Accounting Notes Principles of Financial Accounting Financial Statements Balance Sheet Measures financial position at a point in time o Shows

ws an organisations resources and claims on resources at a particular point in time Key formatting details o Heading Company Name o Date Balance Sheet as at 30 June 2013 o Three Components: Assets, Liabilities, Shareholders Equity Divide asset and liability sections into current and non-current Write a line to symbolise a total Total all three components Write negative values in brackets Dont forget Total Liabilities and Shareholders Equity

Income Statement Measures financial performance over a period of time Profit and loss statement Key Formatting Details o Heading Company Name o Date Income Statement for the year/month ended 30 June 2013 o Start by+ crediting sales revenue Followed by indenting COGS (credit this with brackets) Credit Gross Profit o Debit Expenses o Calculate and credit Net Profit (Bracket Net Loss)

Statement of Cash Flows To be written

Record Keeping Writing up journal entries

Posting to ledger

Closing Entries

Adjusting Entries Only take into account Accounts Receivable and Accounts Payable

Trial Balance

Accounts and Transactions

Assets Current Assets Cash Accounts Receivable (Sundry/trade debtors) Represents amounts owing from customers for goods and services provided Common transactions o Purchases o Sales made on credit - DR Accounts Receivable CR Sales Revenue o Money is collected from customers - DR Cash CR Accounts Receivable

Notes Receivable Accounts receivable supported by signed contracts or other agreements specifying repayment terms, interest rate and other conditions

Inventory

Prepayments (Prepaid expenses) Amounts that have been paid in advance but for which benefits have not yet been received o Example: If a 12 month insurance premium is purchased on 1 April 2013, at 31 May 2013, 2 months of insurance will have been used, thus a prepayment equal to 10/12 of the initial amount will remain - DR Insurance Expense CR (Insurance) Prepayments How to calculate expenses during a period based on prepayments data o Example:

2013 ($m) 2012 ($m) Insurance Prepayments 36.2 34.4 $30 million cash was paid during the year 2013 to the insurance company. What was the insurance expense for the year 2013? - Explanation: Set up a T-account for Insurance prepayments Insurance Prepayments 34.4 30.0 36.2

Op. Bal. Cl. Bal.

28.2

30 million was debited as per the following journal entry: DR Insurance Prepayments CR Cash In order to achieve a closing balance at the end of 2013 to be 36.2, there had to be a credit of 28.2. And as per the following journal entry: DR Insurance Expense CR Insurance Prepayments Insurance Expense = 28.2

Allowance for Doubtful Debts Noncurrent Assets Property, Plant and Equipment Accumulated Depreciation o Calculated by a deduction of the original value of the asset according to its lifespan - Example: A truck was purchased on 1 January 2013 for $100 000. It has a 5 year lifespan. The depreciation at 30 June 2013 = $100 000 x 0.2 (1/5 years) x 0.5 (half a year) = $10 000 - DR Depreciation Expense CR Accumulated Depreciation

Intangible Assets Copyrights, patents, trademarks, brand names and goodwill (reputation, charity)

Current Liabilities Accounts Payable (Sundry/Trade Creditors) Notes Payable o Accounts payable that are supported by signed contracts or other agreements o Often used to describe financing obtained from banks

Bank Overdraft Noncurrent Liabilities Long-term Loan Interest o Calculated by multiplying the principle (amount borrowed) by the interest rate and the amount of time passed. o Example: A company borrows $400 000 on 1 January 2013 at an interest rate of 12% per annum. What is the interest owed at 30 June 2013? Interest owed = $400 000 x 0.12 (interest rate per annum) x 0.5 (half a year) = $24 000 - DR Interest Expense CR Interest Payable Note 1: Pay attention to whether the interest was accrued or actually paid, in which case cash would be credit instead of interest payable Note 2: Pay attention to dates! January 2013- 30 Se

Shareholders Equity Share Capital Dividends

Retained Profits Expenses Revenues Internal Control

Bank Reconciliation