ACCT1501 Logia Notes (Promo)

ACCT1501 Logia Notes (Promo) - LOGIA ACCT 1501 Revision...

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Unformatted text preview: LOGIA ACCT 1501 Revision Disclaimer: This information is the strictly confidential. Please do no disseminate this information in any way without the consent of its proprietors. If you are an unintended recipient of this information, please destroy it as soon as possible. This information is copyrighted to LOGIA Tuition 2009. Please note LOGIA assumes no responsibility for errors, inaccuracies or omissions in these materials/information. LOGIA does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. LOGIA shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation losses, lost revenues, or lost profits that may result from these materials. 1. Introduction Session Session 1 Session 2 Topic Slides 1 . Introduction to Accounting & Balance Sheet 2 2. Journal Entry 23 3. Accounting Cycle Only available to LOGIA students 4. Assumptions and Background Session 4 Only available to LOGIA students 6. Inventory and Bad Debt Session 3 5. Bank Reconciliation and Cash 37 7. NCA and Depreciation Only available to LOGIA students 8. Liability and Contingent Liab Copyright Logia Tuition 2009 2 1.Introduction Accounting Equation: Assets = Liability + Owners Equity What we have = What we owe + What we contribute Key Financial Statements: Balance Sheet (BS) , Income Statement (IS), Cash Flow Statement Accounts refer to Items on the BS or IS Copyright Logia Tuition 2009 3 1.Balance Sheet Statement of Financial Position Assets: Liability Current Assets (CA) Non-current Assets (NCA) Current Liability(CL) Non-current Liability (NCL) Owners Equity ASSETS = LIABILITY + OWNERS EQUITY Copyright Logia Tuition 2009 4 1.Assets Controlled by the entity Results of Past events Future Economic benefits Probable benefits will flow to entity Measured with Reliability Copyright Logia Tuition 2009 5 1.Assets Features of Assets: Controlled by the entity Results of Past events Future Economic benefits Probable benefits will flow to entity Measured with Reliability Copyright Logia Tuition 2009 6 1.Assets Examples of Asset accounts: Cash Accounts receivable Inventory Prepaid Insurance/wage/whatever Plant/Property/Equipment (PPE) Depreciation (Contra asset account to PPE) Goodwill Allowance for doubtful debts Copyright Logia Tuition 2009 7 1.Liabilities Features of a liability: Present obligation Past Event Future economic/monetary outflow Probable outflow from the entity Can measure with reliability Need to know common liability accounts off by heart Need to recognise which account would be a liability Copyright Logia Tuition 2009 8 1.Examples of Liabilities These are Liability accounts: Accounts payable Wage payable Tax payable Unearned Revenue Long-term debt Dividends payable Copyright Logia Tuition 2009 9 1.Current vs Non-Current Current refers to realised/paid within the next 12 months Settled within the normal operating cycle Copyright Logia Tuition 2009 10 1.Example 1 Cash Building Accounts Payable Computer Bank Loan Current Non-Current Current Non-Current Non-Current Copyright Logia Tuition 2009 11 1.Owners Equity and Income Statement Residual asset of company Owners Equity = Net Asset = Asset – Liability Statement of financial performance Income Statement -> PROFIT Copyright Logia Tuition 2009 12 1.Change in Owners Equity Start of Year Balance + New Contributions (New Shares issue) + Profit/ - Lost (Revenue – Expense) + Increase in Reserves Dividends End of year Balance Copyright Logia Tuition 2009 13 1.Owners Equity Accounts Examples of Owners Equity accounts: Share Equity/ Capital Retained Earnings Revaluation Reserve General Reserve Personal Drawings Copyright Logia Tuition 2009 14 1.Income Statement Revenue – Expense = Profit Measure performance over a time Structure: Revenue Expense Profit Before Tax Tax _ Profit After Tax Copyright Logia Tuition 2009 15 1.Revenue Two Forms: - “Revenue” Through ordinary activities of the entity - Gains May or may not arise in ordinary activities Very little Difference Separated usefully for decision making Copyright Logia Tuition 2009 16 1.Revenue Examples of Revenue (accounts): Sales Gain from sales of Plant/Property/Equipment Fees Copyright Logia Tuition 2009 17 1.Expense Decrease in economic benefits during the period Cash outflow Increases liability or decreases assets. Copyright Logia Tuition 2009 18 1.Expense Examples of Expense (accounts): Cost of Goods Sold (COGS) Advertising/Marketing expense Insurance expense Depreciation expense Interest expense Bad Debt Expense Copyright Logia Tuition 2009 19 1.Link between BS and IS Balance Sheet: o Income Statement: Assets Revenue xxxx o Liabilities xxxx o Owners Equity xxxx Profit xxxx - Expenses xxxx_____ Profit xxxx Copyright Logia Tuition 2009 20 1.Retained Profits Profits left over after paying out dividends Net Profits – Dividends = Retained Profits Copyright Logia Tuition 2009 21 1.Summary Balance Sheet: Assets Liability Owners Equity Assets = Liability + Owners Equity Income Statement: Expense Revenue Profit = Revenue - Expense Copyright Logia Tuition 2009 22 2. Journal Entires Session Session 1 Session 2 Topic Slides 1 . Introduction to Accounting & Balance Sheet 2 2. Journal Entry 23 3. Accounting Cycle Only available to LOGIA students 4. Assumptions and Background Session 4 Only available to LOGIA students 6. Inventory and Bad Debt Session 3 5. Bank Reconciliation and Cash 37 7. NCA and Depreciation Only available to LOGIA students 8. Liability and Contingent Liab Copyright Logia Tuition 2009 23 2. Journal Entries / Transaction Concept of Double Entry Accounting Debits (DR) = Credits (CR) When you Debit something, you must Credit something else. Copyright Logia Tuition 2009 24 2. Journal Entries / Transaction Assets is Dr, Liability & OE is Cr Dr A Cr = L Cr + Dr Cr OE Dr MUST MEMORISE Copyright Logia Tuition 2009 25 Journal Entries / Transaction Revenue must Cr, Expense must Dr Cr Profit (OE) = Cr Dr Revenue – Expense Cannot Dr Revenue or Cr Expense MUST MEMORISE Copyright Logia Tuition 2009 26 2. Journal Entries / Transaction Format of Journal Entries: Date Dr Account 1 Cr Account 2 $XXX $XXX Debits (DR) = Credits (CR) Sorted chronologically by date Copyright Logia Tuition 2009 27 2. Journal Entries / Transaction Can have more than two accounts involved Date Dr Account 1 Dr Account 2 Dr Account 3 Cr Account 4 Cr Account 5 $A $B $C $X $Y Note: A + B + C = X + Y………….. DR = CR Copyright Logia Tuition 2009 28 2. Tips Try this method when you are stuck: 1. Ask yourself what is happening? 2. Which two (or more) accounts are affected? 3. Does this account go down or up in value? 4. What type of account is it(A,L,OE, Exp, Rev)? 5. Does this mean a DR or CR? 6. Write the Journal Entry Copyright Logia Tuition 2009 29 2. Example On 1/5/09, we paid $900 for office supplies 1. Ask yourself what is happening? - you are buying offices supplies 2. Which two (or more) accounts are affected? - Cash and office supplies 3. Does this account go down or up in value? - Cash goes down, office supplies goes up 4. What type of account is it(A,L,OE,Exp,Rev)? - Cash (Asset), Office Supplies (Asset) Copyright Logia Tuition 2009 30 2. Example 5. Does this mean a DR or CR? Dr Office Supplies, Cr Cash 6. Write the Journal Entry 1/5/09 Dr Office Supplies Cr Cash $900 $900 Copyright Logia Tuition 2009 31 2. More Tips If it does not say, assume you paid cash to buy it Cheque also goes in the cash account If you don’t know what the account is called, look at the BS or IS Never Dr a Revenue or Cr a Expense Copyright Logia Tuition 2009 32 2. More Tips If Assets goes up, two possibility Assets = Liability + Owners Equity OR Assets = Liability + Owners Equity Note: Can also be a mixture Copyright Logia Tuition 2009 33 2. More Tips If Profit goes up, two possibility Profit = Revenue - Expense OR Profit = Revenue – Expense Note: Can also be a mixture Copyright Logia Tuition 2009 34 2. Example On 23/5/09, issued $31,000 worth of Shares 1. Ask yourself what is happening? - you are issuing shares for cash 2. Which two (or more) accounts are affected? - Not too sure?? - Look on the BS and go through each account. - “Share Capital” and Cash 3. Does this account go down or up in value? - Share Capital up, Cash goes up Copyright Logia Tuition 2009 35 2. Example 4. What type of account is it(A,L,OE)? - Share Capital (OE), Cash (Asset) 5. Does this mean a DR or CR? Dr Cash, Cr Share Capital 6. Write the Journal Entry 23/5/09 Dr Cash $31,000 Cr Share Capital $31,000 Copyright Logia Tuition 2009 36 6. Inventory and Bad Debt Session Session 1 Session 2 Topic Slides 1 . Introduction to Accounting & Balance Sheet 2 2. Journal Entry 23 3. Accounting Cycle Only available to LOGIA students 4. Assumptions and Background Session 4 Only available to LOGIA students 6. Inventory and Bad Debt Session 3 5. Bank Reconciliation and Cash 37 7. NCA and Depreciation Only available to LOGIA students 8. Liability and Contingent Liab Copyright Logia Tuition 2009 37 6. Cost of Good Sold (COGS) When you make a sale, TWO journal Entries Dr Cash / A/c rec (A) Cr Revenue (A) Sale Price Sale Price Dr COGS (E) Cr Inventory (A) Cost Price Cost Price Copyright Logia Tuition 2009 38 6.Selling on Credit Benefit: Provide more revenue Cost: Risk of not being paid Time value of money Can expect not all accounts receivable will be paid Copyright Logia Tuition 2009 39 6. Bad Debts Two methods to account for bad debt Direct write off Allowance Method Direct Write off Debt is written off as bad when there is direct evidence you wont get you money back Rarely used because it doesn’t give full picture. Dr Bad Debt Expense, Cr Accounts Receivable Copyright Logia Tuition 2009 40 6. Allowance Method Estimate the years bad debt expense Create an allowance for doubtful debts Two Stage process: 1. 2. Create a “Contra” account Write-off the bad debt Copyright Logia Tuition 2009 41 6. Estimating allowance for doubtful debts Two methods Net Credits sales method: Eg: Past examples tell us we do not collect 2% of credit sales, so estimate 2% of credit sales Copyright Logia Tuition 2009 42 6. Estimating allowance for doubtful debts Ageing method: 40,450 6080 2240 3380 8750 20000 Copyright Logia Tuition 2009 43 6. Contra Accounts An account for deduction of related account “Opposite Asset Account” therefore carries a Cr amount Sits on the asset side of the BS Examples: Accumulated deprecation Allowance for DD Copyright Logia Tuition 2009 44 6. Journal Entries for Bad Debt Setting up ADD based on allowance Dr Bad Debts Expense (E) XXX Cr Allowance for Doubtful Debt (Contra) When it is certain they cannot pay it back Dr ADD Cr Accounts receivable XXX YYY YYY If some written off debts gets recovered Dr Accounts receivable Cr ADD ZZZ ZZZ Copyright Logia Tuition 2009 45 6. Example Based on the ageing method example: Set up the Allowance of Doubtful Debt account: Dr Bad Debts Expense (E) 40,050 Cr Allowance for Doubtful Debt (Contra) 40,050 A customer owing 2000 has confirmed he cannot pay it back: Dr Allowance for Doubtful Debt Cr Accounts receivable 2000 2000 Copyright Logia Tuition 2009 46 6. Example Based on the ageing method example: The customer has now found money to pay it back Dr Accounts receivable Cr Allowance for Doubtful Debt 2000 Dr CAB Cr Accounts receivable 2000 2000 2000 Copyright Logia Tuition 2009 47 6. Inventory Assets purchased or manufactured for sale Inventory Turnover = COGS / average inventory Days in inventory = 365 / inventory turnover Cost of inventory: Cost of purchase + Cost of conversion Two Recording System Perpetual: Inventory is updated all the time Periodic: Inventory is updated at certain times What has been sold is deduce rather than known Copyright Logia Tuition 2009 48 6. Returns and Allowance If perpetual, no need for allowance, else need to create an allowance account (contra) Example: receive a credit note of inventory returned Perpetual: Dr A/P, Cr Inventory Periodic: Dr A/P, Cr Purchases Return and allowance Similar thing for sales return Copyright Logia Tuition 2009 49 6. Cost Flow Assumption Used to calculate the COGS and closing inventory First in, first out (FIFO) Last in, first out (LIFO) Weighted Average Both in the periodic and perpetual system Periodic – do right at the end Perpetual – calculate every time a new purchase Copyright Logia Tuition 2009 50 6. Example 1. 2. 3. 4. 5. Brought 100 items at $5 each Brought 200 items at $6 each Sold 200 items Brought 300 items at 7$ Sold 250 items Number sold = 450, Periodic COGS (LIFO) = 300 * 7 + 150 * 6 COGS (FIFO) = 100 * 5 + 200 *6 + 150*7 COGS (W.A): Average price = (100*5 + 200*6 + 300 *7 ) / 600 = COGS (W.A) = 450 * Copyright Logia Tuition 2009 51 6. Example Perpetual LIFO: Sold 200: 200 *6 = 1200, 250: 250 * 7 = 1750, Total COGS: 2950 FIFO Sold 200: 100 *5 + 100 * 6 = 1100, 250: 100 * 6 + 150 * 7 = 1650 Total COGS: 2750 Tips: Only to determine COGS. Try to do it step by step. Practice these question, not too hard, just takes long time. Copyright Logia Tuition 2009 52 6. Net Realisable Value Net Realisable Value (NRV): “Estimated selling price” Have to use the lower of NRV or cost price Made at the end of each reporting period (adjusted entry) Dr Inventory write-down expense XXX Cr Inventory XXX Copyright Logia Tuition 2009 53 6. Estimating ending inventory Sometimes impossible to do an inventory count Two methods Gross profit method: COGS = Sales x (1- Gross profit %) End inventory = Beg Inv + Net purchase - COGS Retail Inventory method: Determine ending inventory at retail price Convert this amount to a cost basis Copyright Logia Tuition 2009 54 ...
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This note was uploaded on 01/22/2011 for the course ACCT 101 taught by Professor Helen during the Three '10 term at University of New South Wales.

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