Why study VCE Accounting?

1. WHAT IS
ACCOUNTING?

2.  Every business is different…
WHAT IS ACCOUNTING?
Who’s doing well?
Who’s doing
poorly?
What does “well”
even mean?
How much profit did the business
make?
Does the business have enough
cash?
Which stock is selling well/poorly? Can the business afford to expand?
Are the firm’s shares over or under-
valued?
What does the business own?
What are the firm’s debts and when
are they due?
What return is the firm making on
the owner’s investment?
Questions?

3.  Every business tells its story with 3 bits of paper called financial reports…
WHAT IS ACCOUNTING?
Income
Statement
Balance Sheet
Cash Flow
Statement

4.  These financial reports are made up of financial transactions:
WHAT IS ACCOUNTING?
Purchases of stock Purchase of cars
Loan repayments
GST
Investments Wages paid
Cash salesLoansRent
Phone bill Credit salesElectricity

5.  A business makes these 3 reports at the end of each reporting period:
 1 month
 3 months
 6 months
 12 months
WHAT IS ACCOUNTING?
Reporting Period
Transaction
Transaction
Transaction
Transaction
Transaction
Transaction
Transaction
Transaction
Transaction
Transaction
Transaction
Transaction
Transaction
Transaction
Transaction
Transaction
Income
Statement
Balance
Sheet
Cash Flow
Statement
How much profit did the business
make?
Does the business have enough
cash?
Which stock is selling well/poorly? Can the business afford to expand?
Are the firm’s shares over or under-
valued?
What does the business own?
What are the firm’s debts and when
are they due?
What return is the firm making on
the owner’s investment?
Questions
 Now we can answer these questions…

6.  These reports are prepared for several users of accounting information…
Management
Employees
Owners
Investors
Tax Office CustomersSuppliers
Government
WHAT IS ACCOUNTING?

7.  So… what is Accounting?
 Recording every individual transaction that takes place
 Preparing the 3 financial reports which summarise these transactions
 Interpreting and analysing these reports for users of these reports
 Making decisions based on these reports
WHAT IS ACCOUNTING?
Users
Interpret and
Analyse
Prepare
Reports
Record
Transactions
Make
Decisions

8. VCE ACCOUNTING –
SOME MYTHS

9. I need to be good at Maths to study Accounting
 Accounting requires only basic arithmetic – there are no mathematical
formulas or functions…
VCE ACCOUNTING – SOME MYTHS
You only need a basic calculator – graphics calculators are
BANNED in SACs and Exams because you don’t need them

10. I need to do have studied Accounting before to do Year 12 Accounting
 There is no prerequisite subject for Year 12 Accounting
 But Year 12 Accounting will help if you want to study Commerce at
TAFE/uni…
VCE ACCOUNTING – SOME MYTHS
Year
10
Year
11
Year
12
Bachelor of Commerce
ACT10001 Accounting Reports and Analysis
Bachelor of Commerce
MAA103 Accounting for Decision-Making
Bachelor of Business
BUS1AFB Accounting and Finance
Bachelor of Business
ACCT2105 Accounting in Organisations

11. Accounting isn’t a “scoring” subject
 So how is Accounting scaled?
Year Mean 20 25 30 35 40 45 50
2014 31.1 20 25 31 36 41 46 50
2013 30.6 19 25 30 36 41 46 50
2012 30.5 19 24 30 35 41 46 50
2011 30.4 18 24 30 36 41 46 50
Year Mean 20 25 30 35 40 45 50
2014 31.1 20 25 31 36 41 46 50
2013 30.6 19 25 30 36 41 46 50
2012 30.5 19 24 30 35 41 46 50
2011 30.4 18 24 30 36 41 46 50
Year Mean 20 25 30 35 40 45 50
2014 31.1 20 25 31 36 41 46 50
2013 30.6 19 25 30 36 41 46 50
2012 30.5 19 24 30 35 41 46 50
2011 30.4 18 24 30 36 41 46 50
Year Mean 20 25 30 35 40 45 50
2014 31.1 20 25 31 36 41 46 50
2013 30.6 19 25 30 36 41 46 50
2012 30.5 19 24 30 35 41 46 50
2011 30.4 18 24 30 36 41 46 50
Year Mean 20 25 30 35 40 45 50
2014 31.1 20 25 31 36 41 46 50
2013 30.6 19 25 30 36 41 46 50
2012 30.5 19 24 30 35 41 46 50
2011 30.4 18 24 30 36 41 46 50
Year Mean 20 25 30 35 40 45 50
2014 31.1 20 25 31 36 41 46 50
2013 30.6 19 25 30 36 41 46 50
2012 30.5 19 24 30 35 41 46 50
2011 30.4 18 24 30 36 41 46 50
Year Mean 20 25 30 35 40 45 50
2014 31.1 20 25 31 36 41 46 50
2013 30.6 19 25 30 36 41 46 50
2012 30.5 19 24 30 35 41 46 50
2011 30.4 18 24 30 36 41 46 50
Year Mean 20 25 30 35 40 45 50
2014 31.1 20 25 31 36 41 46 50
2013 30.6 19 25 30 36 41 46 50
2012 30.5 19 24 30 35 41 46 50
2011 30.4 18 24 30 36 41 46 50
VCE ACCOUNTING – SOME MYTHS

12. Accounting is just for students who want to become Accountants
 Myth – only people wanting to study Accounting at university should study
VCE Accounting
 Whatever profession you do, a background in Accounting and Finance is
essential in many careers such as:
VCE ACCOUNTING – SOME MYTHS
Small business owner
Banking
Lawyer
Stockbroker/trader
Engineer
Marketing and advertising
Retail
Sports management

13. WHAT WILL I LEARN
IN VCE ACCOUNTING?

14. Accounting helps you read the 3 financial reports
WHAT WILL I LEARN IN VCE
ACCOUNTING?
Income
Statement
Balance Sheet
Cash Flow
Statement

15. THE INCOME
STATEMENT

16.  Looks at Revenues, Expenses and Net Profit…
 E.g. this month the business had the following transactions…
THE INCOME STATEMENT
Net Profit
Revenue
Earned
Expenses
Incurred
= 
Sales
$30,000
Phone bill
$500
Advertising
$1,000
Wages
$10,500
Rent
$8,000
$30,000 $20,000$10,000

17.  Isn’t Revenue Earned just the Cash Received by the business? NO – these
are different things… E.g. three different furniture stores
Business A
Business B
Revenue Earned Cash Received
$5,000
$5,000
$5,000
$0
Business C $0 $5,000
Sells a $5,000 couch and
receives cash
Sells a $5,000 couch on credit
with 24 months to pay
Borrows $5,000 from the bank
THE INCOME STATEMENT

18.  Aren’t Expenses Incurred just the Cash Paid by the business? NO – these
are different things… E.g. three different furniture stores
Business A
Business B
Expense Incurred Cash Paid
$100
$100
$100
$0
Business C $0 $100
Receives a $100 phone bill and
pays it in cash
Receives a $100 phone bill and
will pay it next month
Pays back $100 off the loan to
the bank
THE INCOME STATEMENT

19. The Income Statement
 So there’s a difference between Net Profit and Cash?
 What do you pay the bills with?
THE INCOME STATEMENT
440
489 493
105
703
893
979
-
100
200
300
400
500
600
700
800
900
1,000
1994 1995 1996 1997 1998 1999 2000
Enron Net Profit ($m)
Went bankrupt in 2001…

20. THE BALANCE
SHEET

21. THE BALANCE SHEET
 The Balance Sheet is set out in a “BIG T” with 3 sections:
Balance Sheet
Assets Liabilities
Owner’s Equity
Balance Sheet
Reports what the business owns and what it owes
• Things the business owns are called Assets
• Things the business owes are called Liabilities

22.  Example: you need $800 for a new phone but you only have $600 in your
bank account
 To make up the difference, your parents give you $200 as a loan to buy
the phone to be repaid by the end of the year
THE BALANCE SHEET
How much are
your Assets?
Assets
Liabilities
Owner’s
Equity
$800
How much are
your Liabilities?
$200
$600
So how of the
phone do you
actually “own”?

23.  This relationship between Assets, Liabilities and Owner’s Equity is expressed
as the “Accounting Equation”
Assets Liabilities
Owner’s
Equity= +
$800 $200 $600= +
THE BALANCE SHEET

24.  The “Accounting Equation” also applies in your personal life… Example: you decide to
buy a house worth $500,000:
 You have $100,000 in cash in the bank
 You will need to borrow the remaining $400,000 from the bank
How much do you “own”
of the house?
How much does the bank
“own”?
$100,000 $400,000
House value
$500,000
The $100,000 is your
Owner’s Equity in the
house
The $400,000 is your
Liability or how much you
owe on the house
Assets Liabilities
Owner’s
Equity= +$500,000 $400,000 $100,000
THE BALANCE SHEET

25.  The “Accounting Equation” will change over time…
 This year you pay off $50,000 from the loan
 Next year you pay off $70,000 from the loan
$500,000 $400,000 $100,000= +$500,000 $350,000 $150,000$500,000 $280,000 $220,000
THE BALANCE SHEET

26.  How do people and businesses go broke? They end up with a negative balance
in Owner’s Equity…
 So being broke happens when you have Negative Owner’s Equity
 In other words…
Assets Liabilities
Owner’s
Equity= +$100,000 $110,000 —$10,000
BROKE=<Assets Liabilities
THE BALANCE SHEET

27.  You buy a $900,000 house with a $800,000 loan and $100,000 cash of
your own…
 A year later, there’s a crash in the property market and your property is
now worth only $600,000
Assets Liabilities
Owner’s
Equity= +$900,000 $800,000 $100,000$600,000 $800,000 —$200,000
THE BALANCE SHEET

28. THE BALANCE SHEET
1,255
975
1,699
2,369
3,260
3,941
4,192
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2001 2002 2003 2004 2005 2006 2007
Lehman Brothers Net Profit ($m)
Went bankrupt in 2008…

29. THE BALANCE SHEET
247,816 260,336
312,061
357,168
410,063
503,545
691,063
2001 2002 2003 2004 2005 2006 2007
Lehman Brothers - Total Assets (in $ Millions)

30. THE BALANCE SHEET247,816
260,336
312,061
357,168
410,063
503,545
691,063
239,357
251,394
298,887
342,248
393,269
484,354
668,573
2001 2002 2003 2004 2005 2006 2007
Lehman Brothers - Total Assets and Liabilities (in $ Millions)
Total Assets Total Liabilities

31. THE BALANCE SHEET
 By September 2008…
 Lehman’s went bankrupt in one weekend in September 2008
 The biggest bankruptcy in US history
 How much cash did Lehman’s have?
Total Liabilities
$768 Billion
Total Assets
$639 Billion <
Assets Liabilities
Owner’s
Equity= +$639 B $768 B —$139 B
$7.3 B

32. THE CASH FLOW
STATEMENT

33.  So Cash is REALLY important
 But we already have a Balance Sheet that shows us how much cash a
business has
 Why do we need another report called the Cash Flow Statement?
THE CASH FLOW STATEMENT
Business A
Business B
Cash Balance
$10,000
$10,000
Business C $10,000
Made a $10,000 sale and
received cash
Sold one of the firm’s delivery
vans for $10,000 cash
Borrowed $10,000 cash from
the bank

34. THE CASH FLOW STATEMENT
3.3 6.8
12.1
21.4
52.3
81.0
143.1
-
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
2001 2002 2003 2004 2005 2006 2007
ABC Learning – Net Profit ($m)
Went bankrupt in 2008…

35. THE CASH FLOW STATEMENT
52.3
81.0
143.1
45.7
88.0
123.1
-
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
2005 2006 2007
Net Profit ($m) Net Increase/ Decrease in Cash ($m)

36.  The Cash Flow Statement Is good because it not only tells us how much
cash a business has but also where the money comes from
THE CASH FLOW STATEMENT
Operating activities
• Cash made from the daily operations of the business
• Selling goods and services (and paying for them too)
Investing activities
• Cash made from the buying and selling Non-Current Assets
• E.g. property, vehicles, computers
Financing activities
• Cash made from borrowing money (and paying it back)

37. Cash Balance
Operating
Investing
Financing
Operating
Investing
Financing
Operating
Investing
Financing
Operating
Investing
Financing
Operating
Investing
Financing
Operating
Investing
Financing
Operating
Investing
Financing
Operating
Investing
Financing
Operating
Investing
Financing
Operating
Investing
Financing
Operating
Investing
Financing
Operating
Investing
Financing
Operating
Investing
Financing
Operating
Investing
Financing
Cash Inflows
Money comes into
the business from
3 sources
Cash comes in from
selling goods and
services:
• Cash sales
• Debtor collections
• GST received
Cash comes in from
selling Non-Current
Assets:
• Property
• Vehicles
• Equipment
Cash comes in from
• Borrowings (loans)
• Capital contributions
Cash is spent on
running the business on
a daily basis
• Wages
• Creditor payments
• Stock purchases
• Expenses paid
Cash is spent on buying
Non-Current Assets
• Property
• Vehicles
• Equipment
Cash is spent on
• Loan repayments
• Drawings
Cash Outflows
Money leaves the
business in 3 ways
THE CASH FLOW STATEMENT

38. THE CASH FLOW STATEMENT
43.2 89.2
206.9
-454.0
-851.3
-1579.4
456.5
850.1
1495.6
-2,000.0
-1,500.0
-1,000.0
-500.0
-
500.0
1,000.0
1,500.0
2,000.0
2005 2006 2007
ABC Learning – Net Cash Flows ($m)
Operating
Activities ($m)
Investing
Activities ($m)
Financing
Activities ($m)

39. THE CASH FLOW STATEMENT
 So together the 3 financial reports tell the full story of any business…
Income
Statement
Balance Sheet
Cash Flow
Statement

40. VCE ACCOUNTING
COURSE BREAKDOWN

41. COURSE BREAKDOWN
• Course structure…
Unit 1 – Establishing and operating a service
business
• Area of Study 1 – Going into business
• Area of Study 2 – Recording financial data
and preparing financial reports
Unit 2 – Accounting for a Trading Business
• Area of Study 1 – Recording financial data
and preparing financial reports
• Area of Study 2 – ICT in accounting
• Area of Study 3 – Evaluation of business
performance
Unit 3 – Recording and Reporting for a
Trading Business
• Area of Study 1 – Recording financial data
• Area of Study 2 – Balance-day
adjustments and interpreting financial
information
Unit 4 – Control and Analysis of Business
Performance
• Area of Study 1 – Extension of recording
and reporting
• Area of Study 2 – Financial planning and
decision-making

42. COURSE BREAKDOWN
• Unit 3/4 structure…
Unit 3 SACs,
25%
Unit 4 SACs,
25%
Exam, 50%
0% 50% 100%

43. • Unit 3/4 structure…
Unit 3 SACs, 25% Unit 4 SACs, 25% Exam, 50%
0% 50% 100%
COURSE BREAKDOWN
70% 30%

44. • Unit 3/4 structure…
COURSE BREAKDOWN
70% 30%
Unit 3 SACs, 25% Unit 4 SACs, 25% Exam, 50%
0% 50% 100%

45. RESOURCES

46. • Our YouTube Channel… 200+ videos
RESOURCES
https://www.youtube.com/c/MichaelAllisonVCEAccountingVideos

47. • Our Slideshare Channel… 200+ PowerPoints/PDFs
RESOURCES
http://www.slideshare.net/mjall3

48. • Any questions please contact me…
Michael Allison
Office R113 (between R13 and R14)
allisonm@trinity.vic.edu.au
03 9854 3600
RESOURCES