recording financial information for users: BUSINESS ACCOUNTING recording financial information for users: managers owners creditors bank managers investors Inland Revenue Accountant Yearly Financial Reports Cost/Financial/ Management/Chartered Bookkeeper Day to Day records Account Technician Sets up systems Auditor Independent Accountants Checks Accuracy of Final Reports DECISION MAKING Expand business, buy more assets, employ more workers relevant - timely provide future + past reliable - factual+verifiable+neutral understandable - easily understood comparable - period to period TUAKAU COLLEGE Keril Simpson

5 (+1) Key Elements to Accounting are:

Accounting: Notes for Teachers ASSETS Introduction to Accounting uses of funds Able to be measured in financial + monetary ($NZ) terms $800 Machinery, $500,000 Land, $4,000 Bank, $12,000 Accounts Receivable (PAST, PRESENT, FUTURE) PAST transaction – (be the result of a previous exchange) Debtors (customers) purchased pizzas/petrol/repairs on credit last month Logan’s Bakery purchased the $30,000 delivery van last month (PAST transaction) PRESENT control - (able to deny others use /claim legal ownership) Logan’s Bakery can take legal action against customers that do not repay their debts. Logan’s Bakery can deny others the right to drive the van and is registered as having legal ownership (PRESENT transaction) FUTURE economic benefits - The Van will be used to attract orders + deliver pizza’s to customers generating earnings/revenue/profits for Logan’s Bakery for many accounting periods When the debtors (accounts receivable) pay their accounts, Logan’s Bakery Bank account will increase enabling the business to purchase more ingredients to sell more pizzas. (FUTURE economic benefits) Academic PowerPoint

PROPERTY PLANT EQUIPMENT land motor vehicles INTANGIBLE goodwill ASSETS (uses of funds) are classified as: money in bank accounts or in cash withdrawals deposits stock business resells quickly Madbutcher = meat Hannahs = shoes CURRENT Cash / can be converted quickly into cash within the current accounting period -1 year (order of liquidity) Inventory Cash in Bank Accounts Receivable Are debtors/customers owe $ to the business have 30 days to pay up http://www.investopedia.com/video/play/accounts-receivable/ shares in other companies + term deposits INVESTMENTS Shares in Watties PROPERTY PLANT EQUIPMENT land motor vehicles INTANGIBLE goodwill patents NON-CURRENT not intended for resale will generate production over many accounting periods (IPI) used to produce/generate sales of the good or service has no physical presence www.investopedia.com/video/play/goodwill/ http://www.investopedia.com/video/play/what-are-intangible-assets/

Accounting: Notes for Teachers Introduction to Accounting LIABILITIES Sources of funds Debts Outside equity Able to be measured in monetary ($) terms $800 loan , $5000 Bank Overdraft, $30,000 mortgage, $6,000 Accounts Payable must be repaid 20/4/2028 (PAST, PRESENT, FUTURE) PAST transaction The Bank overdraft was obtained/arranged/organized previously by Logan’s Bakery Logan’s Bakery purchased ingredient on credit from our suppliers (account payable) last month PRESENT obligation to repay The lender, bank, creditor of loan/mortgage/account will expect to be repaid on due date this is a legal requirement of the contract agreement Logan’s Bakery signed. FUTURE outflow of resources When the loans/ suppliers are repaid Logan’s Bakery will not be able to spend on other items, and there will be a decrease in asset bank Academic PowerPoint

(sources of funds from outside the business) LIABILITIES (sources of funds from outside the business) are classified as: CURRENT LIABILITIES debts the business must repay within the period (generally financial year) Bank OD Creditors Pay up NON-CURRENT LIABILITIES debts the business must repay over next accounting period ( 1 year) Hire Purchase mortgage due 2025

Accounting: Notes for Teachers Introduction to Accounting INCOME (inflows of $/REVENUE) Sources of Income Business generates in order to offset (pay) costs + Asset BANK increases Income increases ☞ Net Profit increases ☞ Increases Equity Takings Charges Fees Sales commission received discount received rent received interest received IS NOT CAPITAL INVESTED BY OWNER Fees for a doctor (service) Takings for a concert Sales for a local supermarket (trading) Discount received from suppliers Commissions received by a real estate agent Interest Received from Bank Charges received by a garage Rent received from tenants Academic PowerPoint

Accounting: Notes for Teachers Introduction to Accounting EXPENSES Expenses are ($ outflows/consumption): costs/losses incurred by the business in order to earn revenue DISTRIBUTION EXPENSES(or you’ll be given the name for a service co.) advertising salesmen wages, repairs to delivery van, storage, shop) costs ADMINISTRATION EXPENSES office wages, insurance, general expenses, accountants charges, bad debts, discounts allowed FINANCIAL COSTS Interest paid on loans, overdrafts, mortgages DECREASE ASSET BANK DECREASE NET PROFIT IS NOT DRAWINGS TAKEN BY OWNER Academic PowerPoint

Accounting: Notes for Teachers Introduction to Accounting Profit GROSS PROFIT Sales – cost goods = enough to cover DAF Business REVENUES Business CosTs COST OF GOODS + DISTRIBUTION: Advertising Salesmen’s wages Delivery, Petrol ADMINISTRATION: Internet Power Insurance Rent Office expenses General expenses FINANCIAL: Interest on bank OD Sales Or Takings, Charges, Fees + other revenues Commission received Discount received Rent received Interest received NET PROFIT GP + OR - DAF = cover drawings give a return to owner Academic PowerPoint

Accounting: Notes for Teachers Introduction to Accounting DRAWINGS Drawings are those items the owner withdraws from the business for his/her personal use. DRAWINGS can include cash - inventory - other assets eg computers, motor vehicle, furniture etc Drawings decreases equity – less investment – less capital Academic PowerPoint

Accounting: Notes for Teachers Introduction to Accounting EQUITY ASSETS - LIABILITIES (debts) = RESIDUAL VALUE (source of funds, the owner's claim against business assets) ASSETS $4000.00 LIABILITIES $2000.00 EQUITY ? ASSETS $10000.00 LIABILITIES $ 7000.00 EQUITY ? ASSETS $280,000.00 LIABILITIES $ 40000.00 EQUITY ? MOVEMENTS IN EQUITY for Tuakau Repairs AS AT 31/03/2017 CAPITAL beginning of accounting period (the initial $ invested/contributed by the owner) PLUS NET PROFIT (revenue - costs) the business makes at the end of each accounting period LESS Drawings ($ or assets taken for personal use) Capital 1/03/2016 $50,000 PLUS Additional Capital $60,000 ? PLUS Net Profit $90,000 LESS Drawings $40,000 Capital 31/03/2017 MOVEMENTS IN EQUITY for Tuakau Takeaways AS AT today's date Capital at last year $50,000, additional capital invested by owner $60,000 van + $10,000, cash + food taken by owner $30,000, Net Profit for Year was $90,000 Academic PowerPoint

Accounting: Notes for Teachers Introduction to Accounting 5 (+1) KEy ELEmEnts to Accounting are: Expenses selling administration financial Income income from operating current non-current Investments PPE intangible Assets Liabilities Equity capital $ invested by owner stock or cash taken by owner ( + Drawings) current non-current Fees Sales wages advertising bad debts interest paid Mortgage Bank OD Creditors Pay up L + I + Eq A + Ex (+ D) = Academic PowerPoint

Accounting: Notes for Teachers Introduction to Accounting Accounting Equation The Basis of Recording Financial Transactions Uses of funds = Sources of Funds Where $ spent = Where $ from A = L + E A + Ex (+ D) = L + I + Eq wages advertising bad debts interest paid Mortgage Bank OD Creditors Pay up fees sales Academic PowerPoint