BUSS1030 S2 Lecture 2 Key Accounting Concepts 2 slides PDF

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BUSS1030 Accounting, Business, and Society Lecture 2: Key Accounting Concepts Presented Olga Gouveros Discipline of Accounting The University of Sydney Page 1 Read Chapter 2 Pages 47 52, Exclude the effect of trading operations on the statement of financial position, Read Chapter 2 Pages and Read Ch...

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5/08/2018

BUSS1030 Accounting, Business, and Society

Lecture 2: Key Accounting Concepts

Presented by Olga Gouveros Discipline of Accounting

Read Chapter 2 Pages 47 – 52, Exclude the effect of trading operations on the statement of financial position, Read Chapter 2 Pages 55-58 and Read Chapter 4 Pages 162-177

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Agenda 1. 2.

Recap of last week’s class Key Accounting Concepts • The accounting equation • Assets and claims • The recording process • Double-entry bookkeeping

Week 1 Recap

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Ground Rules

What you can expect out of lecturers: 1. Thought provoking lectures 2. Punctuality 3. Professional 4. Interactive 5. Respect

What we expect out of you: 1. Punctuality 2. Professional 3. Clarify doubts 4. Zero tolerance on any kind of distracting behaviour (talking, using mobile phones, using computer and working other tasks, reading newspaper, listening to music, walking out of the lecture before it has concluded…) 5. NO use of mobile phones 6. You must stay for entire lecture – no exceptions 

Refer to Student Code of Conduct: –

The University of Sydney

http://sydney.edu.au/ab/policies/Student_code_conduct.pdf

Page 5

Learning objectives – Week 1 1. Explain the nature and role of Accounting 2. List the main groups that use accounting reports of a business entity 3. Compare and contrast financial and management Accounting 4. Identify the main purpose of a business 5. Outline an overview of the main financial reports prepared by a business 6. Outline the main types of business ownership 7. Identify ways in which business and Accounting has been changing 8. Explain why Accounting Information is generally considered useful

The University of Sydney

Page 6

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Activity: Week 1 Recap

Write down what the principle/accounting term is: 1. 2. 3. 4. 5.

When the business has to be accounted for as being separate from the owner. What principle? All revenues are reconciled with the appropriate expenses. What principle? The best objective system to record the costs of goods. What principle? Revenue should be earned only when service/goods have been provided. What principle? Which business has limited liability?

The University of Sydney

Page 7

Key Accounting Concepts

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Learning Objectives Chapter 2 (read Pages 47 – 52, Exclude the effect of trading operations on the statement of financial position, read Pages 55-58) 1. Explain the accounting equation (LO2) 2. Classify assets and claims (LO1/LO2/LO3) Chapter 4 (Pages 162-177) 1. Provide an overview of the recording processes (LO1) 2. Explain how the use of double-entry bookkeeping mirrors the first principles appaorach (LO2) ** For this lecture, refine your review of the textbook material by focusing on what is being covered in lectures.

The University of Sydney

Page 9

Accounting Terms (LO8) Account

Owners’ equity Assets

Journal Double-entry accounting T-account Liabilities Ledger The University of Sydney

Trial balance Page 10

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Enron-Creative Accounting Enron Creative Accounting – Multiple trading entities 

In Enron's case, the company would build an asset, such as a power plant, and immediately claim the projected profit on its books, even though it hadn't made one dime from it. If the revenue from the power plant were less than the projected amount, instead of taking the loss, the company would then transfer these assets to an off-the-books corporation, where the loss would go unreported. This type of accounting enabled Enron to write off losses without hurting the company's bottom line. – Read more: Enron Scandal: The Fall of a Wall Street Darling | Investopedia (https://www.investopedia.com/updates/enron-scandal-summary/#ixzz4YGST3lbM) – Also see 2017 scheme in AU (http://www.smh.com.au/national/how-the-alleged-165-million-taxscam-worked-20170518-gw7wuz.html)

The University of Sydney

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Enron Scandal

Enron Scandal (in Youtube)

The University of Sydney

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The Accounting Equation (LO8)

Economic Resources Claims to Economic Resources

The University of Sydney

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Assets and Liabilities (LO8) What is an asset? – It is something a company owns which has future economic value. e.g. land, building, equipment, goodwill, Accounts Receivable, Bills Receivable, Inventories, Prepaid Expenses, Land, Buildings and Plant and Equipment

What is a liability? – It is something a company owes. e.g. Money, service – legal retainers, Accounts Payable, Bills Payable, Accrued Liabilities (for expenses incurred but not paid), Long-term (Non-Current) Liabilities (mortgages and debentures)

The University of Sydney

Page 14

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Owner’s Equity (LO8) What is owners’ equity? – It is what’s left of the assets after liabilities have been deducted. – the same as net assets – the owner’s claim on the entity’s assets – OE Accounts - Capital (or owners’ interest in the business), Drawings, Revenues, Expenses, Dividends

The University of Sydney

Page 15

Revenues and Expenses (LO8) What are revenues? They are amounts received or to be received from customers for sales of products or services. – sales – performance of services – rent received – interest received

What are expenses? They are amounts that have been paid or will be paid later for costs that have been incurred to earn revenue. – salaries and wages – electricity and gas – supplies used – advertising The University of Sydney

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Activity: Lecture Example (Amended ABS Textbook)

1) 2) 3) 4) 5) 6) 7) 8)

What is a Receivable? What is Debit? What is a Journal? What is an Expense? What is Profit? What is a Ledger? What is Payable? What is Equity?

The University of Sydney

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Double-Entry Accounting (LO8) Double-entry bookkeeping means to record the dual effects of each business transaction.  Assets = Liabilities + Owners’ Equity  Assets are on the left (debit) side  Liabilities and Equity are on the right (credit) side Each transaction is recorded with at least: One debit

AND

One credit

Total debits must equal total credits.

The University of Sydney

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The Rules of Debit and Credit

The University of Sydney

Page 19

The T-Account (Ledger Account)

Account Title Debit

LEFT SIDE

The University of Sydney

Credit

RIGHT SIDE

Page 20

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Accounting Processes (LO9) Business Transactions

Weeks 2/3

Journal

Week 3

Ledger

Weeks 3/4

Trial Balance

Weeks 3/4

Financial Statements

Week 6/7/8/9

The University of Sydney

Page 21

Lecture Example (LO1/2 – P2.1 Amended ABS Textbook) Date

Description

Sep 1

Doug Cowra invested $370,000 personal cash in the business by depositing that amount in a bank

Sep 2

Paid $360,000 cash to purchase a theatre building

Sep 5

Borrowed $260,000 from the bank

Sep 10

Purchased theatre supplies on credit $1,400

Sep 15

Paid $1,200 on account

Sep 16

Agreed to hire a secretary with annual wages of $55,000

Sep 17

Paid employee salaries of 2,500 for the week

Sep 28

Accepted delivery of theatre supplies

The University of Sydney

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Activity: Double-entry bookkeeping question Identify the business transactions that need to be recorded in the accounting records. Classify those transactions according to their effect on the accounting equation (A = L + OE). For Owners Equity, specify the type of Owners Equity. Double entry bookkeeping and accounting equation/assets/liabilities/equity/income and expenses. The University of Sydney

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Solutions 1/9 Dr Cash $370,000 Cr Capital $370,000 2/9 Dr Theatre Building $360,000 Cr Cash $360,000 5/9 Dr Cash $260,000 Cr Bank Loan $260,000 10/9 Dr Theatre Supplies $1400 Cr Accounts Payable $1400 15/9 Dr Accounts Payable $1200 Cr Cash $1200 16/9 No Transaction 17/9 Dr Wages Expense $2500 Cr Cash $2500 28/9 No Transaction The University of Sydney

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Thank you. That’s all for today, see you in the next class! Remember: Tutorials this week focus on the work in last week’s lecture. The MAL due on 13 August is assessable and is based on this lecture.

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