BUSS1030 Summary Notes Student VIP- Need to balance between risk and return o Return: The gain that...

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BUSS1030 Summary Notes Semester 2, 2018

Transcript of BUSS1030 Summary Notes Student VIP- Need to balance between risk and return o Return: The gain that...

Page 1: BUSS1030 Summary Notes Student VIP- Need to balance between risk and return o Return: The gain that results from a particular event or occurrence. o Risk: The likelihood that what

BUSS1030

Summary Notes Semester 2, 2018

Page 2: BUSS1030 Summary Notes Student VIP- Need to balance between risk and return o Return: The gain that results from a particular event or occurrence. o Risk: The likelihood that what

INTRODUCT IONTO ACCOUNTING

WHATISACCOUNTING?

- Accountingisconcernedwiththecollection,analysisandcommunicationofeconomicinformation(CAC)

- Aimofaccounting:Themostaccuraterepresentationoftheeconomicstateofanentity- Suchinformationcanbeusedasatoolofdecisionmaking,planningandcontrol(D,M,P,C)

BusinessOperations

- Needtobalancebetweenriskandreturno Return:Thegainthatresultsfromaparticulareventoroccurrence.o Risk:Thelikelihoodthatwhatisprojectedtooccurwillnotactuallyoccur.

- Wealthenhancementasthemainobjectiveofabusiness- Accountingiscentraltoallbusinesses

Whatistheprimaryobjectiveoffinancialreporting?

- Toprovideinformationusefulformakinginvestmentandlendingdecisionso Fortheneedsofvariousstakeholderso Owners,customers,competitors,government,suppliers,managers,community

representatives,lenders

FinancialAccounting ManagementAccountingExternalusersmakedecisionsabouttheentity.E.g.Investors

- Financialaccountingisthepreparationandpresentationoffinancialinformationtoallowuserstomakeeconomicdecisionsabouttheentity

- Includes:Theincomestatement,thebalancesheet,thecashflowstatement–FinancialStatementAnalysis

- Morelegalrestrictions- Mainlyhistorical/broad

overview/predictableperiods

Internalusersmakedecisionsabouttheentity.E.g.Management

- Coreactivitiesincludeformulatingplansandbudgets

- Informationusedinmonitoringandcontrolwithintheentity

- Bothpastandfuture/Quitedetailed/Wheneverrequired

SevenFundamentalQualities

- Relevance,faithfulrepresentation(keycharacteristics);comparability,verifiability,timeliness,understandability,cost-benefit(enhancingcharacteristics)

4-StepProcess:Information…Identification,Recording,Analysis,Reporting(IRAR)

OVERVIEWOFMAINFINANCIALREPORTS

3MainReportsusedinFinancialAccounting:1. StatementofCashFlows

o Whatcashmovementstookplaceoveraparticularperiod

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KEY ACCOUNTINGCONCEPTS

Account:AccountnamesdescribeanaccountandrecordtheimpactofeventseffectingvalueofAssets,LiabilitiesorOETransaction:EventthatinvolvesatleasttwopartiesexchangingresourcesNote:Agreeing,discussing,thinkingabout≠businesstransaction

FINANCIALSTATEMENTS

StatementofFinancialPosition(BalanceSheet)

ReportstheAssets,LiabilitiesandOEofthebusinessatapointintime

StatementofComprehensiveIncome

Summaryofanentity’sincome,expensesandchangesinequity(E.g.Newownerinvestmentsanddrawings)

IncomeStatement ReportsrevenuesandexpensestomeasureaprofitorlossStatementofCashFlows Thestatementthatshowsthesourcesandusesofcashforaperiod,

classifiedaccordingtotheentity’smajoractivities(operating,investingandfinancing)

StatementofChangesinEquity

ShowschangesinOEasaresultoftransactionsandeventsduringaperiod

Receivable Amountsowedtoabusiness,regardedasassetsProfit AfinancialgainEquity Netassets,the‘leftover’–lessassets,lesstotalliabilities

Journal:Chronologicalrecordofallrecordedtransactions↓ Ledger:Showstherunningbalanceofaspecificaccount(CanbeshownasaT-Account)↓ TrialBalance:ListofallledgeraccountsalongwiththeirrunningbalancesChartofAccounts:Listsalltheaccountsabusinessusesalongwithaccountnumbers

ACCOUNTINGEQUATION

Measurestheresourcesofabusinessandtheclaimstothoseresources.Double-entryaccounting:

- Meansthatwerecordthedualeffectsofeachbusinesstransaction

- MustbalanceClaimsagainsttheassetofanentity:

- Externalclaims=Liability(DebtHoldersClaim)- Internalclaims=Owner’sEquity(Shareholders

Claim)

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OWNER’SEQUITY

Residualinterestintheassetsoftheentityafterdeductingallofitsliabilities.Purposeofabusinessis↑OE.Comprisedofmanyparts:Capital Drawings Revenues ExpensesOwnerinvestsassetsinbusiness.CreditAcc.

Ownerwithdrawalsforpersonaluse.DebitAcc.

AmountsreceivedortobereceivedfromcustomersforsalesofproductsorservicesCreditAcc.

Amountsthathavebeenpaidorwillbepaidlaterforcoststhathavebeenincurredtoearnrevenue.DebitAcc.

REMEMBER

- Revenuesarerecordedwhenearned,andexpensesarerecordedwhenincurred–becauseofAccrualAccounting

- Profitorloss=Revenue–Expenses(retainedprofit)o Ie.Revenueincreasesequity(inflow),whileexpensesdecreaseyourequity

- Whenyouuseanasset,youendupwithanexpense

TYPICALACCOUNTNAMES

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PLANNINGANDBUDGETS

PurposeofPlanningandControl- Tofulfilcorporateobjectives:

o Goalsofbusiness(E.g.Wealthenhancement)o Missionstatement(Broadintent)o Positionstatement(Wherethebusinessiscurrentlyplacedrelativetowhereitwants

tobe)o Visionstatement

- Control:Definedascompellingeventstoconformtoplan–accountinginformationshouldhighlightvariancesbetweenbudgetandactualoutcomes

TypesofPlansandBudgetsLong-Term(Strategic)Plan

- Definesthegeneraldirectionofthebusinessoverthenextfiveorsoyears- Although,dependsonindustryandrateofchange(5yearsinITbusinesswouldbetoolong)

Budget- Short-termfinancialplan,usually12months

Note:Budgetsareheavilyinterrelatedandlinked.Salesbudgetismostimportantpartandusedasastartingpoint/’master’budget–ifyoursalesforecastiswrong,yourbudgetwillnotbeveryhelpful.BudgetCommittee Groupofmanagersformedtosupervisethebudget-settingprocessBudgetOfficer Individual(oftenanaccountant)appointedasresponsibleforthetasks

ofthebudgetcommitteeTop-down SeniormanagementofeachbudgetareaoriginatesthebudgettargetsBottom-up Greatweightgiventoviewsofrelativelyjuniorstuffwhenbudget

setting(moreeffective,butmoretimeconsuming)Incrementalbudgeting Approachwhichuseswhathappenedlastyearasastartingpointfor

thisyear’sbudget(referredtoasdiscretionarybudgets)Zero-basedbudgeting Abudgetprocesswhichstartswiththeassumptionthateverything

mustbejustified/norelianceonpreviousperiodsNote:Mostorganisationsuseacombinationoftop-downandbottom-upBenefitsofBudgeting

- Promotesforward-thinking- Motivatesmanagers- Basisforasystemofcontrol- Helpscoordinatevarioussectionsofthebusiness- Providesasystemofauthorisation

PROJECTED/FORECASTSTATEMENTS

- Valuablefordevelopinglong-termstrategicplans- Identifyfuturefinancialneeds- Mostcommonlypreparedonthebasisofanoptimisticviewoflikelyfutureevents

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STATEMENTS SUMMARY

GeneralJournalGeneralJournal(GJ1)

Date Description AccountNumber Debit CreditSep1 Cashatbank 101 42,000 Capital 42,000 (Ownercontributedcapital)

(Tickrighthandsideoncemovedtogeneralledger)GeneralLedger

GeneralLedgerCashatBank 101Date Explanation PostRef Debit Credit Balance Openingbalance 0 Sep1 Capital GJ1 42,000 42,000 DrSep6 ServiceRevenue GJ1 1,400 43,400 Dr

T-Account

TrialBalance


Cost of Capital Dr Bryan Mills. Risk and Return % return % risk.

Cost of Capital Dr Bryan Mills. Risk and Return % return % risk.

Investments- Risk & Return

Investments- Risk & Return

Risk and Return Risk and return defined –Average return –Total (absolute) risk –Total (relative) risk Portfolio risk and diversification effect Systematic.

Risk and Return Risk and return defined –Average return –Total (absolute) risk –Total (relative) risk Portfolio risk and diversification effect Systematic.

Risk & return

Risk & return

Risk Return

Risk Return

Risk and Return: The Basics Stand-alone risk Portfolio risk Risk and return: CAPM/SML.

Risk and Return: The Basics Stand-alone risk Portfolio risk Risk and return: CAPM/SML.

5-1 CHAPTER 8 Risk and Rates of Return Outline Stand-alone return and risk Return Expected return Stand-alone risk Portfolio return and risk Portfolio.

5-1 CHAPTER 8 Risk and Rates of Return Outline Stand-alone return and risk Return Expected return Stand-alone risk Portfolio return and risk Portfolio.

Risk & Return Pp

Risk & Return Pp

4 - 1 CHAPTER 4 Risk and Return: The Basics Basic return concepts Basic risk concepts Stand-alone risk Portfolio (market) risk Risk and return: CAPM/SML.

4 - 1 CHAPTER 4 Risk and Return: The Basics Basic return concepts Basic risk concepts Stand-alone risk Portfolio (market) risk Risk and return: CAPM/SML.

Risk & return (1)

Risk & return (1)

Conditional dynamics and the multi-horizon risk-return trade-o · Conditional dynamics and the multi-horizon risk-return trade-o Mikhail Chernov,yLars A. Lochstoer,zand Stig R. H.

Conditional dynamics and the multi-horizon risk-return trade-o · Conditional dynamics and the multi-horizon risk-return trade-o Mikhail Chernov,yLars A. Lochstoer,zand Stig R. H.

Risk & Return

Risk & Return

5-1 NO Pain – No Gain! (Risk and Rates of Return) Stand-alone risk Portfolio risk Risk & return: CAPM / SML Stand-alone risk Portfolio risk Risk & return:

5-1 NO Pain – No Gain! (Risk and Rates of Return) Stand-alone risk Portfolio risk Risk & return: CAPM / SML Stand-alone risk Portfolio risk Risk & return:

1 CHAPTER 5 Risk and Rates of Return Stand-alone risk Portfolio risk Risk & return: CAPM / SML.

1 CHAPTER 5 Risk and Rates of Return Stand-alone risk Portfolio risk Risk & return: CAPM / SML.

Intro Risk and Return Dr. Clay M. Moffett Cameron 220 – O moffettc@uncw.edu.

Intro Risk and Return Dr. Clay M. Moffett Cameron 220 – O [email protected].

Chapter 8 Risk and Return - TMC Businesstmcbusinessfaculty.weebly.com/.../bua321_ch08_risk_and_return.pdfChapter 8 Risk and Return ... 8-5 Risk and Return Fundamentals: Risk Defined

Chapter 8 Risk and Return - TMC Businesstmcbusinessfaculty.weebly.com/.../bua321_ch08_risk_and_return.pdfChapter 8 Risk and Return ... 8-5 Risk and Return Fundamentals: Risk Defined

6. risk return

6. risk return

1 IIS Chapter 6 - Risk and Rates of Return Return Risk.

1 IIS Chapter 6 - Risk and Rates of Return Return Risk.

U6-1 UNIT 6 Risk and Return and Stock Valuation Risk return tradeoff Diversifiable risk vs. market risk Risk and return: CAPM/SML Stock valuation: constant,

U6-1 UNIT 6 Risk and Return and Stock Valuation Risk return tradeoff Diversifiable risk vs. market risk Risk and return: CAPM/SML Stock valuation: constant,

Risk Return: Return on Investment

Risk Return: Return on Investment