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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
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.
Why will it be recorded?
• Because we might forget
• So we can make decisions– Does the price charged cover the cost
incurred?
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
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?
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
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
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.
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.
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.
Is the money coming from customers or is it earned?
Then is must be a Revenue. Put in the Income Statement.
Yes
Is the money coming from customers or is it earned?
Then is must be a Revenue. Put in the Income Statement.
Yes
No
Is the money coming from the bank?
Is the money coming from customers or is it earned?
Then is must be a Revenue. Put in the Income Statement.
Yes
No
Is the money coming from the bank?
YesThen it must be paid back and is owed to the bank—it is aLiability Balance Sheet
Is the money coming from customers or is it earned?
Then is must be a Revenue. Put in the Income Statement.
Yes
No
Is the money coming from the bank?
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
Is the money coming from customers or is it earned?
Then is must be a Revenue. Put in the Income Statement.
Yes
No
Is the money coming from the bank?
Yes
No
Is the money coming from the Owner?
Anything to do with the owner is Owner’s Equity. In Balance Sheet.
Yes
Then it must be paid back and is owed to the bank—it is aLiability Balance Sheet
Is the money coming from customers or is it earned?
Then is must be a Revenue. Put in the Income Statement.
Yes
No
Is the money coming from the bank?
Yes
No
Is the money coming from the Owner?
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.
Then it must be paid back and is owed to the bank—it is aLiability Balance Sheet
Is the money coming from customers or is it earned?
Then is must be a Revenue. Put in the Income Statement.
Yes
No
Is the money coming from the bank?
Yes
No
Is the money coming from the Owner?
Anything to do with the owner is Owner’s Equity. In Balance Sheet.
Yes
No
If the business owns something then its an Asset. Put in Balance Sheet.
Is it money owed to the business by a Debtor? The customer has the businesses money.
Yes
Then it must be paid back and is owed to the bank—it is aLiability Balance Sheet
Is the money coming from customers or is it earned?
Then is must be a Revenue. Put in the Income Statement.
Yes
No
Is the money coming from the bank?
Yes
No
Is the money coming from the Owner?
Anything to do with the owner is Owner’s Equity. In Balance Sheet.
Yes
No
Is the money being paid?
If the business owns something then its an Asset.
Is it money owed to the business by a Debtor? The customer has the businesses money.
No
Yes
Then it must be paid back and is owed to the bank—it is aLiability Balance Sheet
Is the money coming from customers or is it earned?
Then is must be a Revenue. Put in the Income Statement.
Yes
No
Is the money coming from the bank?
Yes
No
Is the money coming from the Owner?
Anything to do with the owner is Owner’s Equity. In Balance Sheet.
Yes
No
Is the money being paid?
Yes Is it being paid for something that the business owns?
If the business owns something then its an Asset.
Is it money owed to the business by a Debtor? The customer has the businesses money.
No
Yes
Then it must be paid back and is owed to the bank—it is aLiability Balance Sheet
Is the money coming from customers or is it earned?
Then is must be a Revenue. Put in the Income Statement.
Yes
No
Is the money coming from the bank?
Yes
No
Is the money coming from the Owner?
Anything to do with the owner is Owner’s Equity. In Balance Sheet.
Yes
No
Is the money being paid?
Yes Is it being paid for something that the business owns?
If the business owns something then its an Asset.
Yes
Is it money owed to the business by a Debtor? The customer has the businesses money.
No
Yes
Then it must be paid back and is owed to the bank—it is aLiability Balance Sheet
Is the money coming from customers or is it earned?
Then is must be a Revenue. Put in the Income Statement.
Yes
No
Is the money coming from the bank?
Yes
No
Is the money coming from the Owner?
Anything to do with the owner is Owner’s Equity. In Balance Sheet.
Yes
No
Is the money being paid?
Yes Is it being paid for something that the business owns?
If the business owns something then its an Asset.
Yes
Is it money owed to the business by a Debtor? The customer has the businesses money.
No
Yes
No
Is it Drawings—money taken out of the business by the owner for private use.
Then it must be paid back and is owed to the bank—it is aLiability Balance Sheet
Is the money coming from customers or is it earned?
Then is must be a Revenue. Put in the Income Statement.
Yes
No
Is the money coming from the bank?
Yes
No
Is the money coming from the Owner?
Anything to do with the owner is Owner’s Equity. Goes in the Balance Sheet.
Yes
No
Is the money being paid?
Yes Is it being paid for something that the business owns?
If the business owns something then its an Asset.
Yes
Is it money owed to the business by a Debtor? The customer has the businesses money.
No
Yes
No
Is it Drawings—money taken out of the business by the owner for private use.
Yes
Then it must be paid back and is owed to the bank—it is aLiability Balance Sheet
Is the money coming from customers or is it earned?
Then is must be a Revenue. Put in the Income Statement.
Yes
No
Is the money coming from the bank?
Yes
No
Is the money coming from the Owner?
Anything to do with the owner is Owner’s Equity. In Balance Sheet.
Yes
No
Is the money being paid?
Yes Is it being paid for something that the business owns?
If the business owns something then its an Asset.
Yes
Is it money owed to the business by a Debtor? The customer has the businesses money.
No
Yes
No
Is it Drawings—money taken out of the business by the owner for private use.
Yes
Is it paying something the business owes.
No
Then it must be paid back and is owed to the bank—it is aLiability Balance Sheet
Is the money coming from customers or is it earned?
Then is must be a Revenue. Put in the Income Statement.
Yes
No
Is the money coming from the bank?
YesThen it must be paid back and is owed to the bank—it is aLiability Balance Sheet
No
Is the money coming from the Owner?
Anything to do with the owner is Owner’s Equity. In Balance Sheet.
Yes
No
Is the money being paid?
Yes Is it being paid for something that the business owns?
If the business owns something then its an Asset.
Yes
Is it money owed to the business by a Debtor? The customer has the businesses money.
No
Yes
No
Is it Drawings—money taken out of the business by the owner for private use.
Yes
Is it paying something the business owes.
No
Yes
Is the money coming from customers or is it earned?
Then is must be a Revenue. Put in the Income Statement.
Yes
No
Is the money coming from the bank?
Yes
No
Is the money coming from the Owner?
Anything to do with the owner is Owner’s Equity. In Balance Sheet.
Yes
No
Is the money being paid?
Yes Is it being paid for something that the business owns?
If the business owns something then its an Asset.
Yes
Is it money owed to the business by a Debtor? The customer has the businesses money.
No
Yes
No
Is it Drawings—money taken out of the business by the owner for private use.
Yes
Is it paying something the business owes.
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
Then it must be paid back and is owed to the bank—it is aLiability Balance Sheet
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.
Statement of Receipts & Payments
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
Statement of Receipts & Payments
Bank at beginning 4000
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
Statement of Receipts & Payments
Bank at beginning 4000
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
Statement of Receipts & Payments
Bank at beginning 4000
Add Receipts
Fees 6000 Revenue
GST Collected 600 Liability 6600
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
Statement of Receipts & Payments
Bank at beginning 4000
Add Receipts
Fees 6000 Revenue
GST Collected 600 Liability 6600
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
Statement of Receipts & Payments
Bank at beginning 4000
Add Receipts
Fees 6000 Revenue
GST Collected 600 Liability 6600
Less Payments 10600
Wages 500 Expense
Electricity 100 Expense
Drawings 1000 Owner’s Equity
Bank Charges 50
Advertising 900
Phone bill 200
GST Paid 120 2870
Bank at end 7730
Statement of Receipts & Payments
Bank at beginning 4000
Add Receipts
Fees 6000 Revenue
GST Collected 600 Liability 6600
Less Payments 10600
Wages 500 Expense
Electricity 100 Expense
Drawings 1000 Owner’s Equity
Bank Charges 50 Expense
Advertising 900
Phone bill 200
GST Paid 120 2870
Bank at end 7730
Statement of Receipts & Payments
Bank at beginning 4000
Add Receipts
Fees 6000 Revenue
GST Collected 600 Liability 6600
Less Payments 10600
Wages 500 Expense
Electricity 100 Expense
Drawings 1000 Owner’s Equity
Bank Charges 50 Expense
Advertising 900 Expense
Phone bill 200
GST Paid 120 2870
Bank at end 7730
Statement of Receipts & Payments
Bank at beginning 4000
Add Receipts
Fees 6000 Revenue
GST Collected 600 Liability 6600
Less Payments 10600
Wages 500 Expense
Electricity 100 Expense
Drawings 1000 Owner’s Equity
Bank Charges 50 Expense
Advertising 900 Expense
Phone bill 200 Expense
GST Paid 120 2870
Bank at end 7730
Statement of Receipts & Payments
Bank at beginning 4000
Add Receipts
Fees 6000 Revenue
GST Collected 600 Liability 6600
Less Payments 10600
Wages 500 Expense
Electricity 100 Expense
Drawings 1000 Owner’s Equity
Bank Charges 50 Expense
Advertising 900 Expense
Phone bill 200 Expense
GST Paid 120 Liability 2870
Bank at end 7730
Statement of Receipts & Payments
Bank at beginning 4000
Add Receipts
Fees 6000 Revenue
GST Collected 600 Liability 6600
Less Payments 10600
Wages 500 Expense
Electricity 100 Expense
Drawings 1000 Owner’s Equity
Bank Charges 50 Expense
Advertising 900 Expense
Phone bill 200 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 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.
• Income Statement
Yes
Classify this item & state whether it goes in the Income Statement or not
• 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.
• Income Statement
No
Classify this item & state whether it goes in the Income Statement or not
• Computer – purchased to prepare the journals.
• Asset – owned by the business
• Income Statement
No
Classify this item & state whether it goes in the Income Statement or not
• Wages – hiring people to work for the business.
• 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
• 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.
• Income Statement
No
Classify this item & state whether it goes in the Income Statement or not
• GST Paid – money owed to the ATO
• Liability – an item the business owes someone outside the business.
• Income Statement
No
Classify this item & state whether it goes in the Income Statement or not
• Capital – the money put into the business by the owner
• Drawings – the money taken out of the business by the owner.
• Owner’s Equity
• Income Statement
No
Classify this item & state whether it goes in the Income Statement or not
• 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
• Income Statement
Yes
Classify this item & state whether it goes in the Income Statement or not
• 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
• Income Statement
Yes