Accounting 100

Contact Details

Lecturer NIT China:

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Accounting 100

Accounting 100 will run as a 6 hour seminar comprising lecture and tutorial components

Responsibility for learning is yours

Best results are achieved by consistent work throughout the semester

Accounting 100

Tutorials begin this week

Attendance at the tutorial is compulsory

Attempt the tutorial work each work before the tutorial session

Check your answers and ask questions at the tutorial

Text Books

Essential

Hoggett and Edwards (2003) “Accounting in Australia 5th Edition”, John Wiley & Sons

Essential

Hutchings G (2004) “Accounting 100 in Practice” , John Wiley & Sons

Assessment Structure

Mid-Semester Test 25% TBA

Assignment One 25% TBA

Final Exam 50% TBA

You must achieve 40% or more in the exam to pass the unit

What is accounting

Accounting is commonly known as the language of business

It is the recording, reporting and analysis of financial information and associated activities.

Completion of a Curtin degree with a major in accounting qualifies for associate membership of CPA Australia (Certified Practising Accountant) or ICA (Institute of Chartered Accountants)

Accounting

Various types of work performed by accountants; Financial Management External Auditing Internal Auditing Taxation Liquidation/Insolvency Small Business Consultancy Law Enforcement

What Accountants do

Bookkeepers maintain the financial records not accountantsThe accountant has a supervisory roleThe accountant is typically involved in strategic planning and analysisAn accounting background is highly regarded when competing for executive positions

Career prospects in accounting

Demand is extremely high for qualified accountants, particularly in Business consultancy and taxation.

International opportunities. Many aspects of accounting are common throughout the world. Eg Australian CPA can convert to USA CPA

Curtin double majors in accounting

Accounting & Law

Accounting & Taxation

Accounting & Information Systems

Accounting and Small Business

Etc.

Accounting & FinanceAccounting & BankingAccounting & Accounting TechnologiesAccounting & Financial Planning

Starting a Business

Lecture Outline

Options in Starting a Small Business

Business Structures

Common Reasons for Business Failure

Getting Started

The first decision you need to make is how you are going to enter the small business world. You can choose from one of three options:1. Start your own business

2. Buy an existing business

3. Obtain a franchise

Starting your own Business

Benefits

1. Independence.

2. Lower Cost.

3. New start – no negative sentiment towards the business.

Limitations1. No relationship with

Customers Suppliers

2. Business may be slow for a while.

3. Problems New staff New technology and

equipment.

Buying a Business

Benefits

1. Established reputation.

2. Immediate stream of income.

3. Easier to borrow additional funds.

Limitations

1. May be stuck with poor decisions made by prior owners(s).

Obtain a Franchise

Benefits

1. Strong Reputation.

2. Much lower risk of failure.

3. Training and support may be provided by franchise owner.

Limitations

1. Lack of independence Must conform to

franchise policies.

2. Fees must be paid to franchise owner.

3. Damage to reputation of franchise name.

Ownership Structure

Choose a form of business structure. The most common are;Sole Trader: Partnership: Company

Proprietary Limited (Pty. Ltd.)Public (Ltd.)

Partnership

DefinedThe relationship between persons carrying on a business in common with a view to making a profit.

Characteristics:Two or more partnersNot a separate legal entity But treated as a separate accounting entity.

Written or verbal Partnership Agreement

Partnership Agreement

A partnership agreement should contain:

1. Partnership Name and names of partners.

2. Information on how profits & losses are to be shared.

3. Conduct of the partnership affairs.

4. Authority of each partner in contractual situations.

5. Procedures to be followed in the event of dispute.

Legal Status

Partnership (Not a Separate Legal Entity)

Company (A Separate Legal Entity)

Partners/Business

Owners Company

Partnership

Major Benefits

1. Easy to form

2. Minimal cost to establish

3. Limited rules and regulations

Major Limitations

1. Unlimited Liability

Proprietary Company

Minimum – 1 Person

Maximum 50 shareholders

Separate legal entity

Usually a family business that has been incorporated to obtain the benefits of limited liability.

Starting your own Business Companies

Major Benefits

1. Limited liability

2. Ability to raise more money.

Major Limitations

1. Highly regulated.

Introduction

Rate of new business failure is extremely high.

50% of new businesses will fail in the first year, whilst 75% will fail in the first 5 years.

Failure as a % of start ups.

Year 1 32.3%

Year 2 16.5%

Year 3 10.3%

Year 4 6.8%

Year 5 4.5%

Reasons for Business Failure Economic Environment

In most cases, an economic downturn merely exposes entities which are over leveraged (ie have too much debt) or poorly managed.

More businesses collapse during economic booms than during economic downturns.

Reasons for Business Failure

The overwhelming reason for business collapse is poor management. Lack of Internal Controls (Topic 1) No Strategic Plan (Topic 1) Inadequate Pricing Structures (Topic 2) Poor Management Decisions (Topics 2 & 3) Lack of Budgetary Control (Topic 4) Overleveraged (Topic 4)

Reasons for Business FailureLack of Internal Controls

Internal Control

Comprises all the methods and measures established to safeguard assets, ensure reliability of records, promote operational efficiency and encourage adherence to prescribed managerial policies.

Internal Controls

Examples of internal controls:1. Separation of duties.2. Clearly established lines of responsibility.3. Internal auditing.4. Mechanical and electronic devises.

• Refer to pages 405-407 of “Accounting in Australia – 5th Edition”.

Reasons for Business FailureLack of Internal Controls

Failure to implement and/or regulate internal control policies can be fatal.Barings Bank

Barings Bank

Leeson (novice trader) posted to Singapore in July 1992Acted beyond his authorityBy 31/12/94 had accumulated losses of £208M through unauthorized tradesRepresented that he was making a profitPerceived as a “Star Performer” By 27/2/95 accumulated losses of £830MDiscovered 23/2/95 – Barings Collapses

Barings Bank

The BOE report into the collapse stated:

(a) the losses were incurred by reason of unauthorized and concealed trading by Leeson(b) the true position was not noticed earlier by reason of a serious failure of internal controls and managerial confusion within Barings; (c) the true position had not been detected prior to the collapse by the external auditors, supervisors or regulators of Barings.

Barings Bank Collapse

“The Bank regarded the controls in Barings as informal but effective. It had confidence in Baring's senior management, many of whom were long-standing Barings' employees.”

Extract from the conclusion of the Bank Of England Report on the Collapse of Barings

Reasons for Business FailureNo Strategic Plan

Strategic Plan Defined

A blueprint for developing a business and provides a basis for measuring progress towards the achievement of goals.

Consists of several basic steps: Mission Statement Objectives SWOT Analysis

Reasons for Business FailureNo Strategic Plan

Strategic Plan Defined

A blueprint for developing a business and provides a basis for measuring progress towards the achievement of goals.

Consists of three basic steps: Mission Statement Objectives SWOT Analysis

Strategic PlanMission Statement

The mission statement should focus on the one, possibly two, feature(s) that distinguishes your business from your competitors.

It is designed to motivate employees so it should be brief so that employees are able to memorise the statement.

Generic Mission Statement

Our mission is to provide the highest quality product at the lowest price and to provide outstanding service within an aesthetically pleasing environment.

Strategic PlanObjectives

Characteristics (SMART)

1. Specific – Clear & Precise

2. Measurable

3. Achievable

4. Relevant

5. Time frame in which objectives should be achieved.

Examples of Objectives

Example of a SMART objective;

We will increase sales of computers by 10% within 12 months.

Example of an objective that is not SMART – Why??

We will increase customer satisfaction by 10%.

Objectives

Not SMART because;

No time frame – when will it happen?

Not specific or measurable – What is customer satisfaction & how would we precisely measure it at low cost?

Strategic PlanSWOT Analysis

Strengths & Weaknesses (Internal Analysis)Reviews the way in which a business operates. Management Style Resources

What internal factors (over which a manager does have control) represent strengths and weaknesses.

Curtin Business School

Strengths1. ‘Curtin’ brand2. EQUIS

accreditation3. Well Resourced.4. Diversity of double

majors.5. Diversity of

students.

Weaknesses

1. Parking.

2. Absence from campus.

Strategic PlanSWOT Analysis

Opportunities & Threats (External Analysis)

Review of external environment Market Regulation Competitors

What external factors (over which your entity has no control) represent a threat or an opportunity.

Strategic PlanSWOT Analysis

Threats

By identifying potential threats you can take action now to minimise or avoid these threats.

Opportunities

By identifying potential opportunities you can take action now to ensure that you profit from the opportunity.

Curtin Business School

Opportunities

1. China Market

Threats

1. Reduction in govt. funding.

2. Online degrees from international universities.

Lecture summary

You should be able to now;

Name and explain 3 business structures

Explain the causes of business failure

Explain the importance of a business plan

List & define the elements of a business plan