Page 10 - Study Guide - Chapter 1

Study Guide - Chapter 1 – A Way of Viewing Business

Nothing ventured nothing gained is the thought that is going through my mind as I now journey into the world of accounting. All this stuff about debits, credits, financial statements, companies, and business is making my brain tick at a hundred miles an hour.

Ok so as I look at this I remember the times at school where I had studying some business studies and remembered how much I enjoyed working with figures. Mathematics skills coming to the fore as I venture into the world of accounting. So the question at this point of time is how I go about writing a reflection about the way of viewing business in my words.

I can see that business has been around since the beginning of time. It brings a fascination to all those involved. From the farmer to the wholesaler to the retailer how each one of these people value business determines whether it will be successful or fail. How do I perceive value? Value is something of worth that matters or means something to me.

I can see business as a place where I can make a difference and along the way help others do the same. The double entry system makes me think how stupid. Why would you go and make twice as much work for yourself until I realise that the double entry system is a great back up for the business. It reminds me so much about using a computer and working on this assignment I may save it to a specific file area and if I don’t back it up to another area I could run into trouble if one of the files becomes corrupt. Businesses are the same. Budgets and financial statements have the potential to influence how a business will run.

I look at a coin and know that there are two sides just as a business there is a credit and a debit. How will I connect the two together? Ok so I need to look at what each step has to occur. Building block are used as a foundation to a building project just the same as business it starts with an idea and ends up as a concept to transform what the business will be about.

From journals and ledgers to financial statements and profits and losses there is so much that can be learned. The accounting equations just to name one can be quite a mind boggling concept until we break it down into sections. By doing this we can assume that there is a model to the way in which it can be done.

By following the elements of accounting I can assume that the running of a business and the way that accounts are kept will determine how the business will be run. Businesses cannot be run without documenting their day-to-day running of their business. Businesses need to show their accountability on where their money will go.

Question 1-1

Why do we have double entry accounting?
Double entry accounting for any business is at the heart of good accounting. Every transaction has equal and opposite effects in at least two different accounts.Complete data is available, provides an arithmetic check on bookkeeping, helps track debits and credits, can help ascertain the financial position of the business, makes it easier to produce year-end accounts.

Why do we put everything twice? why not just once?
By doing it twice it helps minimise errors and increase the chance that the books balance whereas doing it once you are not able to provide a check against clerical error, does not record all transactions, does not provide a detailed record of assets, theft and loss cannot be detected.

Question 1-2

Identify Three Assets, Three Liabilities, Three Items of Equity

Three Assets

1. Property, Plant, and Equipment - Tangible fixed assets

2. Trade Receivables - are presented as current assets unless collection is not expected for more than 12 months after the reporting date

3. Intangible Assets - assets of a company which cannot be readily assigned a value such as leases, goodwill, patent rights, research and development

Three Liabilities

1. Borrowings - are classed as current liabilities unless payment is not due within 12 months of the reporting date

2. Trade and Other Payables - represent liabilities for goods and services provided to the Group prior to the end of financial year which are unpaid

3. Progressive Jackpot Liabilities - Base jackpots are charged to cost of sales when the Jackpot is one

Three Items of Equity

1. Contributed Equity - Ordinary shares are classified as equity

2. Reserves - are amounts that are retained in the business and not distributed to the owners.

3. Retained Profit - profit carried forward by a company from past financial periods to the present - If closing balance of retained profits is higher than that brought forward at the beginning of the year then shareholders'equity has increased