Chapter #1: A way of viewing business
Ø What is accounting? To me accounting is the ability to
record numbers which in turn enables a business, company – big or small, to
analyse the data and determine a trend throughout the company. This allows a
business owner/manager of the company to see how successful or unsuccessful the
business is going. It is a chance to keep track! Providing the opportunity to
change, to improve – evidence as such that supports the need to change or
remain the same.
Ø Funny thought: How silly am I?
Reading about various accounting programs I can relate as I have has experience
with Xero and MYOB. I didn’t know what the abbreviation of MYOB stood for (Mind
Your Own Business)?
Ø “Accounting is supposed to help us connect
to reality, to what is actually going on in a firm”! I really believe this
statement is true!! Obviously the purpose of accounting/entering data is to end
up with a model, a representation or simplification of a firm. This model is to
help us see what is – in simple terms working and isn’t working! For example:
When I did enter any money coming in or out of the club I used to allocate the
purchase to a particular account (in MYOB). The accounts were sectioned off
into Assets, Liabilities, Equity, Revenue and Expenses. Say I am entering an
invoice for the purchase of $50 worth of meat for a raffle prize for Friday
Night Raffles. I would put that to the account expenses, and the account may be
named raffle prizes purchased. Because the club had more than one kind of
raffle I would also allocate a job number – which in this case would be Friday
night raffles. On the profit and loss statement – or even just to check out
what was happening on the computer itself I could see if the Friday night
raffles was making money, losing money or even just cutting even. This enables
me to see the reality in the firm. What is going on – is it worth doing the
raffles, should we look at cheaper prizes, should we increase the price in
raffle tickets etc. These are all answers that can be derived from accounting
(a record of what is going on financially).
Ø Confused: As of yet I am struggling
to find any reason/evidence to suggest that accounting would hinder creating
value in business? After all like I said above, through using an accounting
system we are able to see what is going on? This creates all sorts of positive
opportunities such as change, a chance to improve, a chance to prevent going
broke!
Ø My thoughts on the question – is it
important for me to connect to people with the business discipline of
accounting if I want to be successful in a business? I don’t necessarily
believe that is vital in the sense that it is ‘essential’. However I do think
that having an understanding of the basic concepts of accounting as a minimum
does enable a clearer picture – helping us understand why things are the way
they are when looking at the reality of a business.
Ø Question: If an
individual/manager/business owner etc is to have thorough accounting experience
is it necessary to see/use an external accountant? If so why? Is it necessary
to pay for something you know how to do? Are there any legalities involved?
Ø “More than one owner = disputes,
possible problems arise” My thoughts on this are a little mixed. I think that
having more than one owner can have its ups and downs! My experiences have
really only been negative as two people who both want to be the chief
eventually but heads. It can be very confusing for staff and cause the owners
to lose sight of the goal.
Ø “Businesses can be organised as a
trust.” This statement confuses me a little. The place I used to work for had a
committee. The committee was ultimately responsible for all the decision making
of the club. It had 15 members including roles such as the president,
treasurer, secretary, vice president etc. The president was not in charge of a
decision but the committee was as a whole. Is this an example of a trust?
Ø Double – entry accounting = two sides
to a coin! A little tricky to rap my head around but it makes a little sense.
Ø My way of engaging in accounting is
applying this information from the study guide to my own personal accounting
experiences when working with MYOB.
Ø Journal = daily transactions of a
firm/ Ledger = not in date order, and
split into the 5 elements of accounting
Ø My thoughts on an account with debits
and credits balancing. This can be applied to my experience with reconciling an
account in MYOB. When I used to reconcile for example a trading account or
keno, tab, gaming account etc, I used to compare the bank statement with what
was recorded in MYOB. I used to at the top confirm that the opening balance was
of that of the bank statement as well as enter the bank statements closing
balance and then slowly select each transaction (both debit and credits) on
MYOB once I verified that the amount I was selecting was on the bank statement
as well as entered correctly. By doing this eventually down the bottom the out
of balance tab should equal zero. Why you may ask? Because when putting the
opening and closing balance on MYOB for the bank statement, and then selecting
all the appropriate transactions for that period of time the balance should equal
zero – it’s almost like I am checking that what is happening on one side is
happening on the other (one side being the bank: the other side being the MYOB
accounting system). I don’t know if this makes sense but I feel it does to me?
Ø I don’t fully understand why assets =
equity + liabilities. Not just yet
Ø I am starting to understand the 5
elements of accounting more however I am a little stuck on revenue. I may need
to research this further.
Ø Measure of value (financial position)
= assets, liabilities and equity. Why aren’t all 5 elements responsible for
measuring value?
Ø Temporary accounts = revenue and
expenses, they provide the information on profit and loss statements.
Eventually transfer data to equity account. Why do they do this?
Ø At this point of reading the study
guide I feel a little overwhelmed with information and stupid! I feel I need to
look closer at the 5 elements – INDIVIDUALLY!
Ø Assets + Expenses = Equity + Revenue
+ Liabilities
Ø Revenue and expenses = measure of
value over a certain period of time; assets, equity and liabilities measure
value at a certain point of time. I am a little confused by this, not so much
revenue and expenses being a measure of value over a certain period of time.
Study Guide #1 Questions:
1.2. 3 Assets, 3 Liabilities, 3 items
of Equity from my chosen firm – what do these selected items mean to me?
3 ASSETS:
Ø Property, Plant and Equipment – An asset to GCS Limited due to these items providing
future profit for the company
Ø Intangible Assets – At first a little confused. So I had to research the term, and found
that this in regard to GCS could be trademark, copyrights etc. See the link for
further detail: http://www.investopedia.com/terms/i/intangibleasset.asp
Ø Cash and cash equivalents – To me seems like one of the most obvious, most important
assets. I mean without it the company could be in significant trouble. Cash is
responsible for paying expenses and current liabilities.
3 LIABILITIES:
Ø Borrowings –
Also seems like one of the most obvious liability. When you borrow something
you are in debt, you owe someone therefore you have a liability to pay it back.
Ø Deferred tax liabilities – A non-current liability, an obligation by law.
Ø Current Tax liabilities – A current liability, an obligation by law to pay tax etc
by a certain date (now – current)
3
ITEMS OF EQUITY:
Ø Issued Capital
– This confused me also. Researching it further I learnt that an issued capital
“consists of the shares that have been sold to the shareholders against
cash or some other consideration. For example, if a company sold 100,000 shares
which have a face value of $ 1 per share, then the issued share capital of such
a company is $100,000.” Would this be seen as money for the company of GCS?? http://www.readyratios.com/reference/accounting/issued_capital_share_capital.html
Ø Reserves – I
do believe that this is very similar to retained profits, any money that is
reserved from investors, shareholders etc and kept for the financial benefit of
GCS.
Ø Retained profits – Retained earnings. Money that is withheld from shareholders, and for
the financial benefit of GCS.
Bens comment
on Andrea’s blog really helped me understand this question a little better. http://andreadavis21.blogspot.com.au/2014/03/three-assets-liabilities-and-equity.html?showComment=1395491046154
Chapter #3: Introducing
Financial Statements
Comment on wiki comments for study guide chapter #3 http://moodle.cqu.edu.au/mod/wiki/comments.php?pageid=1478
Ø Before even reading this study guide
I am already feeling overwhelmed.
Ø I find it confusing how different
firms are allowed to set their financial statements out differently, and use
different terms – this to me is confusing, I wish they would use the same terms
if they mean the same things
Ø My thoughts on annual reports being a
marketing document – It is definitely a chance to promote, and even exaggerate
certain aspects to make it appear better. Talking about charities or being environmentally
friendly definitely makes readers of the report more interested of the company.
This is how I personally feel as I believe it is important that companies find
a way to give back to both the environment and community.
Ø 4 main statements – Balance sheet,
income statement, statement of changes in equity and cash flow statement
Ø So a balance sheet from my
understanding is a profit and loss sheet for a period of time. My experiences
have been with monthly profit and loss sheets, but usually they are 6 monthly?
Ø Footnotes – I have learnt not to read
all at once as this does confuse me and I am not actually learning it properly.
I am going to try and read them as I go from now on.
Ø So profit = the bottom line = revenue
– expenses
Ø There is no requirement for firms to
disclose most of their expenses. However shouldn’t the investors know?
Ø I really do still struggle understanding
the relationship between shareholders and a company.
Ø Is a cash flow statement similar, if
not the same to a bank statement – money going in and out? Is there another example
of a cash flow statement?
Ø CASH IS KING – running out of cash,
it doesn’t matter how many assets you have if you run out of cash you are in
serious trouble. Do some business owners sell some of their assets to meet ends
meet?
Ø My understanding of accrual
accounting refers to things like electricity bills, phone bills etc – things that
are recorded when they happen rather than when they are paid – this gives
investors a true reading as to what was spent exactly in a month or a certain
time frame.
Ø Equity + liabilities = IOU’s. I don’t
understand why equity is an IOU?
Ø When it comes to shares the success
of a company affects them? Is this true? So if a firm goes broke what happens
to the shares investors have in the company?
Ø Equity value = Present value of
expected future dividends. In other words investing in a share is a gamble?
Ø Looking at the page with the future
dividends of a company from Marks and the dividends was increased by 9 times?
It says that this does not represent the value of the firm. Why is this? Wouldn’t
you think if they increased it by 9 times they were well off?
Ø I keep seeing the term EBITDA
everywhere and I have finally found out what the abbreviation stands for,
except A is amortisation. I do not understand this term?
Ø After reading this chapter I feel a
little less confused about an annual reports financial statement however I do
think I will keep referring back to it to fully wrap my head around it.
