Reflective Journal
The purpose of this course of the course is for students to become familiar with Accounting concepts as they relate to business and personal financial situations. In addition to journalizing, preparing financial statements, and analyzing business information, several other areas are introduced.
One of my favourite topic in this module is topic 3.2, ‘Balance Day Adjustment’. This topic is about the depreciation. Depreciation is a method of allocating the cost of a tangible asset over its useful life. Businesses depreciate long-term assets for both tax and accounting purposes. For accounting purposes, depreciation indicates how much of an asset’s value has been used up and it is used in accounting to try to match the expense of an asset to the income that the asset helps the company earn. Using this accounting idea, I can estimate the reasonable amount of assets when I planning to sell them in the future. It also can help me to avoid being cheated by others.
Topic 1 ‘Basic Accounting’ is the topic which is most useful topic. Accounting is the process business use to record and present financial transaction to internal and external users. All financial information must be balanced in a company; this is done using the basic accounting formula assets = liabilities + owner's equity. This formula is the base of all accounting, with each part representing specific parts of the company. However this idea not only can use in business, it also can use in a normal household. We can apply this concept to control the living expenses of a family. We also can clearly know about our financial status of family in the future.
This module is a pretty hard course. It needs a lot of practice and exercise to control this skill. It will be able to make better decisions regarding future investments. Additionally, we can analyse and evaluate financial statements that reflect the income and expenses of business, since this information is essential to finding investments that will offer reliable returns.
Photos
This was the first activities we held in the class.
Reports
Click on it:
Tutorial Question
Accounting Exercise - Introduction
1) For each of the following situations, identify the accounting concepts which are relevant and how they should be applied in the given circumstances.
a) Sean is the owner of Easy-Go Mart convenience store. On June 10, he bought 200 steel chairs costing a total of $8000 for his business. On June 15, he bought a mahogany desk for $900 to decorate his family home.
Accounting Entity:
They separated the dealing of business transaction and the owner.
b) MyHairstylist is a hairdressing salon owned and managed by Donna. The building for the business was bought in 1999 at $120 000. Three independent appraisers have inspect the property this year and have valued it at $260 000, $285 000 and $270 000 respectively. Which value should Donna choose to record in her books?
Historical Cost:
Donna should choose to record $120000 in the book as other price is not reliable.
c) Mr. Lee does not think that it is necessary to prepare accounting reports every year. He has been in the business of training dogs for 3 years now and has just completed the accounting reports that summarized the performance of the business during the previous 3-year period.
Accounting Period:
Mr Lee should check their financial report once a year.
d) Mohamed has hired a manager with an excellent track record to help run his company. Since the manager is very valuable to the business, Mohamed wants to record the manager as an asset (like cash, building, etc.) in business’ accounts.
Objectivity concept:
Mohamed cannot record his manager as assets because the manager cannot be proven.
e) The accounting reports of Enterprise Ltd. contain the following information regarding its revenue and expenses:
Sales Revenue $32 030.72
Less: Rent Expense $1200.00
Workers’ Salary Expense $12 483.40
Stationery Expenses $55.00
Profit $18 292.32
Explain if any changes should be made and the reason for it.
Materiality Concept:
The stationary expenses should be cancelled or add into others. Stationary expenses are considerate as immaterial as the amount is too small.
2) What is accounting? Define.
Accounting is the information system which is used to record down the business transaction in order to help in deciding business purposes of a company.
3) Besides helping the business make decisions, state the other 2 uses of accounting. Give one example to illustrate each use.
Accounting report also evaluates performance of business each years and used to aware of make sure that worker fulfill their work honestly.
4) John needs to borrow $50,000 from the bank. Discuss briefly what accounting information would the bank need to look at before deciding whether to grant the loan.
The bank needs to look for the financial statement which including the assets, liabilities and owner equity of John. This financial statement is used to make sure that John able to pay back the money to bank.
5) Who are the owners? What decisions do they make with accounting information?
The owners are investor who provides the capital and own businesses. They use the accounting information to decide whether to invest more capital into business or to pull out from business. They also need to instruct the managers on important business decision.
6) Explain how can computers help with the process of accounting? Name 2 accounting software currently used by small businesses.
A computer can help accountant to record and calculate efficiency. For example, Quickbook, Accountmade.
7) Explain the reason why governments are interested in reading the accounting reports of businesses?
Governments are interested in reading the accounting reports to regulate the behavior and performance of business. They need to know whether the business is breaking the law or tax revenue of a company should pay.
8) Dylan, a DVD seller, has used LIFO method to value his stocks of DVD for the past 2 years. Last year he changed it to FIFO method and this year he switched back to LIFO again. Is this acceptable? Why or why not?
No, this is not acceptance. This is because Dylan will be difficult to compare the result over the different period if he changed method constantly.
Accounting Exercise Questions – Different Form of Ownership
- What is a sole trader business? Explain and give 2 examples of sole trader businesses.
Sole trader business is single owner. For example, mom & pop store, dentist
- Sole trader businesses are usually small (and stay small) in size. Why is this so? Provide 2 reasons.
The business is usually small in size because the single owner can only contribute a limited amount of capital. Sole traders have unlimited liability which means that they are personally responsible for settling all outstanding debt of their business.
- What is unlimited liability? Explain. Is it an advantage or disadvantage to the business owner? Why is this so? Lastly, what forms of business ownership have unlimited liabilities?
Sole traders have unlimited liability which means that they are personally responsible for settling all outstanding debt of their business. The sole trader receives all the profit since he is the only owner of the business and has total freedom on how to conduct his/her business. Due to its small size and perceived higher risk, lenders are not willing to provide loans to sole traders. Partnership.
- Imagine that you have recently bought a Krispy Kreme business and own it as a sole trader. How would you minimize the risk of unlimited liability when running your donut business? Suggest 2 strategies.
When operating as a sole trader there is no legal distinction between the identity of the business and the individual, which means that any debts of the business are the responsibility of the individual. Thus, we need to stay the business in a small size and
- What is a partnership? Explain and give 2 examples of partnership businesses.
Partnership is a business owned by 2 to 20 people. For example, Law firms, accounting firms.
- If partners have disagreements among themselves (e.g. disagreeing on business plans, some partners are lazy), how can they resolve the problems?
Partnerships usually require an agreement to be written up before the business starts running. A partnership agreement is a contract between partners that explain their duties, capital contribution and profit share.
- Jack, Ah Seng and Mahmud are currently in a lawsuit with their supplier. The supplier claims that the partnership has reneged on a contract to buy inventory worth $600K from him. Both Jack and Ah Seng argue that the contract was signed by Mahmud without consulting them first and therefore the contract is ineffective. Which party is right in this case? Why? What lesson(s) can the partners learn from this episode?
Supplier. In a partnership, every partner is a mutual agent which means that if one of the partners signs a contract with a customer, the other partners are automatically bound to that contract as well. Thus, we need to choose our partnership carefully.
- What is limited liability? Is it an advantage or disadvantage to the shareholder? Why?
Limited liability means each partner's debt responsibility is limited to his investment in the business. When a company goes bankrupt, shareholders only lose their original capital.They do not have to come up with extra money to settle its remaining debt.
- Why do companies have limited liabilities and not others (i.e. sole traders and partnerships)? Elaborate your answer.
The reason is because a company is a separate legal entity which means if a company borrows money from a lender and cannot repay it, it is the company’s fault and not the shareholders.
- Your family has owned a business as a private company for the last 20 years. Recently your father, the CEO and chairman, is rushing to take the company public, but you sensed that he has not thought through this decision properly. As his adviser, what reasons would you give to persuade to stay as a private company?
The difference between a private company and a public company is that the latter is traded on the stock market, or offers its securities for the public to buy. Private companies are owned by a small group of individuals, thus we can make a business decision more easily.
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