1. Go to the wiki & Save these for later Classifying Accounts Template Preparing the Income Statement Ex 1 Classification Revision Quiz Income Statement Ex 2 Income Statement Ex 3 Reports Exercises How to prepare a Balance Sheet Homework Reports B. Rayner

2. Making money – Legally!

3. Running a business This is a very popular way to make money. Just look at how many businesses there in Victoria Street.

4. The “keys” you need to succeed Knowledge about the product and service you want to sell. Money to set up the business and run the business until you start making money. An understanding of accounting – how to record and report the transactions.

5. To manage money… A manager needs accurate information. Accounting provides the information on which decisions are made.

6. The Accounting Process: Record Keeping What, why, who, how & when

7. What will be recorded? The money going in (receipts) The money going out (payments)

8. Why will it be recorded? Because we might forget So we can make decisions –Does the price charged cover the cost incurred?

9. Who will record? Business –Owner / manager

10. Who will the reports be communicated to? Business –The owner –The ATO

11. How will the reports be communicated? Business –Statement of Receipts & Payments –Income Statement –Balance Sheet

12. When will the reports be presented? Business –Quarterly / Annually to the ATO –Monthly to the owner Now for some Revision

13. Back to the accounting process All information is recorded on the source documents. –Receipts –Cheques

14. Record the information from Source Documents into Journals Cash Receipts Journal – money coming into the business e.g. receipts Cash Payments Journal – money paid out of the business e.g. cheques

15. Cash Flow Statement of Receipts & Payments Bank at beginning Add Receipts (money from customers e.g. fees) Less Payments (to suppliers) (for wages) Bank at end

16. But what about Profit? Revenue less expenses equals Profit. But what is Revenue and Expense

17. Revenue – money from customers Fees Takings Income Sales Interest from investments

18. Expense – money paid to earn revenue such as: Electricity Wages Telephone Computer expenses Leasing Insurance Rent Licenses Advertising Bank charges Donations Loan interest So what does an Income Statement look like

19. Income Statement RevenueAdding Totalling Fees6000 Less Expenses Wages500 Electricity100 Bank charges 50 Advertising900 Phone bill2001750 Profit4250 Where does this information come from?

20. Get your copy of Classifying Accounts Go to Revenue

21. You need to add: Replace the xxxxxxxxx with Customers Delete Balance Sheet And Add some examples Sales Fees Takings Income Government grants Interest received

22. Revenue Money from customers or the bank from the sale of goods or services. Put into the Income Statement Examples –Sales –Fees –Takings –Government grants –Interest from investments

23. Move to the right: to Expenses

24. Classifying Expenses – items are used up to earn revenue / help run the business / things hired Something that the business has paid for (so they no longer owe it) and they don’t own it. Will possibly pay it again next month. Put in the Income Statement Examples ElectricityWagesAdvertising Internet BillRentLoan interest Rates – local gov’t taxTelephoneBank charges InsurancePetrolRent

25. Assets

26. Classifying Assets – Something that is owned by the business that will belong to the business for one month or more. Put in the Balance Sheet –Bank or the money the business has in the Bank. –Debtors who are people that owe the business money –Stock, Computers, Tools, Vehicles, GST Refund, Buildings, Furniture, Equipment, GST Refund.

27. Liabilities

28. Classifying Liabilities – Something that is owed by the business that will be paid in one month or more. Put in the Balance Sheet –Overdraft when the business owes money to the Bank. –Loan when the business owes money to who ever they borrowed it from. –Creditors when the business owes money to suppliers. –GST Payable when the business owes money to the Australian Tax Office.

29. Owner’s Equity

30. Classifying Owner’s Equity – items to do with the owner. Put in the Balance Sheet What the business owns (Assets) less what it owes Liabilities. –Capital –Add new Capital –Add Profit (or Less Loss) –Drawings

31. The difference between Expenses and Liabilities Expenses have been paid already – they are not owed E.g. electricity Liabilities have not yet been paid – they are owed. E.g. loans that are repaid each month.

32. The difference between Expenses and Assets Expenses are used up to earn revenue. That means each month the business has to buy some more. Expenses cannot be touched; Assets can. Assets are bought to last for many years and the business doesn’t replace its assets like computers, tools, vehicles or office furniture each month.

33. Open Classification Quiz If you forgot to get it off the wiki do so quickly. Before we go through the Quiz, let’s look at how you classify. It’s a process of elimination.

34. Classifying accounts for Business A Flow Chart

35. Is the money coming from customers or is it earned?

36. Then is must be a Revenue. Put in the Income Statement. Yes

37. Is the money coming from customers or is it earned? Then is must be a Revenue. Put in the Income Statement. Yes No Is the money coming from the bank?

38. Is the money coming from customers or is it earned? Then is must be a Revenue. Put in the Income Statement. Yes No Is the money coming from the bank? Yes Then it must be paid back and is owed to the bank—it is a Liability Balance Sheet

39. Is the money coming from customers or is it earned? Then is must be a Revenue. Put in the Income Statement. Yes No Is the money coming from the bank? Yes No Is the money coming from the Owner? Then it must be paid back and is owed to the bank—it is a Liability Balance Sheet

40. Is the money coming from customers or is it earned? Then is must be a Revenue. Put in the Income Statement. Yes No Is the money coming from the bank? Yes No Is the money coming from the Owner? Anything to do with the owner is Owner’s Equity. In Balance Sheet. Yes Then it must be paid back and is owed to the bank—it is a Liability Balance Sheet

41. Is the money coming from customers or is it earned? Then is must be a Revenue. Put in the Income Statement. Yes No Is the money coming from the bank? Yes No Is the money coming from the Owner? Anything to do with the owner is Owner’s Equity. In Balance Sheet Yes No Is it money owed to the business by a Debtor? The customer has the businesses money. Then it must be paid back and is owed to the bank—it is a Liability Balance Sheet

42. Is the money coming from customers or is it earned? Then is must be a Revenue. Put in the Income Statement. Yes No Is the money coming from the bank? Yes No Is the money coming from the Owner? Anything to do with the owner is Owner’s Equity. In Balance Sheet. Yes No If the business owns something then its an Asset. Put in Balance Sheet. Is it money owed to the business by a Debtor? The customer has the businesses money. Yes Then it must be paid back and is owed to the bank—it is a Liability Balance Sheet

43. Is the money coming from customers or is it earned? Then is must be a Revenue. Put in the Income Statement. Yes No Is the money coming from the bank? Yes No Is the money coming from the Owner? Anything to do with the owner is Owner’s Equity. In Balance Sheet. Yes No Is the money being paid? If the business owns something then its an Asset. Is it money owed to the business by a Debtor? The customer has the businesses money. No Yes Then it must be paid back and is owed to the bank—it is a Liability Balance Sheet

44. Is the money coming from customers or is it earned? Then is must be a Revenue. Put in the Income Statement. Yes No Is the money coming from the bank? Yes No Is the money coming from the Owner? Anything to do with the owner is Owner’s Equity. In Balance Sheet. Yes No Is the money being paid? Yes Is it being paid for something that the business owns? If the business owns something then its an Asset. Is it money owed to the business by a Debtor? The customer has the businesses money. No Yes Then it must be paid back and is owed to the bank—it is a Liability Balance Sheet

45. Is the money coming from customers or is it earned? Then is must be a Revenue. Put in the Income Statement. Yes No Is the money coming from the bank? Yes No Is the money coming from the Owner? Anything to do with the owner is Owner’s Equity. In Balance Sheet. Yes No Is the money being paid? Yes Is it being paid for something that the business owns? If the business owns something then its an Asset. Yes Is it money owed to the business by a Debtor? The customer has the businesses money. No Yes Then it must be paid back and is owed to the bank—it is a Liability Balance Sheet

46. Is the money coming from customers or is it earned? Then is must be a Revenue. Put in the Income Statement. Yes No Is the money coming from the bank? Yes No Is the money coming from the Owner? Anything to do with the owner is Owner’s Equity. In Balance Sheet. Yes No Is the money being paid? Yes Is it being paid for something that the business owns? If the business owns something then its an Asset. Yes Is it money owed to the business by a Debtor? The customer has the businesses money. No Yes No Is it Drawings—money taken out of the business by the owner for private use. Then it must be paid back and is owed to the bank—it is a Liability Balance Sheet

47. Is the money coming from customers or is it earned? Then is must be a Revenue. Put in the Income Statement. Yes No Is the money coming from the bank? Yes No Is the money coming from the Owner? Anything to do with the owner is Owner’s Equity. Goes in the Balance Sheet. Yes No Is the money being paid? Yes Is it being paid for something that the business owns? If the business owns something then its an Asset. Yes Is it money owed to the business by a Debtor? The customer has the businesses money. No Yes No Is it Drawings—money taken out of the business by the owner for private use. Yes Then it must be paid back and is owed to the bank—it is a Liability Balance Sheet

48. Is the money coming from customers or is it earned? Then is must be a Revenue. Put in the Income Statement. Yes No Is the money coming from the bank? Yes No Is the money coming from the Owner? Anything to do with the owner is Owner’s Equity. In Balance Sheet. Yes No Is the money being paid? Yes Is it being paid for something that the business owns? If the business owns something then its an Asset. Yes Is it money owed to the business by a Debtor? The customer has the businesses money. No Yes No Is it Drawings—money taken out of the business by the owner for private use. Yes Is it paying something the business owes. No Then it must be paid back and is owed to the bank—it is a Liability Balance Sheet

49. Is the money coming from customers or is it earned? Then is must be a Revenue. Put in the Income Statement. Yes No Is the money coming from the bank? Yes Then it must be paid back and is owed to the bank—it is a Liability Balance Sheet No Is the money coming from the Owner? Anything to do with the owner is Owner’s Equity. In Balance Sheet. Yes No Is the money being paid? Yes Is it being paid for something that the business owns? If the business owns something then its an Asset. Yes Is it money owed to the business by a Debtor? The customer has the businesses money. No Yes No Is it Drawings—money taken out of the business by the owner for private use. Yes Is it paying something the business owes. No Yes

50. Is the money coming from customers or is it earned? Then is must be a Revenue. Put in the Income Statement. Yes No Is the money coming from the bank? Yes No Is the money coming from the Owner? Anything to do with the owner is Owner’s Equity. In Balance Sheet. Yes No Is the money being paid? Yes Is it being paid for something that the business owns? If the business owns something then its an Asset. Yes Is it money owed to the business by a Debtor? The customer has the businesses money. No Yes No Is it Drawings—money taken out of the business by the owner for private use. Yes Is it paying something the business owes. No If it is not owed or owned but it is paid, then it must be an expense. Especially if it is used to earn revenue. Income Statement. Yes No Then it must be paid back and is owed to the bank—it is a Liability Balance Sheet

51. Let’s to the Quiz If you put in the right answer it will go green.

52. Go through the Statement of Receipts & Payments Classify the items listed & put them into: –RevenuePut into the Income –ExpensePut into the Income Assets, Liabilities & Owner’s Equity Leave until later because they get put into the Balance Sheet.

53. Statement of Receipts & Payments Bank at beginning4000 Add Receipts Fees6000 GST Collected 6006600 Less Payments 10600 Wages 500 Electricity 100 Drawings1000 Bank Charges 50 Advertising 900 Phone bill 200 GST Paid 1202870 Bank at end7730

54. Statement of Receipts & Payments Bank at beginning4000 Add Receipts Fees6000Revenue GST Collected 6006600 Less Payments 10600 Wages 500 Electricity 100 Drawings1000 Bank Charges 50 Advertising 900 Phone bill 200 GST Paid 1202870 Bank at end7730

55. Statement of Receipts & Payments Bank at beginning4000 Add Receipts Fees6000Revenue GST Collected 600Liability6600 Less Payments 10600 Wages 500 Electricity 100 Drawings1000 Bank Charges 50 Advertising 900 Phone bill 200 GST Paid 1202870 Bank at end7730

56. Statement of Receipts & Payments Bank at beginning4000 Add Receipts Fees6000Revenue GST Collected 600Liability6600 Less Payments 10600 Wages 500Expense Electricity 100 Drawings1000 Bank Charges 50 Advertising 900 Phone bill 200 GST Paid 1202870 Bank at end7730

57. Statement of Receipts & Payments Bank at beginning4000 Add Receipts Fees6000Revenue GST Collected 600Liability6600 Less Payments 10600 Wages 500Expense Electricity 100Expense Drawings1000 Bank Charges 50 Advertising 900 Phone bill 200 GST Paid 1202870 Bank at end7730

58. Statement of Receipts & Payments Bank at beginning4000 Add Receipts Fees6000Revenue GST Collected 600Liability6600 Less Payments 10600 Wages 500Expense Electricity 100Expense Drawings1000Owner’s Equity Bank Charges 50 Advertising 900 Phone bill 200 GST Paid 1202870 Bank at end7730

59. Statement of Receipts & Payments Bank at beginning4000 Add Receipts Fees6000Revenue GST Collected 600Liability6600 Less Payments 10600 Wages 500Expense Electricity 100Expense Drawings1000Owner’s Equity Bank Charges 50Expense Advertising 900 Phone bill 200 GST Paid 1202870 Bank at end7730

60. Statement of Receipts & Payments Bank at beginning4000 Add Receipts Fees6000Revenue GST Collected 600Liability6600 Less Payments 10600 Wages 500Expense Electricity 100Expense Drawings1000Owner’s Equity Bank Charges 50Expense Advertising 900Expense Phone bill 200 GST Paid 1202870 Bank at end7730

61. Statement of Receipts & Payments Bank at beginning4000 Add Receipts Fees6000Revenue GST Collected 600Liability6600 Less Payments 10600 Wages 500Expense Electricity 100Expense Drawings1000Owner’s Equity Bank Charges 50Expense Advertising 900Expense Phone bill 200Expense GST Paid 1202870 Bank at end7730

62. Statement of Receipts & Payments Bank at beginning4000 Add Receipts Fees6000Revenue GST Collected 600Liability6600 Less Payments 10600 Wages 500Expense Electricity 100Expense Drawings1000Owner’s Equity Bank Charges 50Expense Advertising 900Expense Phone bill 200Expense GST Paid 120Liability2870 Bank at end7730

63. Statement of Receipts & Payments Bank at beginning4000 Add Receipts Fees6000Revenue GST Collected 600Liability6600 Less Payments 10600 Wages 500Expense Electricity 100Expense Drawings1000Owner’s Equity Bank Charges 50Expense Advertising 900Expense Phone bill 200Expense GST Paid 120Liability2870 Bank at endAsset7730

64. Income Statement RevenueAddingTotalling Fees6000 Less Expenses Wages500 Electricity100 Bank charges 50 Advertising900 Phone bill2001750 Profit4250

65. Warning! Warning! Warning! Income Statement is: Total Revenue less Total Expenses Bank is an asset and is NOT included in the Income Statement

66. Classify the following without using the information on your computer So Switch Off Your Monitor

67. Classify this item & state whether it goes in the Income Statement or not. Electricity – hire of power from the energy company. Expense – payment to supplier for an item that will assist in earning revenue. Income Statement Yes

68. Classify this item & state whether it goes in the Income Statement or not Fees from customers Revenue – money from customers. Income Statement Yes

69. Classify this item & state whether it goes in the Income Statement or not Loan – money from the Bank or family Loan repayment – money paid to the Bank or family repaying the loan Liability – an item the business owes someone outside the business. Income Statement No

70. Classify this item & state whether it goes in the Income Statement or not Computer – purchased to prepare the journals. Asset – owned by the business Income Statement No

71. Classify this item & state whether it goes in the Income Statement or not Wages – hiring people to work for the business. Expense - payment to supplier for an item that will assist in earning revenue. Income Statement Yes

72. Classify this item & state whether it goes in the Income Statement or not GST Refund – money paid by the ATO because the ATO owed the business money. Asset – this will be put into the bank and the business owns it. Income Statement No

73. Classify this item & state whether it goes in the Income Statement or not GST Paid – money owed to the ATO Liability – an item the business owes someone outside the business. Income Statement No

74. Classify this item & state whether it goes in the Income Statement or not Capital – the money put into the business by the owner Drawings – the money taken out of the business by the owner. Owner’s Equity Income Statement No

75. Classify this item & state whether it goes in the Income Statement or not Loan interest – money paid for the use of the money hired from the Bank e.g. Loan Expense – this is used up to run the businesses Income Statement Yes

76. Classify this item & state whether it goes in the Income Statement or not Interest from investments – money from the business has been put into on investment account with the Bank and the Bank is paying the business interest. Revenue – money from customers or the Bank Income Statement Yes

77. Open Preparing the Income Statement Ex 1