Ë Step 4
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.
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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
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?
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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.
