ASS#1 Draft

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Chapter 1 – Key Concepts and Questions (KCQs)

As I read chapter one in the study guide, I explored different key concepts and questions more deeply and broadened my knowledge of accounting and business.  I understood the world of accounting and my knowledge of the other accounting subjects effectively through chapter one reading.

v  Key Concepts and Questions (KCQs)

-       Accounting is definitely related to the realities of business because it shows how your business is doing.

-       There are different kinds of accounting computer software packages such as MYOB, Xero and QuickBooks for effective recording of firms’ accountants.

-       What is the best computer software package for business companies?

-       What is the standard that companies choose their bookkeeping systems? Security for their confidential accounts information? Or easy account management tools?

-       Do companies sometimes change their bookkeeping systems?

-       Changes in value (Revenue and Expenses) are explained as the extended accounting equation.

-       How has double entry bookkeeping discipline developed to digital accounting form?

-       Is it impossible to combine journal and ledgers and manage them together?

-       How did they extend the accounting equation concept?

-       Why did not they change the name from bookkeeping to digital keeping?

 

v  What do I find boring?

-       When the author mentioned lots of businesses come from everywhere, I found the business lists are quite boring because too many private stores were listed in the study guide. I really understood the author tried to explain different businesses exist everywhere but I could honestly not focus on the lists.

 

v  What do I find exciting or surprising?

-       I found accounting word origins are interesting (e.g. journal comes from the French word ‘jour’ and debit comes from the Latin word ‘debere’) because I simply recognised accounting words relating to modern idea.

-       I was so surprised that double-entry accounting system was invented in ancient times because I thought double-entry bookkeeping is invented with the development of computer technology.

 

v  What do I find difficult to understand or believe

-       I could not believe that the method of double-entry accounting was being used by merchants in Venice. The accounting system was described in a published book by Luca Pacioli. If so, how did Italian merchants adopt the accounting method to their business at the time?  

 

v  My understandings and reactions

-       I think that creating value is companies’ successful business achievements and accounting can be the way to measure the value effectively. Therefore, I tried to understand the key five elements of accounting such as Assets, Liabilities, Equity, Revenue and Expenses and extended accounting equation carefully.

 

v  Questions from the readings

-       Is it impossible to use common accounting software system regardless of businesses’ size?

-       Has the new accounting software system been developing for international business?

Questions

Question 1-1

: Most businesses use double-entry accounting system. The reason is that double-entry accounting allows for the recording of assets and liabilities. It takes benefit of the accounting equation (Assets = Liabilities + Owner's equity). With double-entry accounting, businesses including all stakeholders can receive accurate the financial statements such as balance sheet, income statement and cash flow statement. As a result, businesses can avoid some financial errors or mistakes and stakeholders can make decisions efficiently.

I do not think double-entry bookkeeping system means to repeat entry of all data and write things down twice because double-entry is recorded in at least two ledger accounts. Every transaction has a debit entry in one account and a credit entry in another account and debits and credits will affect different types of accounts. (E.g. Debits: ▲expense and asset, Credits: ▲liability and income). Therefore, the entry has to be recorded in two accounts and be balanced. I think accounting should be balanced.

Question 1-2

Assets

1. Inventories

: Inventory is classified as current assets. Current assets mean they can be converted into cash easily. Inventory represents raw materials and company’s finished goods for sale. It is related to calculating cost of goods sold and profit. According to my company’s (Patties Foods Limited) annual report, inventories increased to $44,976 in 2014 and from $30,947 in 2011.My company carried a large amount of raw materials every year since the year 2011 in order to produce goods.

2. Receivables

: Receivable is also included in current assets on balance sheet.  It means that a company has made a sale however has yet to collect the money form their customers. In my company’s annual report, accounting receivable for the year 2014 is recorded $46,818.  The $46,818 is listed as receivables until the customer has paid their invoice. There is no limitation.

3. Property, plant and equipment

: Property, plant and equipment is classified as non-current assets. Theses business assets are that a company owns that are usually used in order to run the business.  According to my company’s annual report, the assets increased to $74,415 in 2014 and from $67,707 in 2011. However, assets are not fully expensed in the year they are purchased.

Liabilities

1. Payables

: Payables are involved in current liability on the balance sheet. It is a company’s legal responsibility and debts to pay off within 12 months from the reporting date. It includes invoices a company has received for the purchase of materials to make their products.

2. Borrowings

: My company (Patties Foods Limited) borrowed money and some of value from banks, other entities or a previous transaction. The payments on a company's bank loans that are due in the next twelve months. My company maintained similar level of borrowings from the year 2011 to the year 2014 except for 2013.

3. Differed tax liabilities

: Differed tax liabilities are classified as non-current liabilities and a provision for future taxation. It is related to a difference between a company’s taxable income and income before tax and taken for long period compared to current liabilities.  

Equity

1. Contributed equity

: Contributed equity involves equity on the balance sheet. It is an element of the total amount of equity recorded by a company. I can show the total value of stock that shareholders have purchased directly from my company. In my company’s report, the level has maintained similarly from 2011 to the end of June, 2014.
2. Reserves

: Reserves are involved liabilities on the balance sheet. It means the amount of money companies set aside for future claims. In the annual report, my company increased around $9,600 reserve.  

3. Retained earnings

: Retained earnings are recorded as equity on the balance sheet. This equity is profits that a company has earned and used to grow equity. According to my company’s annual report, it increased to $137,144 in the year 2014 to $128,512 in the year 2011.

Chapter 3- Introducing financial statements

Through chapter three in the study guide, I explored fundamental components of financial statements. I learned about the two main financial statements such as the balance sheet and the income statement for successful business. I also understood the importance of value and the trustee relationship between companies in order to achieve their business goals.

v  Key Concepts and Questions(KCQs)

-       Setting out financial statements can be different depends on business industry.

-       Can they set out common financial statements for the financial analysis easily?

-       If they use the same names for the same or similar items, is it possible to communicate together easily and effectively?

-       The balance sheet is very essential because it shows company’s accurate financial position on particular period and help the company analyses their financial results.

-       How has the concept of consolidated financial statements been developing?

-       It is interesting that we can expect the future value in business by putting ‘present value’ on cash flow statements.

-       Even if some financial data is recorded to the balance sheet wrongly, is it still an evidence of trustee relationship in business?  

 

v  What do I find exciting or surprising?

-       It was interesting that ratios for financial statement analysis have developed since 300BC. Besides, I was interested in the word ‘ratio’ origins because the word comes from Greek word.

 

v  What do I find boring?

-       It was difficult for me to find boring things in the chapter 3 study guide because the author described the concepts of financial statements with easy examples such as party situation, making friends.

 

v  What do I find difficult to understand or believe

-       It was difficult to understand about the relationship between dividends and cash flow. I had to consider the concept of net dividends. I thought if examples of financial spread sheet are included in the study guide, it was easier than reading financial formulas.

 

v  My understandings and reactions

-       After I read chapter 3 in the study guide, I understood how to approach company’s financial position by the balance sheet, income statement and cash flow statement.

Also, I realised understanding of the financial terms’ origins is really important.

 

v  Questions from the readings

-       Do we have the other way to express trustee relationship between companies without the balance sheet?

Questions

 

Question 3-1

 

I think that we cannot do works simply relating to analysing financial statements because different kinds of companies use different names of items on their financial statements. Also, we need experienced practitioners for effective financial statements analysis because they have extensive business knowledge and compliance. As a result, they can help us to analyse our financial statements efficiently.

 

Question 3-2

Having a structure in a company’s financial statements is beneficial to use financial ratio analysis because it helps different companies compare their actual financial position one another in the same industry. Also, I think it is better than experienced practitioners just do it simply because the experienced practitioners might not extend the range of their knowledge and perception. If companies have a common structure in their financial statements, they can be analysed clearly and effectively.