Business and Accounting Basics

Business and Accounting Basics

• Accounting information is used internally to manage costs, set prices, and control operations.
• External parties use accounting data for investment and credit decisions.
• The business environment’s complexity is influenced by various factors.
• Globalization expands markets but poses operational challenges.
• Rapid changes in the business environment necessitate evolving skills for accountants and managers.

Private Enterprise Types

• Private enterprises are owned by individuals aiming to profit from goods and services.
• Service businesses provide activities benefiting customers (e.g., accounting, law, medicine).
• Merchandising businesses purchase goods for resale (e.g., Woolworths, Coles).
• Manufacturing businesses create and sell products (e.g., Ford, Dell, Apple).
• All businesses need capital to start, operate, and grow.
• Capital refers to the funds used to operate or expand a business.
• An entrepreneur risks starting a business to earn a profit.

Raising Capital

• Entrepreneurs can raise capital by investing personal funds or seeking outside investors.
• Borrowing from banks or other lenders is another way to raise capital.

Forms of Business Organizations

• Sole proprietorships are owned by a single investor of capital with unlimited liability.
• Partnerships are owned by two or more individuals who invest capital, also with unlimited liability.
• Company/corporations are separate legal entities, independent of owners, and run by a board of directors with limited liability.
• Advantages of sole proprietorships are easy setup, minimal regulation, and direct financial rewards.
• Partnerships benefits from pooled resources and are simple to form.
• Corporations Offer separate legal existence, limited liability for shareholders, and easy ownership transfer.
• Disadvantages of sole proprietorships include unlimited liability and limited fundraising ability.
• Partnerships entail unlimited personal liability for general partners.
• Corporations face separation of ownership/control and extensive regulation.

Regulatory Environment

• Laws and regulations manage the complexities of the business environment.
• Regulations cover consumer and environmental protection, employee safety, employment practices, and taxes.
• Businesses operating internationally must comply with the laws of the host countries.
• Regulations provide safety for businesses, employees, and consumers, as well as fair competition
• Starting a business faces obstacles like high costs, bureaucracy, slow innovation, and less competition.

Accounting

• Accounting records financial transactions of a business.
• Its functions include identifying, measuring, recording, and summarizing data into financial reports.
• Accountants ensure financial document accuracy and legal compliance.
• They prepare financial reports and tax returns, and evaluate operations.
• They identify issues, propose solutions, offer guidance on revenue enhancement and conduct risk assessments.
• Business transactions and information is identified, summarized, analyzed and reported to prepare financial statements.
• Stakeholders use accounting data to make decisions.

Management Accounting

• It assists managers in planning, operating, and evaluating business activities.
• Planning sets business goals and strategies, which is a function of this department
• "Operating" enables the business to execute its plan with daily management.
• Evaluating measures operations against benchmarks.
• Budgeting quantifies plans, showing impact on activities.
• There are no set requirements for management accounting.
• It has a shorter timeframe, and is current/future-focused.

Financial Accounting

• Financial Accounting is organized for external users
• It follows Generally Accepted Accounting Principles (GAAP).
• It has a longer timeframe & historical data
• It uses financial statement summaries for external communication with financial information.
• GAAP is the code of ethics followed by accountants.
• AASB sets standards for Australian companies and government bodies.
• ASIC reviews annual reports of publicly traded Australian companies for GAAP compliance.
• Considerations include training, changing systems, keeping up with changes, and registered formal performance.
• The three management activities are planning, operating, and evaluating.

Basic Financial Statements

• The main business goal is to profit and remain solvent.
• Financial statements summarize and communicate business information.
• A statement of changes in owner’s equity explains the balance sheet's equity section.
• It also, states owner’s equity components.
• The Income Statement reports flow over a period.
• The Balance Sheet gives static report at period end.
• The Cashflows Statement reports flow over a period.
• Relating to income, expenses are categorized in the Income Statement, for Assets, liabilities, owner’s equity as Balance sheet elements and cash inflows and outflows into Cashflow statements.
• Income statements focuses on owner's equity changes from non-ownership transactions.
• The Balance Sheet focuses on financial position at a point in time.
• The Cashflows statemett focuses on cash changes over a period.

Equity and Ethics

• Equity is the money returned to shareholders if assets are liquidated and debts paid.
• Financial statements should convey business to internal and external users.
• Accurate data prevents disastrous decisions.
• Accountants must maintain ethical standards.
• The entity concept separates business and personal affairs.
• The cost principle records assets at historical cost.
• The matching principle says revenues are reconciled with related expenses.
• Accounting information is provided if its value exceeds its cost.
• Financial reporting informs investment and lending decisions.
• Stakeholder theory considers the interests of various parties.
• Realistic financial statements prevent disastrous business decisions.

Professional Ethics and Skills

• Australian professional accounting bodies adopt APESB's ethics code.
• Members must adhere to ethics principles, and use conceptual frameworks.
• Applying frameworks requires professional judgment and flexibility.
• A sustainable business addresses environmental concerns while profiting as well
• Accounting requires judgment, knowledge, critical analysis, communication, teamwork, and self-management.
• Critical thinking evaluates ideas.

Accounting Equation

• Accounts classify financial items.
• Journals record transactions, and T-account/ledgers detail accounts.
• The ledger includes detailed information for each account
• Running balances and T-accounts both format a ledger
• Assets represents company with with future economic value
• These can be tangible or intangible. Examples include land, building, equipment and goodwill,
• Current assets will be used up within 12 months, like cash and insurance.
• Non-current ones will be in an account after more than a year.
• Asset classification depends on business operations
• Motor vehicle manufacturers include motor vehicles in the inventory.
• Liabilities represent company obligations that must be settled.
• e.g. include money, service, accured liabilities, and long-term liabilities
• A mortgage gives lender right to property upon borrower's default
• Debentures are a type of bond used for raising capital.
• Current liabilities will be settled within 12 months with examples like, accounts payable, and bank loans
• Non-current liabilities are settled after more than 12 months, like mortgage and loans
• Owner's equity equals assets less liabilities and represent the capital theoretically available to shreholders
• Equity accounts show capital, dividend payments, and revenues
• Funds owners invest are counted as claim against business
• Revenues are amounts earned from services, rent, and sales, it includes customer dues.
• Expenses are costs incurred to earn revenue, these includes advertising, and salaries.
• Accounts payable is money owed due to incurred costs.

Business Planning

• The main purposes of a business plan are to organize the business, to serve as a way of measuring performance levels and obtain funding
• Plans include descriptions of the business itself, marketing, as well as operating, environmental, and financial plans.
• New businesses begin operations with a business plan
• Business plans describes goals and strategies as an evolving report used internally and externally.
• Business plans help visualize, organize, and benchmark business operations.
• Entrepreneurs require business plans to help obtain financing from potential investors.

Business Plan Concerns

• The level of risk and rate of return are concerns in making investment decisions.
• Plans help investors evaluate their risk-and-return ratio.
• A plan starts with a description of business and their major details:
• It highlights company information for investors, service details and its current customers.
• It shares business objectives and the major roles within the company
• This list includes expertise and direction to the business, and consultants who have a strong impact on the business.
• Plans include policies for training employees

Marketing Plans

• These describe how the business will drive the sales, and how it will respond to the changes of marketing conditions.
• It describes demand for products/services, and it incorporates Market research as well
• There will be current and expected competition levels, as well as regulations.
• It shows how to promote products and sales forecasts.
• Entrepreneurs finds the point related to thinking about what the other roles related to sales is for the rest of company.
• Investors will appreciate this description, as they can assess how well the plans are to attract customers.

Operations and Sustainability

• Operating Plans describes relationship with supplies
• It highlight business's processes to sustain product services
• Plans offer entrepreneurs help in details of practical implementation
• It allow the outside investor to successfully evaluate the performance of an idea

Corporate Responsibility

• Corporate Social Responsibility involves, environmental, social, and economic factors for their business.
• It applies a Triple Bottom Line perspective, in addition to social and financial aspects.
• Environmental management face lack of standardized environmental costs.
• Various interests use a variety of costly, waste disposable methods.

Business Sectors

• Publie Sector reporting is owned and managed by the government
• These provide basic services for the country like hospitals
• They don't aim for profit through services.

Performance Standards

• Rules are in place requiring a business to display impacts and costs. Australian Government have a requirement of this.
• The NEPM is designed to make sure everybody has a right to clean air etc.
• Environmental management systems allow the organisation to impact positively.

Financial Planning

• Financial Plans show requirements of costs including sources of capital
• Plans will highlight upcoming operations within the company.
• GST is used Australian in economy
• An expense contains its cost including GST
• The section should show how costs and resources will be used together.

New Business and Planning

• New Business should consider potential sources of that capital for the business, as they need enough to survive in that field.
• Capital requirements can be measured as major issues.
• Cash buffers should cover monthly debts and costs.
• One of the sources of the cost is suppliers who offer trade to customers
• Financial institutions also operate too.
• Lines of credit allow them to have a business and pay it back over time.
• Longterm comes investors to creditors after more than a year
• Private Placement sold directly to private investors.
• And Public Offerings happen at the stock market.

Financial Health

• Financial performance will offer projected financial statements
• These can be measured in profits and volume
• It supports the financial statements and includes revenues and expenses
• The Cost volume will affect other profits like services.
• Breakeven analysis are used to manage these,
• CVPs will help them better how to plan them will affect them.

Chart Analysis

• Breakeven chart consists of six steps to indicate costs.
• The contribution is by how much sales exceeds that cost for the product.
• Revenue - TC = Profit
• CVP analysis is how to affect it when the value increase
• CVP analysis also show the how the changes the sales effect as volume.
• These charts assist with analysing the costs.

Revenue Streams

• Revenues greater than costs is profit, in break-even charts.
• Analysis help management make decisions and determine impacts of the selling plan.
• This can show given sales with volume which will help with predicting the targets from that.
• These may assist in how many new sales are made and when these will be sold.
• Help find how many units need to be broke each month.

Costs and Profit

• Find units to achieve a target profit with how many they cover and make the revenue.
• A business must have planning decisions for the business to work and have good ROI and risks with their investments.
• Contribution margin is when total revenue and total costs are a factor.
• If contribution is > total fixed costs their will a profit.
• Fixed > contribution is lost, this information is how management is used within business.
• These are key decisions how to plan or remove a product.

Budgeting

• A budget includes a financial and non statement
• These may help determine the business with format.
• It improves performance and what they hope to.
• Quantifying a the plan for management to plan profit and what to do.
• These actions allows them to improve results
• These are set plans to succeed in there own goals
• Compare outcomes between how budget and performed

Finance and Debt

• Budgeting can show the company allocate their money
• Businesses may have the money they need or not
• To project future saves and debts
• To make a budget and align with the right path.
• To show Short and Long Term Goals
• A budget can show and change from where it was and how can be better.
• These helps find the performance increase in different areas.
• It helps find costs if they are out of place and where they can be better.
• Managing benchmarks is used for assessment
• There should be what is implemented along the processes.

Steps for Budgeting

1. Assign a key manager for what they are responsible in the company.
2. Communicating with the leaders from each field.
3. What the key factor to reach targets are.
4. Prepare the budget
5. Review
6. Implement master budgets
7. Check with those who have a interest in the companies values
8. Monitor Performance

• Budget are handled by the best fit for role and company or appointed by the manager, or some areas that the higher team sets for everyone else.
• Each cycles rely on weather its a retail service or manufacturing business, each are completely different.
• Each will sell and invest, use the cash

Budgets

• Good businesses have budgeting which has the framework set that a business uses over and over.
• There should be inter-relations within, the goals, resources to use and the time for each of these points.
• It's possible, there may be no purchase budget for a company/business at all.
• The financial aspect is assets available or what may be sold down the track
• Those who can handle finances, have knowledge of how the process will happen
• Budgets start with sales because all other costs rely on them

Estimates

• Estimates will show how much the business expects from the field
• How much for inventory will be sold within the month
• Estimate types will show how those plans will increase there potential.
• The point of a purchase is inventory is what makes it work.
• It holds how much the company should acquire from sales and the costs of payment too
• Expenses happen from selling more units, or in admin, can cost more which can be predicted in a few ways
• They need to understand what will increase the cost, how much extra might get be set.
• All those must create relationships with their buyers so they come across successful.

Cashflow

• Management depends on cash flow is, if their isn't adequate the the business will be at risk
• There much be 0 to less surplus or deficits so the business functions
• Sub Periods, and in all forms of the cash balance.
• Retail budgets show where their may be problems when operating their business.
• Show cash with business
• They make sure their is enought to plan and run what it needs
• The operation is to summaries the receipts you earn over and over its planned.
• There is less out flows expected to come.

The investor also do a investigation what will be required for potential, what activities will be what helps to decide management.

• Project the income, what comes from expected actions through what they do.
• The budget must equal those action and show great plans in how to use money and spend so profits don't go.