Mnemonic device for the GST rules

Witches Do Like Black Ice Cream Wages Dividends received Loans received/paid Bank fees Interest received/paid Capital/Drawings

Revenue

Sales (trading entity), Fees Received (service entity)

Other income

All other revenues/income and gains

Examples of other income

Interest received, dividends received, rent received, commission received, discount received (from suppliers), gain on sale of an item of property, plant and equipment

Distribution costs

Expenses incurred in transferring ownership of finished goods to the consumer. Those expenses incurred through the promotion, storage, selling and delivery of the inventory for sale.

Examples of distribution costs

Advertising, Sales Salaries/Wages, Vehicle expenses, Shop electricity, Shop rent, Depreciation on shop fittings, Depreciation on vehicles, Delivery expenses, Loss on sale on shop fittings.

Administrative expenses

Costs associated with the administration of the entity as a whole. Note: a decrease in the allowance for doubtful debts is shown as a credit (negative expense) in administrative expenses.

Examples of administrative expenses

Office salaries/wages, rent, Insurance, depreciation on office equipment, telephone, accountancy fees, discount allowed (to debtors), bad debts, doubtful debts, loss on sale on office equipment.

Finance costs

Finance sots arise from an entity financing its operations from external sources. Finance costs are limited to different type of interest paid.

Examples of finance costs

Interest on overdraft, interest on loan, interest on Mortgage

What's it called when Bank/GST have a DEBIT balance

They are classified as a current asset

What's it called when Bank/GST have a CREDIT balance

They are classified as a current liability

What may equity be shown as

Opening capital Profit (loss) for the year Drawings Closing capital

Monetary measurement

All transactions, assets, liabilities, expenses, incomes and equity are recorded in dollar terms (in the same currency) - the unit common to them all

Accounting entity

The idea that the business must be treated as a separate being from its owner and all other entities, Like a different "person".

Historical cost

Recording assets at their purchase or original cost to the business

Reporting period

The life of a business is divided into nominated time periods in order to measure the entity's financial performance, cash flows and financial position on a regular basis.

A sole proprietor's advantages

Easy to set up. Complete ownership. Run the business as you like.

A sole proprietor's disadvantages

Unlimited liability. Difficult to manage by one person. Restricted ability to expand.

A partnership advantages

Easily adaptable. More capital than sole proprietor. More skills made available for owners.

A partnership disadvantages

Unlimited liability. Conflicts between partners is possible. Ability to expand is restricted.

A company advantages

Limited liability. Raise more capital. Specialised management.

A company disadvantages

More expensive to organise. Closely regulated. Complex to run. Hired managers have little stake in company welfare.

Type of business: Trading business

Sells goods - sells stuff eg Cotton on, revel sport, The warehouse. Main income: Sales

Type of business: Service business

Performs a service for their customers - Does things/service eg hairdressers, plumbers, accountants. Main income: Fees received

Assets

Owned by the business and used to generate income

Liabilities

Owed by the business to outsiders

Expenses

Money spent on bills by the business

Income

Money earned by the business

Equity: Drawings and Capital

Drawings - Money taken out of the business by the owner Capital - Money invested into the business by the owner

Accounting equation A+Ex = L+E+I

Assets + Expenses = Liabilities + Equity + Income

What's the code for Debit

DR DRive on the left - Debit on the left

What's the code for Credit

CR CRash on the right- Debit on the right

What does the trail balance do?

Checks that our total debit equals our total credit

What do you put on the left side of the T balance

The use of the funds. What assets did we buy? What expenses did we pay?

What do you put on the right side of the T balance

The source of the funds. Where did the money come from? Was it from the owner? Did we borrow it from the bank? Did we earn money from our customers?

What are the 5 financial elements?

Assets Liabilities Equity Expenses Incomes

What is the code to Capital

E because it is part of Equity

What is the code to Drawings

-E because it is minused OFF Capital in the financial statements as it reduces how much Capital the owner has in the business.

What two accounts on the T balance can change sides

Bank GST Can be an asset or a liability.

What accounts can be on either side or both sides on the T balance

Interest Fees Rent Can be Expenses or incomes.

Current assets (CA)

Those assets which are cash or are likely to be turned into cash in the next year Cash or will be cash within a year Anything "on hand" is considered a current asser

Non current assets (NCA)

The overall term for assets which stays in the business for more than one year Stay as is for longer than 12 months

Property, plant and equipment (PPE)

Assets which will be used by the business for more than one year in the process of earning income. These assets have a physical nature Everything else that is non current asset

Investment assets (InvA)

Money the business has invested in other businesses or ina term deposit account Term deposit, shares and government bonds

Intangible assets (IntA)

Assets which have value but are not physical. The value comes from a right to something or when the business purchases another business and pays and 'excess' for it. Goodwill, patents and copyright

Current liabilities (CL)

Money owing by the business which will be repaid in the next year. Cash owing that is due to be paid off within a year

Non current liabilities (NCL)

Money owing by the business which will be repaid over more than one year Will stay owing for longer than 12 months

Equity (E)

The residual of assets less liabilities ONLY capital

Income

Money received by the business when it sells its goods or services for cash

Main income

R- Revenue always the highest income number

Other income

Oi- Other income any OTHER income

Expenses (Ex)

Money paid by the business for day to day operating costs

Distribution Cost (DC) Group one expense (G1Ex)

Expenses relating to selling our inventory or providing our service - who we are and what we do. DC=trading business G1Ex=Service business

Administrative expense (AEx)

"Normal", everyday expenses related to being in business

Finance costs (FC)

ONLY interest expenses

Negative equity (-E)

Only drawings

Cost of Good Sold (COGS)

ONLY COGS and only for product not service

Negative income (-R)

ONLY sales returns and only product not service

Negative Property, plant and equipment (-PPE)

ONLY accumulated depreciations

Negative current asset (-CA)

ONLY allowance for doubtful debts

Depreciation - straight line method

Historical cost * Rate (Historical Cost - Residual Value) divided by Estimated Useful Life

Depreciation - Diminishing value

(Historical cost- Accumulated Depreciation)*Rate Historical cost-accumulated depreciation=Carrying amount so it can also be written as: Carrying amount*Rate

Depreciation - Units of use

((Historical cost-Residual value) /Estimated units of use)*Actual units for the year

What does ADD stand for in the PPE note

A: (plus) additions D: (less) disposals D: (less) depreciation