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A manufacturing business is any company that uses raw materials or components such as wood, metal, clay or cloth, to create finished goods. Make most of the products a business uses, including electronic devices, furniture, medical equipment or aircrafts. Coca Cola, or West farmers chemicals energy &fertilisers.
A business that sells various inventory for a profit. The inventory they sell mainly consists of products purchased by the business with the intention of re-selling these products at a profit. Example, furniture store, clothing store, bookshop.
A business that sells inventory directly to the public.
A business that purchases inventory in bulk at discounted prices from manufacturers and sells it to retailers.
A company that provides services to customers for a fee. For example, a hairdresser.
Accounting Principles
The series of steps that accountants follow to manage a business's financial transactions throughout a financial period. These six steps include Financial Transaction, General Journal, General Lodger, Trial Balance, Financial Statements and Analysis.
Receipts or tax invoices that prove a transaction occurred.
General Journal
Documents or journalizes each daily transaction in date order.
Accounting Entity principle
The assumption that a business’s assets and liabilities are kept separate from the owner’s personal assets and liabilities. Reflects only business’s financial position and performance.
Only transactions that can be expressed in terms of the currency of the country they are in, should be recorded in business financial accounts. Non-monetary aspects are factors such as the quality of customer service, employee morale, or the reputation of a company. Used for efficiency when comparing financial statements.
What are the limitations of monetary principle.
Assumes the purchasing power of the currency remains stable over time, which is not always the case due to inflation.
Assets are recorded at their original purchase price and do not change value over time. Advantage as it prevents over-valuation of an asset (appreciation - unpredictable market conditions). disadvantage as it doesn’t account for inflation (current market value) which doe snot reflect gain in value.
Materiality is the principle of disclosing information in financial reports that is important and relevant to decision making. (influence users/ creditors/ investors)
The life of a business is divided into time intervals known as accounting periods. the ATO accounting period is from 1 July to 30 June each year. Shows business’s performance over a specific time period.
The assumption that a business will continue to operate for the foreseeable future. Therefore financial reports are prepared on the assumption that an entity will continue operating in the foreseeable future.
Something owned by a business expected to generate future economic benefits.
Something a business owes, representing money or services owed to others.
Resources or money contributed into the business by the owner.
Goods and services that are exempt from GST. This includes medical supply, education, fresh food, and childcare services.
Products that GST is not charged on, and it is not possible to claim a GST input tax credit for the purchase of the goods and services associated with the products. in the GST Act, e.g. financial supplies, interest, and residential accommodation. For example renting a house, can’t charge GST on rent or claim GST on a leaking tap.
Goods and services that attract GST.
A government form that must be lodge to the ATO from most businesses, either monthly or quarterly. It is important as it shows how much is owed to or from the ATO.
An 11-digit identifier for the gov, public and other businesses, issued to businesses as evidence for GST registration. Also informs trading partners they have to pay GST on tax invoice and that they can claim credit.
A financial statement showing a company's assets, liabilities, and equity at a specific point in time, adhering to the accounting equation.
A business’s ability to pay its short-term debts. Compare current assets and current liabilities. Want to have more assets so can pay debt of when fall due.
The comparison of total liabilities against total equity to assess a business's gearing position. Gearing is the amount of debt – in proportion to equity – that a company uses to fund its operations.
GST Legal Requirements for small businesses?
Must register if small businesses with a turnover of more than $75 000 per annum; those who provide taxi travel as part of their business, regardless of their turnover; not-for-profit organisations with a turnover of more than $150,000 per annum although sole traders and partnerships with an annual turnover less than $75 000, registration is optional.
What can excessive borrowing lead to?
Excessive borrowing to finance a business can be problematic as it leads to high interest payments, negatively impacts cash flow, and can make a business appear riskier to investors and lenders, potentially leading to higher borrowing costs in the future.
Difference between debtor and creditor?
debtor are people that owe the business money and creditors are people that the business owes money too (suppliers).
accounts receivable and accounts payable difference?
Accounts receivable is money the business can collect from costumers, and accounts payable is money owed from the business.
Difference between cash at bank and cash in hand?
Cash in hand is cash and coins on the premises on the business. Cash at bank is cash in a business’s bank account,
