MA1 definitions / key points Flashcards
(269 cards)
1
Q
Organisation
A
an individual or group working together to achieve a common objective
2
Q
Business Organisation
A
an individual or group working together to achieve COMMERCIAL goals
eg. car manufacturers, private schools, audit firms
3
Q
Business Organisation Functions
A
Purchasing
Production (operations)
sales and marketing
finance and accounting
human resources (personnel)
4
Q
Functions of an office
Information
A
Capture
Storing
Processing
Reporting/sharing
- Administration
5
Q
Centralisation
A
The aggregation of the functions of an organisation to be performed at a single location. Power and authority are held by senior management.
eg. head office
- duplication avoided, so costs are lower
- consistent approach/policies/documentation
- everyone to access same data and info
- easier to coordinate different functions
- single, coherent entity
- specialist, expert staff are more likely to be employed
6
Q
Decentralisation
A
Structure where the functions of an organisation may be performed at multiple locations. Power and authority are delegated to junior management.
- local people make decisions
- policies, procedures and systems can be adapted to fit market needs and cultural preferences
- local staff have higher levels of responsibility, which may improve motivation and staff development
- impact of a system problem or fault likely to be reduced
7
Q
POLICY
A
A guide to be followed in a given set of circumstances
8
Q
PROCEDURE
A
A sequence of steps for completing a specific activity. It explains how a policy should be implemented or achieved
9
Q
BEST PRACTICE
A
A policy or procedure accepted as being consistently most effective
10
Q
systems - documentations for policies and procedures are
A
- Accountability - documentation, formal record
- Consistency - written record to ensure consistent and efficient approach always followed
- Review and update
- Flexibility - consult in less clear cut situations
11
Q
Sales
A
A sales transaction involves the provision of goods or services in return for payment
12
Q
Purchase transaction
A
brings goods or services into an organisation and commits that organisation to make a monetary payment.
In business and accounting, a distinction is often made between different types of purchase transactions:
- Transactions that involve the purchase of raw materials for use in production, or goods for resale, are usually referred to simply as purchases
- Transactions that involve buying items that do not become part of goods or services produced for sale, and are retained for use in the business over some time, are often referred to as the purchase of non-current assets
- Transactions that involve buying products and services not directly associated with producing goods for sale are often referred to as business expenses
13
Q
Authorisation for credit sales
A
Sales are only beneficial to an organisation if the customer pays for them
14
Q
authorisations of transactions
A
involves a second person agreeing or approving a transaction before it proceeds
15
Q
authorisation for payments to employees
A
most business organisations’ salaries and wages are large expenditure items
16
Q
ACCOUNTING EQUATION represents the relationship between assets, liability and owner’s equity (capital) in a business organisation
A
ASSETS - LIABILITIES = CAPITAL
The accounting equation must always balance, meaning a change in one component must lead to an equal opposite change to itself or another element.
17
Q
ASSET
A
An asset is a resource controlled by a business due to something that happened in the past from which economic benefits (things that make the company better off financially) are expected to flow in the future.
- CASH
- non current assets
- receivables
- inventory
- prepayments
18
Q
LIABILITY
A
An amount owed by the business arising from past events, which will result in a payment of money at some point in the future. A liability is effectively the opposite of an asset.
- trade payables
- loans
- accrued expenses
19
Q
CAPITAL
A
The owner’s interest in the business. It is made up of the cash or assets introduced to the business by the owner (known as capital introduced), the profits generated by the business in previous years less any amounts that the owner has withdrawn from the business (known as drawings). Capital may also be defined as the value of assets which remain after all liabilities have been met, as shown by the accounting equation below.
- reserves
- retained earnings
- owner/shareholder capital
20
Q
Income (revenue)
A
amounts earned from selling goods/services. Increases in capital and assets.
21
Q
Expenses
A
amounts incurred from the purchase of services/labour. Decreases capital with a corresponding decrease in assets or an increase in liabilities.
22
Q
expanded accounting equation would be:
A
ASSETS = CAPITAL + (INCOME − EXPENSES) − DRAWINGS + LIABILITIES
23
Q
Double entry
A
method of recording transactions in the general ledger. Each transaction is entered as a debit (Dr) and a credit (Cr) to reflect the duality of every action.
DEAD CLIC
24
Q
General ledger
A
where all double entries are recorded.contains individual accounts for a business’s assets, liabilities, capital, income and expenses. These individual accounts are also known as ledger accounts.
Double entries are recorded into the ledger accounts’ T-Accounts. A T-Account is a graphical representation of a ledger account.
25
Different types of accounting
- Financial accounting
- Financial Reporting
- Cost Accounting
- Management accounting
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Financial accounting
the systematic recording, reporting, and analysis of the financial transactions of a business.
The focus is on the recording of historical (past) transactions.
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Financial reporting
focuses on producing financial statements for publication outside the business.
The financial statements must comply with all applicable accounting standards and regulations to ensure consistency with other businesses and make them more accessible to readers.
Financial accounting is required by law for companies, whereas management accounting is not
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Cost Accounting
Cost accounting focuses on identifying costs (a monetary valuation or assessment) of resources and their allocation to products, services, inventory or other items. This gives businesses information about how much it costs to provide a particular good or service.
As with management accounting, the information produced is used inside the organisation
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Management Accounting
Management accounting focuses on providing information for internal use by managers to help the organisation operate more effectively.
The focus is on both past and future data and information.
The information may be commercially sensitive and is not made available to external parties
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Bookkeeping
processing and recording of transactions
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Computerised accounting software
- data cycle
In accounting, computerised systems are primarily used to process transactions, create documents (such as invoices) and produce information (such as management reports)
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Files
Data files are collections of records with similar characteristics.
Examples include the general ledger, the receivables ledger and the payables ledger
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Records
A record in a file consists of data relating to one unit of information.
A record consists of several fields.
For example, a supplier account in the payables ledger.
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Fields
A field is an item of data relating to a record.
For example, a supplier record includes separate fields for their account number, name and credit limit.
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Key fields
Each record in a file includes a key field – an item of data used to identify it.
For example, this might be a unique supplier code
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Transaction files
contains records related to individual transactions, such as invoices.
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master files
A master file contains 'standing' or reference data (such as supplier names and addresses) and cumulative transaction data (such as year-to-date figures)
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integrated accounting computerised software packages - effective, multi-module systems, different modules linked and interact
- enforces accountancy rules
- separate modules (A typical accounting software package includes a general ledger module for all assets, liability, income and expense accounts; a receivables ledger module for individual customer accounts; a payables ledger module for individual supplier accounts; and primary and petty cash books. The links between these modules save time and effort.)
- real time processing
- links between modules
- automates period-end routines
- queries and reporting
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advantages of computerised systems over manual
- speed and efficiency, automation
- accuracy
- availability
- easier to produce reports
- up to date info (real time)
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Managers require information for three essential activities: planning, control, decision making
They decide on the best use of the resources under their control and state this as a plan. Plan in financial terms = budget
Control - progress needs to be monitored
Decision making - make informed decisions and maximise performance
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Management Accounting Information
- budgets - quantified plan of action for future period
- forecasts
- variance - diff between actual and planned
- cost accounting info - cost of different projects, services, activities
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Limitiations of producing management informaiton
takes time, and cost
- based on PAST events
- no way to know if something significant is missing
- reluctance to question computer system reports
- based on assumptions that may now be invalid
- overreliance on financial information (underestimates role of other factors)
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DATA
raw facts and figures (raw and unorganised)
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INFORMATION
data that has been processed to have meaning
(sorted, summarised or otherwise made more useful or easy to work with)
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Personal data
about people, such as their name, address, date of birth and bank details.
Sensitive personal data includes racial or ethnic origin, religion, political opinions, health, trade union membership, sexual orientation, and criminal activity. Both sets of personal data should be kept secure and confidential.
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Non-Personal data
less specific, such as:
The number of restaurants in a city
The number of separate sales transactions made by a company in a month
The minimum wage rate
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once relevant data is analysed (processed), it becomes valuable information
- that can be used to make informed decisions (ie. relating to pricing)
Knowledge - ability to use and understand info to make judgements and decisions
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characteristics of useful information
[pneumonic ACCURATE]
- Accurate
- Complete
- Cost effective
- User targeted
- Relevant
- Authoritative
- Timely
- easy to use
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Internal source information
- accounting system and records (transaction data: sales, purchases)
- employees and managers
- production records
- administration and other records
External information
- from outside an organisation
- tax rules and regulation
info from government
- media
- journals
- market intelligence, customers, online, trade organisations
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Cost UNIT
a unit of product or service to which costs can be associated.
In cost accounting, a cost unit is a unit of a product or service to which costs can be associated.
EG. for a train operator -> kilometre traveled
restaurant -> meal served
A cost unit is not always a single item. It might also be calculated in batches.
For example, a single cost unit might be a batch of 1,000 bricks for an organisation that manufactures bricks.
The same organisation may also have different cost units. For example, a baker might treat a batch of 30 loaves of bread as one cost unit and an order for a wedding cake as another cost unit.
*an organisation may have to use different cost units to associate costs. depends on what management wants to examine
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Composite Cost Units
In some situations (particularly for organisations that provide a service), it may be more beneficial to use a composite cost unit or a cost unit comprised of two parts.
Airline
Transport firm
A passenger-kilometre
A kilogram-kilometre
Computer Centre
A computer-hour
Hospital
A patient-bed night
Power utility
A kilowatt-hour
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Cost Unit Information
- to determine a selling price
- to decide what to produce
- to help with cost control
- to plan and budget
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Budget
A plan expressed in monetary or quantity terms
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Cost categories
- business function eg. production costs, sales and marketing costs, finance costs
- responsibility
- behaviour - eg. whether costs increase if activity increases (variable costs) or stay the same regardless of activity level (fixed costs)
- type - item or activity that incurs them eg. work performed (labour) or cost of items used in production (materials)
- Traceability - how closely they can be traced to a specific cost unit. eg. easily traceable (direct cost) or not easily traceable (indirect cost)
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Classifying costs
cost may be classified in many ways. can be classified using more than one category
For example, fuel for a delivery van might be classified by function (as a distribution cost), behaviour (as a variable cost) or by traceability (as an indirect cost).
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DIRECT costs
costs that can be measured reliably and directly traced to a specific cost unit.
[all other costs indirect]
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PRIME costs
the sum of direct costs, also known as the TOTAL DIRECT cost
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Common categories of direct costs:
- Direct materials that form part of end product
- Direct labour - labour involved in the production of the end product.
- Direct expenses - expenses incurred in producing a specific cost unit
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computation of prime cost is:
DIRECT MATERIALS + DIRECT LABOUR + DIRECT EXPENSES = PRIME COST
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INDIRECTcosts
Costs that are not directly traceable to a cost unit, also known as overheads.
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Indirect costs used in production are:
Indirect materials - materials that do not form part of the end product.
Indirect labour - cost of labour required for production but is not easily traced to a specific cost unit.
Indirect expenses - incurred as part of production but are not traced to a specific cost unit.
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Indirect costs used in production are collectively known as
PRODUCTION OVERHEADS
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iNDIRECT MATERIALS + INDIRECT LABOUR + INDIRECT EXPENSES = PRODUCTION OVERHEADS
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Non-production overheads
are the indirect expenses not incurred in the production process.
For example, the office manager's wages at RQB and the cost of advertising.
To determine the total cost of producing and selling a cost unit, it will be necessary to include these costs in the calculations.
*Non-production overheads usually include selling, distribution, and administration costs.
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VARIABLE COSTS
Costs that change according to the level of activity
[in long term, all costs variable]
-> Cost per unit is usually constant within the relevant range of activity
-> total variable cost will increase as activity increases
[costs unaffected by changes in the level of activity are fixed costs]
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COST BEHAVIOUR
the changes is cost according to the level of activity eg. number of units products
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*do NOT assume that all direct costs are variable costs
* a direct cost can be a fixed cost
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FIXED COSTS
Costs that remain constant (unchanged) regardless of level of activity
-> Cost per unit will decrease as activity increases
-> total fixed cost will remain constant regardless of activity level
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MIXED cost
cost with fixed and variable elements, also known as semi-variable or semi-fixed costs
- only PART of the cost is affected by activity levels
eg. utilities - fixed fee and variable charge based on usage
- wages, partly linked to output
- machine or vehicle rental/lease
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STEPPED-FIXED cost
A cost that remains fixed within an activity range. If activity increases beyond that range, the cost will [significantly] step up to another fixed level for the higher activity range.
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COST CARD
A record of the costs associated with producing and selling a single product or service unit.
To calculate the total cost, an organisation must first identify every part of its cost.
These cost cards are usually produced and maintained within the computerised cost accounting system.
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Cost Card Elements
- Prime cost (total direct cost) of main production inputs
- Production overheads - indirect production costs
- Non production overheads (incurred in making a unit of product or service ready to sell eg. office manager's wages)
- Total cost (calculating total cost of making and selling a single unit)
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Absorption and marginal costing - two methods of dealing with production overheads. Produce different profit figures
Valuation of production (finished goods) with Absoprtion costing -> all production costs (inc overheads)
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Valuation of production (finished goods) with Marginal costing
variable production costs only
- fixed production overheads not included
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Fixed production overheads also known as OVERHEAD ABSORPTION RATE (oar)
budgeted fixed production overheads to be absorbed by production.
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Marginal costing cost card
Total unit cost on the marginal cost card is also the total variable production cost.
- The total cost (value) of a unit of finished goods under absorption costing will ALWAYS be higher than marginal costing, as fixed production overheads absorpted into cost unit under absorption costing.
Also means inventory valuation is higher under absoprtion costing compared to marginal costing.
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CONTRIBUTION
sales revenue less variable costs.
- therefore the remaining sales revenue available to contribute towards fixed costs and thereafter profit
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Responsibility accounting
Accounting method for costs according to the manager responsible for those costs
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Responsibility centre
An activity or area of responsibility in an organisation a manager is responsible for and has control over.
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Controllable cost
A cost that is within the control of a manager.
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Uncontrollable cost
A cost that is beyond the control of a manager.
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Cost centre
An activity or area of responsibility in an organisation that generates costs but is not responsible for generating revenue or producing direct profit.
A cost centre only incurs costs, which must be collected and analysed
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Function
Many organisations treat functions (or departments) as cost centres – i.e. production, information technology, human resources and finance.
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Activity
An activity within an organisation can be treated as a cost centre – for example, the storekeeping activity.
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Project
Projects may also be cost centres – for example, developing a new product.
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Person
A person might be a cost centre – for example, a finance director. Costs might include the director's salary or the running costs of their company car
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Process
A process can be treated as a cost centre – for example, the finishing process in a bespoke furniture manufacturer
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Production or service location
Production or service locations may also be treated as cost centres – for example, the mixing department in the factory of a food manufacturer (production location) or head office (service location).
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equipment or machinery
A specific item or group of equipment or machinery can be treated as a cost centre – for example, the paint spraying machine in the factory of a car manufacturer.
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A cost centre is responsible for accumulating costs, whereas a cost unit is a unit of production that costs are calculated for
Cost centres accumulate costs but have no income or revenue attributed to them. This can result in cost centres being:
Perceived negatively and viewed as hurting profit while failing to contribute to the value of an organisation
Targeted for cutbacks and redundancies when an organisation is under pressure to reduce costs.
- cost centres will have a unique code
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PROFIT CENTRE
An activity or area of responsibility in an organisation to which costs and revenue can be attributed.
Identifying profit centres allows profitability to be measured as a product of costs and revenues, which is impossible for a cost centre.
Examples of profit centres might include an individual health club in a chain of clubs owned by a company, a salesperson, or a restaurant in a large hotel.
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Key features of profit centres:
Organisational hierarchy
In the hierarchy of an organisation, profit centres generally sit higher than cost centres, and there are often several cost centres within a profit centre.
Some profit centres also consist of individual members of staff – for example, a sales representative whose generated income can be traced.
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The seniority of profit centre managers
Profit centres tend to cover a significant area of operations.
For example, a profit centre might cover an entire division of an organisation.
Profit centre managers are expected to generate income and control or minimise the costs incurred. The role is broad and demanding and attracts a high level of seniority
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external and internal revenue
Profit centres can generate revenue externally or internally (by selling to other parts of the organisation).
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From cost centre to profit centre
It is possible for a cost centre to become a profit centre – for example, if a delivery driver becomes a general courier service used by other organisations or if an internal service function starts charging for the services it provides.
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INVESTMENT CENTRE
An activity or area of responsibility in an organisation to which costs, revenue and assets and liabilities can be attributed.
The distinguishing feature of an investment centre is that its manager is also responsible for making investment decisions regarding the assets available for use (asset investment), such as the purchase and sale of non-current (long-term) assets.
an investment centre is a business unit controlling costs, revenue, and capital investment.
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BUSINESS UNIT
A particular activity or area of responsibility in an organisation that has a degree of autonomy in deciding plans and processes for generating profits.
A business unit might be an internal function in an organisation or a subsidiary company with its separate legal identity and ownership structure.
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PERFORMANCE MEASUREMENT
Gathering info about an organisation's activities and comparing them to management's expectations
The performance of a cost centre can be measured in terms of:
Productivity
Cost compared with budget
Cost per unit
Standard hours produced
Ratios.
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CONTROL
actions taken to ensure activities do not deviate from expectations
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PRODUCTIVITY
Measure of how efficiently output is produced from input.
OUTPUT ÷ INPUT = PRODUCTIVITY
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Some examples of productivity measures are:
- output per unit of time
- output per unit of material
- output per unit of expense - For example, loaves of bread baked per kilowatt-hour of electricity or kilometres travelled per litre of fuel.
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BUDGET
A plan expressed in monetary terms
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VARIANCE
The difference between an actual and planned outcome
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Cost per Unit CALCULATION
COST ÷ OUTPUT = COST PER UNIT
Cost per unit is useful in measuring the accumulated costs per unit. Different perspectives may be used, depending on what management tries to evaluate.
Some examples are:
Total cost per unit
Total production cost per unit
Non-production cost per unit
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Standard hour
The expected amount of output in an hour
STANDARD HOURS OF ACTUAL PRODUCTION is the expected time it should have taken to make actual production.
For example, if actual production is 100 units and the standard time is 1 hour per unit, it should have taken 100 hours to make the 100 units. If the actual time to make 100 units was more than 100 hours (say, 112 hours), production was not as efficient as expected, and more time than anticipated was used
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Standard time
The expected amount of time to produce a unit of output
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Production ratios:
Efficiency ratio
Standard hours of actual production ÷ Actual hours
This measures the efficiency of the labour.
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Capacity utilisation ratio
Actual hours ÷ Budgeted hours
This measures whether the available labour capacity has been used.
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Production volume ratio
Standard hours of actual production ÷ Budgeted hours
This measures the total output of labour. It can also be computed as actual units divided by budgeted units.
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relationship between these ratios:
EFFICIENCY % × CAPACITY UTILISATION % = PRODUCTION VOLUME %
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Profit centre performance measures
- profit compared with budget
- profit per unit:
Profit for the period ÷ units produced
This is similar to the cost per unit performance measure used for cost centres.
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Net profit margin %
Net profit ÷ Revenue
Net profit is the profit of the centre once all costs (direct and indirect) have been deducted from revenue.
The net profit margin is a valuable profit centre performance measure because it shows the proportion of each dollar of sales retained as net profit.If this ratio decreases over time, profit centre managers may seek to improve profitability by reducing costs or increasing the selling price.
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Operating profit margin %
Profit before interest and tax ÷ Revenue
The centre’s profit on its day-to-day operations before the deduction of interest and tax.
This shows the profit performance of a business before costs relating to financing.
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Gross profit margin %
Gross profit ÷ Revenue
The gross profit margin can help profit centre managers to focus on the profitability of production before considering other costs such as non-production overheads.The ratio shows the efficiency of the production process in utilising materials, labour and production overheads.
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Other cost ratios and sales ratios
For example, materials or administrative costs could be expressed as a percentage of sales revenue. Trends can be identified and investigated by tracking these ratios over time.
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Investment Centre Performance measures
- return on capital employed
- residual income
- asset turnover
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Return on capital employed (ROCE) compares the profits earned by the investment centre to the capital invested in the investment centre.
- track performance over time and compare it with other organisations.
Generally, a positive ROCE above the cost of capital is desirable.
ROCE, also known as Return on Investment (ROI), is computed as a %.
OPERATING PROFIT ÷ CAPITAL EMPLOYED = ROCE
[Year-end capital employed figure for ROCE calculations]
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Cost of capital
is the cost of financing the business’s operations. For example, if a project is funded by borrowings at an annual interest rate of 4% per year, the ROCE of that project must be above 4% to be viable
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Capital Employed
is the amount of net assets the organisation uses for its operations
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Residual income (RI)
looks at the investment centre profit after deducting a notional interest charge for invested capital. measures the increase in the owner's wealth
A positive RI should be maintained. The larger the RI, the larger the gain in the owner’s wealth.
Residual income is an absolute measure (expressed in $).
OPERATING PROFIT − NOTIONAL INTEREST = RI
CAPTIAL EMPLOYED × COST OF CAPITAL % = NOTIONAL INTEREST
The notional interest charge is calculated on the entire capital employed by the investment centre, not only on borrowed funds.
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Asset turnover - Asset turnover assesses how effectively an organisation's assets are used to generate sales revenue.
REVENUE ÷ CAPITAL EMPLOYED = ASSET TURNOVER
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Relationship Between ROCE, Operating Profit Margin, and Asset Turnover
ASSET TURNOVER × OPERATING PROFIT MARGIN = ROCE
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CODE
A unique set of characters used to identify an item, consisting of numbers, letters, or other symbols. identify an item, such as a customer or a type of material.
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CODING SYSTEM
System by which codes are created, managed and used.
Barcodes and QR codes are typical examples of a coding system commonly used to identify products. These combine code with a graphic pattern that a machine can read to provide convenient data entry.
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Characteristics of an effective coding system are:
- Logical
- Concise
- Consistent
- Unique
- Expandable
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Type of coding systems
CHART OF ACCOUNTS
A document that contains comprehensive details on the classes of codes and the accounts and items they identify.
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SEQUENTIAL
Sequential (or progressive) coding systems allocate a standard numeric code to each item in a sequence.
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BLOCK
Block (or group classification) coding systems group similar items together in a block. This system is often applied to the chart of accounts in an accounting system.
Example of block chart of accounts:
Code
Description
1000
Non-current assets
2000
Current assets
3000
Non-current liabilities
4000
Current liabilities
5000
Equity
6000
Revenue
7000
Expenses
This code structure can accommodate 999 items within each category. For example, the account code for a bakery oven might be 1001, and for a computer might be 1002.
A potential disadvantage is that the number of items in each block is limited
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Faceted
A faceted code is broken down into facets (or groups), each representing a different characteristic. For example, consider a furniture manufacturer using a three-faceted coding system:
Facet 1: Function
01 Preparation
Facet 2: Cost type
DM Direct materials
Facet 3: Cost item
0001 - 0100 Direct material descriptions
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Hierarchical
A hierarchical coding system is like a faceted system because each code is broken down into facets; the difference is that each facet is a sub-category that represents a subset of the previous category. The code grows in length as more detail is provided.
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Mnemonic
A mnemonic coding system uses an abbreviation or other memory trigger to help identify the meaning of the code. An example is the three-letter system used to identify airports in the travel industry:
LAX = los angeles
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items classified using codes include
- customers
- suppliers
- general ledger accounts
- products
- cost centres
- employees
- jobs
- materials
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Advantages of codes
Data entry is more efficient as codes are shorter than narrative text and quicker to enter
After transactions have been input into the system, codes can be used to search, distinguish and extract information, making analysis easier
Staff become familiar with the codes they frequently use, which saves time
Codes are precise and allocated to specific items, reducing the confusion and misunderstandings that can arise with narrative descriptions.
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Coding errors
In any system, errors may occur when allocating a code to a transaction or item. This can happen before input or during the data entry process.
It can be challenging to identify a coding error before entering data into a sequential coding system, as there is no apparent relationship between the codes and the coded items.
Therefore, only obvious errors are likely detected, such as three digits entered for a four-digit code.
Other coding systems have a more logical structure, making coding errors easier to identify.
For example, consider a mnemonic code that might be used to identify chocolate chip cookies at Ravi's Quality Bakery: CHCHCO. If a customer invoice for 100 cookies is recorded under the code BRROWH (Bread Roll White), the error should be relatively easy to identify.
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Correcting coding errors
incorrect code is selected at the data-entry stage (perhaps from a dropdown list).
In this instance, a two-step correction process is recommended:
1. Post a transaction that reverses the initial transaction to cancel out the original error
2. Post the transaction again using the correct code.
This provides an audit trail (or record) so that others can view the initial transaction error and feel confident that the error has been rectified.
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PURCHASING - business buys three types of items:
- raw materials
- goods,
- services
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PURCHASE REQUISITION -
When a person (or an automated system) within an organisation identifies the need to purchase materials, goods or services, a purchase requisition must be completed.
Its primary purpose is to control the purchases made by the organisation, ensuring that only authorised purchases are made.
Procedures may differ across organisations, but generally, a purchase requisition for materials is initiated in the stores department.
Purchase requisitions for goods and services may be initiated throughout an organisation.
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purchase requisition elements
- purchase requisition number
- investory code
- details of goods or services required
- quantity required
- usual supplier
- requested by
- approved by
- budget code
The person who initiates the purchase requisition should have it approved by someone with authority. This helps to prevent unauthorised or fraudulent purchases.
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purchase order to supplier, formally ordering the goods or service
PO is created in the system and internal access to it is made available to:
1.
The accounts department (to compare with the invoice when it arrives)
2.
The person who initially raised the purchase requisition (so they know their request has been actioned)
3.
The storekeeper who is responsible for the inventory held in the stores or warehouse (if the PO is for materials used in production)
4.
The purchasing department (responsible for buying and making purchases)
- purchase order number
- address
- product or service required
- quantity
- price
- supplier product code
- electronic authorisation
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purchase process
- organisation sends purchase order
- supplier gathers materials
- supplier despatches materials with delivery note
- organisation checks delivery and digitally signs delivery note
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Receiving goods - recorded into accounting system
The quantity of the items received and date of receipt will be updated into the system, as well as where the items are held.
control of goods received - check and confirm what has been received against delivery note
goods received information is made available to:
1.
The accounts department (to compare with the supplier’s invoice to confirm that payment should be made)
2.
The warehouse or stores function (to update inventory records – see Section 2)
3.
The purchasing department (to match with the original PO and confirm that the order has been fulfilled)
In some large organisations, the goods inward department (to match against the supplier’s delivery note).
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Recording material transactions
If the goods received are raw materials for use in production, they will be added to the raw material inventory, which is usually kept in the warehouse under the control of the storekeeper. The inventory records will then be updated to reflect the newly arrived materials.
Records of the movement of materials between inventory and production include the following:
A materials REQUISITION : When materials are required from inventory for production, a materials requisition is completed. This is a request from the production function to the warehouse for the materials listed. The materials requisition must indicate which department or cost centre requests the materials to charge the correct cost centre.
A materials RETURN : This records the return of materials to raw materials inventory – for example if too much material has been requested. The department or cost centre returning the materials is credited with the cost of the materials returned.
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maintaining inventory records
Inventory records are updated in real-time whenever there is a receipt or issue of materials.
An example of how inventory records may be updated for an item of inventory (standard white flour) is shown.
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Perpetual inventory system
the quantity of an inventory item held is updated every time inventory is received or issued from stores. Therefore, there is a current record of the amount of inventory in the stores
Keeping an inventory record allows each item’s levels to be monitored, and a purchase requisition can be raised when inventory levels are low
[The alternative to a perpetual inventory system is a periodic inventory system, which checks (counts) inventory at regular intervals to establish the quantity.]
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Stores Ledger Accounts
The storekeeper is responsible for monitoring inventory levels in the stores or warehouse by maintaining the inventory records.
Accounting dept responsible for maintaining the stores ledger accounts
two critical differences between inventory records and stores ledger accounts:
The stores ledger account includes information regarding the cost of inventory, including the unit cost and total cost of each inventory issue and receipt.
The stores ledger account also records the value of the inventory balance following each issue and receipt.
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Free inventory
Inventory that is available for requisition
[see formula]
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Once the goods, services or raw materials are received, the supplier will send an invoice.
PROCESSING a received invoice:
- Check against record of goods received
- apply general ledger codes and debit accounts
- check sales tax rate
- deduct relevant discounts
- check total payable amount
- make payment
If error found in invoice, a debit note should be sent to the supplier. The supplier should issue a credit note to cancel the charge for the amount not received
[Additional codes may be applied to specific items from invoices to facilitate analysis and tracking.]
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additional inventory category
- Raw materials -> Materials that will be input into the production process
- Work in progress -> Incomplete units that are still in the production process
- Finished goods -> units that are completed and ready for sale
[stores records would be updated with amounts for each inventory category]
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Types of labour costs - incurred to pay workforce
Wages (paid periodically in days or weeks)
Salaries (usually paid monthly)
Overtime payments (paid to employees that work more than the agreed number of hours in a period).
Bonuses
Sick pay
Holiday pay
Other incentives
the use of labour is recorded, communicated, authorised and controlled within the computerised system
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PAYSLIPS
Employees are provided with a payslip outlining their payments and deductions. Collectively, payments to employees are known as the payroll.
- identification - home address, employee no.
- tax codes
- other contributions eg NI
Gross pay - pay earned BEFORE any deductions
- deductions
- Year to date figures
- Net pay - take home pay for period (gross pay minus deductions)
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Employee records - how employees spend their time (ensures that employees are paid correctly, that labour costs are charged to the correct cost code(s), and that wages are analysed correctly)
Document:
- Employee payroll record
- Employee attendance record
- Employee swipe cards
- Employee timesheets
- job cards - collate costs associated with a specific hob. also show entries for materials allocated
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Classifying labour costs
Work that is not easily identified with specific units of output or production (such as a production supervisor's wages) will be accounted for as an indirect labour cost.
A share of indirect labour costs should be apportioned across all jobs to ensure an accurate picture of the total production cost of a job.
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PROCESSING SALES
1. purchase order received
2. customer account checked
3. sales order raised
4. sales requisition raised
5. delivery note prepared and checked
6. sales invoice raised
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***Recording sales revenue
The double entry for recording the sales revenue is:
Dr Accounts receivable (for credit sales) or Bank (for cash sales)
Cr Sales (either one sales account or several different sales accounts).
Only the net sales amount is recorded. Sales tax will be recorded separately in the sales tax account.
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Classifying sales
Sales can be classified into many categories to support management's understanding and facilitate its actions
eg. - product type; division; customer type; geography
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ch11 Accounting for materials.
RAW MATERIALS INVENTORY
is all the components (for example, wood, plastic and fabric) currently in stock and not yet used in work in progress or finished goods.
[Raw materials inventory must be managed effectively and efficiently to meet production needs. Improper inventory management can lead to interrupted work, missed deadlines and lost sales.]
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size of order to top up inventory must take into account: [[number of units needs to be calculated]]
The quantity of raw materials should be enough to meet customer orders without delay.
Inventory stored for future orders may deteriorate over time (perishability).
Excess inventory will tie up cash that may be required for other uses (financing cost).
To meet these requirements, it is crucial that the inventory records reflect current inventory levels and that a reliable production plan is in place.
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Calculating raw materials order quantity
expected material usage + required closing inventory - opening inventory
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Expected material usage for the period
multiply expected production by required material per unit
[Material usage quantity usually found by multiplying required units of finished goods by raw material per unit]
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Direct and Indirect Materials Cycle - raw materials used in production classified as either direct or indirect, depending on whether they can be traced to a cost unit or part of the production process
wood used in a manufacturing company to build wooden doors is classified as direct material. In contrast, the oil used in a factory to lubricate machinery is classified as an indirect material. This is because it would not be practical to calculate the cost of lubricating the machinery for every cost unit, so the cost is not traced to the product directly.
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ACCOUNTING FOR DIRECT MATERIALS
- Materials control -> work in progress -> finished goods
Direct materials would be directly accounted for in work-in-progress.
Issue of direct materials to production
Dr Work-in-progress
Cr Materials control
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ACCOunting for INDIRECT materials
- Materials control -> production overheads -> work in progress -> finished goods
Indirect materials would be transferred into a production overheads account for subsequent absorption into work-in-progress.
Issue of Indirect materials to production
Dr Production overheads
Cr Materials control
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Absorption of production overheads
Production overheads (which include all indirect production costs) would be absorbed into production
Absorption of production overheads into production
Dr Work-in-progress
Cr Production overheads
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Transfer to finished goods
Completed units would be transferred from work-in-progress to finished goods.
Transfer to finished goods
Dr Finished goods
Cr Work-in-progress
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Sale of finished goods
The value of finished goods sold would be recognised as the cost of goods sold in the statement of profit and loss.
Sale of finished goods
Dr Cost of goods sold
Cr Finished goods
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Material Control (T-account)
The journal entries for the issue and return of materials can be displayed in a T-account format
[[see diagram]]
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Inventory Valuation
There are four main inventory valuation methods:
First in, first out (FIFO)
Last in, first out (LIFO)
Cumulative weighted average (CWA)
Periodic weighted average (PWA)
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FIFO assumes that the inventory purchased first is sold first. So, the materials in inventory at the end of a period are valued using the most recent prices paid to suppliers.
FIFO -> goods sold = oldest first.
Closing investory valued at -> latest prices
[[see FIFO Calculation!!]]
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LIFO assumes that the inventory purchased last is sold. So, the materials in inventory at the end of a period are valued using the oldest unit prices paid to suppliers.
Goods sold -> newest first
Closing inventory valued at -> oldest prices
[[see FIFO Calculation!!]]
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CWA - Cumulative weighted average calculates
the average cost per unit every time a new material receipt occurs by dividing the total cost of held inventory by the total number of units in inventory
This price is used to value all issues to production until another delivery is received. The closing inventory is valued using the most recently calculated weighted average price.
frequency of price calculation -> every time upon receipt of new material
price of issued material -> at the latest calculated weighted average price
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The periodic weighted average (PWA) calculates
a single weighted average cost per unit at the end of each accounting period (rather than whenever inventory is purchased). This single weighted average price is used to value all the issues to production and the closing inventory at the end of the period
price calculation -> at END of the period
price of issued material -> at average price for the period
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COST OF ALL RECEIPTS FOR THE PERIOD + COST OF OPENING INVENTORY)
÷ (UNITS RECEIVED FOR THE PERIOD + UNITS OF OPENING INVENTORY)
= PERIODIC WEIGHTED AVERAGE PRICE
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Valuation method considerations
???
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Advantages and disadvantages of methods - see table
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Classifying labour costs
The total labour costs incurred include all payments made by an employer on behalf of the employee.
GROSS PAY + EMPLOYER CONTRIBUTIONS TO EMPLOYEE BENEFITS
= TOTAL LABOUR COST
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Employees are classified as either direct or indirect workers depending on whether they are involved in producing a product.
Only hours spent directly producing a product/service are considered direct labour costs.
All other costs are indirect, even if paid to direct workers.
Generally, the basic pay of direct workers is a direct cost, and all other costs of direct workers are indirect costs. All costs of indirect workers are indirect costs.
A bonus paid to direct workers is an example of an indirect cost paid to direct workers.
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Labour costs that are INDIRECT
- idle time
- general overtime premium
- overtime worked for customer request - DIRECT cost
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Direct labour costs are usually active hours spent by direct workers producing output multiplied by their basic rate.
- active basic hours; basic pay earned from overtime -> direct cost
- idle time; overtime premium of direct workers -> indirect cost
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The cost of indirect workers is indirect
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Paying wages
Payment of net pay to employees
Dr Wages control
Cr Bank / Cash (net pay)
Payment of employee deductions and employer contributions to external entities
Dr Wages control
Cr tax PAYE / employee benefits
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Accounting for Labour Costs in Wages Control
Accounting for costs of labour (including employer contributions)
Dr Work-in-progress / production overheads / employer contributions
Cr Wages control
Labour costs are then accounted for using the same principles applied to direct and indirect materials costs.
Direct labour costs are debited to the work-in-progress account
Indirect labour costs are debited to the production overhead control account
Both direct and indirect labour costs are credited to the wages control account.
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Direct labour costs accounting
Direct labour costs associated with production
Dr Work-in-progress
Cr Wages control
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Accounting for Indirect Labour Cost
Indirect labour costs would be transferred into a production overheads account for subsequent absorption into work-in-progress.
Transfer of indirect labour costs to production overheads
Dr Production overheads
Cr Wages control
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Absorption of Production Overheads
Production overheads (which include all indirect production costs) would be absorbed into production.
Absorption of production overheads into production
Dr Work-in-progress
Cr Production overheads
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Employee remuneration
*Employee remuneration is the compensation paid to employees in exchange for their work.
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Time-based - employees paid by number of hours worked
Basic rate - rate at which normal hours are paid
Normal (regular hours) - agreed hours an employee must work in a period
Normal pay - Normal hours multiplied by the basic rate
Overtime hours
overtime rate
overtime premium rate - diff between overtime rate and basic rate
Premium bonus scheme - bonus paid for production rate better than standard time
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GROSS PAY - total pay earned by employee
Piecework/output based - paid by output. more they produce, higher the pay
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Basic piecework rate - rate paid per unit of output
output = number of units produced
differential piecework scheme - scheme that pays higher rates for more output
Premium bonus scheme - bonus paid for production rate better than the standard time
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Performance related bonus - rewards for achieving KPI or measure
Profit sharing - rewards that allow employees to share in the profits of a business. similar to commission-based renumeration
share option scheme - employees given options to acquire shares in the firm for potential gains in the future from increasing share prices
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shared productivity bonus - employees participate in a shared reward for achieving a collective goal or measure
achievement awards - employees given rewards for achievements
peer awards - employees earn rewards on the recommendation of their peers
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There are three ways in which an organisation can attempt to reduce labour costs:
Changing the method of remuneration
Changing the levels of production
Reducing the number of employees (although this may not be possible without reducing production levels).
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Changing Method of Remuneration
Changing Levels of Production
An organisation may reduce unit labour costs by encouraging employees to work at higher levels of efficiency.
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Net Pay is the amount paid to employees after deductions from gross pay
Deductions are amounts deducted from an employee’s gross pay by the employer on behalf of third parties.
- income tax deductions [PAYE]
- employee benefit/social insurance contributions
- other deductions
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Other Employer Costs
In addition to employees’ wages, employers may be required to contribute to employee benefits or national insurance schemes. These costs are included in the calculation of total labour cost.
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normal hours = Agreed hours an employee must work.Any hours exceeding normal hours are overtime hours.
basic rate
(normal rate) = typical rate an employees hours are paid
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Normal pay ->The normal pay an employee is expected to earn a day.
Basic pay ->
Pay earned by the employee at basic rate, including overtime hours.
Total hours × basic rate
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Overtime hours -> hours worked by employee exceeding normal hours
Overtime rate -> rate paid for overtime hours worked
Overtime pay -> total amount paid for overtime hours, inc basic and overtime premium rates
overtime hours x overtime rate
Overtime premium rate -> The difference between overtime rate and basic rate.
Overtime premium ->
The total amount of overtime premium earned.
Overtime hours × overtime premium rate
Gross pay = total of all pay earned, inc basic pay, overtime pay, all other pay. Does not include employer contributions to mandatory employee benefit schemes.
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Cost of labour =
The total cost of labour to the employer.
Includes all labour costs, including employer contributions.
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Absorption costing
Absorption costing focuses on the total cost of producing one output unit. It includes all overheads, both fixed and variable.
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Production overheads =
ongoing costs necessary for running production operations but cannot be directly traced to a cost unit
Under absorption costing, production overheads are absorbed into the cost of the product.
- Indirect labour - payments to workers
- Indirect materials
- Indirect expenses - utilities, rent , logistics (cannot be directly related to a specific cost unit or job)
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Non-production overheads
non-production overheads are indirect expenses not incurred in the production process. They are not absorbed into the product cost.
- Selling
- Administration
- Distribution
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Allocation
Allocation is recognising an entire cost element to an ONE individual cost centre.
For example, the entire cost of baking supervisors can be allocated to the baking (production) department.
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Apportionment
Apportionment is the sharing of a cost element among SEVERAL cost centres. How the cost is apportioned is called the apportionment basis.
Some examples of appropriate apportionment basis:
- Factory rent and utilities - apportionment: area of floor space occupied
- Factory cafeteria costs - apportionment basis - number of employees in cost centre
- Machine maintenance costs - number of machine hours
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Process of allocation, apportionment, re-apportionment and absorption
1. allocate attributable overheads (production overheads to cost centres)
- TWO TYPES of cost centres: Production, and Service
2. apportion shared overheads
3. re-apportion service cost centre costs to production cost centres
4. absorb production cost centre costs into cost units
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Production cost centre
cost centre directly involved in the production of cost units.
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Service cost centre
A cost centre that provides services to support production cost centre activities. Examples are warehouse and maintenance functions.
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Re-apportionment
is the apportionment of service cost centre costs TO PRODUCTION cost centres through an appropriate re-apportionment basis.
At the end of the calculation, there should be no more costs attributable to service cost centres.
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Overhead Absorption Rate
Production overheads that have been allocated and apportioned will need to be absorbed into the production units. This is done via the overhead absorption rate, a basis on which overheads are absorbed into cost units.
The Overhead absorption rate is based on the cause of the overhead cost and is selected depending on the work carried out by the cost centre.
For example, a labour-intensive cost centre might use an absorption rate based on the number of labour hours.
The most appropriate absorption basis depends on the nature of the production process of each cost centre.
Examples of overhead absorption rate basis are:
- direct labour hours
- direct machine hours
- % of direct materials cost
- % of direct labour cost
- % of prime cost
- $ per unit
BUDGETED PRODUCTION OVERHEAD ÷ BUDGETED ABSORPTION BASIS
= OVERHEAD ABSORPTION RATE (OAR)
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Pre-Determined Absorption Rates
Overheads are usually absorbed into cost units using pre-determined OAR, which has been set in the budget for the period.
The reason for this is:
-> Actual overheads unknown
The actual overheads incurred are not known until the end of the year, so using actual figures for production overheads is impractical.
Organisations need to estimate the production costs before the period begins, which will help them establish a suitable selling price.
-> Overhead costs fluctuate
Actual overhead costs will be higher in some months than in others. Using actual figures will produce a different absorption rate each month.
This would be confusing and impractical – an organisation is unlikely to change the sale price each month.
-> Production levels fluctuate
The number of units produced and hours worked is likely to fluctuate monthly.
If actual figures are used, the absorption rate would also differ monthly. It would also take time to gather the required information to calculate the monthly rate. Using a single, predetermined rate over an extended period provides consistency and saves time.
*Overhead absorption rates are usually computed using budgeted production overheads divided by a budgeted absorption basis.
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Over- and Under-Absorption
If actual overheads incurred are higher than overheads absorbed, under-absorption occurs.
If actual overheads incurred are lower than overheads absorbed, over-absorption occurs.
This is affected by two factors:
The volume of activity on which overheads are absorbed is higher or lower than budgeted; and
The actual overheads incurred are higher or lower than budgeted.
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The journal entries for absorption of production overheads are:
Absorption of production overheads into work-in-progress
Dr Work-in-progress control
Cr Production overhead control
(Amount absorbed is based on OAR)
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Recognition of over-absorption of production overheads
Dr Production overhead control
Cr Cost of production (or cost of goods sold) [this reduces costs, as actual overheads incurred are less than budgeted
213
Recognition of under-absorption of production overheads
Dr Cost of production (or cost of goods sold) [increases costs as actual overheads incurred are higher than budgeted]
Cr Production overhead control
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Comparing Absorption Costing and Marginal Costing
Absorption costing focuses on the total cost of producing one output unit; marginal costing focuses on the variable cost of making one additional unit.
*The critical difference is that marginal costing does not include the fixed production overheads in the valuation of cost units and instead treats them as a cost of the period.
This is reflected in the profit statements, each having different profit figures.
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Job costing
is the process of calculating the costs of a specific job.
A job is a cost unit that consists of a single order or contract. Compared to continuous production, it is usually limited in scope and period.
The critical difference between a job and continuous production is that the output of each job is uniquely identifiable, compared to the homogeneous result of continuous production, where every cost unit is identical.
A job may be a single physical product, several products or a service – for example, a decorating job carried out by a decorator for a customer. It may also include a combination of products and services.
Job costing is an appropriate system for deriving the cost of unique or specific customer orders. It is useful in industries where each job is different (and incurs different costs). For example, a company that manufactures bespoke ships will likely allocate costs for each vessel produced.
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Job Costing Process
- Customer specifies requirements
- specification and delivery date agreed
- supplier estimates pricing
- pricing agreed
- job is scheduled for production.Supplier sets up unique job cost codes and accounts.
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Job Coding - unique code is used to identify the job, and all costs allocated to the job are tracked using the job code.
Materials
Materials requisitions will include the job code, and materials issued are recorded in the inventory record with the job code.
Labour
Labour assigned to the job will include the job code when completing their timesheets to ensure their labour cost is charged to the job.
Expenses
Expenses incurred will include the job code on their invoice to ensure appropriate allocation to the job.
Other overheads
Absorption of overheads is charged to the job using the job code.
218
job costs are charged to a job account
An individual job account is a sub-account of the work-in-progress control account.
Each job account would be uniquely identifiable by its job code.
219
- Calculating job costs [see table]
Calculating Cost of Sales -> The cost of sales relating to job costing is the sum of production and non-production costs associated with the job.
220
Batch costing
Batch costing is like job costing; the only difference is that the job’s output is several units rather than a single unit. The units within a batch are homogeneous.
Like job costing, each batch will be uniquely identified by a batch code.
TOTAL BATCH COST ÷ UNITS IN BATCH = COST PER UNIT IN BATCH
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Process costing
Some organisations produce large production output through a continuous process – for example, oil refining or chemical manufacturing. In this case, it is not practical to track the cost of each output unit separately.
These organisations use a system called process costing.
- Under process costing, the unit cost of production is calculated by dividing the total cost of the process by the number of units output from the process.
Sometimes, the output from one process forms the material input for subsequent processes. For example, crude oil goes through several refining processes before becoming petroleum.
222
NORMAL LOSS
Unavoidable expected loss of material from a production process
EG. Evaporation, spoilage
This normal (expected) loss is part of the process and is distributed across the output units.
223
ABNORMAL loss
The difference when the actual loss is higher than normal loss.
224
ABNORMAL GAIN
The difference when the actual loss is less than normal loss.
225
When there are losses in the process, the formula to calculate expected output is as follows:
INPUT UNITS − UNITS OF NORMAL LOSS = EXPECTED UNITS OUTPUT FROM PROCESS
226
Calculation of normal loss, abnormal loss, and abnormal gain
[need to practice this]
[calc % of normal loss out of input]
Expected output minus actual output
227
A SPREADSHEET
is an electronic document divided into rows and columns to store, organise, and manipulate data, and is widely used by accountants.
Automate accurate mathematical calculations
Analyse data efficiently and effectively
Manipulate data efficiently and effectively
Experiment easily with different scenarios (for example, what would happen if variable costs increased)
Present data professionally.
228
Quick access toolbar
provides quick and easy access to features frequently used in the spreadsheet.
229
Ribbon
The ribbon is the line of buttons and icons directly above the work area. Clicking on one of the main menu options on the ribbon (for example, 'File', 'Home', 'Insert') will reveal the options relevant to that feature. For instance, the options to save, open, print, etc., are presented by clicking' File'.
230
Name box
(cell reference)
The name box displays the active cell's cell reference (usually a letter/number combination). A cell is the intersection of a row and a column; the active cell is the currently selected cell. If a name has been defined for a cell or range of cells, that name will appear in the name box rather than the cell reference.
231
Status bar
The status bar shows the current status. By default (cell mode), it displays four options:
- Ready to indicate a general state.
- Enter to indicate content entry mode. It is displayed when you select a cell and start typing or press F2 twice.
- Edit to indicate in-cell editing mode. It is displayed when you double-click a cell or when you press F2 so that you can enter or edit data in a cell.
- Point to indicate formula cell selection mode. It is displayed when you start a formula and click the cells you want to include.
232
Spreadsheet - to select an entire column
Click on the column header
Shortcut: Ctrl + Spacebar
233
To select an entire row
Click on the row header
Shortcut: Shift + Spacebar
234
*Select entire worksheet
Shortcut: Ctrl + A
235
Adjust row height/column width automatically.
On the ribbon, choose the Home tab, navigate to Cells, choose Format, and then select AutoFit Row Height to fit the row height to the cell with the most data.
Choose Row Height for manual adjustment.
236
Saving a Workbook with Password Protection
To add password protection to a Microsoft Excel workbook, choose File on the ribbon, navigate to the Info tab, select Protect Workbook, and then Encrypt with Password.
*A strong password should have more than eight characters and contain a combination of upper- and lower-case letters, numbers, and symbols.
237
Cell Content
- Text
- Values
- Formulae
A text cell usually contains words or other sets of characters that cannot be used in mathematical calculations.
eg. alpha-numeric codes . If the content is to be used in formulae, it must be converted into values.
Values - number that can be used in a calculation
Formulae -> Instructions for performing calculations. Indicated by an equal (=) sign at the start of the formula.
238
Cut, Copy, and Paste
Cut: CTRL+X
Paste: CTRL+V
Copy: CTRL+C
Paste: CTRL+V
239
Using AutoFill Handle
The AutoFill feature allows data that follows a predictable pattern to be rapidly input. This is done by clicking and dragging the small black square at the bottom right of the active cell border (the cursor will change to a black cross).
240
For subtraction, use a subtraction operator (−)
For multiplication, use a multiplication operator (*)
For division, use a division operator (/)
The mathematical order of operations applies when using mathematical operators in a spreadsheet.
For example, the spreadsheet will perform multiplication and division operations before addition and division, and operations in parentheses will be completed first
241
Relative cell reference
Cell reference in spreadsheet formulae that change relative to the position of the copied cell to the original cell
242
Absolute cell reference
Cell reference in spreadsheet formulae that do not change.
This is useful if a formula needs to reference a fixed cell that applies to all formula copies.
To create an absolute cell reference, the $ symbol is added in front of the cell reference's letter (column name) or number (row name). This locks that part of the cell reference from moving.
When copying or moving formulae, always examine the cell references and whether they are relative or absolute.
243
ROUND Function changes the value of a cell by rounding the number to a specified number of digits.
The ROUND function changes the underlying value rather than just changing how a value is displayed (which is the case when formatting numbers).
244
IF Function applies a logical test and returns different values depending on whether the logical test has been met.
Type 1 after the first comma (returns a value of 1 if the logical test succeeds), then add a comma
Type 0 after the second comma to return a value of 0 if the logical test fails, and then a closing parenthesis to close the formula
245
Capturing Data
User input (Mouse, keyboard, and other human interface devices)
Values and results from formulae in other cells.
References to cells in other worksheets within the workbook or other workbooks.
Queries to another software package (such as an accounting system)
Data import and query other sources, such as the internet or data files.
246
Sort and Filter Functions
The Sort function quickly organises data into alphabetical or numerical order.
The Filter function allows the user to choose which data to be presented.
These functions do not change the underlying data. They only affect the view of the data.
247
The Find and Replace function
The 'Find' tool provides an efficient way to search for a value, character, word or piece of text in a spreadsheet. The shortcut is CTRL+F.
The 'Replace' tool allows you to replace a value, character, word or piece of text with a different entry. The shortcut is CTRL+H.
248
Formatting is the presentation of the spreadsheet’s content for more straightforward navigation and understanding. does not change underlying content of the spreadsheet.
Most of the formatting options are included on the Home tab of the ribbon:
Detailed formatting options are found by right-clicking the cell and selecting Format Cells.
Number
Formatting of data type.
This affects the presentation of data and its use in formulae.
Accounting presentation
Decimal places
Number formats
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Alignment of cell content
- cell fill
- indent, spacing, orientation
- bullets and numbering
- wrap text
cell merge
Font -> cell borders,
Border -> formatting of cell borders
Fill
Protection -> toggles protection for cells. useful for worksheets that have users of different access levels
250
Protecting Cells
Protecting cells prevents changes to the content of the cell by unauthorised individuals.
It is a two-step process:
1. cells should be locked (all cells in a new workbook locked by default)
Format cells meny -> protection tab -> locaked checkbox checked
2. on the Review tab of the ribbon, choose from the following options: protect sheet applies protection to teh current worksheet. Protect workbook applies protection to the entire workbook
3. set password (password required to make changes to locked cells)
4. Protection may be removed by navigating to the Review tab on the ribbon and selecting Unprotected Worksheet/Workbook. protection password will be required
251
Linking Worksheets and Workbooks
Data from other worksheets and workbooks can be referenced to the active worksheet.
The easiest way is to open both the source worksheet/workbook and destination worksheet simultaneously and select the source cells as a cell reference in a formula.
252
Link the data in another worksheet in the same workbook:
The name of the source worksheet, followed by a ! then the cell reference
253
Link to data in another workbook (open)
The name of the source workbook is in square brackets [], followed by an exclamation mark!, then the cell reference
The cell reference from other workbooks will be absolute by default
254
link to data in another workbook (closed)
The file address, the workbook name in square brackets, the worksheet name with an exclamation mark, and cell reference
255
Error Messages
#DIV/0 Attempted division by 0 (or blank cell)
#VALUE! Cell reference in the formula contains text
256
#NULL! Cell references or range not defined correctly eg. a missing colon
#REF! Invalid cell reference (missing column or row)
257
the cell is too narrow to display the entire contents
0 (circular reference) means the cell attempts to calculate with itself as the source. error message will result.
258
Correcting errors
Undo, CTRL+Z or quick access toolbar
259
Formula Auditing
Spreadsheets have functions to support error correction in formulas through the Formula Auditing tools in the Formula tab of the ribbon:
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Trace Precedents
Precedents are cells that are referred to in a formula.
The Trace Precedents function will show arrows from the precedent cells to the dependent cell
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Trace Dependents
Dependents are cells that refer to a selected cell.
The Trace Dependents function will show arrows from the dependent cells to the precedent cells
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Error checking
Provides some support in solving error messages
Select error checking to find out more about the error
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Evaluate Formula
Allows each calculation step in a cell to be examined to determine where the error is
In this example, the evaluation finds the error to be between B2 and C2 (NULL error)
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Charts and Graphs are visual representations of data to make understanding easier.
Column graph - Vertical columns that plot one or more series of data. Column graphs are suited for comparing one or more data series
Line graph - Lines that plot one or more series of data. Line graphs are suited to displaying trends over time.
Pie chart - A circle is divided to show the relative proportions of a whole. Pie charts are suited to displaying the relative proportions/importance of parts.
Bar graph - Horizontal bars that plot one or more series of data. Suited for displaying and comparing many series of data.
Area chart - Like a line chart, with the area below the lines filled in. Area charts are suited to show trends over time, with good visibility of relative proportions
Scatter graph - Data series plotted using dots. Scatter graphs are suited for showing cause-effect relationships.
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Displaying Spreadsheet Data
Zoom - Slider in the status bar at the bottom right of the worksheet.
Holding CTRL and rotating the mouse wheel (if available);
Using two fingers gestures to squeeze or enlarge on the touchpad (if available)
Freeze panes
Split - Splits the worksheet into separate views, simultaneously allowing viewing and editing of more than one area of the worksheet
Go-To Function - Tool to navigate to known areas of the spreadsheet, especially if they have meaningful names. The shortcut is F5.
Comments
Comments allow users to indicate thoughts, instructions, or other comments on cells without adjusting the cell's content. Useful when working in workbooks with multiple contributors.
A cell with a comment will have its top right corner in red.
Comments may be found in the Review tab of the ribbon:
Another way to add a comment to a cell is to open the right-click menu and select Add Comment.
Printing Spreadsheet Data
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Printing Spreadsheet Data
How the worksheet looks for printing can be adjusted in the Page Layout tab of the ribbon. Attributes like page margins, orientation, size, and print area can be modified.
Processes to prepare for printing:
- remove/correct any error messages -> formula editing
- adjust the layout for printing -> page setup
- adjust formatting of fonts and colours for easier understanding
Selection of cells to print -> select cells to print, then adjust in Print Menu in the File tab
Adjust data to fit the page -> add page breaks from Page Setup. Fit all data to the page's area, width, or height from the Print menu of the file tab.
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Organisation
use separate worksheets for a more straightforward analysis and understanding
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Variables
If a variable is referenced for many cells, organise them separately, from the calculations for each update. ensure standard variables have clear descriptions
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Formatting should be consistent and understandable. avoid too many colours. use conditional formatting
Consistency
Data tables -> avoid merged cells, ensure each cell contains one datum only, ensure each row or column contains one attribute only, have clear headers.
