acc 08/3/3/1

ACC 08/3/3/1

Level 1 AS 90022 Revision

Achievement Standard 90022

Revision Powerpoint

IntroductionThis powerpoint is designed to cover content and provide

pointers when it comes to answering questions on AS90022.

It challenges students to learn their definitions and application of accounting elements and concepts.

Teacher guidance is given in the notes at the bottom of the slide.

This could be used as an in-class revision session or provided on a school network for student use for out of class revision.

Student WorksheetA student worksheet is included which may be used

to structure a revision tutorial. (Note it is not a complete copy of all material in this powerpoint)

You might choose to give it to students prior to a revision session as preparation.

It follows the same order as the powerpoint.

Student Worksheet 90022.doc

NCEA LEVEL ONEACCOUNTING

Achievement Standard 90022

ACHIEVED MERIT EXCELLENCEDescribe accounting. Describe accounting. Fully describe

accounting.

Recognise or define or apply financial elements.

Recognise and define or apply financial elements.

Recognise, define and apply financial elements.

Recognise or define or apply accounting concepts.

Recognise and define or apply accounting concepts.

Recognise, define and apply accounting concepts.

Link to the full achievement standard

http://www.nzqa.govt.nz/nqfdocs/ncea-resource/achievements/2007/as90022.doc

This Achievement Standard may be based on either :

A sole proprietor, either service or trading firmAn incorporated or unincorporated community

organisation

It is important that you answer with SPECIFIC reference to the context (situation) you have been given

Can you…

DESCRIBE ACCOUNTING

Identify the purpose of Accounting

To provide users with useful financial and non-financial information to assist them in making informed decisions.

Identify the purpose of Financial Statements

Statement of Accounting Policies

Income Statement

Balance Sheet

Statement of Cash Flows

To set down the rules/procedures to To set down the rules/procedures to follow when preparing financial follow when preparing financial records.records.

To explain the changes in the bank To explain the changes in the bank balance by identify all Cash Receipts balance by identify all Cash Receipts and Cash Payments.and Cash Payments.

To calculate the profit or loss for the To calculate the profit or loss for the entity by specifying the Income and entity by specifying the Income and Expenses for the year.Expenses for the year.

To display the financial stability of To display the financial stability of the entity by outlining the Assets, the entity by outlining the Assets, Liabilities and Equity on a specified Liabilities and Equity on a specified date.date.

Identify the users of Accounting information and ONE reason for their interest

Owners

To assess whether their investment is worthwhile

Banks

To assess whether the business is in a position to repay a loan, ie see if they have any other liabilities

Creditors

To assess their ability to repay any credit items

Government and IRD

To assess their Tax liability

Employees

To assess the stability of the business and therefore their job securityUSERS

Identify the uses of Accounting information

assess the financial performance, financial position and cash flows of a business

determine future financial goals for a business eg. budgets

ensure the business stays solvent

assist with financial decision making

help lenders assess the security of a loan

USES

Describe the role of different types of Accountant

ACCOUNTANT DESCRIPTION

Cost Accountant

Tax Accountant

Management Accountant

Involved with calculating costs of production

(eg. In manufacturing).

Provides tax advice and preparation of tax returns etc

Involved with specific activities, eg. Budgets, reporting etc.

Accounting Technician

Financial Accountant

Auditor

Chartered Accountant

Involved with activities such as recording of transactions, tax returns,financial statement preparation.

Preparing, analysing and reporting on financial information to assist

with decision making.

They are responsible for checking that the financial records show

a true and fair view of the financial activities of the entity.

Accountants who provide a range of activities (under each of the previous headings) as well as financial advice, budgeting, tax etc

Identify the features of entities under the following categories

Sole Proprietor Partnership Company Community Organisation

Ownership

Sources of finance

Owners/members liabilities

Advantages

Disadvantages

One owner 2 or more partners 1 or more shareholders

Members

Owners funds, bank loan, family & friends, mortgage

Partners funds, bank loan, mortgage

Bank loan, mortgage, shares

Debentures (if incorporated)

Unlimited liability Unlimited liability Limited liability Unlimited liability if Unincorporated, Limited liability if Incorporated

Own boss, keep all profits, make all decisions

Share the responsibility, less stress, can benefit from more expertise

Limited liability, greater access to funds

Not for profit so can focus on needs of members

Unlimited liability, a lot of responsibility/ pressure/stress, limited access to funds

Unlimited liability, need partners to agree on decisions, responsible for partners actions

No drawings,Small shareholders have little power

LIMITED vs UNLIMITED LIABILITY UNLIMITED LIABILITYIf the business fails, the personal assets of

the owner be used to settle business debts.

LIMITED LIABILITYIf the business fails, the personal assets of

the owner be used to settle business debts.

CAN

CANNOT

FINANCIAL ELEMENTS Define ASSETSomething which is controlled by the entity,future economic benefit will flow to the entity and is the result of a past transaction

Apply the Asset definition

Why is the Equipment an asset? The Equipment was purchased in the past by the business.

The business alone can use the Equipment for production. In the future the Equipment will be used for future production which helps the business earn income.

When applying, be sureto name the asset,rather than say “it”.

Also, name the entity,rather than saying

“they”.

Write the name of the business here

Result of past transactionControlled by

the entity

Future economic benefit flows to

the entity

Complete the table by providing a definition and examples of each type of Asset

CURRENT ASSETS

INVESTMENT ASSETS

PROPERTY, PLANT AND EQUIPMENT

INTANGIBLE ASSETS

An asset which has resulted from the purchase of a “financial investment”

A physical asset which the entity expects to keep for more than the next year.

An asset which cannot be seen or touched but is still beneficial to the entity

Bank, Petty Cash, Accounts Receivable, Stock, Prepayments, Accrued Income

Machinery, Equipment, Vehicles

Goodwill, Patents

NON-CURRENT ASSETS

Term Deposit, Shares

DEFINITION EXAMPLES

An asset which the business An asset which the business expectsexpects to turn into cash within to turn into cash within the next year.the next year.

Define LIABILITYSomething which is an obligationof the entity, future economic benefitwill flow from the entity and is theresult of a past transaction

Apply the Liability definitionWhy is an Bank Overdraft a liability?In the past the business purchased goods using funds from

the bank (ie. spent more money from their bank account than they have deposited). The business is now has to pay the borrowed money back. The business will have to sacrifice future spending in order to repay the overdraft.

When applying, be sureto name the liability,rather than say “it”.

Also, name the entity,rather than saying

“they”.

Write the name of the business here

Result of past transaction Obligation of

the entity

Future economic

benefit flows from the entity

Complete the table by providing and definition and examples of each type of liability

CURRENT LIABILITIES

NON-CURRENT LIABILITIES

Liabilities the entity does not expect to have to repay within the next year

Liabilities the entity expects to have to repay within the next year

Bank Overdraft, GST Payable, Accounts Payable, Accrued Expenses, Income Received in Advance

Loan,Mortgage

DEFINITION EXAMPLES

Define EQUITYThis represents the owners financial interest in the

business. Calculated by Assets – Liabilities.

Apply the Equity definitionWhy is drawings equity?

Drawings represents the owner taking business money or assets for him/herself so is a direct reduction in equity not an expense of the business

Define ACCUMULATED FUNDThis represents the members financial interest in the

organisation. Calculated by Assets – Liabilities.

INCOMEAny inflow which increases equity through either increasing

assets or decreasing liabilities other than contribution by owner.

Apply the Income definitionWhy is Fees income?

Fees increases equity by increasing profit and increases the asset bank when money is received (inflow) for the fees or increases the asset accounts receivable if the service is provided on credit. It is not contribution by owner, but cash from customers.

Define EXPENSESAny outflow which decreases equity through either

decreasing assets or increasing liabilities other than drawings by owner.

Apply the Expense definitionWhy is wages an expense?

Wages decreases equity by decreasing profit and decreases the asset bank when money is paid (outflow) or increases accrued expense liability if wages are owing. It is not Drawings by owner, but payment to employees.

Complete the table by providing a definition and examples of each type of Expense

SELLING EXPENSE

ADMINISTRATIVE EXPENSES

FINANCE COST

DEFINITION EXAMPLES

An costs incurred directly as a result of sales or in order to try and increase sales

Any costs incurred directly as a result of everyday office operations

Any costs incurred directly as a result of trying to get funds for the entity

Advertising, Salesperson’s Salaries, Shop rent, Depreciation on Shop Fittings

Electricity, Power, Office Salaries, General Expenses, Rates

Interest

The first expense category may differ with the entity,eg. A hairdresser may have “Salon Expenses” rather than “Selling Expenses”

Distinguish between CAPITAL and REVENUE EXPENDITURE (using examples)

Capital expenditure results in an asset being created or improved, eg. Purchase of a vehicle. (It includes all costs associated with getting the asset on site and ready to use eg. Trial runs)

Revenue expenditure is spending which does not create a new asset but is an “expense”, eg. Maintenance.

Define DEPRECIATIONThis is the measure of the loss in future service potential or

economic benefit of an asset due to wear and tear and obsolescence.

Explain why we depreciateWe are required (due to the Historical Cost Concept) to

record our assets at the initial purchase price, however it is important that we do not overstate the value of our assets as this may lead to misleading information in our financial reports. To try and have a more realistic value of our assets we “write off” some of their value each year to recognise that they are no longer valued at their purchase price. The amount “written off” is classified as Depreciation

ACCOUNTING CONCEPTS Define the ACCOUNTING ENTITY CONCEPTThe personal financial affairs of the owner must be kept separate from

the financial affairs of the business.

Recognise and apply the Accounting Entity Concept

RECOGNISE APPLY

The title of the financial statements will identify which entity the reports have been prepared for.

This will also be specified in the Statement of Accounting Policies.

Accounting statements are prepared for the business and do not include the owner’s personal assets, liabilities, income or expenses

Define the MONETARY CONCEPTAll transactions need to be recorded in terms of a common

unit, ie. the dollar.

RECOGNISE APPLY

Everything written down in financial statements is given a dollar value.


All elements in the statements are given a dollar value and this enables us to compare items (eg. add up assets).

LIMITATION

It does however mean that we cannot include any items which cannot be given a dollar value. It also means that some items are estimated (eg Goodwill).

Define the GOING CONCERN CONCEPTWe assume that the business will continue to operate into

the foreseeable future.

RECOGNISE APPLY

This will be specified in the Statement of Accounting Policies.

This means that assets and liabilities can be recorded as NON-CURRENT because we assume that we will continue past the next accounting period

Define the PERIOD REPORTING CONCEPT

The life of a business is split into equal lengths of time for the purpose of financial reporting.

RECOGNISE APPLY

The title of the financial statements will identify the period for which they have been prepared.

Eg. Income Statement for the year ended 31 March 2008 measures the profit/loss for the year.

Allows us to make comparisons of profit, financial performance, cash flows and financial position from one period to the next and between similar entities

Define the ACCRUAL BASIS OF

ACCOUNTINGTransactions are recorded when they occur and reported in the

period to which they relate.RECOGNISE APPLY

Balance Day Adjustments allow us to record ALL assets and liabilities on Balance Sheet Day.


Include all amounts owed or owing on Balance Sheet Day, eg. Accrued Income, Prepayments etc.

Insurance paid is advance is recorded when it occurs but will not appear as an expense until the year the insurance relates to.

Define the HISTORICAL COST CONCEPT

We record our assets at their initial purchase price regardless of their current resale value.

RECOGNISE APPLY

Assets will be specified at their purchase price.


The PP&E table will list at Cost

Record assets at purchase price and allow for losses in value through Depreciation. This enables a more realistic value of assets to be represented.

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