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ACC 08/3/3/1

ACC 08/3/3/1. Level 1 AS 90022 Revision. Revision Powerpoint. Achievement Standard 90022. Introduction. This powerpoint is designed to cover content and provide pointers when it comes to answering questions on AS90022.

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ACC 08/3/3/1

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  1. ACC 08/3/3/1 Level 1 AS 90022 Revision

  2. Revision Powerpoint Achievement Standard 90022

  3. Introduction This powerpoint is designed to cover content and provide pointers when it comes to answering questions on AS90022. It challenges students to learn their definitions and application of accounting elements and concepts. Teacher guidance is given in the notes at the bottom of the slide. This could be used as an in-class revision session or provided on a school network for student use for out of class revision.

  4. Student Worksheet A student worksheet is included which may be used to structure a revision tutorial. (Note it is not a complete copy of all material in this powerpoint) You might choose to give it to students prior to a revision session as preparation. It follows the same order as the powerpoint. Student Worksheet 90022.doc

  5. NCEA LEVEL ONEACCOUNTING Achievement Standard 90022

  6. Link to the full achievement standard http://www.nzqa.govt.nz/nqfdocs/ncea-resource/achievements/2007/as90022.doc

  7. This Achievement Standard may be based on either : • A sole proprietor, either service or trading firm • An incorporated or unincorporated community organisation It is important that you answer with SPECIFIC reference to the context (situation) you have been given

  8. Can you…

  9. DESCRIBE ACCOUNTING • Identify the purpose of Accounting To provide users with useful financial and non-financial information to assist them in making informed decisions.

  10. To set down the rules/procedures to follow when preparing financial records. • Identify the purpose of Financial Statements To calculate the profit or loss for the entity by specifying the Income and Expenses for the year. To display the financial stability of the entity by outlining the Assets, Liabilities and Equity on a specified date. To explain the changes in the bank balance by identify all Cash Receipts and Cash Payments.

  11. Owners To assess whether their investment is worthwhile Employees To assess the stability of the business and therefore their job security • Identify the users of Accounting information and ONE reason for their interest USERS Government and IRD To assess their Tax liability Banks To assess whether the business is in a position to repay a loan, ie see if they have any other liabilities Creditors To assess their ability to repay any credit items

  12. determine future financial goals for a business eg. budgets assess the financial performance, financial position and cash flows of a business • Identify the uses of Accounting information USES assist with financial decision making help lenders assess the security of a loan ensure the business stays solvent

  13. Describe the role of different types of Accountant Involved with calculating costs of production (eg. In manufacturing). Provides tax advice and preparation of tax returns etc Involved with specific activities, eg. Budgets, reporting etc.

  14. Involved with activities such as recording of transactions, tax returns, financial statement preparation. Preparing, analysing and reporting on financial information to assist with decision making. They are responsible for checking that the financial records show a true and fair view of the financial activities of the entity. Accountants who provide a range of activities (under each of the previous headings) as well as financial advice, budgeting, tax etc

  15. One owner 2 or more partners 1 or more shareholders Members • Identify the features of entities under the following categories Owners funds, bank loan, family & friends, mortgage Partners funds, bank loan, mortgage Bank loan, mortgage, shares Debentures (if incorporated) Unlimited liability if Unincorporated, Limited liability if Incorporated Unlimited liability Unlimited liability Limited liability Limited liability, greater access to funds Own boss, keep all profits, make all decisions Share the responsibility, less stress, can benefit from more expertise Not for profit so can focus on needs of members Unlimited liability, a lot of responsibility/ pressure/stress, limited access to funds Unlimited liability, need partners to agree on decisions, responsible for partners actions No drawings, Small shareholders have little power

  16. LIMITED vs UNLIMITED LIABILITY • UNLIMITED LIABILITY If the business fails, the personal assets of the owner be used to settle business debts. • LIMITED LIABILITY If the business fails, the personal assets of the owner be used to settle business debts. CAN CANNOT

  17. FINANCIAL ELEMENTS When applying, be sure to name the asset, rather than say “it”. Also, name the entity, rather than saying “they”. • Define ASSET Something which is controlled by the entity, future economic benefit will flow to the entity and is the result of a past transaction • Apply the Asset definition Why is the Equipment an asset? The Equipment was purchased in the past by the business. The business alone can use the Equipment for production. In the future the Equipment will be used for future production which helps the business earn income. Result of past transaction Controlled by the entity Future economic benefit flows to the entity Write the name of the business here

  18. DEFINITION EXAMPLES An asset which the business expects to turn into cash within the next year. Bank, Petty Cash, Accounts Receivable, Stock, Prepayments, Accrued Income • Complete the table by providing a definition and examples of each type of Asset NON-CURRENT ASSETS An asset which has resulted from the purchase of a “financial investment” Term Deposit, Shares A physical asset which the entity expects to keep for more than the next year. Machinery, Equipment, Vehicles An asset which cannot be seen or touched but is still beneficial to the entity Goodwill, Patents

  19. When applying, be sure to name the liability, rather than say “it”. Also, name the entity, rather than saying “they”. • Define LIABILITY Something which is an obligation of the entity, future economic benefit will flow from the entity and is the result of a past transaction • Apply the Liability definition Why is an Bank Overdraft a liability? In the past the business purchased goods using funds from the bank (ie. spent more money from their bank account than they have deposited). The business is now has to pay the borrowed money back. The business will have to sacrifice future spending in order to repay the overdraft. Future economic benefit flows from the entity Result of past transaction Obligation of the entity Write the name of the business here

  20. DEFINITION EXAMPLES Bank Overdraft, GST Payable, Accounts Payable, Accrued Expenses, Income Received in Advance Liabilities the entity expects to have to repay within the next year • Complete the table by providing and definition and examples of each type of liability Liabilities the entity does not expect to have to repay within the next year Loan, Mortgage

  21. DefineEQUITY This represents the owners financial interest in the business. Calculated by Assets – Liabilities. • Apply the Equity definition Why is drawings equity? Drawings represents the owner taking business money or assets for him/herself so is a direct reduction in equity not an expense of the business • Define ACCUMULATED FUND This represents the members financial interest in the organisation. Calculated by Assets – Liabilities.

  22. INCOME Any inflow which increases equity through either increasing assetsordecreasing liabilities other than contribution by owner. • Apply the Income definition Why is Fees income? Fees increases equity by increasing profit and increases the asset bank when money is received (inflow) for the fees orincreases the asset accounts receivable if the service is provided on credit. It is not contribution by owner, but cash from customers.

  23. Define EXPENSES Any outflow which decreases equity through either decreasing assetsorincreasing liabilities other than drawings by owner. • Apply the Expense definition Why is wages an expense? Wages decreases equity by decreasing profit and decreases the asset bank when money is paid (outflow) orincreases accrued expense liability if wages are owing. It is not Drawings by owner, but payment to employees.

  24. DEFINITION EXAMPLES An costs incurred directly as a result of sales or in order to try and increase sales Advertising, Salesperson’s Salaries, Shop rent, Depreciation on Shop Fittings • Complete the table by providing a definition and examples of each type of Expense Any costs incurred directly as a result of everyday office operations Electricity, Power, Office Salaries, General Expenses, Rates Any costs incurred directly as a result of trying to get funds for the entity Interest The first expense category may differ with the entity, eg. A hairdresser may have “Salon Expenses” rather than “Selling Expenses”

  25. Distinguish between CAPITAL and REVENUE EXPENDITURE (using examples) Capital expenditure results in an asset being created or improved, eg. Purchase of a vehicle. (It includes all costs associated with getting the asset on site and ready to use eg. Trial runs) Revenue expenditure is spending which does not create a new asset but is an “expense”, eg. Maintenance.

  26. Define DEPRECIATION This is the measure of the loss in future service potential or economic benefit of an asset due to wear and tear and obsolescence. • Explain why we depreciate We are required (due to the Historical Cost Concept) to record our assets at the initial purchase price, however it is important that we do not overstate the value of our assets as this may lead to misleading information in our financial reports. To try and have a more realistic value of our assets we “write off” some of their value each year to recognise that they are no longer valued at their purchase price. The amount “written off” is classified as Depreciation

  27. ACCOUNTING CONCEPTS • Define the ACCOUNTING ENTITY CONCEPT The personalfinancial affairs of the owner must be kept separate from the financial affairs of the business. • Recognise and apply the Accounting Entity Concept RECOGNISE APPLY The title of the financial statements will identify which entity the reports have been prepared for. This will also be specified in the Statement of Accounting Policies. Accounting statements are prepared for the business and do not include the owner’s personal assets, liabilities, income or expenses

  28. Define the MONETARY CONCEPT All transactions need to be recorded in terms of a common unit, ie. the dollar. RECOGNISE APPLY Everything written down in financial statements is given a dollar value. This will also be specified in the Statement of Accounting Policies. All elements in the statements are given a dollar value and this enables us to compare items (eg. add up assets). LIMITATION It does however mean that we cannot include any items which cannot be given a dollar value. It also means that some items are estimated (eg Goodwill).

  29. Define the GOING CONCERN CONCEPT We assume that the business will continue to operate into the foreseeable future. RECOGNISE APPLY This means that assets and liabilities can be recorded as NON-CURRENT because we assume that we will continue past the next accounting period This will be specified in the Statement of Accounting Policies.

  30. Define the PERIOD REPORTING CONCEPT The life of a business is split into equal lengths of time for the purpose of financial reporting. RECOGNISE APPLY Eg. Income Statement for the year ended 31 March 2008 measures the profit/loss for the year. Allows us to make comparisons of profit, financial performance, cash flows and financial position from one period to the next and between similar entities The title of the financial statements will identify the period for which they have been prepared.

  31. Define the ACCRUAL BASIS OF ACCOUNTING Transactions are recorded when they occur and reported in the period to which they relate. RECOGNISE APPLY Include all amounts owed or owing on Balance Sheet Day, eg. Accrued Income, Prepayments etc. Insurance paid is advance is recorded when it occurs but will not appear as an expense until the year the insurance relates to. Balance Day Adjustments allow us to record ALL assets and liabilities on Balance Sheet Day. This will also be specified in the Statement of Accounting Policies.

  32. Define the HISTORICAL COST CONCEPT We record our assets at their initial purchase price regardless of their current resale value. RECOGNISE APPLY Assets will be specified at their purchase price. This will also be specified in the Statement of Accounting Policies. The PP&E table will list at Cost Record assets at purchase price and allow for losses in value through Depreciation. This enables a more realistic value of assets to be represented.

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