Chapter
1
Key Concepts
·
Double-entry-accounting is used
throughout the accounting world and had been around since 1494.
·
Thought that this chapter was
good and easy to relate to as I have lived close to Yeppoon and have some
knowledge of all the businesses that have been discussed in this txt. Being
able to relate to the txt was good as it gave me a visual image, which really
drew me into reading more.
·
Throughout my working career I
have worked in many different place, some of them large and some small. What I
have taken on bored from my experiences is that all companies are relatively
the same. They all strive for the same goal of having great service and quality
goods, if all the company’s can achieve these goals it results in repeat
business from customers.
·
The five elements of
accounting:
Assets
– Include any equipment that is used by this company.
Liabilities
– Includes any start up cost (borrowing money).
Equity
– This is Assets- Liabilities= Equity.
Revenue
– This is the money made by the business after selling products.
Expenses
– Means actually buying products that you will be selling.
Key Questions:
·
Why do we have ‘double entry
accounting’? Why do we put everything in twice? Why not just once?
Double-entry-accounting is used
throughout the accounting world and had been around since 1494. It is used
because every entry into an account then in turn requires a corresponding and
opposite entry into a different account.
·
For your firm, identify
three Assets, three Liabilities and three items of Equity. Describe what each
item means!
Assets-
1.
The actually hearing devices
that are sold to people, for example the Nucleus 6.
2.
The research equipment used to
discover all this new technology.
Liabilities-
1.
Borrowing money to fund all
this research and to build a new head quarters.
2.
Having to pay the staff their
wages, including overtime and bonuses.
Equity-
1.
The money made from each
hearing device sold.
Chapter
3
Key Concepts
·
When a
business is setting up there financial statement there are no set rules that
have to be followed. This essentially means that every business could have a
different layout and format for the same document. So if you where to compare
two different companies they may have the same information but it is just
listed under something different.
·
The firms
annual report can be used in several different ways, these ways range from
lifting the spirits of the employees and make them think they are doing a good
job. Also to highlight to the investors that everything in the company is going
well and they should invest with them.
·
The
financial statement is usually comprised of the balance sheet, income
statement, statement of change in equity and cash flow statement. These
documents are the real numbers that should be taken into consideration when
looking to invest in a company.
·
Footnotes
have been associated with balance sheets to keep the layout of the document
clean and easy to read. These footnotes will elaborate on the information in
the balance sheet, this will give further insight into the information. I like
the use of footnotes as it makes the balance sheet much easier to read and
understand. If there were too much information in one document, it would be
hard to get information out.
·
We touched
on this a bit in a lecture as well, but the parent company is head company.
This parent company is the ones that investors will buy shares in, rather than
buying shares in the group company. The parent company is the majority owner of
shares and usually owns somewhere between 51 to 100% of the shares.
·
I think that
the balance sheet is pretty easy to get a handle on as it is just made up of
raw data that has been collected every day.
·
The income
statement seems pretty straightforward to me, as it is just comprised of the
revenue and expenses of the firm. So to me, the income statement is pretty easy
as it is just revenue – expenses = the firms income for a certain period of
time.
Key Questions:
· What is
wrong with just doing what ‘works’ in relation to analysing financial
statements? There are plenty of experienced practitioners in our capital
markets. Why do we not simply find out what most are doing and just do this
ourselves? What do you think and why?
I think the answer to this question is that we have to
keep thinking outside the box rather than staying between the lines and doing
the bare minimum. For instance there would still only be a finite number of
ratios in the world today if it wasn’t for Alexandra Wall, who produced seven
more ratios for 981 firms. This makes me believe that we have to keep expanding
on thing instead of being happy with the way it is now. If we took on board the
philosophy of just using what we have then the human race would be at a stand
still, with no more advancements in any field. I believe this is why we must
keep thinking a bit different and create new stuff rather than just doing what
works.
· What is
the benefit of having a structure, such as the du Pont company’s framework, to
help use ratios to analyse a firm’s financial statements? Is it any better (or
worse) than simply doing what experienced practitioners do? Why or why not?
The use of the Du Pont Company’s framework will assist
people when they are doing ratios. The purpose of this structure is to, through
the use of ratios, understand how a business is performing. Experience
practitioners are still using just standard ratios to calculate the business
effectiveness. This really just means that the theory of a structure still has
not take effect in every aspect of accounting. So to answer the question, I
believe that the framework Du Pont set out is effective but it still isn’t
really needed. So I think it is good and bad having the Du Pont framework.
