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ACC1006F- Financial Accounting

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  • Course
  • (ACC1006)
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  • University Of Cape Town (UCT)

ALL THE NOTES YOU WILL NEED TO PASS THE EXAM. First-year first-semester financial accounting notes, all weeks start to finish. Notes made from the lecture slides, lecture videos and lecturer talking points thus making them in-depth and comprehensive.

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Document information

  • November 3, 2023
  • 63
  • 2022/2023
  • Class notes
  • Jimmy whifield, magon gajewski
  • All classes

Subjects

  • acc

Written for

  • University of Cape Town (UCT)
  • (ACC1006)

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ACC1006F
W01 ACB1
Lesson 1 pg 21-23
Q: What is accounting?
A: the scoring system for the business -> allows the company to know how they are doing nancially

TWO basic accounting activities:
Recording/ Bookkeeping: is producing a day-to-day record of all the business transactions
To record all transactions and post debits (costs) and credits (income), also to produce financial statements
and other reports for supervisors and managers- done by a bookkeeper
Reporting: is preparing nancial statements in order to report the e ects of the business
transactions
Financial reporting tells you what the company owns, what it owes, and how much the owners have
invested in the company- done by a professional accountant

Types of financial statements:
1. statement of financial positions, aka balance sheet
2. statement of changes in equity
3. statement of cash flow
4. statement of comprehensive income (includes the income statement)

Lesson 2 pg 26-28
A business has many objectives, such as:
- To serve its customers
- Protect the environment
- Take care of employees
- Contribute to the community

BUT its de ning objective is to make the owners wealthier (make a pro t), this is done by:
1. Financing: to obtain funding (loan)
2. Investing: to acquire assets (machinery)
3. Operating: to use (or sell) assets (use machinery)
4. Distribution: to distribute or retain increases in wealth (further development of machinery & the
business
a. distribute- the money back to the owner
b. retain- back to the business, or into employee bonuses, or into bigger better machinery etc
(anything that helps productivity which in turn helps proud more pro t)

*deciding which to do ( distribute or retain) is known as the distribution decision.

Lesson 3 pg 26-28
Q: What is nancial accounting?
A: A scoring system for recording the e ects of a business transactions and reporting them in its
nancial statements.

The nancial statements are for,
- Existing investors (owners)
- Potential investors (potential owners)
- Lenders
- And other creditors (people the business owes money to)
1


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, *the de ning objective is to make the owner(s) wealthier, this wealth is called equity!!

Elements of accounting;
Equity: the owners wealth in the business, measured by calculating what I have minus what I owe ( E =
A-L)
‣ Increases in equity due to a transaction with the owner(s) are called “capital”
‣ Increases in equity not due to a transaction with the owner(s) are called “income”
‣ Decreases in equity due to a transaction with the owner(s) are called “drawings”
‣ Decreases in equity not due to a transaction with the owner(s) are called “expense”

Assets: Resources of the business with the potential to increase economic bene ts in the future, a
businesses total assets measured is equal to the total equity and the liabilities that have funded
those assets (added together A = E + L )
*an asset is something waiting to be expensed!!!

Liabilities: Obligations of the business with the potential to decrease economic bene ts in the future

Lesson 4 pg 26-28
The entity concept: We treat the business and owner as separate entities, even if they are not legally
separate. Therefore, the personal transactions of the owner are not recorded or reported by the
business. The business entity concept is very important as it helps to measure the performance of a
business separate from its owner and on di erent parameters such as cash ows, pro tability, etc

To analyze the e ects of a businesses transactions using the accounting equation:
1. What happened to assets?
- Up/ down?
- By how much?
- Which asset?
2. What happened to liabilities?
- Up/ down?
- By how much?
- Which asset?
3. So what happened to equity?
- Up/ down?
- By how much?
- What do we call this kind of equity?
4. Did the owners overall wealth change?

** Show how each of the above transactions affect the financial position of the business as represented by A = E + L,
as in the table below. You need to clearly indicate whether the element has increased or decreased and state the
relevant amount and account that would be affected.

Transaction 1: Raised a R50 000 bank loan, deposited into the business’s bank account.
1. Businesses assets increased by 50 000 as 50 000 was gained from the bank,
2. however liabilities also increased by 50 000 due to an increase in debt (owe the bank as the 50 000
was a loan)
3. Therefore equity = 0 ( E = A - L )

Transaction 2: Owner contributes cash of R100 000 to the business.
1. Businesses assets increased by 100 000 as 100 000 was gained from the owner,
2. BUT as its the owner of the business there is no obligation for the business to refund the
money (owner took a risk) Liabilities stays the same (business is in no debt)
3. Therefore equity = 100 000 ( E = A - L )

2


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,4. Overall wealth hasn’t changed —-> This increase in equity is capital



+ 50 000 (bank) 0 +50 000 (loan)


+ 100 000 (bank) +100 000 (capital) 0

Lesson 5 pg 29-30
Transaction 3: Acquired a vehicle for R70 000 cash

1. Businesses assets increased by 70 000 (a vehicle) but the other (bank) assets is decreased by 70
000 as we spent money.
2. However liabilities stays the same as we owe no one money. We paid the 70 000 and received a car
there is no debt.
3. Asset net change is 0 liabilities is 0 equity is 0

Transaction 4: Acquired stock on credit for R30 000

1. Assets increased by 30 000 as we received stock
2. Liabilities are increased by 30 000 as we are in debt (received stock on credit). We owe for TRADE
PAYABLES.

3. Equity is 0

Transaction 5: Paid supplier R10 000 for stock purchased on credit

1. Assets decreased by 10 000 as we lost money in order to pay.
2. Liabilities decreased by 10 000 as we paid off business debt

3. Equity is 0

Transaction 6: Acquired stationery for R2 000 cash (Refer to Transaction 3)

Transaction 7: Paid R5 000 for two months of insurance
1. Assets increased as we gained a fix to a bad situation (prepaid insurance). However we spent
money on the insurance so the bank lost more and asset decreased.
2. Don’t owe anyone more or less so liabilities is 0
3. And equity is also 0



+70 000 vehicle 0 0
-70 000 bank


+30 000 inventory 0 +30 000 trade payables


-10 000 bank 0 -10 000 trade payables


+2000 stationery 0 0
-2000 bank


+5000 insurance 0 0
-5000 bank 3

, Lesson 6 pg 30-32 and sections 2.3.1 and 2.3.2 pg 39-40

Transaction 8: Sold stock for R60 000 cash (cost of this stock was R15 000)
1. Assets
a. increased by 60 000 as we sold goods
b. Decreased by 15 00 as that’s what we paid for the inventory (that’s what the customer
walked out with)
2. Liabilities
a. stayed the same as we owe no one money
b. stayed the same as we owe no one money

3. Equity
a. must have increased as we made a sale (income see lesson 3 for definition)
b. owner lost money from loss of stock, so equity decreased by 15 000 (expense see lesson 3
for definition)
Pro t (or loss): Income less expenses.
- A net change in equity not due to transactions with the owner. (If a business's expenses exceed its
income in a period, then it has made a loss)
Net asset value (equity): assets minus liabilities

Transaction 9: Sold stock on credit for R40 000 (cost of this stock was R10 000)
1. Assets
b. increased by 40 000 as we sold goods
c. Decreased by 10 00 as that’s what we paid for the inventory (that’s what the customer
walked out with)
2. Liabilities
a. stayed the same as we owe no one money
b. stayed the same as we owe no one money

3. Equity
a. must have increased as we made a sale
b. owner lost money from loss of stock, so equity decreased by 10 000




a +60 000 bank +60 000 sales income 0


b -15000 inventory -15 000 cost of sales 0

+40 000 trade receivables +40 000 sales income 0


-10 000 inventory -10 000 cost of sales expense 0


Accrual accounting:
- Depicts the effects of transactions in the period in which the occur, even if the resulting cash
flow occur in a diffrent period (aka sales on credit)
- Recognize income when its earned and expense when they’re incurred.
Lesson 7 pg 33



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