Wednesday 9 September 2015
Monday 7 September 2015
Monday 17 August 2015
Budgeting ...
Budgeting is looking into the future and anticipating business performance. If a problem is predicted, the management team can plan now to overcome/mitigate the problem. The budgeted data will not be reliable ... but it is relevant for stakeholders.
Friday 14 August 2015
Monday 3 August 2015
Deposits ...
Example A
Ong Enterprises. You have found a client who will rent your spare car parking space, Vishy Traders. They will pay $1000 per month plus GST and pay 3 months in advance ($3300 in total). They will start renting on 1st July 2015. On 5th June 2015, Vishy Traders pay a deposit of $500.
How does Ong Enterprises record this $500 cash deposit?
Cash Receipts Journal.
The term 'Deposit' is not used in the accounting system ... never, ever! And, never ever use the term 'Lay-By'. The $500 deposit is prepaid rent revenue. Important. Deposits do not attract GST. Repeat ... deposits do not attract GST. The GST will only be counted when the full amount is paid in advance, which is $3000 plus GST in this example.
Assume the the balance owing is paid on 30th June, $2800. ($3300 less $500 deposit = $2800).
Cash Receipts Journal.
In the 'Details' column, Prepaid Rent Revenue would be recorded. $2800 in Bank, $2500 in Sundry and $300 in GST. Note that the $300 GST is not 10% of the $2500 in the Sundry column. This seems strange. The $300 is 10% of the full amount of prepaid rent, $3000, which is made up of the $500 deposit and the additional $2500 received later.
When the CRJ is posted, Prepaid Rent Revenue will be credited with $3000 ($500 + $2500).
PS; I have never seen this example on a VCAA exam ... but the following deposit examples have appeared.
Example B.
Ong Enterprises. You have found a client who will rent your spare car parking space, Vishy Traders. They will pay $1000 per month plus GST and pay 3 months in advance ($3300 in total). They will start renting on 1st July 2015. On 5th June 2015, Vishy Traders pay a deposit of $500.
How does Ong Enterprises record this $500 cash deposit?
Cash Receipts Journal.
The term 'Deposit' is not used in the accounting system ... never, ever! And, never ever use the term 'Lay-By'. The $500 deposit is prepaid rent revenue. Important. Deposits do not attract GST. Repeat ... deposits do not attract GST. The GST will only be counted when the full amount is paid in advance, which is $3000 plus GST in this example.
Assume the the balance owing is paid on 30th June, $2800. ($3300 less $500 deposit = $2800).
Cash Receipts Journal.
In the 'Details' column, Prepaid Rent Revenue would be recorded. $2800 in Bank, $2500 in Sundry and $300 in GST. Note that the $300 GST is not 10% of the $2500 in the Sundry column. This seems strange. The $300 is 10% of the full amount of prepaid rent, $3000, which is made up of the $500 deposit and the additional $2500 received later.
When the CRJ is posted, Prepaid Rent Revenue will be credited with $3000 ($500 + $2500).
PS; I have never seen this example on a VCAA exam ... but the following deposit examples have appeared.
Example B.
Sunday 2 August 2015
Accrued Revenue ...
You are the CFO of Toon Traders who report monthly and you notice that you have excess liquidity ... so you decide, on 1st January 2017, to invest $60000 cash into a high interest account for 3 months at an annual rate of 10%. At the end of 3 months, 7th March 2017, you will receive the $60000 plus the interest.
You work out that interest per month is $500.
At the end of January, balance day, you need to do a balance day adjustment to count the $500 interest revenue since you have not received the interest ... in fact you will not receive any interest until 7th July 2017 as per your agreement with the Bank.
General Journal:
Dr: Accrued interest revenue $500
Cr: Interest revenue $500
Accrued interest revenue sounds like revenue ... but it is not! It is a current asset because it represents a benefit that the business will receive within 12 months ... sort of like debtors without the stock!
Reports at end of January:
Cash Flow Statement
no impact ... no interest has been received yet.
Income Statement
Other Revenue
Interest revenue $500
Balance Sheet
Current Assets
Accrued interest revenue $500
Another month passes ... end of February ... another balance day.
Dr: Accrued interest revenue $500
Cr: Interest revenue $500
Reports at end of February:
Cash Flow Statement
no impact ... no interest has been received yet.
Income Statement
Other Revenue
Interest revenue $500
Balance Sheet
Current Assets
Accrued interest revenue $1000
Another month passes ... end of March ... another balance day.
Dr: Accrued interest revenue $500
Cr: Interest revenue $500
Reports at end of March:
Cash Flow Statement
no impact ... no interest has been received yet.
Income Statement
Other Revenue
Interest revenue $500
Balance Sheet
Current Assets
Accrued interest revenue $1500
Now, on 7th March, as per the original agreement with the Bank, the business receives the $60000 plus the interest of $1500, a total of $61500.
This would be recorded in the Cash Receipts Journal:
$61500 would be allocated $60000 investment (sundry) and $1500 accrued interest revenue (sundry).
At the end of March, the CRJ would be posted:
Dr: Bank $61500
Cr: Investment $60000 (that cancels that account)
Cr: Accrued interest $1500 (that cancels that account)
Reports at end of April:
Cash Flow Statement
Operating Activities
Accrued interest revenue $1500
Investment $60000
Prepaid revenue (service)
You are the CEO of Ace Traders who report monthly. Your office is in the Melbourne CBD and has 3 carpark spaces ... but you only need 2! You decide that it would be a good idea to rent the spare carpark space to add an additional revenue stream to the business ... Sales as well as Rent Revenue coming from the spare carparking space. You decide that $1000 plus GST per month is the going rate! You advertise this spare carparking space and get lots of offers. You decide on one customer, Chan Enterprises, and on 1st July, they pay $3000 plus $300 GST for 3 months rent of that carpark.
How would you record this $3300, Receipt #89?
It is recorded in the Cash Receipts Journal as ... Prepaid Rent Revenue.
Prepaid Rent Revenue sounds like Revenue ... but it is not ... it is a current liability.
Why? The business has an obligation to the customer who just gave them $3000 plus GST! The obligation is to Chan Enterprises to provide that car parking space for the next 3 months.
At the end of the month, the CRJ is posted. The $3000 will be a credit to the Prepaid Rent Revenue ledger account.
And it is balance day on the last day of the month. Of the $3000 received from your client, Chan Enterprises, you have only earned $1000. So we do a balance day adjustment in the General Journal:
Dr: Prepaid Rent Revenue $1000
Cr: Rent Revenue $1000
Accrual accounting says we must report revenue earned less expenses incurred ... and we have just done that ... $1000 revenue has been recorded and reported as earned.
Reports:
In the Cash Flow Statement, Operating Activities will show Prepaid Rent Revenue $3000.
In the Income Statement, Rent Revenue $1000 will be reported as Other Revenue.
In the Balance Sheet, Prepaid Rent Revenue $2000 will be reported as a Current Liability.
How would you record this $3300, Receipt #89?
It is recorded in the Cash Receipts Journal as ... Prepaid Rent Revenue.
Prepaid Rent Revenue sounds like Revenue ... but it is not ... it is a current liability.
Why? The business has an obligation to the customer who just gave them $3000 plus GST! The obligation is to Chan Enterprises to provide that car parking space for the next 3 months.
At the end of the month, the CRJ is posted. The $3000 will be a credit to the Prepaid Rent Revenue ledger account.
And it is balance day on the last day of the month. Of the $3000 received from your client, Chan Enterprises, you have only earned $1000. So we do a balance day adjustment in the General Journal:
Dr: Prepaid Rent Revenue $1000
Cr: Rent Revenue $1000
Accrual accounting says we must report revenue earned less expenses incurred ... and we have just done that ... $1000 revenue has been recorded and reported as earned.
Reports:
In the Cash Flow Statement, Operating Activities will show Prepaid Rent Revenue $3000.
In the Income Statement, Rent Revenue $1000 will be reported as Other Revenue.
In the Balance Sheet, Prepaid Rent Revenue $2000 will be reported as a Current Liability.
Wednesday 29 July 2015
Prepaid Sales ...
This is an image of the yet to be released, iPhone7.
Imagine you are the manager of 'Just Phones'.
Lots of customers are excited about the yet to be released iPhone7 ... so excited that 10 of them are prepared to pay the full price (assume $900 plus GST with a cost price of $500 plus GST) BEFORE the stock is available.
So the business has just received $9 000 plus $900 GST. How should we record this?
$9 900 cash has been received so it would be recorded in the Cash Receipts Journal.
Under 'Details' you would record Prepaid Sales. $9 900 would be recorded in 'Bank' $9000 would go in 'Sundry' and $900 would go in 'GST'.
How would you classify 'Prepaid Sales'?
It sounds like Sales or Revenue ... but it is a current liability!! Remember that.
Why? The business has received the money from its customers but has not supplied any stock ... yet. Thus it has an obligation to its customers. Thus, a current liability. They expect to meet this obligation in the short term (less than 12 months).
Now assume stock of iPhone7 arrives. 50 units, each at $500 plus GST. Invoice 46.
This would be recorded in the Purchases Journal (or Cash Payments Journal if it was a cash purchase of stock) as well as the iPhone7 stock card in the IN column.
The business would then ring/contact/email/text the customers who have already paid for the iPhone7s. "Come and get your new iPhone7".
The customers arrive and collect their iPhone7s. They leave happy.
How is this recorded?
The stock card would record 10 units going OUT.
The Prepaid Sales must be converted to Sales so ...
General Journal
Debit: Prepaid Sales $9 000 (this cancels out the current liability)
Credit: Sales $9 000 (this counts the sale)
Debit: Cost of sales $5 000
Credit: Stock Control $5 000.
Imagine you are the manager of 'Just Phones'.
Lots of customers are excited about the yet to be released iPhone7 ... so excited that 10 of them are prepared to pay the full price (assume $900 plus GST with a cost price of $500 plus GST) BEFORE the stock is available.
So the business has just received $9 000 plus $900 GST. How should we record this?
$9 900 cash has been received so it would be recorded in the Cash Receipts Journal.
Under 'Details' you would record Prepaid Sales. $9 900 would be recorded in 'Bank' $9000 would go in 'Sundry' and $900 would go in 'GST'.
How would you classify 'Prepaid Sales'?
It sounds like Sales or Revenue ... but it is a current liability!! Remember that.
Why? The business has received the money from its customers but has not supplied any stock ... yet. Thus it has an obligation to its customers. Thus, a current liability. They expect to meet this obligation in the short term (less than 12 months).
Now assume stock of iPhone7 arrives. 50 units, each at $500 plus GST. Invoice 46.
This would be recorded in the Purchases Journal (or Cash Payments Journal if it was a cash purchase of stock) as well as the iPhone7 stock card in the IN column.
The business would then ring/contact/email/text the customers who have already paid for the iPhone7s. "Come and get your new iPhone7".
The customers arrive and collect their iPhone7s. They leave happy.
How is this recorded?
The stock card would record 10 units going OUT.
The Prepaid Sales must be converted to Sales so ...
General Journal
Debit: Prepaid Sales $9 000 (this cancels out the current liability)
Credit: Sales $9 000 (this counts the sale)
Debit: Cost of sales $5 000
Credit: Stock Control $5 000.
Tuesday 28 July 2015
Next SAC ...
It is week 3 as I type this and with the last section of Outcome 1 about to start, I estimate the next SAC will be in week 5 or early week 6.
60 minute SAC. Manual. 50 marks.
Topics:
Following the Outcome 1 SAC (above) the next SACs are:
That's it ... until the exam on November 6th.
60 minute SAC. Manual. 50 marks.
Topics:
- Purchases and sales returns.
- Credit purchase of non current assets. Includes definition of cost of NCA and concept of sundry creditors.
- Disposal of NCAs. Cash disposal and trade-ins using sundry creditor. Reason for profit or loss on disposal.
- Reducing balance depreciation.
- Product costing (new) versus period costing (old).
- NRV and stock write downs. This includes the lower of cost and NRV rule due to Conservatism.
- Prepaid revenue (service activity like tattooing), prepaid sales and accrued revenue.
Following the Outcome 1 SAC (above) the next SACs are:
- Budgeting SAC. VCAA directs that this is done on the computer (Excel). Probably 3rd last week of term 3.
- KPIs SAC. We use Quia to do this. FIrst week of term 4.
That's it ... until the exam on November 6th.
Monday 27 July 2015
Stock Write Down ...
The original Microsoft Surface Tablet was a disaster and led to massive stock write downs. Without the stock write downs, the Microsoft data would be over optimistic for stakeholders. Profit would be overstated. Assets (particularly stock) would be overstated. The stock write down, an expense, ensures expenses are not understated and profit and assets are not overstated. (the latest Surface is very successful, but not the original)
http://thenextweb.com/microsoft/2013/07/31/with-just-853m-in-revenue-microsofts-surface-experiment-is-officially-a-financial-failure/
Friday 24 July 2015
Seek!
If there is one thing I have learned over the journey it is that ...
"success does not come knocking ... you have to seek it out"!
"success does not come knocking ... you have to seek it out"!
Wednesday 22 July 2015
One women!
Check out this photo. It was taken today at the Australian Heads of Governments meeting. The Prime Minister and the Premiers of the States. Problem. Only one woman. You can change that in the future.
Monday 20 July 2015
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