1. Introduction to Accounting for Small Business Source documents/record keeping Taxation/tax obligations Business structure Reports & business evaluations Price setting Ethical & Social Responsibility.

2. Introduction to Accounting for Small Business Top 10 Reasons Small Businesses Fail 1. The math just doesn't work 2. Owners who cannot get out of their own way 3. Out-of-control growth 4. Poor accounting 5. Lack of a cash cushion 6. Operational mediocrity. 7. Operational inefficiencies 8. Dysfunctional management. 9. The lack of a succession plan. 10. A declining market

3. What are Source Documents? Source documents/record keeping

4. What are they? Source Document: “A document that provides evidence of a transaction” Receipt Cheque / cheque butt, Petty cash voucher Bank statement Cash book Inventory stock card Generally now done on computer MYOB / Quickbooks / excel Source documents/record keeping

5. Why do we keep records? Who uses these records? Record keeping programs? Source documents/record keeping

6. Why do we keep records? To keep track of the financial data of the business Who uses these records? business = to prepare reports for owners personally = tax refund Banks = to approve loans Suppliers = to approve credit Other businesses = Potential buyers of the business Record keeping programs? – MYOB – Quickbooks – Banklink – ZERO (new online program) Source documents/record keeping

7. Transactions What is a transactions “a contractual arrangement undertaken by a business eg. Payment of wages.”

8. Source documents/record keeping Transactions Types of transactions – Cash Reciepts – Cash Payments – Cheques – Periodic Payments – Petty Cash

9. Source documents/record keeping Transactions What does a receipt have on it. T ax invoice (words) PAID stamped on it. Invoice number Date ABN (Australian Business Number) Address of company selling item Item and quantity purchased Price and amount of GST if applicable

10. Source documents/record keeping Transactions What is EFTPOS. – ( E lectronic F unds T ransfer at P oint O f S ale) What is CREDIT. – Considered Cash transactions Financial institution pays the supplier on the purchases behalf, the purchaser repays the financial institution the amount plus interest at a later date. What is a cheque – An instruction to the bank to pay money from your account to the person named on the cheque What does a cheque have on it. – Date, amount, drawer (payer), payee (person receiving the money), signiture, banks name.

11. Source documents/record keeping Transactions Petty Cash, what is petty cash? – Cash in a draw used for miscellaneous expenses. Coffee, milk, tea etc. Cash verse profit. Would you prefer Cash or Profit? Cash = cash income less cash expenses (bank figure) Profit = All Income less All expenses (paper figure) (depreciation, amortisation write offs) (Tax man)

12. Review Questions: 5 transactions 5 places that might give you a cash receipt 5 places you would normally pay with EFTPOS 3 BIG things you would normally buy on credit Source documents/record keeping

13. Cashbook A Cashbook keeps the records of all Cash Receipts and Payments. A cashbook should include: – Date, – Details of transaction – Receipt/cheque number – Colunms for different types of transactions – Total $ transaction An example can be found on page 147 of your textbook Source documents/record keeping

14. Introduction to Accounting for Small Business Source documents/record keeping Taxation/tax obligations Business structure Reports & business evaluations Price setting Ethical & Social Responsibility.

15. TAXATION What is tax? – “A levy, designed to raise revenue, imposed by governments on businesses and individuals”

16. TAXATION Who gets taxed? – Businesses / Companies – Individuals as consumers & employees

17. TAXATION Where does the tax money go? – There are 3 level of taxes Federal Taxes (Australian Government) State Taxes (individual State Governments) Local Taxes (Local Government / Councils)

18. TAXATION Types of tax? Income Tax Medicare levy tax. Goods and Services Tax Payroll Tax Company Tax Fringe benefits tax Mining Tax (NEW) (Large mining companies) Carbon tax (large companies)

19. TAXATION Individual Tax rates (2014 – 2015) Business structure and tax implications Read Pages 151 Taxable incomeTax on this income 0 - $18,200Nil $18,201 - $37,00019c for each $1 over $18,200 $37,001 - $80,000$3,572 plus 32.5c for each $1 over $37,000 $80,001 - $180,000$17,547 plus 37c for each $1 over $80,000 $180,001 and over$54,547 plus 45c for each $1 over $180,000

20. TAXATION Example of calculating income tax. Someone earns $75,000 0 - $18,200 $0 $18,200 – 37,000$3,572 = (37000-18200) x 19% $37,000 – 80,000$12,350= (75000-37000)x 32.5% Total Tax on $75,000 income$15,922

21. TAXATION Goods and services tax 10% of price Exclusions – Fresh produce (fruit & Veg, uncooked food) – Medical expenses. (doctors, medicines) – You pay $110 for Grand Final ticket – 110/11 = 10 GST – If item costs $70 – How much GST should be attached?

22. TAXATION Goods and services tax 10% of price Exclusions – Fresh produce (fruit & Veg, uncooked food) – Medical expenses. (doctors, medicines) – You pay $110 for Grand Final ticket – 110/11 = 10 GST (1/11 of the price) – If item costs $70 – How much GST should be attached? – $70 x 1.1 = $77 (10% additional )

23. TAXATION Activity 9.8 & 9.9 To calculate Individual income tax Calculate GST.

24. Financial Reports What are financial reports Profit & Loss Cash flow Balance Sheet

25. Financial Reports What are financial reports Cash flow (Users: Management) – How much cash is in the bank Profit & Loss (Users: Shareholders, Government) – How much Profit has been made after non cash items have been included  Balance Sheet (Users: Shareholders, Suppliers)  Shows what the business is worth.  (Assets – Liabilities = Proprietorship)

26. Financial Reports Cash flow – How much cash is in the bank Opening Bank Balance Plus Cash Receipts Less Cash Payments Equals Closing Bank Balance Cash flow Statement Opening Bank Balance 1,200 Receipts: Cash Sales325 Equipment Hire390715 Payments: Materials425 Wages230655 Closing Bank Balance $1,260

27. Financial Reports Cash flow Statement Opening Bank Balance1,200 Receipts: Cash Sales325 Equipment Hire390715 Payments: Materials425 Wages 230655 Closing Bank Balance $1,260 Now complete ACTIVITY 9.10 Prepare a cash flow statement

28. Financial Reports Profit & Loss (Shareholders, Government) – How much Profit has been made after non cash items have been included – Revenue or turnover is income that a company receives from its normal business activities, usually from the sale of goods and services to customerscompanygoods and services – Expenses decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants. [( International Accounting Standards Board) International Accounting Standards Board

29. Financial Reports Profit & Loss (Shareholders, Government) Profit & Loss Statement As at 30 June 2013 REVENUE Sales10,000 LESS EXPENSES Purchases5,000 Wages1,000 Rent500 Depreciation200 Office Expenses250 Bank Charges100 Interest150 TOTAL EXPENSES7,200 NET PROFIT2,800

30. Financial Reports  Balance Sheet  Shows what the business is worth.  (Assets – Liabilities = Proprietorship) Assets Liabilities Proprietorship / Owners Equity

31. Financial Reports  Balance Sheet Assets Current & Non current Assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asseteconomic value Liabilities Current & Non Current a liability is defined as an obligation of an entity arising from past transactions or events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future.assets Proprietorship / Owners Equity equity is the residual claimant or interest of the most junior class of investors in assets, after all liabilities are paidresidual claimantinterestassetsliabilities

32. Financial Reports Balance Sheet

33. Financial Reports Activities. 1. What are the difference between Current and Non Current assets 2. Name 3 Current Assets 3. Name 3 Non current Assets 4. Name 3 Current Liabilities 5. Name 3 Non current Liabillities 6. Which Financial Statement do the following appear Current Assest Expense Owners capital Liability Revenue

34. Evaluation of financial performance Cash – profit figures – Review. Sales analysis – Compare period to period Debtor turnover verse creditors turnover – Non cash sales / average debtors The lower the ratio the better Return on owners investment – Compare profit with investment by owner

35. Evaluation of financial performance Debtor turnover verse creditors turnover – Non cash sales / average debtors The higher the ratio the better Non cash sales for October $50,000 Average Debtors $25,500 Debtors Turnover = Non cash sales $50,000 Average Debtors $15,000 Debtors turnover =

36. Evaluation of financial performance Debtor turnover verse creditors turnover – Non cash sales / average debtors The Higher the ratio the better Non cash sales for October $50,000 Average Debtors $25,500 Debtors Turnover = 1.96 Non cash sales $50,000 Average Debtors $15,000 Debtors turnover = 3.33 better

37. Evaluation of financial performance Return on owners investment – Profit / investment by owner Owner investment$100,000 Profit$15,000 Return on owners investment = % Owner investment$250,000 Profit$15,000 Return on owners investment = %

38. Evaluation of financial performance Return on owners investment – Profit / investment by owner Owner investment$100,000 Profit$15,000 Return on owners investment = 15% Owner investment$250,000 Profit$15,000 Return on owners investment = 6%

39. Price Setting Types of price Setting Recommended Retail Price Percentage mark-up Competition and competitors prices Break even point

40. Price Setting Types of price Setting Recommended Retail Price – Set by the wholesalers, Percentage mark-up – Cost of the item plus a Additional % Competition and competitors prices – Prices are adjusted to be competitve with it rivals and to keep existing customers

41. Price Setting Types of price Setting Break-even point Fixed Price / (Sell price – variable costs) Fixed costs = Rent, set wages Variable costs = Materials, electricity, gas Example: Fixed cost 2000 Variable costs $5 per bunch of flowers Selling price $10 per bunch of flowers $2000 / ($10 – $5) $2000 / $5 = 400 bunches of flower to be sold before business breaks even

42. Ethical and Social Responsibility Management of Accounting Practices Please read Page 156 of text book Will discuss when complete. Why is it important? Who might it affect? Why? What impact might it have if not followed?

43. Ethical and Social Responsibility Management of Accounting Practices Important to keep records accurate Report accurate figures to the government/community/business owners Pay staff on time (happy employees) Staff conditions up to appropriate level (happy employees who are productive) Pricing products appropriately (happy customers who return to purchase products) choosing ethical and responsible suppliers (chickens, eggs, organic, fishing etc.) (may affect investment, customers, employees, owners, government, community.