cross-referenced to the Capital account as they represent the items the owner is contributing to the business. If we open the columnar ledger accounts from the transaction analysis chart on the previous page, we would record the following. Remember we increase Assets by debiting and increase Liabilities and Owner’s Equity by crediting. Cash at Bank Date Particulars 20X9 April 1 Capital – T Crown DR CR 15 000 Furniture DR Date Particulars 20X9 April 1 Capital – T Crown Balance 15 000 CR 10 000 Balance 10 000 DR/CR DR DR/CR DR Computer Date Particulars 20X9 April 1 Capital – T Crown Date Particulars 20X9 April 1 Capital – T Crown Date Particulars 20X9 April 1 Capital – T Crown DR CR 2 500 Debtor – M Martin DR 2 500 CR 890 Motor Vehicle DR Date Particulars 20X9 April 1 Capital – T Crown CR CR Creditor – G Freeborn Particulars DR CR 920 Capital – T Crown DR Date Particulars 20X9 April 1 Sundry Assets & Liabilities 6 Balance 18 000 25 000 Date 20X9 April 1 Capital – T Crown Balance 890 18 000 Mortgage DR Balance CR 20 470 Balance 25 000 Balance 920 Balance 20 470 DR/CR DR DR/CR DR DR/CR DR DR/CR CR DR/CR CR DR/CR CR You are learning from a Taylors College Study Guide USFP Other Transactions and Financial Reports Accounting A (代表开业这天的总的投资的 缩写) SOURCE: Duncan S. & Battistutta S. (1998). Accounting for Non-Accountants. South Melbourne: Cengage Learning. Purchases Returns（进货后找卖家退货） and Allowances（退 差价）退货账户 Sometimes stock bought by the business is returned to the supplier because it is faulty, damaged or the wrong item. When this happens you must use a new account to record this transaction called “Purchases Returns and Allowances”. You cannot put Purchases Returns in the Purchases account. Note that Purchases Returns and Allowances is a negative expense account (a contra account) which has the effect of reducing overall purchases. As it is a negative expense account it has a CREDIT nature. Example: On 2 February 20X1 we bought stock on credit from M Webster for $5 500. The accounts affected would be as follows: Purchases Creditor – M Webster E L   DR CR 5 500 5 500 Our ledger would appear like so: Date 20X1 Feb 2 Date 20X1 Feb 2 Particulars Purchases DR Creditor – M Webster CR Balance 5 500 Creditor – M Webster Particulars DR Purchases 5 500 CR Balance 5 500 5 500 DR/CR DR DR/CR CR Later that month on 12 February, we returned damaged goods bought on credit（赊账） worth $250. The accounts affected would be as follows: Creditor – M Webster Purchases Returns and Allowances L -E   DR CR 250 250 Our ledger would now appear like so: Date 20X1 Feb 12 Purchases Returns and Allowances Particulars DR CR Creditor – M Webster 250 Balance 250 DR/CR CR Creditor – M Webster You are learning from a Taylors College Study Guide 7 Accounting A Other Transactions and Financial Reports Date Particulars 20X1 Feb 2 Purchases 12 Purchases Returns and Allowances DR CR USFP Balance 5 500 250 DR/CR 5 500 CR 5 250 CR Example: On March 2 we bought inventory using cash for $500. The accounts affected would be as follows: Purchases Cash at Bank E A   DR CR 500 500 Our ledger would appear like so: Purchases DR Date Particulars 20X1 Mar 2 Cash at Bank Date Particulars 20X1 Mar 2 Purchases CR Balance 500 Cash at Bank DR DR/CR 500 CR Balance 500 DR DR/CR 500 CR Later that month on 8 March, we returned damaged goods bought with cash worth $200. The accounts affected would be as follows: Cash at Bank Purchases Returns and Allowances A -E   DR CR 200 200 Our ledger would now appear like so: Date 20X1 Mar 8 Date 20X1 Mar 2 8 8 Purchases Returns and Allowances Particulars DR CR Cash at Bank Particulars Purchases Purchases Returns and Allowances 200 Cash at Bank DR CR 500 200 Balance 200 Balance DR/CR CR DR/CR 500 CR 300 CR You are learning from a Taylors College Study Guide USFP Other Transactions and Financial Reports Accounting A Note: When we return goods which were bought ON CREDIT, always adjust the relevant creditor/accounts payable account along with purchases returns and allowances. When we return goods which were bought with CASH, simply adjust cash along with purchases returns and allowances account to reflect the refund received. You are learning from a Taylors College Study Guide 9 Accounting A Other Transactions and Financial Reports USFP Sales Returns and Allowances（顾客退货） Sometimes our business may sell faulty, damaged or the incorrect goods to customers. When this occurs they will return the faulty stock to our store and we must use a new account called “Sales Returns and Allowances”. You cannot put Sales Returns in the Sales account. Note that Sales Returns and Allowances is a negative revenue account (a contra account) which has the effect of reducing overall sales. As it is a negative revenue account it has a DEBIT nature. Example: On 2 February 20X1, we sold goods on credit to A. Gray, $5 600. The accounts affected would be as follows: Debtor – A Gray Sales A R  …