AUSTRALIAN NATIONAL UNIVERSITY
SAMPLE
2
BASICS ... 3
BUSINESS ORGANISATIONS ... 4
RECORD KEEPING ... 5
DOUBLE ENTRY BOOKKEEPING ... 8
JOURNAL ENTRIES ... 8
REVENUE and EXPENSE RECOGNITION ... 9
ACCRUAL ACCOUNTING ADJUSTMENTS ... 10
INVENTORY (CURRENT ASSETS) ... 14
NON- CURRENT ASSETS ... 16
INCOME STATEMENTS (FINANCIAL PERFORMANCE) ... 19
BALANCE SHEET (FINANCIAL POSITION) ... 22
STATEMENT OF CASH FLOWS ... 27
INTERNAL CONTROL ... 32
The Framework for the Preparation and Presentation of Financial statements by the Australian Accounting Standards Board (AASB) ... 35
FINANCIAL STATEMENT ANALYSIS ... 41
MANAGEMENT ACCOUNTING ... 49
SAMPLE
19
~ Provides information on an organisation’s incurred earnings and revenue (profitability) for a period of time.
REVENUE – EXPENSES = NET PROFIT/LOSS
Assets = Liabilities + (Share Capital + Opening Retained Profits + Revenue – Expenses – Dividends)
Increases in company’s wealth arising from the provision of services or sale of goods and services to customers. Only recognised when the good or service has been delivered.
Can arise from:
- Payment of cash for goods and services - Promises to pay cash (accounts receivable)
- Payment with other forms of wealth (other assets, forgiving debt) - Interest and dividends received (from loan of funds or investment)
- DOES NOT INCLUDE DEPOSITS FOR GOODS TO BE PROVIDED IN THE FUTURE Effectively, revenue increases Shareholder’s equity, decreases liabilities, increase assets
Decreases in the company’s wealth that are incurred in order to earn revenue. Recognised when the good/service is provided.
Can arise from:
- Cost of goods sold
- Operating costs (labour, electricity, commissions, rent) - Depreciation of capital
Effectively, expenses decreases Shareholder’s equity, increases liabilities, decrease assets
Net inflow of wealth to the company during the period.
RETAINED PROFITS = Retained Profits from previous period + Past net profits – (Dividends declared) DIVIDENDS ARE NOT AN EXPENSE
SAMPLE
22
~ Shows financial position, claims, resources and obligations at a point in time
ASSETS = LIABILITIES + SHAREHOLDER’S EQUITY
Resources bringing future economic benefits that are controlled by an organisation as a result of past transaction or events. Their value must be reliably measurable in monetary terms.
Includes:
- Cash: in bank or through purchases
- Account Receivable: from credit purchases - debtors - Inventory, vehicle
- Property (land, buildings), plant and equipment (non - current) - Accumulated depreciation (always negative value)
- Prepayments – amount paid, benefit yet to be received
- Intangible Assets – (noncurrent) – patents, copyright, trademarks, goodwill (Market value – based on estimates and expectations - less net book value – historical cost less depreciation)
1. CURRENT ASSETS are listed in the chronological order of liquidity (i.e. by how quickly the entity can convert the asset to cash): used, sold or collected within one year
2. NON-CURRENT ASSETS: used, sold or collected in over a year’s time (equipment, accumulated depreciation) Present obligation (to another entity) – arising from past events – for which a future sacrifice (of economic benefits) must be made.
Includes:
- Accounts payable: amount owed to suppliers – creditor
- Wages payable (accrued wages), Income tax payable, Interest repayments, dividends payable - Accrued expenses, unearned revenue (advance payment for service)
- Provision for employee entitlements: holiday leave, superannuation - Derivative financial instruments
- Long term loans: not repayable within a year - Bank Overdrafts (amount owed to banks)
1. CURRENT LIABILITIES – due to be paid/discharged within one year
2. NON-CURRENT LIABILITIES – due in more than one year (mortgages, long term tax estimates, special loans)
SAMPLE
24 Horizontal Format (Liabilities and Equity below assets for Vertical format)
ASSETS $ $ LIABILITIES $ $
Current Assets
Values Subtotal
Current Liabilities
Values Subtotal
Non-current
Assets Values Subtotal
Non-current Liabilities
Values Subtotal
Total Assets Grand Total Total Liabilities Total
Net Assets Net Value
SHAREHOLDER’S EQUITY
Values Total
Total Grand Total
Comparative: Often the values for the beginning and end of an accounting period are placed side by side to show changes
COMPANY NAME Balance Sheet
At [Given Date]
SAMPLE
29 Cash flows from operating activities
Cash receipts from customers:
o Closing balance = Opening balance + Sales – Cash Received – Bad debt write down
o Closing balance = opening balance – Bad debt write down + bad debt expense
Cash paid to suppliers:
o Closing Inventory = Opening Inventory + Purchases – COGS
o Closing Trade Creditors = Opening Trade Creditors – Payments to suppliers + purchases
Cash paid to other suppliers (services) and employees:
o Closing Payable balance = Opening Payable balance - Cash paid + Expense o Closing Prepaid balance = Opening Prepaid balance + Cash paid - Expense
NOTE: bad debt expense and depreciation expense have no effect on cash flows as they are non-cash ACCOUNTS RECEIVABLE
Opening Balance (B.S) Bad Debt Write down Sales (Y.S) Cash Received Closing Balance (B.S)
TRADE CREDITORS
Opening Balance (B.S)
Cash Purchases
Closing Balance (B.S) INVENTORY
Opening Balance (B.S) COGS (Y.S) Purchases
Closing Balance (B.S)
PREPAID EXPENSE Opening Balance (B.S)
Cash Expense (Y.S)
Closing Balance (B.S) PAYABLE EXPENSE
Opening Balance (B.S)
Cash Expense (Y.S)
Closing Balance (B.S)
SAMPLE
44
PRICE – TO – EARNINGS RATIO – P/E:
Current Market Price Per Share EPS
Compares the present performance with market’s expectation of future performance (given by market price); difficult to interpret over time (inverse to a return rate)
- High P/E shows greater future performance than its present level; popular company with good share prices - Low P/E ratio suggest lower returns
DIVIDEND PAYOUT RATIO:
Annual Dividends Declared EPS
Measure of the portion of earnings paid to shareholders
- Stable ratio suggests company has a policy of paying dividends based on profits
- Variable ratio suggests factors other than profit are important in determining dividends declared - 100 – Ratio = Retention rate: High rate suggests higher confidence in future growth of company
Activity (turnover) ratios – measuring management efficiency TOTAL ASSET TURNOVER:
Sales Total Assets
Indicates company’s dollar sales volume relative to its size. Used together with profit/margin ratios (moves in opposite direction)
- High turnover – low margins (low pricing strategy for high volume of sales)
- Low turnover – high margins (high pricing strategy and making more on each unit of sale)
SAMPLE
1 Liabilities representing amounts owed to
short-term trade creditors.
Amounts owing by debtors (customers), usually arising from sales of goods and services on credit.
A resource that is controlled by an entity as a result of past events, and from which future economic benefits are expected
A negative bank statement with the figures in a company’s “cash at bank” ledger account
The process of recording, classifying and summarising transactions in the books of accounts.
The recognition of an expenditure that may benefit a future period as an asset rather than as an expense of the period in which it occurred.
The amount at which the asset is recorded in the accounting records at a particular time.
Inflow (receipts) or outflows (disbursements) over a period.
Accounts established to accumulate deductions from assets, liabilities or equity
Liabilities that are dependent on the occurrence of a particular event that has not yet happened.
A general ledger account for which there is detailed analysis provided in the subsidiary ledger
Those which are heavily influenced by management
The cash/cash-equivalent value sacrificed for goods and services that are expect to bring current/future benefit to an
organisation
Items or activities to which costs are assigned – product, department, process or customer.
An entity to whom one owes money
An entity by which money is owed
The cost associated with different ways an organisation may achieve the same
outcome. It is the amount by which cost differs between two or more alternatives.
Costs which can be traced to a cost object in a convenient and cost-effective way.
Consumptions or losses of future economic benefits in the form of reductions in assets or increases in liabilities and decrease in equity.
