Stakeholders
Name an external stakeholder
What is the accounting equation?
A = L + OE
What is a disadvantage of a sole trader?
- Long hours
- Relies on capital from one person
- Unlimited liability
Classify bank overdraft and explain what this is
CL - when a bank account becomes negative and is money owed to the bank
What date/time period is a balance sheet calculated for?
As at one date - at the end of the financial year (in Aus, 30 June)
Which stakeholder is interested in the business's ability to make repayments on debt?
Lenders/creditors
How do you calculate net assets?
Total assets - total liabilities
What does it mean to become incorporated and what is one disadvantage of this?
Having a company business structure
What are drawings and what is the nature of drawings?
The owner taking money out of the business for personal use. DR nature (negative OE)
What is the duality principle?
an accounting rule that every transaction has a dual (two) effect on the accounting equation.
Which stakeholder is most likely to be interested in the profitability, liquidity, and solvency of a business?
Owner
If the owner contributes a motor vehicle to the business, what is the effect on the accounting equation?
A (increase - MV) = L + OE (increase - capital)
Define the term limited liability
In the case of a sole trader & partnership, the owner and the business are seen as inseperable.The owner is personally resposible for all debts of the business.
Classify government bonds
Define legal entity
In the eyes of the law, the owner and business are seen as inseperable for a sole trader and partnership. This means the owner is responsible for the debts of the business should the business go bankrupt.
Classify:
- delivery van
- delivery expense
DV: NCA
DE: SE
Doug Spudd runs a potato farm business. He produces financial reports every 6 months to help with decision making. Which accounting concept applies to his recording of financial information?
Accounting period concept
What is one difference between a public company and a private company?
Public - offers shares to the public (on ASX) - private offers shares privately eg family/friends
What is closing stock classified as?
COGS and CA
What are bad debts?
When customers do not pay money they owe (and are unlikely to pay these in the future), they are classified as bad debts as these are amounts the business assumes they will never receive.
Calculate the debt/equity ratio for Mohammed's Milkshakes if:
Liabilities = 20,000
Owners equity = 30,000
AND COMMENT ON what this means for the business?
20000 / 30000 = 0.666
x 100%
= 66.6%
This means that the business relies more heavily on internal financing than external financing. The business could obtain more credit from the bank if necessary.
What are selling expenses and what are four examples of them?
The cost of selling goods to customers. Examples are:
- advertising, sales staff wages, delivery expenses, postage, promotional expense
Explain what cost of goods sold is (meaning) and how to calculate net purchases (formula)
COGS - the cost of getting goods IN to the business and ready to be sold.
Net purchases are calculated as:
Purchases
- purchases returns
- discount received
Discount allowed - R (discount the business allows to customers)
Discount received - COGS (discount the business has received from another business)
Opening stock
Purchases
- Purchases returns
- Discount received
+ Cartage inwards/customs duty
- Closing stock