acc 08/3/3/1
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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.
This will also be specified in the Statement of Accounting Policies.
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.
This will also be specified in the Statement of Accounting Policies.
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.
This will also be specified in the Statement of Accounting Policies.
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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