Chapter 1- Key Concepts

Firstly, thank you to the author for using  quotes at the beginning and keeping me intrigued enough to  to start the course! At first glance of chapter 1, I honestly had no expectations. I was a little nervous about starting accounting with no real prior knowledge of what was to come.

Comparing the basic accounting principles with
my job has given me a better understanding of
business realities. 

As I mentioned to my readers earlier, I work for a finance business but I am definitely not a numbers girl, not usually anyways. Reading that accounting is a concept that extends far beyond these figures may have given me a slight sigh of relief.

The study guide quotes, "Businesses (and accounting) is where we can make a difference to the lives of those around us". This is so very true as I reflect directly on these stakeholders and business owners around Rockhampton and the value they really hold for consumers. We can use accounting to connect with the business owners, and help them in turn benefit its investors by establishing the true measure of value.  As I saw from the accounting presentation by Evans Edwards Chartered Accountants (mentioned in a previous post), a simple manipulation/alteration to the accounts on the financial statement of a business named, 'Rebecca's Coffee' made a large difference in the outcomes for each fiscal year and on the equity investors. Using 'Cashflow Story'  they showed that by reducing the amount of days allowed for accounts receivables from her customers, Rebecca would be saving a large portion of money in affect of reducing her active capital.

Types of Businesses 
Looking at the list of businesses around Yeppoon, you realise that no two are the same in a similar location and its not surprising that the author proposes such a concept. Despite the black and white images being slightly boring, they are all represent various types of businesses, selling differentiated products. I had never really took in the concept that there are so many around us- company's, sole-traders,  trusts etc. and until now I actually never knew about the concept of trusts. Before reading this chapter, a business was a business and I would use the term loosely when referring to companies or organisations. In reality, these business types clarify how the business operates and the legal responsibility held by business owners or beneficiaries. Being employed by a sole-trade means the legal rights and responsibilities for my boss would be emphasised less than operating under the Corporations Act as such.

Historical Elements of Accounting 
I understand why the author began with the proposition of accounting an an ever-changing concept, but to relate its heritage to the layout of a keyboard is where I became a little inattentive. The section did prompt the question however,  'If Luca Pacioli  is the 'father of accounting', but only wrote the book about double-entry book keeping than who actually invented it?'

It amazes me that accounting has been around for so many years but like many things, has changed and evolved over time to become more efficient. Using the concept of trial balance for example, it made book-keeping look overwhelming. Bookkeepers would have to be very particular, especially with the risk that there can still be underlying errors when balancing the accounts. I can completely relate. At school, I remember this particular exam where I had completed a whole balance sheet for my business class by hand. With confidence, I thought I had finished as everything balanced and the reconciliation was accurate but when the paper was returned, I was graded down for confusing my assets and liabilities that were transferred from the ledger.

Nowadays we really do operate in a book-less record keeping world as book-keeping has shifted from these systematic methods to computer inputs. It is something I never thought about until now as the business I work for hires accountants to keep the finances in order. With all the accounting programs available today however, you would think that the concepts in accounting would be easier to grasp.

I really didn't know that MYOB stood for 'Mind Your Own Business' - such a great pun for the title of an accounting program I thought!

Accounting Backgrounds In Companies 

It's also interesting that half of the board of directors listed in Australian and New Zealand companies have an accounting background of some nature. Just like Martin's company, Ryman Healthcare, for my company this also applied. Investigating Oldfield's staff, unsurprisingly enough the companies board member, Mr Timms, has 28 years of accounting and taxation experience behind him. Additionally, the Human Resource Manager also gained her experience working in Financial Services and the National Manager of the scaffolding sector has completed his Masters in Business Administration and Applied Finance. It just goes to show that having financial knowledge as a leader of any business is an important asset in terms of human capital.

Entity Concept 
The concept of proprietorship or entity concept.This stood out to me as a worker of a sole-trading business and that it works on the premise that there is no real legal distinction between the owner and the business.  I could not understand how an owner is separate as the owners have complete access to the bank accounts and monetary obligations. When I enter the transactions that occur in my workplaces business arrangements however, I have come across the concept of 'drawings' . It outlines to me how the owner's accounts are separate to that of the business and if any money is withdrawn from the entity for personal use, my boss is to transcribe this into the journal to separate the expenses.

Reading this section of the chapter, I wanted to gain greater knowledge of the concept as it was mentioned a considerable amount of times in class. From here, I also learned that it can be explained by how and why a sole-trader's equity (such as contributed share capital) is listed as a liability to a firm. A business such as Finance First for example may issue $2000 distribution of its sole shareholder to accommodate wages and personal expenses. This will deduct equity from the firm as value is lost and in-turn becomes taxable income on the owner's personal income statement. I can now see that without this concept, the personal and business entity's records would intermingle and create difficulty to ascertain the taxable or financial results for the single business. For a large consolidated group like Oldfield's Holdings this would be especially so!

Debits and Credits
Although in the brokering business I work for, no money exchange hands directly from clients and the owner is operating to provide a service, mutual arrangements between outside investors still exists which is represented on the balance sheets as debits and credits. This  knowledge and understanding of debits and credits..what a struggle!  I find this interesting to try an understand, a challenge even. These may be the basic accounting concepts to grasp but for me it is taking a while. For years I confused the terms, and always thought of it in the way it is formatted on our bank statements each month, assuming it was just a word used to describe the money that is coming in. So far, the only firm hold I have developed is that debits are on the left side of a financial statement and credit on the right. I am hoping that as I continue my studies this semester, defining the terms will come more naturally.

Assets 
Assets. I understand these are a fundamental aspect of accounting as I input these at work on a daily basis and agree with the requirement that assets should hold future value. As I help with the preparation of home loan applications, I list the client's assets as a way of showing the banks the property the clients 'own' (both tangible and intangible) but I thought I was familiar with how the concept occurs until now.  It would always be the same thing for each client, '2010 Hyundai Getz, home contents, Superannuation,' but when I look at it from a business perspective, what if the car has mechanical issues? One client of Finance First were seeking to refinance a home loan and used their stationary car as an asset. Its funny how our minds work, but: How can we class this as something of future benefit if it is unable to leave the owner's driveway and would this be more of a liability than asset to a firm when calculating borrowings for a bank? It was the definition from the study guide of an asset  that appealed to me, and I had this realisation of how banking and loan applications operate for our business associates in comparison to what I have read. I feel that this is something that more financial institutions may need to re-establish and address.

Measure of value
Accounting is clearly a business model that can help us connect with the happenings in a firm and initiate a measure of value. If bills are paid late, the owner of my workplace is away sick, or we are simply using more items from the inventory as usual such as printer ink/paper, these day-to-day realities of the business I work for (regardless of how small Finance First is) could write an accounting story all of its own. Or if we talk globally, I noticed that my assignment company's profits had down-turned in the previous fiscal year. The circumstance was directly related to increased labour and import costs of their operations in Asia, clearly giving an example that every change and number brought about by a firm speak for the realities of the businesses and the changing environment. Increasing labour and import costs, or buying more paper from suppliers thus affect what transactions are recorded in the books, and in terms of precise dollars helps us as outsiders make judgments based on current circumstances.

The Fundamental Accounting Equation
What a way to finish a chapter. I found figuring out and processing the accounting equation a little uncomfortable and having a boring nature despite realizing the way it ties the 5 principles together. Its importance is noted as is the concept that represents the business model but equations in general I have had trouble with in my previous years of education, It has taken me various  attempts to understand (Assets + liabilities = Equity  + Revenue + Liabilities) and even now I am not really sure I have captured it to its full extent. I understand the terminology in a separate notion but when placed together in the formula, it takes me a while to engage with the relationship of each term.

Overall, I find that the author of the chapter is trying to ground us on what is to come in our accounting course, even through the use of historical facts and imagery. Giving us an understanding of the essential elements is seemingly important for the weeks to come, which is why I am hoping to grasp such concepts as assets, credits and debits more before I confront the larger task ahead.