swot notes

Question 1

assets

Answer 1

assests are reasources that an entity purchase in the past. They have eclsuive rights/present control over, in order to generate a future economic benefit.

Question 2

3 characteristics of an assest

Answer 2

Past transaction - the business purchased asset in the past
→ ____ (purchase) was purchased by ____ (business name) in the past
Present control - the business currently has exclusive rights to use the asset
→ the ____ (business name) has exclusive rights to use the ____ (purchase) to create/help ____ (use)
Future inflow of resources - explain how the asset will be used by the business to earn income to generate cash
→ (business) uses the _ (purchase) to create/help (use) to earn income, sales and will increase cash at bank

• ”” have presnt control/exclusive rights to the “”
• talk about how this helps them earn income
• they will pay with cash which will therfore increase the asset bank of “”
• ”” purchased the “” in the past
• the “” are from the customers not a contribution for the owner “”

Question 3

two classifications of assets

Answer 3

Current Assets: assets that are held for trading that the business expects will be turned into cash, or used-up, within the next accounting period
E.g. petty cash, cash at bank, inventory or stock, trade receivable, cash in till, bank account
Non-current Assets: assets that are not current assets. These assets are expected to be retained by the business beyond the end of the next accounting period
E.g. term deposit, shares, land, buildings, plant, equipment, goodwill, patents, cash register, premises

Question 4

liabilities

Answer 4

Liabilities are future sacrifices of assets that the entity is obliged to make at the present time, as a result of a past transaction

Question 5

3 characteristics of liabilities

Answer 5

Past transaction - the business received the liability (or purchased on credit) in the past
→ _ (business name) received a (type of liability) in the past
Present obligation - the business is obliged at the present time to repay the liability as per the loan agreement/invoice
→ (business name) is obliged at the present time to repay the _ (liability) as per the agreement
Future sacrifice of assets - in the future the business will pay off the liability by decreasing the asset bank, as per the agreement/credit contract
→ _ (business name) will decrease the asset bank in the future to pay of the _ (liability) as per the loan agreement)**

• the “” is a present obligation of “” that must be repaid as per the loan contract/invoice that was signed stating the amount owed(can include how long the contract or loan is due in)
• there will be a future outflow of reasources for “” when they pay off the “” they will have to repay the money therefor decreasing the asset bank
• this was a result of “” borrowing money from “” in the past

Question 6

2 classifications of liabilities

Answer 6

Current liabilities: liabilities that the business expects to pay within the next accounting period. It will be necessary for the business to have the cash to meet these liabilities
E.g. bank overdraft, trade payables, other payables
Non-current liabilities: liabilities that are not current liabilities. These will be paid over a period beyond the next accounting period
E.g.mortgage, bank loan, debentures, hire purchase

Question 7

equity

Answer 7

equity represents the owner’s stake in a company, calculated as the difference between total assets and total liabilitie

Question 8

the accouting equation (simple)

Answer 8

Assets - Liabilities = Equity

Question 9

the accoutning equation (extended)

Answer 9

assets + expenses + drawings = liabilities + income + equity

Question 10

expense

Answer 10

An expense is a decrease in assets or an increase in liabilities, which causes a decrease in equity, and is not a distribution to the owner (ie is not drawings)

• “wages?” paid to “workers?” is an expense for “business” because their baml decreases when the “workers?” when their paid. The transaction decreases equity due to a decrease in profit.
• Is not a drawing by “” the owner

Question 11

expense characteristics

Answer 11

Characteristics:
Decrease in assets (or increase in liabilities) - usually bank when what happens?
Decrease in Equity - which is due to a decrease in profit
Not a distribution to owner/s

Question 12

classifying expenses for service business’s

Answer 12

Service expenses - relate to the type of service provided
E.g. advertising, cell phone expense, wages,
Administrative expenses - those expenses incurred in organising the business
E.g. bad debts, discount allowed, insurance, office expenses, rent, fees, repairs, electricity, office salaries, postage, commissions,
Finance costs - expenses incurred in financing the business
E.g. interest

Question 13

classifying expenses for trading business’s

Answer 13

Trading expenses: e.g. cartage inwards, customs duty, freight inwards, purchases
Distribution costs: e.g. advertising, catage out, commission, depreciation, salaires, wages,
delivery van expenses, freight outwards, sales wages, rent
Administrative expenses: e.g. depreciation (office), equipment, electricity, postage, rates,
rent (office), wages (office), expenses, telephone expenses,
warehouse rent
Finance costs: e.g. interest

Question 14

income

Answer 14

Income is an increase in assets, or decrease in liabilities, which causes an increase in equity, and which is not a contribution by the owner

• ”” are income because they will increase profit which will increase equity for “”
• the customers will “” which will increase the asset bank
• the “” are coming from customers not “” the owner

Question 15

income characteristics

Answer 15

Increase in assets (or decrease in liabilities) - usually bank or accounts receivable when what happens?
Increase in equity - which is due to an increase in profit
Not a contribution from owner/s

Question 16

profit

Answer 16

Profit is an increase in the net assets of a business which does not arise from contributions by the owner

Question 17

calculating profit

Answer 17

Equity (end of year) = Equity (beginning of the year) + Profit - Drawings

Question 18

capital expenditure

Answer 18

Capital Expenditure - is spending that will benefit the entity for more than one period. It is a ‘one off’ expenditure and will affect the statement of financial position. The most common example is the purchase of a non-current asset, including all installation and transport costs incurred in getting it ready for use.
E.g. purchase of non-current assets, improvements to non-current assets, one-off irregular payments, repayments of non-current liabilities, reported in statement of financial position

• one-off expenditure
• add context of how its gonna increase the income.. then add (“for more than one current year”)
• has no effect on profit
• make sure to mention that it will increase income and how that is by putting it into conxtent with the question and the nature of the business

Question 19

revenue expenditure

Answer 19

Revenue Expenditure - is spending which is recurring in nature. It decreases the business’s profit and will affect the income statement. This includes spending on the repair and maintenance of assets and everyday operating expenses.
E.g. the expenses incurred in the day-to-day running of the business, purchase of inventory intended for trading, ongoing in nature, reported in the income statement

• expense that is recurring in nature
• will only benefit “” for one year
• could write that its an expense that needs to be pruchased on a daily basis
• will decrease profit

Question 20

accouting entity concept

Answer 20

The financial affairs of the owner of a business must be kept separate and distinct from the financial affairs of that business. Personal expenses of the owner are recorded as Drawings.

• will be reported as a drawing in the statement of financial position for “”
• because this is not an expense for the “business name” but “” the owner’s financial affairs and must therefor be kept seperate
• this follows the accounting entity concept
• write the classification e.g. non-current asset

Question 21

monetary measurement concept

Answer 21

All transactions, assets, liabilities, incomes, expenses and equity is recorded and reported in NZ dollar terms. Therefore, if a transaction cannot be expressed in money values, it will not be recorded in the accounting records. Any item in another currency will be converted to the local currency

• monetary measurment concept states that all transactions of “” are to be
  recorded in a common dollar unit such as NZ
  dollars.
• add the dollar amounts and the original amount if its been changed from a different dollar unit

Question 22

historical cost concept

Answer 22

Transactions are recorded at the original acquisition cost to the business at the time of purchase. This means assets are recorded at their original price when acquired, not at the current value as the business has no intention of selling the item

• “business” will record “” at orginal aquisiton cost of “”
• recorded in the statement of financial position as a “classification” at “dollars” which is the orignial cost if the “” to “business”

Question 23

going concern

Answer 23

The entity is going to continue to operate into the foreseeable future. It is assumed that the business will continue to operate into the foreseeable Future.

• ”” financial reports are prepared on the assumption that “” will continue to operate into the forseeable future
• add in the classification of the transaction e.g. non current asset in the statement of financial position because “business” will continue to use/paying off beyound the current year

Question 24

period reporting

Answer 24

the life of a business is divided into equal periods in order to measure profit and position, and to compare performance in previous periods.

-“” prepares its financial repots on “date” to measure profit and position, in order to compare performance to previous periods
- by dividing the life of “” and preparing income statements every year this ensures that the transactions is timely and that comparisons to other years can be made

Question 25

accural basis

Answer 25

Accrual basis: All transactions are recognised when they occur, They are recorded in the financial records and reported in the financial statements of the period they relate to. They are recorded in the period they relate to regardless of when cash is exchanged. ## Footnote - "' are to report transactions in financial statements of the period they relate to. - "transaction" would be subtracted from this years "particular" expense in this years income statement of "business"

Question 26

drawings

Answer 26

refer to the assets, primarily money, withdrawn by a business owner (or partners) for personal use, distinct from business expenses or wages, impacting the owner's equity and assets ## Footnote - will be reported as a drawing in the statement of financial position for "" - because this is not an expense for the "business name" but "" the owner's financial affairs and must therefor be kept seperate - this follows the accounting entity concept - will decrease the asset bank and increase the drawings