Go to the wiki & Save these for later Classifying Accounts Template Preparing the Income Statement Ex 1 Classification Revision Quiz Income Statement Ex

Go to the wiki & Save these for later

• Classifying Accounts Template

• Preparing the Income Statement Ex 1

• Classification Revision Quiz

• Income Statement Ex 2

• Income Statement Ex 3

• Reports Exercises

• How to prepare a Balance Sheet

• Homework Reports B. Rayner

Making money – Legally!

Running a business

• This is a very popular way to make money.

• Just look at how many businesses there in Victoria Street.

The “keys” you need to succeed

• Knowledge about the product and service you want to sell.

• Money to set up the business and run the business until you start making money.

• An understanding of accounting – how to record and report the transactions.

To manage money…

• A manager needs accurate information.

• Accounting provides the information on which decisions are made.

The Accounting Process:Record Keeping

What, why, who, how & when

What will be recorded?

• The money going in (receipts)

• The money going out (payments)

Why will it be recorded?

• Because we might forget

• So we can make decisions– Does the price charged cover the cost

incurred?

Who will record?

• Business– Owner / manager

Who will the reports be communicated to?

• Business– The owner– The ATO

How will the reports be communicated?

• Business– Statement of Receipts & Payments– Income Statement– Balance Sheet

When will the reports be presented?

• Business– Quarterly / Annually to the ATO– Monthly to the owner

Now for some Revision

Now for some Revision

Back to the accounting process

• All information is recorded on the source documents.

–Receipts–Cheques

Record the information from Source Documents into Journals

• Cash Receipts Journal – money coming into the business e.g. receipts

• Cash Payments Journal – money paid out of the business e.g. cheques

Cash Flow

Statement of Receipts & Payments

Bank at beginning

Add Receipts

(money from customers e.g. fees)

Less Payments

(to suppliers)

(for wages)

Bank at end

But what about Profit?

• Revenue less expenses equals Profit.

But what is Revenue But what is Revenue and Expenseand Expense

Revenue – money from customers

Fees

Takings

Income

Sales

Interest from investments

Expense – money paid to earn revenue such as:

Electricity

Wages

Telephone

Computer expenses

Leasing

Insurance

Rent

Licenses

Advertising

Bank charges

Donations

Loan interest

So what does an Income Statement

look like

Income Statement

Revenue Adding TotallingFees 6000

Less ExpensesWages 500Electricity 100Bank charges 50Advertising 900Phone bill 200 1750

Profit 4250

Where does this information come from?

Get your copy ofClassifying Accounts

• Go to Revenue

You need to add:

Replace the xxxxxxxxx with Customers

Delete Balance Sheet

And Add some examples

SalesFeesTakingsIncomeGovernment grantsInterest received

Revenue

• Money from customers or the bank from the sale of goods or services.

• Put into the Income Statement• Examples– Sales– Fees– Takings– Government grants– Interest from investments

Move to the right: to Expenses

Classifying• Expenses – items are used up to earn revenue /

help run the business / things hired• Something that the business has paid for (so

they no longer owe it) and they don’t own it. Will possibly pay it again next month.

• Put in the Income Statement• Examples

Electricity Wages Advertising

Internet Bill Rent Loan interest

Rates – local gov’t tax Telephone Bank charges

Insurance Petrol Rent

Assets

Classifying• Assets – Something that is owned by the

business that will belong to the business for one month or more.

• Put in the Balance Sheet– Bank or the money the business has in the

Bank.– Debtors who are people that owe the business

money– Stock, Computers, Tools, Vehicles, GST

Refund, Buildings, Furniture, Equipment, GST Refund.

Liabilities

Classifying• Liabilities – Something that is owed by the

business that will be paid in one month or more.

• Put in the Balance Sheet– Overdraft when the business owes money to

the Bank.– Loan when the business owes money to who

ever they borrowed it from.– Creditors when the business owes money to

suppliers.– GST Payable when the business owes money

to the Australian Tax Office.

Owner’s Equity

Classifying

• Owner’s Equity – items to do with the owner.

• Put in the Balance Sheet• What the business owns (Assets) less what

it owes Liabilities.– Capital– Add new Capital– Add Profit (or Less Loss)– Drawings

The difference between Expenses and Liabilities

• Expenses have been paid already – they are not owed

• E.g. electricity

• Liabilities have not yet been paid – they are owed.

• E.g. loans that are repaid each month.

The difference between Expenses and Assets

• Expenses are used up to earn revenue.

• That means each month the business has to buy some more.

• Expenses cannot be touched; Assets can.

• Assets are bought to last for many years and the business doesn’t replace its assets like computers, tools, vehicles or office furniture each month.

Open

Classification Quiz

If you forgot to get it off the wiki do so quickly.

Before we go through the Quiz, let’s look at how you classify. It’s a process of elimination.

Classifying accounts for Business

A Flow Chart

Is the money coming from customers or is it earned?


Then is must be a Revenue. Put in the Income Statement.

Yes



Yes

No

Is the money coming from the bank?



Yes

No


YesThen it must be paid back and is owed to the bank—it is aLiability Balance Sheet



Yes

No


Yes

No

Is the money coming from the Owner?

Then it must be paid back and is owed to the bank—it is aLiability Balance Sheet



Yes

No


Yes

No


Anything to do with the owner is Owner’s Equity. In Balance Sheet.

Yes




Yes

No


Yes

No


Anything to do with the owner is Owner’s Equity. In Balance Sheet

Yes

No

Is it money owed to the business by a Debtor? The customer has the businesses money.




Yes

No


Yes

No



Yes

No

If the business owns something then its an Asset. Put in Balance Sheet.


Yes




Yes

No


Yes

No



Yes

No

Is the money being paid?

If the business owns something then its an Asset.


No

Yes




Yes

No


Yes

No



Yes

No


Yes Is it being paid for something that the business owns?



No

Yes




Yes

No


Yes

No



Yes

No




Yes


No

Yes




Yes

No


Yes

No



Yes

No




Yes


No

Yes

No

Is it Drawings—money taken out of the business by the owner for private use.




Yes

No


Yes

No


Anything to do with the owner is Owner’s Equity. Goes in the Balance Sheet.

Yes

No




Yes


No

Yes

No


Yes




Yes

No


Yes

No



Yes

No




Yes


No

Yes

No


Yes

Is it paying something the business owes.

No




Yes

No


YesThen it must be paid back and is owed to the bank—it is aLiability Balance Sheet

No



Yes

No




Yes


No

Yes

No


Yes


No

Yes



Yes

No


Yes

No



Yes

No




Yes


No

Yes

No


Yes


No

If it is not owed or owned but it is paid, then it must be an expense. Especially if it is used to earnrevenue. Income Statement.

Yes

No


Let’s to the Quiz

If you put in the right answerit will go green.

Go through the Statement of Receipts & Payments

• Classify the items listed & put them into:

– Revenue Put into the Income– Expense Put into the Income

Assets, Liabilities & Owner’s Equity

Leave until later because they get put into the Balance Sheet.


Bank at beginning 4000

Add Receipts

Fees 6000

GST Collected 600 6600

Less Payments 10600

Wages 500

Electricity 100

Drawings 1000

Bank Charges 50

Advertising 900

Phone bill 200

GST Paid 120 2870

Bank at end 7730



Add Receipts

Fees 6000 Revenue

GST Collected 600 6600

Less Payments 10600

Wages 500

Electricity 100

Drawings 1000

Bank Charges 50

Advertising 900

Phone bill 200

GST Paid 120 2870

Bank at end 7730



Add Receipts

Fees 6000 Revenue

GST Collected 600 Liability 6600

Less Payments 10600

Wages 500

Electricity 100

Drawings 1000

Bank Charges 50

Advertising 900

Phone bill 200

GST Paid 120 2870

Bank at end 7730



Add Receipts

Fees 6000 Revenue


Less Payments 10600

Wages 500 Expense

Electricity 100

Drawings 1000

Bank Charges 50

Advertising 900

Phone bill 200

GST Paid 120 2870

Bank at end 7730



Add Receipts

Fees 6000 Revenue


Less Payments 10600

Wages 500 Expense

Electricity 100 Expense

Drawings 1000

Bank Charges 50

Advertising 900

Phone bill 200

GST Paid 120 2870

Bank at end 7730



Add Receipts

Fees 6000 Revenue


Less Payments 10600

Wages 500 Expense


Drawings 1000 Owner’s Equity

Bank Charges 50

Advertising 900

Phone bill 200

GST Paid 120 2870

Bank at end 7730



Add Receipts

Fees 6000 Revenue


Less Payments 10600

Wages 500 Expense



Bank Charges 50 Expense

Advertising 900

Phone bill 200

GST Paid 120 2870

Bank at end 7730



Add Receipts

Fees 6000 Revenue


Less Payments 10600

Wages 500 Expense




Advertising 900 Expense

Phone bill 200

GST Paid 120 2870

Bank at end 7730



Add Receipts

Fees 6000 Revenue


Less Payments 10600

Wages 500 Expense





Phone bill 200 Expense

GST Paid 120 2870

Bank at end 7730



Add Receipts

Fees 6000 Revenue


Less Payments 10600

Wages 500 Expense






GST Paid 120 Liability 2870

Bank at end 7730



Add Receipts

Fees 6000 Revenue


Less Payments 10600

Wages 500 Expense






GST Paid 120 Liability 2870

Bank at end Asset 7730

Income Statement

Revenue Adding TotallingFees 6000

Less ExpensesWages 500Electricity 100Bank charges 50Advertising 900Phone bill 200 1750

Profit 4250

Warning! Warning! Warning!

• Income Statement is:

Total Revenue less Total Expenses

• Bank is an asset and is

NOT

included in the Income Statement

Classify the following without using the information on your

computer

So Switch Off Your Monitor

Classify this item & state whether it

goes in the Income Statement or not.• Electricity – hire of power from the energy

company.

• Expense – payment to supplier for an item that will assist in earning revenue.

• Income Statement

Yes

Classify this item & state whether it goes in the Income Statement or not

• Fees from customers

• Revenue – money from customers.


Yes


• Loan – money from the Bank or family

• Loan repayment – money paid to the Bank or family repaying the loan

• Liability – an item the business owes someone outside the business.


No


• Computer – purchased to prepare the journals.

• Asset – owned by the business


No


• Wages – hiring people to work for the business.

• Expense - payment to supplier for an item that will assist in earning revenue.


Yes


• GST Refund – money paid by the ATO because the ATO owed the business money.

• Asset – this will be put into the bank and the business owns it.


No


• GST Paid – money owed to the ATO

• Liability – an item the business owes someone outside the business.


No


• Capital – the money put into the business by the owner

• Drawings – the money taken out of the business by the owner.

• Owner’s Equity


No


• Loan interest – money paid for the use of the money hired from the Bank e.g. Loan

• Expense – this is used up to run the businesses


Yes


• Interest from investments – money from the business has been put into on investment account with the Bank and the Bank is paying the business interest.

• Revenue – money from customers or the Bank


Yes

OpenPreparing the Income

Statement Ex 1