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MY EXPERIENCE IN FINANCIAL ACCOUNTING BY RICHARD DOHERTY - S00200915 (Why…
MY EXPERIENCE IN FINANCIAL ACCOUNTING
BY
RICHARD DOHERTY
- S00200915
What is Accounting?
Preliminary thought
What I Knew
Book-keeping:
the first thought that springs to mind that described my great-grandfather who was an accountant.
A system of recording transactions within a business.
Help manage money/ finance
Legal requirement for
revenue
I knew revenue was the
financial department
of the government, However, I learned in this semester that revenue means the
income earned by a business
after
it has provided a service or good.
Pay taxes and wages
V.A.T
PAYE
PRSI
Income tax
What I thought I knew (right or wrong)
Used by businesses to Budget
make decisions
record Income
Work out profits/ loss?
What I didn't know?
It is one of the oldest businesses in the world dating back to pre-Ancient Egyptian times, developed greatly by the Italian traders and systematically established by Pacioli in1299
The difference between Sales and Purchases
What I have learned so far
The Accounting Equation
Assets = Liabillities + capital
Capital
is aslo known as equity; is what the business has left after all liabilities have been settled.
total assets - total liabillities = capital
Capital does not belong to the business. It belongs to the
Owner(s)
Liabilities
are legal obligations where money is
owed
to another account, or another business owes you. Think of it
as
money out
Loans
Wages
credit
The present use of future goods.
paying later for a good or service bought today.
Accounts Payable
Assets
are resources owned by the company that are essential to conduct business.
bring money in
Assets Hold
economic value
that can be exchanged or sold.
Types of assets
Usage
( whether it is used day-to-day for the business)
Operating
Assets required in the daily running of the business
Cash
Equipment
Machinery
Non-Operating
Assets are not needed in the running of the business BUT can still generate
revenue
Short- term investments
Vacant land
Accounts receivable
(money that is owed to the business)
convertible
(how easy it is to convert into cash)
current
or liquid assets are what you have to hand, or easily converted into cash.
cash
stock
Office supplies
Non - current
or fixed are harder to convert as they are generally regarded as long-term assets needed for the business.
Land
Machinery such as lorries or printing- press
Building such as an office or factory
Equipment
Physical
(if we can touch them or not).
Tangible
means we can physically see or touch the asset
Land
Machinery
Buildings
cash
Intangible
means they do not have a physical appearance
Brand
Patents
Copyrights
trademarks
Double - Entry System
Income & Balance Sheets
Is the business making a
PROFIT
or
LOSS
Types of Profit
(Profit is the amount of revenue when it exceeds, expenses, costs and taxes of business activity)
Gross Profit
= Total sales - cost of goods
Net Profit
= Operating Profit - Tax & interest
operating profit
when you deduct operating expenses from your gross profit
Loss
is if the company is making less than its sales or cost of goods.
financial statement that shows a businesses assets and liabilities
Useful in making economic decisions
See why Accounting is important below.
DEBIT and CREDIT (Debit
ALWAYS
equals
Credit)
I am used to seeing this on my bank statement.
Debit
means money coming in.
Credit
means money going out.
Debit goes on the left of the account.
Credit goes on the right of the account
Inventory
is seperated into 2 categories
Sales
purchased goods sold to make a profit
Purchases
goods bought for resale
Not assets
Goods
bought and sold by the business
Purchase Returns
, returned to supplier
Drawings
are what the owner takes out of the business
Expenses
are costs for producing the good or service such as wages, insurance, fuel, rent etc
Why Accounting is important?
Values the business
Investors
want to know whether to invest in or sell out of the business
The Banks
Will only lend out money to business owners if they have financial accounting information
A Prospective Buyer
will want to see if the business is worth buying
Make decisions going ahead
Managers
- Should there be any changes depending on the financial situation of the business.
Owners
Want to know if the business is profitable or more money is needed for the business.
Keep business moving
Creditor
want to know if they are at risk of getting paid or not
Necessary for communal contribution
Revenue
Tax Inspectors need accounting to work out how much tax is payable
How I Have used Accounting
Banking (used every day) to pay bills and receive income from my employer.
Budgeting (particularly Christmas is around the corner)
Decision Making
How much should I spend on presents?
Is it necessary?
Should I cut back on spending and start saving?
What I think Accounting is now?
A Continuous Collection of financial information necessary in making Important decisions within a business.
Evaluate and report If the business is successful or not?
A legal requirement imposed by the state to provide information for Tax, PAYE, Income and revenue.
Accountable proof of how much the company is worth, where it is profitable
and
perhaps where it could be amended.
Facts measured in monetary units.
Sales Return
returned by customer
Financial Accounting (ACCT06029) Gary Reynolds
