What is Accounting?
Question: 1.What do we mean by “Accounting”?
•Accounting is the process used to collect, analyse and develop financial information, it consists of recording, interpreting and reporting data collected from financial transactions.
2.List three types of non-reporting entities.
•Social Clubs (Veterans, RSL, ect).
3.List three pieces of legislation that not-for-profit organisations need to adhere to?
•The Income Tax Assessments Act (1936,1997)
•New Tax System (Goods and Services Tax) Act 1999
•The Privacy Act and its amendments
4.a) Define the goods and services tax (GST)?
•The Goods and Services Tax is an indirect tax on private consumption, paid by consumers and collected by business, levied at every stage of production and distribution.
b) Who pays and who collects GST?
•Consumers pay the GST
•Businesses collect the GST(if registered)
c) What is the name of the statement that records GST?
The name of the statement is Business Activity Statement (BAS).
d) At what level of earning do the following organisations have to register for GST?
(i) sole trader - $75,000
(ii) not-for-profit - $150,000
5.What legislation regulates tax agents and who administers this?
The Tax Agent Services Act 2009.
6.a) Why is it important to have internal controls?
The importance of internal controls are to reduce the possibility of errors, loss, theft, fraud and to ensure that financial plans and documents produced, are correct.
b) Why is it particularly important for not-for-profit organisations to have internal control?
•Internal controls for NFP’s are particularly important as the accounts are generally prepared by volunteers who are less experienced in accounting procedures, therefore strong internal controls are required to reduce risk of errors.
7.a) According to the policy and procedures manual in Appendix A of this assessment, list the three categories or classifications of cash flows in a cash flow statement.
•Cash flow from operating activities
•Cash from investing activities
•Cash from financing activities
b)According to the policy and procedures manual in Appendix A of this assessment, who is responsible for checking accuracy, verifying and authorising the financial reports?
•The Chief Financial Officer
c)What process should be undertaken prior to the preparation of any financial reports to ensure that reporting is in line with original data and provide an example?
•The process undertaken before financial reports are prepared are the balance day adjustments, this process is important to ensure that the correct information is reported. Examples include adjustments on Bad Debts/Doubtful Debts, Prepaid accounts and accruals.
d)List three expenses of a business not included in a cash flow statement.
8.List three types of ratios and state what each tells us about a business.
•Business Activity ratio
9.a) What is a partnership?
•A partnership is the relationship between two or more people carrying a business with a view towards making a profit.
b)List three advantages and three disadvantages of partnerships compared with sole traders.
•Formation costs are lower than that for companies
•Greater availability of capital
•Joint liability for the debts of the partnership
•Legal implications when bad decisions are made
10.a) What is a not-for-profit organisation?
•Not for profit organisations are clubs and associations formed for the social, recreational or special interests of their members providing, for example, services and facilities like clubs or activities like sports or social events.
b) Who decides which not-for-profit organisations are exempt from income tax?
•The Australian Charities and Not For Profits Commission (ACNC).
c) What details of members are clubs required to keep?
Not-For-Profit clubs are required to keep the following information on their members:
•Type of Membership
•Date of joining
•Fees and subscriptions paid
11.a) Define depreciation.
b) List and explain two methods of calculating depreciation.
12.Refer to the Erbal Remedies policies and procedures manual in Appendix A to identify:
a) who in the organisation can pay suppliers on behalf of the organisation
b) any limits on the business credit card expenditure
c) any two types of expenditure that need special permission/authorisation
d) Who can authorise the purchase of assets, for example, equipment
13.In reference to the Erbal Remedies policies and procedures manual in Appendix A, provide the format this organisation uses for its Balance Sheet.
14. a) What is a non-reporting entity?
b) Discuss the key differences in the requirements for preparing financial statements between a reporting entity and a non-reporting entity.
c) List three regulations that relate to a business entities’ reporting obligations.