why study vce accounting?

WHAT IS ACCOUNTING?

Every business is diff erent…

WHAT IS ACCOUNTING?

Who’s doing well?

Who’s doing poorly?

What does “well” even

mean?

How much profit did the business make?

Does the business have enough cash?

Which stock is selling well/poorly?

Can the business afford to expand?

Are the firm’s shares over or under-valued?

What does the business own?

What are the firm’s debts and when are they due?

What return is the firm making on the owner’s investment?

Questions?

Every business tells its story with 3 bits of paper called fi nancial reports…

WHAT IS ACCOUNTING?

Income Statement

Balance Sheet

Cash Flow Statement

These fi nancial reports are made up of fi nancial transacti ons :

WHAT IS ACCOUNTING?

Purchases of stock

Purchase of cars

Loan repayments

GST

Investments Wages paid

Cash salesLoansRent

Phone bill Credit salesElectricity

A business makes these 3 reports at the end of each reporti ng period :

1 month

3 months

6 months

12 months

WHAT IS ACCOUNTING?

Reporting Period

Transaction

Transaction

Transaction

Transaction

Transaction

Transaction

Transaction

Transaction

Transaction

Transaction

Transaction

Transaction

Transaction

Transaction

Transaction

Transaction

Income Statement

Balance Sheet

Cash Flow Statement

How much profit did the business make?

Does the business have enough cash?

Which stock is selling well/poorly?

Can the business afford to expand?

Are the firm’s shares over or under-valued?

What does the business own?

What are the firm’s debts and when are they due?

What return is the firm making on the owner’s investment?

Questions

Now we can answer these questi ons…

These reports are prepared for several users of accounti ng informati on…

Management

Employees

Owners

Investors

Tax Office CustomersSuppliers

Government

WHAT IS ACCOUNTING?

So… what is Accounti ng?

Recording every individual transaction that takes place

Preparing the 3 fi nancial reports which summarise these transactions

Interpreti ng and analysing these reports for users of these reports

Making decisions based on these reports

WHAT IS ACCOUNTING?

Users Interpret

and Analyse

Prepare Reports

Record Transacti

ons

Make Decisions

VCE ACCOUNTING – SOME MYTHS

I need to be good at Maths to study Accounti ng

Accounti ng requires only basic arithmeti c – there are no mathemati cal formulas or functi ons…


You only need a basic calculator – graphics calculators are BANNED in SACs and Exams because you don’t need them

I need to do have studied Accounti ng before to do Year 12 Accounti ng

There is no prerequisite subject for Year 12 Accounti ng

But Year 12 Accounti ng wil l help if you want to study Commerce at TAFE/uni…


Year

10

Year

11

Year

12

Bachelor of Commerce

ACT10001 Accounting Reports and Analysis

Bachelor of Commerce

MAA103 Accounting for Decision-Making

Bachelor of Business

BUS1AFB Accounting and Finance

Bachelor of Business

ACCT2105 Accounting in Organisations

Accounti ng isn’t a “scoring ” subject

So how is Accounti ng scaled?

Year Mean

20 25 30 35 40 45 50

2014 31.1 20 25 31 36 41 46 50

2013 30.6 19 25 30 36 41 46 50

2012 30.5 19 24 30 35 41 46 50

2011 30.4 18 24 30 36 41 46 50

Year Mean

20 25 30 35 40 45 50

2014 31.1 20 25 31 36 41 46 50

2013 30.6 19 25 30 36 41 46 50

2012 30.5 19 24 30 35 41 46 50

2011 30.4 18 24 30 36 41 46 50

Year Mean

20 25 30 35 40 45 50

2014 31.1 20 25 31 36 41 46 50

2013 30.6 19 25 30 36 41 46 50

2012 30.5 19 24 30 35 41 46 50

2011 30.4 18 24 30 36 41 46 50

Year Mean

20 25 30 35 40 45 50

2014 31.1 20 25 31 36 41 46 50

2013 30.6 19 25 30 36 41 46 50

2012 30.5 19 24 30 35 41 46 50

2011 30.4 18 24 30 36 41 46 50

Year Mean

20 25 30 35 40 45 50

2014 31.1 20 25 31 36 41 46 50

2013 30.6 19 25 30 36 41 46 50

2012 30.5 19 24 30 35 41 46 50

2011 30.4 18 24 30 36 41 46 50

Year Mean

20 25 30 35 40 45 50

2014 31.1 20 25 31 36 41 46 50

2013 30.6 19 25 30 36 41 46 50

2012 30.5 19 24 30 35 41 46 50

2011 30.4 18 24 30 36 41 46 50

Year Mean

20 25 30 35 40 45 50

2014 31.1 20 25 31 36 41 46 50

2013 30.6 19 25 30 36 41 46 50

2012 30.5 19 24 30 35 41 46 50

2011 30.4 18 24 30 36 41 46 50

Year Mean

20 25 30 35 40 45 50

2014 31.1 20 25 31 36 41 46 50

2013 30.6 19 25 30 36 41 46 50

2012 30.5 19 24 30 35 41 46 50

2011 30.4 18 24 30 36 41 46 50


Accounti ng is just for students who want to become Accountants

Myth – only people wanti ng to study Accounti ng at university should study VCE Accounti ng

Whatever profession you do, a background in Accounti ng and Finance is essenti al in many careers such as:


Small business owner

Banking

Lawyer

Stockbroker/trader

Engineer

Marketing and advertising

Retail

Sports management

WHAT WILL I LEARN IN VCE ACCOUNTING?

Accounti ng helps you read the 3 fi nancial reports

WHAT WILL I LEARN IN VCE ACCOUNTING?

Income Statement

Balance Sheet

Cash Flow Statement

THE INCOME STATEMENT

Looks at Revenues , Expenses and Net Profi t…

E.g. this month the business had the following transacti ons…


Net ProfitRevenue Earned

Expenses Incurred

=

Sales$30,000

Phone bill$500

Advertising$1,000

Wages$10,500

Rent$8,000

$30,000 $20,000$10,000

Isn’t Revenue Earned just the Cash Received by the business? NO – these are diff erent things… E.g. three diff erent furniture stores

Business A

Business B

Revenue Earned

Cash Received

$5,000

$5,000

$5,000

$0

Business C

$0 $5,000

Sells a $5,000 couch and receives cash

Sells a $5,000 couch on credit with 24 months to pay

Borrows $5,000 from the bank


Aren’t Expenses Incurred just the Cash Paid by the business? NO – these are diff erent things… E.g. three diff erent furniture stores

Business A

Business B

Expense Incurred

Cash Paid

$100

$100

$100

$0

Business C

$0 $100

Receives a $100 phone bill and pays it in cash

Receives a $100 phone bill and will pay it next month

Pays back $100 off the loan to the bank


The Income Statement

So there’s a diff erence between Net Profi t and Cash?

What do you pay the bil ls with?


1994 1995 1996 1997 1998 1999 2000 -

100

200

300

400

500

600

700

800

900

1,000

440 489 493

105

703

893

979 Enron Net Profit ($m)

Went bankrupt in 2001…

THE BALANCE SHEET

THE BALANCE SHEET

The Balance Sheet is set out in a “BIG T” with 3 sections:

Balance Sheet

AssetsLiabilitie

sOwner’s Equity

Balance Sheet

Reports what the business owns and what it owes

• Things the business owns are called Assets

• Things the business owes are called Liabilities

Example: you need $800 for a new phone but you only have $600 in your bank account

To make up the diff erence, your parents give you $200 as a loan to buy the phone to be repaid by the end of the year

THE BALANCE SHEET

How much are your Assets?

Assets

Liabilities

Owner’s Equity

$800

How much are your

Liabilities?$200

$600So how of the phone do you

actually “own”?

This relationship between Assets, Liabiliti es and Owner’s Equity is expressed as the “Accounti ng Equati on”

AssetsLiabilitie

sOwner’s Equity= +

$800 $200 $600= +

THE BALANCE SHEET

The “Accounting Equation” also applies in your personal life… Example: you decide to buy a house worth $500,000:

You have $100,000 in cash in the bank

You will need to borrow the remaining $400,000 from the bank

How much do you “own” of the house?

How much does the bank “own”?

$100,000 $400,000

House value

$500,000

The $100,000 is your Owner’s Equity in

the house

The $400,000 is your Liability or how much you owe on the house

AssetsLiabilitie

sOwner’s Equity= +$500,000 $400,000 $100,000

THE BALANCE SHEET

The “Accounting Equation” will change over time…

This year you pay off $50,000 from the loan

Next year you pay off $70,000 from the loan

$500,000

$400,000

$100,000= +$500,000 $350,000 $150,000$500,000 $280,000 $220,000

THE BALANCE SHEET

How do people and businesses go broke? They end up with a negati ve balance in Owner’s Equity…

So being broke happens when you have Negati ve Owner’s Equity

In other words…

AssetsLiabilitie

sOwner’s Equity= +$100,00

0$110,00

0—

$10,000

BROKE=<Assets

Liabilities

THE BALANCE SHEET

You buy a $900,000 house with a $800,000 loan and $100,000 cash of your own…

A year later, there’s a crash in the property market and your property is now worth only $600,000

AssetsLiabilitie

sOwner’s Equity= +$900,00

0$800,00

0$100,00

0$600,00

0$800,00

0

—$200,00

0

THE BALANCE SHEET

THE BALANCE SHEET

2001 2002 2003 2004 2005 2006 2007 -

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

1,255 975

1,699

2,369

3,260

3,941 4,192

Lehman Brothers Net Profit ($m)


THE BALANCE SHEET

2001 2002 2003 2004 2005 2006 2007

247,816 260,336

312,061 357,168

410,063

503,545

691,063

Lehman Brothers - Total Assets (in $ Millions)

THE BALANCE SHEET

2001 2002 2003 2004 2005 2006 2007

247

,816

260

,336

312

,061

357

,168

410

,063

503

,545

691

,063

239

,357

251

,394

298

,887

342

,248

393

,269

484

,354

668

,573

Lehman Brothers - Total Assets and Liabilities (in $ Millions)Total Assets Total Liabilities

THE BALANCE SHEET

By September 2008…

Lehman’s went bankrupt in one weekend in September 2008

The biggest bankruptcy in US history

How much cash did Lehman’s have?

Total Liabilities

$768 Billion

Total Assets$639

Billion<

AssetsLiabilitie

sOwner’s Equity= +$639 B $768 B —$139 B

$7.3 B

THE CASH FLOW STATEMENT

So Cash is REALLY important

But we already have a Balance Sheet that shows us how much cash a business has

Why do we need another report called the Cash Flow Statement?


Business A

Business B

Cash Balance

$10,000

$10,000

Business C

$10,000

Made a $10,000 sale and received cash

Sold one of the firm’s delivery vans for $10,000 cash

Borrowed $10,000 cash from the bank


2001 2002 2003 2004 2005 2006 2007 -

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

3.3 6.8 12.1

21.4

52.3

81.0

143.1

ABC Learning – Net Profit ($m)



2005 2006 2007 -

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

52.3

81.0

143.1

45.7

88.0

123.1

Net Profit ($m) Net Increase/ Decrease in Cash ($m)

The Cash Flow Statement Is good because it not only tells us how much cash a business has but also where the money comes from


Operating activities

• Cash made from the daily operations of the business

• Selling goods and services (and paying for them too)

Investing activities

• Cash made from the buying and selling Non-Current Assets

• E.g. property, vehicles, computers

Financing activities

• Cash made from borrowing money (and paying it back)

Cash Balance

Operating

Investing

Financing

Operating

Investing

Financing

Operating

Investing

Financing

Operating

Investing

Financing

Operating

Investing

Financing

Operating

Investing

Financing

Operating

Investing

Financing

Operating

Investing

Financing

Operating

Investing

Financing

Operating

Investing

Financing

Operating

Investing

Financing

Operating

Investing

Financing

Operating

Investing

Financing

Operating

Investing

Financing

Cash Inflows

Money comes into the

business from 3 sources

Cash comes in from selling goods and services:

• Cash sales

• Debtor collections

• GST received

Cash comes in from selling Non-Current Assets:

• Property

• Vehicles

• Equipment

Cash comes in from

• Borrowings (loans)

• Capital contributions

Cash is spent on running the business on a daily basis • Wages• Creditor

payments• Stock

purchases• Expenses paid

Cash is spent on buying Non-Current Assets • Property

• Vehicles

• Equipment

Cash is spent on

• Loan repayments

• Drawings

Cash Outflows

Money leaves the business in

3 ways



2005 2006 2007

-2,000.0

-1,500.0

-1,000.0

-500.0

-

500.0

1,000.0

1,500.0

2,000.0

43.2 89.2 206.9

-454.0

-851.3

-1579.4

456.5

850.1

1495.6

ABC Learning – Net Cash Flows ($m)

Operating Activities ($m)

Investing Ac-tivities ($m)

Financing Ac-tivities ($m)


So together the 3 fi nancial reports tell the full story of any business…

Income Statement

Balance Sheet

Cash Flow Statement

VCE ACCOUNTING COURSE BREAKDOWN

COURSE BREAKDOWN• Course structure…

Unit 1 – Establishing and operating a service business

• Area of Study 1 – Going into business

• Area of Study 2 – Recording financial data and preparing financial reports

Unit 2 – Accounting for a Trading Business

• Area of Study 1 – Recording financial data and preparing financial reports

• Area of Study 2 – ICT in accounting

• Area of Study 3 – Evaluation of business performance

Unit 3 – Recording and Reporting for a Trading Business

• Area of Study 1 – Recording financial data

• Area of Study 2 – Balance-day adjustments and interpreting financial information

Unit 4 – Control and Analysis of Business Performance

• Area of Study 1 – Extension of recording and reporting

• Area of Study 2 – Financial planning and decision-making

COURSE BREAKDOWN

• Unit 3/4 structure…

0% 50% 100%

Unit 3 SACs; 25%

Unit 4 SACs; 25%

Exam; 50%


0% 50% 100%

Unit 3

SACs;

25%

Unit 4

SACs;

25%

Exam;

50%

COURSE BREAKDOWN

70% 30%


COURSE BREAKDOWN

70% 30%

0% 50% 100%

Unit 3

SACs;

25%

Unit 4

SACs;

25%

Exam;

50%

RESOURCES

• Our YouTube Channel… 200+ videos

RESOURCES

https://www.youtube.com/c/MichaelAllisonVCEAccountingVideos





• Our Slideshare Channel… 200+ PowerPoints/PDFs

RESOURCES

http://www.slideshare.net/mjall3




• Any questions please contact me…

Michael AllisonOffi ce R113 (between R13 and R14)

[email protected]

03 9854 3600

RESOURCES

mailto:[email protected]

why study vce accounting?

Education