Chapter 1 - 'A Way of Viewing Business'

When reading through Chapter 1 ‘A way of viewing business’, I must admit, there were a lot of times I asked myself ‘what does this seriously have to do with accounting?’. I am still overly confused why there was so much time discussing typewriters and QWERTY keyboards when really, we could have just had one sentence that said “we continue to do things the same way as it would be too hard and long a process to teach ‘an old dog new tricks’” and hey, I get it, I am a ‘don’t fix it unless its broken’ kinda gal. At the end of the day, I have very limited time to do the things I need to in everyday life and when it comes to studying, I like to know that I am getting facts straight up, tell me what I need to know, no beating around the bush. Regardless, these are my thoughts reading through the chapter.

Dr Martin Turner introduces MYOB in the very first paragraph, phew, this one I know. Whilst I am not in an accounting position at work, we do use MYOB and I often us it to produce outstanding debtors ledgers to identify which if my customers is in debit over their trading terms. One thing I did not know about MYOB is that it stands for ‘Mind Your Own Business” and really, it’s kind of obvious!

Later Dr Turner talks about trusts and whilst I do not totally understand a trust, not much more than what was explained in this document, I had heard of them before. The company that employs me pays their employees bonuses at Christmas time and that bonus comes from a trust named after the director’s late father who also founded the business. Woah, maybe this isn’t too bad after all, I know of most of this stuff!

When reading about trial balances previous to this document, I could never get my head around what that would be? After all, how do you ‘trial’ a balance? But now I understand and in an essence, when I look at my credit card statement online, this is shown in a trial balance format. Please correct me if I am wrong but this is definitely how I understand it.

One thing I am still confused on is the double entry accounting and it is here that I wish this chapter concentrated less on typewriters and keyboards and explained more thoroughly what this was. I understand that this is obviously a double handling at some stage but I feel this is something I am going to need to research more thoroughly to completely understand. Any insight on this would be appreciated also.

Question 1 – Why do we have double entry accounting? Why do we put everything in twice? Why not just once?

I feel quite nervous answering this question as I do not feel I totally understand this concept. I feel the only reason that the double handling of information is done to rule out human error upon the entering of the data.  Computers may pick up some errors made during entry but not all. Is this all this is, a "quality assurance" process?

Question 1-2

For your firm, identify three Assets, three Liabilities and three items of Equity. Describe what each item means to you (you may find some footnotes in your firm’s financial statements may help you to make more sense of these items). Put on your blog your answer to this question and comment on the answers to this question of at least three other people. Include links to your blog and also to your comments in other people’s blogs.

Three assets that I have identified in Caltex Australia Limited’s 2014 Annual Report include

1. Cash and cash equivalents – whilst there is no note on this asset and I am not entirely sure what is, a quick google search informs me it could include petty cash, cheques not yet deposited and currency (2004-2015, p. 1).
2.  Receivables @ $837,672.00 – according to their notes this includes trade debtors, allowance for impairment, associated entities, other related entities and other debtors.
3. Inventories @ $1,118,084.00 – this figure includes, according to their notes, crude oil and raw material, inventory in process, finished goods and materials and supplies.

Three liabilities that I have identified on the Caltex Australia Balance Sheet from their 2014 Annual report include;

1. Payables @1,175,515.00 – this includes, according to their notes, trade creditors – unsecured, related entities and other corporations and persons.
2. Interest bearing liabilities @ $110,000.00 – this includes, according to their notes, US notes, hedge payable and lease liabilities.
3. Employee benefits @ $163,200.00 – this includes, according to their notes, annual leave, long service leave, employee bonus, redundancy and retirement benefits.

A question that came to mind when identifying these liabilities was what is a hedge payable? This was listed in their notes under interest bearing liabilities.

Three equity items identified on the Caltex Australia Balance Sheet from their 2014 Annual report include;

1. Issued Capital @ $543,415.00 – this includes, according to their notes, ordinary shares.
2. Treasury Stock @ -$607,000.00 – I am not certain what this is and there are no notes to assist me in understanding. I believe, from a quick google search, that this includes shares acquired (2004-2015, p. 1).
3. Reserves @ -$3,498,000.00 – again I am not certain what this is and there are no notes to assist me in understanding. Again, according to a quick google search I believe this relates to capital investment projects or any other large and anticipated expense(s) that will be incurred in the future’ (2015, p. 1). 

Reference List

Accounting Coach 2004-2015, Q&A, viewed 5^th December 2015, http://www.accountingcoach.com/blog/item-in-cash-and-cash-equivalents

Accounting Coach 2004-2015, Stockholders equity, viewed 5^th December 2015, http://www.accountingcoach.com/stockholders-equity/explanation/4

Investopedia 2015, Capital reserve, viewed 5^th December 2015, http://www.investopedia.com/terms/c/capitalreserve.asp