Financial Studies - Accounting

Financial Records

Kept so owners can keep track of them and business reports can be prepared.

Records

Kept as evidence for taxation purposes and help business owners plan for the future.

Three things a financial record tells you

how much a business is worth, where improvements are needed, possible cuts to costs

Source document examples

Invoices, receipts, memos, cheque butts

Recording examples

cash receipts journal, cash payments journal

Reporting examples

statement of receipts (inflow), statement of payments (inflow), income statement, balance sheet

Advice

Recommended steps to take next. E.g. invest more resources

Source documents

Paper or electronic documents that provide evidence a transaction occurred and details of the transaction itself

Pricing

Must cover the costs of producing the goods plus a profit.

Profit

What is left of the revenue from the sale of goods and services after the cost of production has been deducted.

Four price setting methods

Recommended retail price (RRP), competitor’s price, market reaction, percentage markup

Four factors that impact price

trends or fashions, demand, availability of necessary components, competitors

Percentage markup

The percentage of the cost price that the item is marked up by

Selling price

cost price x (1 + markup)

GST from total price

Total price / 11

GST

10%

Receipt

Amount of money coming into the business

Payment

Amount of money going out of the business

Sundries

Any infrequent transactions

Three forms of receipts

Money from sales, money coming from people who owe the business money, money put into the business by the owner

Source documents referred in cash receipts journal

Receipts, EFT transfers, bank statements

Assets

Brings value and positive impact on a business.

Liabilites

Something that impacts the business negatively.

Non-current

An asset or liability that impacts the business longer than 12 months

Current

An asset or liability that impacts the business within 12 months

Balance sheet

Shows assets and liabilities and splits them into current or non-current. Shows owner’s equity.

Owner’s equity

What the owner has after they sell all assets and paid all liabilities.