Aos 4 - Sac Flashcards
Reasons for a seperate bank account
-seperate entity accounting principle
-Ease of monitoring financial performance and position of the business
-ease of calculating business expenses and income
Reason for: Seperate entity accounting principle
The owners finances are seperate to that if the business and therefore should be recorded separately (this is easier to do with seperate bank accounts)
Define: business bank account
This is a checking or savings fund separate from the owners personal bank account
Business bank accounts are important because:
-the business is a seperate entity from the person; finances should be seperate
-easier to keep track of financial performance
-fees such as interest are seperate from personal expenses
Factors to consider when choosing the right bank account:
-bank fees - there may be a monthly or annual fee for the account
-interest rates - savings account will earn interest, overdrafts and credit cards will be charged interest
-overdraft facility - this allows the bank balance to go negative, improving the businesses access to cash
-credit cards
-convenience and support
Financial control systems
-budgeting
-cash-flow management
-control of accounts receivable
-inventory control
-auditing
Define: financial control systems
Financial control systems help the owner monitor, record and evaluate the businesses financial success
Financial control systems are important because:
- so you can keep track of your business and it’s profits
-the government requires record to be kept for tax purposes
-allows the owner to make decisions about the future of the business
A new business could potentially suffer financial problems because of:
-poor systems
-lack of cash flow
-incorrect pricing
Accounting crash course
Profit = revenue - expenses
Break-even point = the amount of revenue needed to meet all expenses (when profit = 0)
Definitions
Revenues - money earned from selling your good/service
Expenses - money paid to run the business
Start up costs - price of opening the business
Fixed costs - expenses which must be paid regardless of sales (electricity, rent, marketing, wages)
Variable costs - expenses which increase with more sales (materials, packaging, postage)
Define: budgeting
Refers to predicting or estimating the value of the businesses financial control performance for a given period of time in the future
Why budgeting is important:
-used to control the business
-helps the business establish standard and use them as a benchmark against which to compare actual events
-by comparing actual with planned results the business could ask questions about why or why not certain targets were reached or why results were better than anticipated
Define: cash-flow
The money being transferred into and going out of the business
Manage your cash flow by:
-chasing up people who owe you money regularly
-ensure customers are paying the correct amount of time
-offer discounts for cash-paying customers or prompt payment
Define: accounts receivable
The outstanding invoices or payments that a business has - the money that the business is owed by its customers
Strategies to control accounts receivable:
+ set the right credit terms - typical payment cycle ranges from 30-90 days
- longer payment term extends more credit to customers, shorter payment terms should result in the business being paid faster
+offer a variety of payment methods to make payment easier
- bonuses/rewards for early payment (discounts, gifts, free shipping), late payment fees could also be used to encourage prompt payments
Define: inventory
Materials on hand to complete production - businesses hold large inventories to make sure that they don’t run out of materials
Define: inventory control
Is a system businesses use to ensure the costs associated with maintaining an inventory of materials are kept to a minimum
Inventory control strategies:
- not allowing materials to remain idle and making sure the materials are available for production when needed
- using both physical control of inventory and through accounting control (inventory recording system)
-conduct stock takes, compare what is expected to be available any differences outline problems with stock control
Define: auditing
The process of testing and eveluating a businesses accounting processed and internal controls
It’s important because it provides the business with valuable feedback and improve accounting processes and internal controls of a business
Define: record-keeping
Record all transactions (expresses/revenues) in a table
Legal requirements of business
- business is a highly regulated area of law in Australia
- business laws exist to protect the public, employees and business owners from dangerous activity or exploitation
- unincorporated businesses (sole traders, partnerships) are legally the same as their owners
Registering a business name
-unique business name
-business should trademark their name
- entrepreneurs can name their business something other than their legal name
Registering a website domain
-without a unique domain name, it will be hard for a business to develop an online presence
-.com.au, .net.at domain addresses require an ABN
-domain name should be easy to read, fine and relate to their business name
Tips for choosing perfect domain name
-make it easy to type
-keep it short
-use keywords
-target your area
-avoid numbers and hyphens
Trade practises legislation:
This area of law determines acceptable behaviour for sellers and buyers in Aus, including:
-product safety
-pricing
-competition
-false advertising
Tax compliance:
Paying tax = compulsory
Aus tax office (ato) is responsible for collecting tax and identifying tax fraud/evasion
Types of business taxes include:
-income tax
-goods and services tax
-fringe benefits tax
-PAYG
Work safe insurance
WORK HEALTH AND SAFETY ACT 2001 outlines a large area of law called occupational health and safety, ensures the safety of workers at businesses
All business must take out work safe insurance for their employees, if they are injured in the workplace, it covers:
- replacement of lost income
- medical rehabilitation treatment costs
-legal costs
-lump sum compensation in the event of a serious injury
Define: policy
A set of broad guidelines to be followed by all employees when dealing with important areas of decision making. Acts as a guiding principle
Define: procedures
Support policies. They are a series of actions or steps enabling a policy to be put into practise or to resolve a dispute in the event of a breach of policy.
Effective policies:
-recognise the rights of people within the organisation
-are clearly expressed and easily understood
-are clearly and widely communicated
Common corporate policies:
-recruitment policies
- customer service policies
- supplier policies
-accounting policies
Policy development process:
PROBLEM - identify the issue
ANALYSE - research policies of other organisations as alternatives
CONSULT - stakeholders are informed of possible policy change and feedback is sought from them
DRAFT - a draft policy is written based on research and stakeholder input
REVIEW - policy is reviewed with stakeholder input and adjustments can be made
APPROVAL - senior management sign off on the policy and it’s implemented in the organisation
MONITOR - evaluate and assesses using set criteria if the change was effective as solving the original problem
