BSB40820 Certificate IV in Marketing and Communication

BSBFIN401 Report on financial activity

Assessment 1
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Appendix 1 - Questions
Question 1: Explain the basic principles of double entry bookkeeping.

The fundamental principle of double entry According to bookkeeping, every debit

entry must have a matching credit entry, and every credit entry must have a
corresponding debit entry. It is the foundation of accounting.
In the case of a double entry:
Every asset, expense, or loss is billed, whereas liabilities, income, and profits are
credited.
Double entry also ensures that the accounting equation (assets = liabilities +
owner's equity) remains balanced.
When opposed to the single-entry approach, the double-entry accounting system
provides more complete and detailed information about a transaction because
each transaction includes both a destination and a source.

Question 2: Explain the three golden rules of accounting and how they apply to
double entry accounting.

- Deduct from the receiver and credit from the giver. This idea is applied to
personal accounts.
- Deduct what comes in and credit what leaves. In the case of real accounts, this
approach is implemented.
- Deduct all expenses and losses and credit all earnings and gains.

Question 3: Explain the accrual principle.

The accrual principle is accounting transactions should be recorded in the period in

which they actually happen rather than the period in which the associated cash
flows happen.

Question 4: Explain balance day adjustments required for accruals. In your answer:
 Define balance day adjustment.
 Explain the two categories balance day adjustments for accruals should be
divided into.
 Give an example for each category.
Balance day adjustment is an adjustment you need to make at the end of the
reporting period. These changes are applied to specific accounts in order to
accurately depict the business's health.
 The two basic categories of adjusting entries are deferrals and accruals. Two
examples of deferrals are prepaid expenses (such as Prepaid Rent and Office
Supplies) and unearned revenues (such as Unearned Service Revenue).
 Two examples of accruals are accrued expenses (such as Accrued Salaries
Expense) and accrued revenues (such as Accrued Service Revenue)

Question 5: List five components of an organisation’s accounting system.

Components of an Accounting Information System AIS are:

 People,
 Data, Software,
 Procedure,
 Information Technology
 Internal Controls.

Question 6: What is the purpose of organisational policies and procedures when

financial reports are prepared? Provide an example to support your answer.

Policies and procedures are critical components of any company. Policies and
procedures, when combined, establish a road map for day-to-day operations. They
guarantee that laws and regulations are followed, provide advice for decision-
making, and streamline internal processes.

Question 7: Outline the accounting standards related to preparing financial reports.

In your answer:
 identify the board responsible for formulating accounting standards in
Australia
 identify the purpose of the standards
 list three standards that apply to preparing financial reports.
• identify the board responsible for formulating accounting standards in Australia
• identify the purpose of the standards
• list three standards that apply to preparing financial reports.
 Identify the board in Australia responsible for developing accounting standards.
Accounting Standards Board of Australia (AASB) The AASB develops the AASB-
series standards. The Australian Securities and Investments Commission Act 2001
established it as a government agency. Entities utilise these accounting standards
to prepare clear and consistent financial reports in compliance with legislative
requirements.
 determine the standards' purpose accounting standards ensure that financial
statements from different businesses are comparable. Accounting standards make
financial statements credible and enable for more economic judgements based on
accurate and consistent information because all organisations follow the same
norms.
 list three standards that apply to preparing financial reports.
o AASB101 (Presentation of Financial Statements)
o AASB 107 (Statement of cashflows)
o AASB 118 (Revenue).

Question 8: Complete the table regarding organisational financial data.

Description Example (at least two)

a) Budget A budget variance is the Purchase price variance

variances difference between the Labour rat variance
amount you budgeted for and
the actual amount spent

b) Budgets and Key to the success and Rent or mortgage payment

forecasts growth of your business A home expenses.
budget is a spending plan
based on what you want to
happen, while a forecast
predicts what is likely to
happen based on your past
and present finances

c) Cashflow Cash flow is the money that Cash flow from operating
and profit goes in and out of a Cash flow from investing.
reports business. Profit, on the other
hand, is specifically used to
measure a company’s
financial success or how
much money is made overall
 Description Example (at least two)

d) Balance Balance sheet is a summary Assets Liabilities Owner’s

sheets of the financial balances of equity.
an individual or organization,
whether it be a sole
proprietorship, a business
partnership, a corporation,
private limited company or
other organization such as
government or not-for-profit
entity

e) Financial Financial summary of a External financial statements

year reports company’s activities during the notes to the financial
the year along with statements.
management’s analysis of
the company’s current
financial position and future
plans.

f) Operating Operating statements Marketing & Promotions

statements summarise an organization’s General & Administrative
revenues and expenses for a
given accounting period

g) Expenditure Expenditure is payment or Capital expenditure Revenue

and receipts the incurrence of a liability in expenditure Deferred revenue
exchange for goods or expenditure
services. Also known as
sales receipt or an invoice

h) Profit and This is the financial Revenue Other expenses

loss statement of an organization
statements that demonstrates the
organization’s revenues and
expenses during a particular
period. It indicates how the
revenues are transformed
into the net income or net
profit

i) Property This is the monetary value Automotive Industrial

 Description Example (at least two)

assets that is owned by the equipment

organization in the form of
property e.g., building owned
by the business

j) Plant assets A plant asset is a fixed asset Machinery and equipment

that is held long term and is Land maintenance
not expected to convert into
cash e.g., it will not be sold at
a profit

k) Equipment These are assets that are Vehicles Furniture Building

assets needed for organization
operations and the long-term
financial health of an
organization such as
computer equipment

l) Comparative This is a comparative The business’s financial show

financial financial statement from two that the business took
performance or more consecutive financial downturn between the last
periods to allow organization year and the year before that.
to compare performance
results from one period to
another in a single document

Question 9: Explain what an audit trail is and how its absence is may contribute to
financial discrepancies.

An audit trail is a security-relevant chronological record, set of records, and/or

destination and source of records that offer documentary evidence of the sequence
of activities that influenced a given operation, method, event, or equipment at any
time.

Question 10: Complete the table to describe three reasons for the misclassification
of expenses.

Reason for misclassification of Example (at least one)

expenses
 Capital assets misclassified as Asset purchases such as furniture and
expenses equipment may need to be depreciated
over a certain number of years.

Expenses assigned to the wrong May be the result of data entry errors or
account number lack of knowledge by the person
inputting expenses.

Misreported start - up costs Some costs must be amortized over a

certain period, while others may be
expensed as incurred.

Question 11: A payment is made to a vendor, but is recorded in Accounts Payable

to the wrong vendor. In which financial document will this error show?

When an incorrect amount is posted to an account. The error posted for the
incorrect amount would likewise be reflected in any other accounts associated with
the transaction. In other words, all of the accounts would be in balance but for the
incorrect numbers.

Question 12: Money has been received from a customer and is credited properly to
the accounts receivable account, but to the wrong customer. In which financial
document will this error show?

A book-keeper or accountant error that happens when a debit or credit is recorded

to the proper account but to the incorrect subsidiary account or ledger. For
example, money received from a client is duly credited to the accounts receivable
account, but to the incorrect customer.

Question 13: Outline three techniques used for financial forecasting and analysis.

- Current assets
- Fixed assets
- non -current assets
Question 14: Outline three reasons why an adjustment for depreciation expense is
required at the end of each reporting period.

- This is necessary in order to maintain the correct and fair value of the recorded
assets in the books of accounts.
- The rapacity expenses are deducted from the profit and loss statement.
- The recorded assets to ensure that the value is honest and fair.

Question 15: Distinguish between an allocation approach and a valuation approach

to depreciation according to AASB1021 and AAS4.

According to the supplied AASB, it is determined that depreciation is allocated to

specific assets and is not employed in the valuation technique. Depreciation is the
charge on assets that is assigned according to the defined rate from the given
assets.

Question 16: Explain why it is important for estimates of the useful lives and
expected residual values of depreciable non-current assets to be reviewed annually.

The major reason for estimating the residual values of assets is based on cash
values or determining the correct value of the nett present value of the project
under consideration. This demonstrates the correct cash inflows and outflows from
the business's initial investment.
All of your possessions have a limited lifespan and must be replaced on a regular
basis. When they reach the end of their useful lives, you must be able to replace
them.
You can calculate the amount of money you should put aside if you want to pay
cash up front when you replace them by keeping track of their estimated useful
lives and residual values.
If you are encouraged to purchase an insurance policy to cover replacement
expenses if the item is damaged early, you can determine whether or not such
insurance is worthwhile.

Question 17: Define the term “tax deduction” as it relates to a business and provide
at least two examples.

A tax deductible is a company expense that can lessen the amount of tax you have
to pay. It is subtracted from your gross income to determine your taxable income. It
is also known as a tax write-off.
- Office space rental and equipment
- Business trips.
Question 18: Identify three requirements a business must adhere to when claiming
a tax deduction.

 The expense must have been for your business, not for private use.
 If the expense is for a mix of business and private use, you can only claim the
portion that is used for your business.
 You must have records to prove it.

Question 19: List two other benefits a business may be able to access as part of
their financial reporting.

Benefits of Financial Reporting include:

- Aids in Ratio Analysis: It aids in ratio analysis so that trends can be compared to
the industry and performance can be measured.
- Improved Record Transparency: It allows the organisation to show itself more
effectively, increasing record transparency.

Question 20: Complete the table in regards to ethical requirements related with
preparing financial reports.

Ethical requirements Reporting responsibly requires you to provide honest

and complete information in all areas of professional
activity on a proactive and intentional basis (e.g.,
credentials, services, relationships, Payments, and
advertising)

Conflict of interest In a conflict of interest, a person or organisation has

various interests that are related to a situation, raising
the possibility of conflict. By satisfying one of those
interests, which include many different types of
commitments, economic interests, fiduciary, and that a
Significant financial interest,

Confidentiality That is, the confidentiality principle ensures that

information received by the accountant is kept secret
and respected in the course of duty. Unless required by
law, an accountant should not divulge or utilise such
information unless express permission has been
granted.

Disclosure A disclosure is supplemental information that is

requirements appended to an entity's financial statements, typically
to explain acts that have materially altered the entity's
financial results. This includes the financial statement
notes, which are an integral part of the accounts and
provide extra information on balances and transactions,
as well as other pertinent information.