Assessment 4 – Knowledge test

Q1. Describe the purpose, format and components of the following financial
reports;

Cash Flow - The purpose of the cash flow statement is to show where an entities
cash is being generated (cash inflows), and where its cash is being spent (cash
outflows), over a specific period of time (usually quarterly and annually). It is
important for analysing the liquidity and long-term solvency of a company.

Cash flow statement consists of Cash flow from operating activities, cash flow from
investing activities and cash flow from finance activities.

Balance sheet

Statement of Financial Position, also known as the Balance Sheet, presents the
financial position of an entity at a given date. It is comprised of three main
components: Assets, liabilities and equity.

Statement of Financial Position helps users of financial statements to assess the

financial soundness of an entity in terms of liquidity risk, financial risk, credit risk and
business risk.

Statement of financial position consists of the following key elements: Assets,

Liabilities, and Equity.

Profit and Loss

Income Statement, also known as Profit & Loss Account, is a report of income,
expenses and the resulting profit or loss earned during an accounting period.

Income statement is prepared on the accruals basis of accounting.This means that

income (including revenue) is recognized when it is earned rather than when receipts
are realized (although in many instances income may be earned and received in the
same accounting period).

The components are Revenue, Cost of Sales, other income, Distribution Cost,
expense.

Q2. Explain four (4) advanced functions of MS Excel that can be used to
analyse financial data.

1. VLOOKUP

The function is used to look up for a piece of information in a large segment of

data and pull that data to your newly formed table. You have to visit the
function option. The insert function tab will let you enter ‘VLOOKUP’ or you
 can find it in the list. Once it is selected a wizard box will open with different
set of box options.

2. Sum Function

This function is mot popularly used to sum a group of numbers in the

particular column. The sum function has a dedicated button for itself in the
Home tab which can be used to sum after selecting the part of the column.

3. MAX MIN function

This function is used to pull the maximum and the minimum values from the
selected set of data. To get the maximum value you have to enter ‘MAX’ in
the function tab and to get the minimum value you have to enter ‘MIN’. The
function will automatically draw the values from the primary data table.

4. IF Function

The IF function is used to pull an information of truth and false regarding a

parameter set in the variable box. The IF statement is written or broken as:

IF(Criteria,True,False value)

After the criteria are lodged in the selected column then the answers are used
to check out for the forecast to give results accordingly.

Q3. Describe the following financial terms in your own understanding;

Asset: It is a resource with future economic value for individual, company or country.
Inventory: It is a finished good held by the company.
Liability: It is company’s legal financial obligation or debt that occurred during the
business operation.
Expense: It is a cost that is paid or remitted.
Owner’s equity: It is the owner’s investment in the business.

Q4. What are accounting supporting documents? Give examples of at least

three supporting documents that can be used in processing journals.
Receipt: Receipt is an evidence of making the payment on account of any business
transaction. This source document is prepared for showing the proof of giving any
cash to the party (who receives the cash) on account of any business transaction. At
least two copies are made of any receipt

Invoice: Invoice or bill records the credit transactions related to sale or purchase.
This is prepared when a firm purchases or sells the goods on credit. At the time,
when the goods are sold by the business enterprise on credit, sales invoice is
prepared in which all details of the credit sales viz. the quantity, rate and total
amount etc. are mentioned.

Pay in Slip: This document serves the purpose of providing an evidence that on
particular date, a specific amount has been deposited in the bank. When a depositor
deposits money in the bank account, he fills up a form provided by the bank
containing the information about the date, amount to be deposited and the name of
the depositor etc.

Q5. Give examples of at least two organisational policies and procedures that
may be relevant to management of accounting systems in an organisation

AASB 101 - AASB 101 Presentation of Financial Statements as amended

incorporates IAS 1 Presentation of Financial Statements as issued and amended by
the International Accounting Standards Board (IASB). This Accounting Standard sets
out overall requirements for the presentation of financial reports, guidelines for their
structure and minimum requirements for their content.

IAS 1 Presentation of financial statements prescribes the basis for presentation of

general purpose financial statements, to ensure comparability both with the entity’s
financial statements of previous periods and with the financial statements of other
entities. To achieve this objective, IAS 1 sets out overall requirements for the
presentation of financial statements, guidelines for their structure and minimum
requirements for their content. The diagram below summarises the purpose, overall
considerations and components of financial statements.

Q6. What are the key benefits of double entry system of accounting data in
Australian accounting systems?

Double-entry booking provides a more accurate look at a company’s financial

position than single-entry bookkeeping. One reason for this is because double-entry
bookkeeping implements the matching principle. The matching principle uses accrual
accounting rules to record revenue and the expenses related to revenue.

Human errors can cause a misrepresentation of a company's financial position.

Double-entry bookkeeping reduces errors because it provides checks and balances.
With the advancement of technology, many accounting software programs
automatically provide double-entry bookkeeping when a transaction is entered
Q8. Explain the difference between cash and accrual‐based accounting
systems.

The difference between cash and accrual accounting lies in the timing of when sales
and purchases are recorded in company accounts. Cash accounting recognizes
revenue and expenses only when money changes hands, but accrual accounting
recognizes revenue when it’s earned, and expenses when they’re billed (but not
paid).

Q9. Describe the key features of statement of financial position, income

statement, and statement of changes in equity.

Income Statement

A firm's revenues, gains, expenses and losses are listed on the income statement.
Revenue is money earned from a company’s normal business operations. The
expenses on the income statement are the costs associated with earning the
revenue. When a company sells one of its assets, it can experience a capital gain or
loss.

Balance Sheet

The balance sheet includes the elements of the accounting equation: assets equal
liabilities plus shareholders’ equity. The assets on a balance sheet are classified as
either current or fixed assets. Current assets are the most liquid, meaning they easily
convert to cash. Fixed assets are long-termed assets. Similar to assets, liabilities are
also classified as current or long-term. Current liabilities include money owed to
creditors in less than a year.

Statement of Shareholders’ Equity

This statement shows the changes in the shareholders’ equity account. The first line
item is the beginning balance for common stock. The amount of newly issued
common stock is added to the beginning balance to get the ending balance. The
same goes for preferred stocks. Listed next is the beginning balance to retained
earnings, which is also listed on the balance sheet.

Q10. Describe the following types of financial reports and their purpose.

A budget is a financial plan for a defined period, often

one year. It may also include planned sales volumes
Budgets
and revenues, resource quantities, costs and
expenses, assets, liabilities and cash flows.
Cash flow is the net amount of cash and cash-
Cash flow equivalents being transferred into and out of a
business.
 Cover is the act of reducing exposure in investing, by
Covers
taking an action that limits a liability or obligation.

Payment of cash or cash-equivalent for goods or

services, or a charge against available funds in
settlement of an obligation as evidenced by an invoice,
Expenditure
receipt, voucher, or other such document. See also
revenue expenditure, capital expenditure

The cost of labor is the sum of all wages paid to

Labour and
employees, as well as the cost of employee benefits
wages
and payroll taxes paid by an employer

Occupancy Occupancy rate is the ratio of rented or used space to

rates the total amount of available space

A temporary account used in the periodic inventory

Purchases system to record the purchases of merchandise for
resale.

It is the amount owed to a company resulting from the

Receivables
company providing goods and/or services on credit.

It is a term that refers to any operating revenues that a

Sales company earns through its business activities, such as
selling goods, services, products, etc.
One meaning of stock refers to the goods on hand
Stock which is to be sold to customers. In that situation, stock
means inventory.
An accounting transaction is a business event having a
monetary impact on the financial statements of a
Transactions
business. It is recorded in the accounting records of the
business

An exempt transaction is a type of securities

transaction where a business does not need to file
Transactions registrations with any regulatory bodies, provided the
exempted number of securities involved is relatively minor
compared to the scope of the issuer's operations and
that no new securities are being issued
Unit sales represent the total sales that a firm earns in
Units sold a given reporting period expressed as a per-unit of
output basis
Variance In budgeting (or management accounting in general),
a variance is the difference between a budgeted,
planned, or standard cost and the actual amount
 incurred/sold. Variances can be computed for both
costs and revenues.
Waste is the amount of raw materials lost in the
Wastage production process. This may involve losses due to
shrinkage, scrap, or evaporation.

Q11. Describe the purpose and different types of reconciliation including bank
charges and direct debits and credits, and explain the impact of unpresented
cheques

Bank charges

The term bank charge covers all charges and fees made by a bank to their
customers. In common parlance, the term often relates to charges in respect of
personal current accounts or checking account. These charges may take many
forms, including: monthly charges for the provision of an account.

Direct debit and credit

A direct credit is an electronic deposit to the account. A direct debit is an electronic

withdrawal from account.

Unpresented cheque

These represent cheques that have been issued by an entity to a customer or

another third party but which have not presented to the bank by the reconciliation
date. Entity records the payment in its cash book as soon as the cheque is issued to
the person but the bank records the transaction when it receives the cheque. This
causes a timing difference in the recording of the payment.

Q12. Briefly explain the key purpose, functions and features of the following
accounting software;

MYOB- MYOB (pronounced my-ob) is an Australian tax and accounting software

company, providing a range of products for both small and big businesses as
browser based, cloud based, or physical installation based software. All MYOB small
business accounting subscription software includes the following functions:

 Works online
 Calculate & track GST
 Manage quotes, invoices, and statements
 Accept payment from invoices (via PayDirect Online)
 Sell items, services, or both
 Track and pay expenses
 Manage customers and suppliers
 Bank feeds (syncs with your bank accounts and credit card)
 ATO SuperStream compliance
  Payroll with automatic leave calculation and real-life timesheets access for
employees
 Inventory management

XERO
Xero offers a cloud-based accounting software platform for small and medium-sized
businesses. Its key features are
 Bank reconciliation
 Keep track of suppliers and customers
 Simple dashboard
 Track and organize expenses
 Attach documents to your financial data
 Financial reporting
 Free, unlimited email support
 Inventory management
 Create and send invoices automatically
 Mobile apps (Android, iPhone/iPad)
 Multi-currency support
 Payroll processing (free up to five employees)
 Purchase orders
 Quick and easy 1099s
 Pay bills and invoices
 Track and manage projects
 Give out estimates and quotes

13. Describe the concept of costing, and fixed and variable costs in your own
words and understanding.

Costing is the system for the business to assign cost to the elements of their
business. It includes assigning variable cost and fixed cost.

Variable cost

It is the cost of the company which is associated with the amount of good or service
produced. The production volume affects the variable costs.

Fixed cost

It is a cost incurred to the business. The company fixed cost does not vary with the
volume of the product produced, unlike variable cost.

Q14. What is GST? How is it calculated and reported by GST‐registered

entities?

Goods and services tax (GST) is a broad-based tax of 10% on most goods, services
and other items sold or consumed in Australia.
The GST-registered entities reporting could be

Monthly – if business GST turnover is $20 million or more.

Quarterly – if businessGST turnover is less than $20 million – and we have not told
you that you must report monthly.
Annually – if we are voluntarily registered for GST. That is, we are registered for
GST; and your GST turnover is under $75,000 ($150,000 for not-for-profit bodies).

Reference

http://www.arborinvestmentplanner.com/cash-flow-statement-analysis-purpose-
components-and-format/

https://accounting-simplified.com/financial/statements/statement-of-financial-
position.html

https://accounting-simplified.com/financial/statements/income-statement-profit-and-
loss.html

https://www.educba.com/advanced-excel-formulas-and-functions/

http://www.yourarticlelibrary.com/accounting/documents/top-8-types-of-documents-
used-in-accounting/63112