Apply Legal Requirements & Manage Small Business Finances Lesson 2 Cert IV - M. S. Martin January 2012

Cert IV - M. S. Martin January 2012

Apply Legal Requirements & Manage Small Business Finances

Lesson 2


Todays Lesson

• Law and the Australian Legal System• Finding Documents in Law, useful links• Continue Introduction to Small Business

Finance • Terminology used in Accounting /

Bookkeeping• Cash ‘v’ Accrual accounting


Lesson 2 - Legal


Introduction to Law & Review

In your notes / text, this will be from chapter 1

(these notes were compiled by Sydney Institute, Gymea Campus)


What is it ?

• To understand the law that applies to a given situation we have to look in a number of locations at different documents and sources of advice.

• Different sources of law for the builder could include – one or a number of ‘Acts’ created by Commonwealth,

State or Territory Parliaments, as well as – Any Regulations (detailed rules) made under that Act.


Common Law

• You might also have to consider laws called ‘common law’ which aren’t written down in an Act but have evolved through time.

• Laws that may not be written in an Act include: – ‘murder’ for example, or – the right to ‘sue’ if a person has suffered a

financial ‘loss’ caused by someone they should have been able to rely on.


Other things relevant to the Building Industry

• Australian Standards and the Building Code of Australia.

• Sometimes there are policies and guidelines and other ‘advice like documents’ that you must also refer to.

• A number of acts that builders need to know about are also likely to be different in different states. Consider this if you work across state borders.

• All may change from time to time, so you need to do your own research and keep up to date


Keeping up to Date


The Australian Legal System

This section in your text is chapter 2


The Australian Legal System

• Federal and State or Territory Parliaments• A parliament is the group of politicians from any parties

and the independents that meet to argue and make laws about their State or the Nation. The government is the party with the most elected members

• To refresh or update your knowledge of the basics of the system or to find out more, click on the link below (think of these links more as a reference source. Note: this link is written in your text )

• http://en.wikipedia.org/wiki/Law_of_Australia

http://en.wikipedia.org/wiki/Law_of_Australia



Federal and State Laws• Generally speaking laws that are able to be made through the

Constitution by the Federal Government will override any State or Territory laws that clash or overlap.

• areas of Federal Government power include some areas covered by this subject:

• tax law• insurance law• corporations law• industrial relations law

• State parliament can make laws on all other areas, such as small business, building control or changes to the development approvals process that councils must use.

• To building we are going to have to look at both Federal and State laws.


Legal Hierarchy• The laws or ‘Acts of Parliament’ made to control building may vary

from state to state.• Some states will have specific building act(s),• Others will include provisions on building under an environmental

protection act, so:• After the parliament has created an Act they may also create a

document(s) called Regulations• A Regulation will often list the detailed rules that must be complied

with – it sits under it in a hierarchy.• This hierarchy extends downward to other pieces of law including the

Building Code, Australian Standards and various codes, guidelines• See chart to help explain on next slide


A guide only to HierarchyParliament has created an Act – ‘A Law’ (eg: ‘Home Building Act’)

They also create a document(s) called Regulations – ‘rules that must be complied with’ (eg: ‘Home Building Regulation of 2004)

Building Code – ‘other pieces of Law’ (eg: The BCA)

Australian Standards – ‘other pieces of Law’ (eg: Timber framing code AS 1684)

Various codes, guidelines (eg: WorkCover codes of practice)


Common Law

• Read over this section of the text with the following in mind

• ………… Act or regulation will ultimately depend on how a court interprets the legislation

• Discuss …. What does this mean to us in relation to building Law ?


An Act

• List of contents at the beginning, depicts their content• divided up into chunks to make it possible to find things• The names of these chunks and their hierarchical relationship

to each other are:– Part– Division– Section– Subsection.

• Generally you will find similar things are logically grouped into a Division or Divisions, or a Part. For example, the Strata Titles Act 1988 (SA),– Part 2 Division of Lands by Strata Plan


To Find An Act or Regulation

• To find a specific act or regulation go to http://www.austlii.com/

• Your State or Territory…. ?

http://www.austlii.com/



Tips for http://www.austlii.com/

• In the first window, type in an act you know ‘Home Building Act 1989’

• ‘consolidated acts’ is listed under it – This is quicker !




Consolidated Acts is…


Lesson 2 - Small Business Finance


In General, What is Accounting ?

• It could be deemed as ‘Accounting’, ‘Record Keeping’ or ‘Bookkeeping’

• Its function is to:– Firstly Record – Secondly Classify – Then Summarise– Lastly report & evaluate the financial activities of a

business


Recording• Before you can record anything, there has to be something to record. • As far as accounting or bookkeeping is concerned, this something

consists of a “transaction” something that has affected the business. • Typically this transaction is called a “document” • One example you would be familiar with would be when you buy

something – There will be items such as a cheque and other documents such as an invoice

or a purchase order. – These items are what we mean by ‘documents’ and these and many other

items are what get recorded• The first step of recording is to enter these in something called a

‘journal’– This is simply a recording of all the transactions in a logical order, and we’ll

look at specific types later, as well as how things are classified and summarised


Classifying

• Classifying your accounts sounds in depth• But it simply means ‘giving them a name’

breaking them up into parts if you like• For example: sales, purchases, assets, and

liabilities, etc.


Summarising & Reporting

• This happens in the form of ‘reports’• Financial reports are where the summarised

information is presented • One form of these reports would be a Financial Plan• These can be in various forms and you may liken

them to something like a “Budget” which you may do for your own personal finances.


Financial Information Requirements and Definitions

Next 20 slides courtesy of M Naidofski, with some additions by me

Financial Information Requirements

• In this topic we will be looking and analyzing the financial cycle of a business.

• This cycle may be summarized by the following diagram

Financial Information RequirementsBusiness Transaction Occurs

Raw Data Recorded

Data posted to Accounts

Data Analyzed

Reports Produced

Ad Hoc Job P/L Accounting Reports Tax Reports

Professionals to Assist

Accountants – Are professionals who trained to assist in the preparations of Financial Reports.

They are trained to interpret the data and provide advice in regards to this data

Accountants

• Professional associations will include

– Certified Practicing Accountants (CPA) are members of CPA Australia.

– National Institute of Accountants (MNIA) are members of National Institute of Accountants Australia.

– Chartered Accountants are members of the Institute of Chartered Accountants in Australia


• Bookkeepers • Records the day-to-day financial transactions

of an organisation.

• Organises data for others to use and interpret.

• A Bookkeeper will not interpret and provide advice from this data.


Lawyers - Provide legal advice to ensure that you’re recording and use of your data complies with relevant,

• Tax Legislation

• Accounting Standards


• Industry Associations –

• MBA & HIA

• Provide advice on legal requirements in the day to day running of a businesses


• Business Brokers –acts as an intermediary between sellers and buyers of small businesses.

• Conduct financial inquires on prospective purchasers to determine if they are financially capable to complete the transaction.


• Australian Tax Office (ATO)– The ATO provide services and documentation to assist in compliance with relevant tax laws.

• The ATO also provides programs where field officers will attend your place of business and assist in the implementation of systems to record and comply with Tax Law

Legal Requirements to Keep Records

• CORPORATIONS ACT 2001 - SECT 286

• Obligation to keep financial records

• (1) A company, registered scheme or disclosing entity must keep written financial records that: – (a) correctly record and explain its transactions and financial position and performance; and – (b) would enable true and fair financial statements to be prepared and audited.

• . • Period for which records must be retained • (2) The financial records must be retained for 7 years after the transactions covered by the

records are completed.

• Strict liability offences

• (3) An offence based on subsection (1) or (2) is an offence of strict liability.

http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s9.html














Legal Requirements to Keep Records

• Income Tax Requirements (this is what we looked at last week)

Definitions

• Assets may describe as items owned or controlled by a company that can be converted to cash at a future date. Items may include

• Cash on Hand• Cash in Bank• Vehicles• Plant• Tools• Real Estate• Shares in other Companies• Accounts Receivable (i.e. money owed to the company by Customers)• Goodwill

Definitions

• Liabilities are obligation of an entity arising from past transactions or events

• Accounts Payable (money owed by the Company to suppliers)• Bank Loans• Debentures

Definitions

• Owners Equity is the residual value of the company after deducting liabilities away from assets.

• Theoretically this is the sale price of the company but rarely this is the case.

• Owners Equity = Asset – Liabilities

Goodwill

• Goodwill – The difference between owners equity & sale price is defined as Goodwill and is an Asset

Cash Accounting

• Cash Accounting – is where your business records the flow of money

• An accounting method where receipts are recorded during the period they are received, and the expenses in the period in which they are actually paid

Accrual Accounting• ACCRUAL ACCOUNTING - An accounting method that measures the

performance and position of a company by recognizing economic events regardless of when cash transactions occur

• The general idea is that economic events are recognized by matching revenues to expenses (the matching principle) at the time in which the transaction occurs rather than when payment is made (or received). This method allows the current cash inflows/outflows to be combined with future expected cash inflows/outflows to give a more accurate picture

Ref (second dot point): http://www.investopedia.com/terms/a/accrualaccounting.asp#ixzz1mUreBQXQ

http://www.investopedia.com/terms/a/accrualaccounting.asp



Cash / Accrual System

• In simple terms, its how you record the information.


More Simply – Cash / Accrual

• With a cash system, it is only recorded when the ‘actual’ account is paid or received

• With an Accrual system, as soon as a transaction takes place, it is recorded– When an invoice is written (money owing to you)– Or when an invoice is received (money you owe)– An invoice or monies owing to you becomes an ‘asset’– An invoice or monies / debt you owe becomes a liability– Therefore with an accrual system, at any given moment you

can take a snap shot of your cash position in your business


Simple Cash Flow (ATO example)


References

• Competency text for ‘Apply Legal Requirements & Manage Small Business Finances’

• Websites as listed below:http://www.fairtrading.nsw.gov.au/default.htmlhttp://www.ato.gov.au/businesses/http://www.austlii.com/http://www.investopedia.com/terms/a/accrualaccounting.asp#ixzz1mUreBQXQhttp://www.austlii.edu.au/au/legis/nsw/consol_act/cswa1990344/http://en.wikipedia.org/wiki/Law_of_Australia

http://www.fairtrading.nsw.gov.au/default.html

http://www.ato.gov.au/businesses/




http://www.austlii.edu.au/au/legis/nsw/consol_act/cswa1990344/

http://www.austlii.edu.au/au/legis/nsw/consol_act/cswa1990344/
