Pre-VCE Accounting Test

Accounting

The financial information process of collecting and recording of financial data to produce and report financial information to assist business-owners in decision makings.

The five elements of accounting

1. Assets

2. Liabilities

3. Owner’s Equity

4. Revenue

5. Expenses

Assets

• Resources owned by the business and expected to generate income for the business

• Have cash value or can be converted to cash

Charecteristics of Assets

• Must provide future economic benefits

• Must be owned by the entity

• Must be a of past transactions or events

Non-Current Assets

Assets that are expected to provide an economic benefit after more than 12 months (not held for resale)

Current Assets

Assets that are expected to provide an economic benefit in the next 12 months

Liabilities

• Obligations that are owed by the business and expected to provide assets or services to outsiders in the future.

• Consists of money owing for goods supplied to the company and for expenses or loans made to it.

Characteristics of Liabilities

A present obligation to another entity

As a result of a past transaction or other past events (e.g. purchases from suppliers, work done by staffs)

Involve a future giving up of economic benefits to fulfil the obligation.

Current Liabilities

Liabilities that are expected to be settled within 12 months.

Non-Current Liabilities

Liabilities that are to be settled sometime after the next 12 months.

Owner’s Equity

• It is what is left over in the assets for the owner/ business, once all liabilities have been settled.

• It represents the owner’s claim in the entity (business)’s net (total) assets

Components of equity

• Money contributed by the owners to the business is known as contributed capital.

• Any amounts of surplus income that are kept for future uses by the business is called retained earnings.

Accounting Equation

Assets=Liability+OE

Accounts Recievable

Money that the business is owed

Accounts Payable

Money that the business owes

Who uses accounting information

Businesses and stakeholders like suppliers, the ATO, employees and banks.

Financial Data

Refers to the raw facts and figures on which financial information will be based

Financial Information

Data which has been sorted, classified and summarised into a more usable and understandable form.

The Accounting Process

1. Source Documents

2. Records

3. Reports

4. Advice

Source Documents

• Provide both evidence that a transaction has occured and details of the transaction itself

• Eg. EFTPOS Reciepts, Invoices and Bank Statements

Transaction

An exchange of goods or services with another party for payment

Records

Recording involves the sorting, classifying and summarising the infomation contained in the source documents so that it is more usable

Eg. Accounting Journals

Reports

Involves the preparation of financial statements that communicate financial information to the owner so that decisions can be made.

Eg. Balance Sheets and Income Statements

Advice

The provision to the owner of a range of options and recommendations appropriate to aim their objectives.

Balance Sheet

A record of assets, liabilities and owner’s equity of a business. It shows the current financial position of the business as a formal report.

GST

• Goods and Services Tax which is paid on nearly all goods and services produced or provided in Australia.

• It is a flat 10%

• It is used to pay for things like roads, hospitals and education through the state and federal government

To find the GST inclusive amount for something without GST

Multiply by 1.1

To find the GST component of a product or service with GST

Divide it by 11

GST Payable Formula

GST Payable-GST Recievable

Charecteristics of Revenue

1. Earned by the business

2. Inflow of economic benefit

3. Increase in assets (decrease in liabilitiy)

4. Increase in OE (but capital contribution)

Charecteristics of expenses

1. Consumed by the business to earn revenue

2. Outflow of economic benefit

3. Decrease in assets (or increase in liability)

4. Decrease in OE (but drawings)