1. Sole trader
2. Partnership
3. Company

Owned by a single person who is responsible for all the profits and losses of the business

• Simply a contractual relationship where there is more than one owner.
• Each partner is responsible for profits and losses.
• It is not recognised as a legal entity
• There should be (but not always the case) a partnership agreement

• A legal entity
• whith business owners (shareholders)
• LIMITED LIABILITY

Yes!

While theyre not in the business of maximising profits they ARE in the business of controlling the costs of providing their services

Basic financial principals are the same

Many buyers & sellers, so that each has a very small influence on the price.

The willingness of consumers to buy a particular good or service?

The amount of goods and services firms are able and willing to produce at a given level of prices over time.

• Income
• Price of related goods(substitutes and compliments)
• Tastes and preferences
• Expectations

As income increases we are able to buy more. When demand for a product increases as income increases, we call that product a ‘normal’ product. When demand for a product decreases as income increases, then that product is called an ‘inferior’ product.

‘Substitute’ products are similar products that can be used as alternatives (eg: coke/pepsi or butter/margarine). If the price of a substitue goes down demand will go down.

‘Complements’ are products used in conjunction with each other (eg: pencil/eraser, coffee/sugar). If the price of complements it will cuase demand to go down.

When you expect the price of a product to go up in the future, you tend to increase your demand today.

• Input prices
• Technology
• Expectaions

As prices of inputs (raw materials, labour and overheads) increase, production tends to be less profitable, so less will be produced. This leads to a decrease in supply (unless input costs can be passed on!).

Improvements in technology often reduce the costs of production and make sales more profitable – and so tends to increase supply.

If businesses expect prices to rise in the future, they may try to produce less now and more later.

The process of:

• Collecting
• Recording
• Classifying
• Summarising
• Reporting and
• Analysing

Financial Information

• Financial accounting
• Management accounting

Driven by the needs of external users and an externally imposed regulatory framework:

• General purpose financial reports
• Generally mandatory
• Externally imposed standards
• Emphasises objective data
• Reports on past (historical) events

1. Statement of financial position (balance sheet)
2. Statement of financial performence (the profit and loss statement)
3. Statement of cash flows

Driven by the needs of internal users:

• Formal and informal reports
• Generally discretionary
• No externally imposed standards
• Allows subjective data
• Reports on past and possible future events

• Buy raw materials
• Pay the workforce
• Pay overheads
• Pay bills
• Pay interest on borrowed money

• Reduce the stock of finished goods
• Keep pressure on overheads
• Collect money owed (debtors) quicker
• Negotiate better credit terms with suppliers
• Hold stock of fast-moving products
• Reduce/eliminate slow-moving products
• Reduce production time
• Reduce price of raw materials
• Increase selling price of finished goods

Cash or other assets that are reasonably expected to be realised in cash or sold during a normal operating cycle of a business or within one year if the operating cycle is shorter than one year.

Eg:

• Cash
• inventory (stock)
• debtors (accounts receivable)
• prepaid expenses
• marketable securities

Liabilities that fall within the coming year or within the normal operating cycle if longer than a year.

Eg:

• Bank overdraft
• Creditors (accounts payable)
• Amounts received in advance from sales
• Accruals of wages, holiday pay, etc
• Current portion owing on long term debt
• Taxation payable
• Dividends payable

• Investments
• Tangible assets
• Intangible assets

Assets that are:

• Generally of a long term nature
• Not used in the normal operation of a business
• Management does not plan to convert to cash within the next year
• Consists of claims on the net assets of other enterprises.

Long term assets that are used in the continuing operations of a business.

Eg:

• Land
• Buildings
• Fittings
• Furniture and equipment
• Motor vehicles

1. Service
2. Merchandising
3. Franchise
4. Manufacturing

Use of funds:

• Fixed assets
• Working capital

Source of funds:

• Capital
• Liabilities

The two sections should balance.

Sales
Less cost of sails
Gross profit
Less operating expenses

• Office/wages/admin
• slaes marketing and distribution
• rent
• loan repayments
• depreciation

Net profit beore tax

Less tax

Net profit after tax

• Cash
• Acquisition of materials
• Materials inventory
• Material labor overheads
• Production
• Finished goods
• Sales
• Selling and admin costs
• Accounts receivable
• Collection of receivables
• Cash

• Sale of shares
• Sale of assets
• Borrowing (longterm & shorterm)

• Purchase of productive assets
• Loan repayments and interest
• Distribution to shareholders

• Increases Profits
• Spreads overheads
• Increases profit on extra consignments

Reports:

• Profit/loss of a business

Reports:

• Where the business has aquired its finance
• What assets it has aquired with it.

Reports:

• Cash recieved by a business
• Where the cash has gone

Reports:

• Changes in net worth

Assets that have no physical substance but have a value based on rights or privileges that belong to the owner.

e.g.

• Goodwill
• Patents
• Copyrights
• Trademarks

Debts of a business that fall due more than one year ahead or beyond the normal operating cycle.

e.g.

• Mortgages
• Debentures
• Employee pension obligations

Assets less Liabilities

a legal document that outlines the expectations, rights and obligations of the partners within a partnership.

• Planning future business activities
• Establishing competitive selling prices and planning market strategies
• Controlling day to day operations by measuring actual results against targets
• Promoting maximum efficiency and minimising waste & error

• Product costing
• Planning/control
• Project evaluation

• Job order costing
• Process costing
• Standard costing

• Budgeting
• Flexible budgets
• (C-V-P analysis)
• Performance Reporting
• Responsibility accounting
• Special decisions(non-routine)

The economic value of resources used as a result of producing or doing the thing costed.

Basis for

• Planning
• Control
• Decision making

• nature
• relation to a product or service
• relation to a function/department etc
• time
• behaviour

• Materials cost
• Labour cost
• Overhead cost

• Direct Materials
• Indirect Materials
• Direct Labour
• Indirect Labour
• Factory Overhead

• Production
• Selling
• Distribution
• Administration
• Finance
• Research & Development

• Budgeting
• Cost Control
• Manager performance assessment

• basis of a structure for cost recording within an organisation
• smallest segment of activity (or area of responsibility) for which cost are accumulated
• basis for responsibility accounting

The increase in total cost resulting from the increase in volume of activity by one unit per period.

Costs resulting from past decisions management no longer has control over.

They cannot be changed and so are irrelevant to decisions about the future.

• A type of product costing
• Applied where different products or services are produced in the organisation. These jobs are processed in different ways and require varying amounts of resources.

• A type of product costing

Cost center

• Direct costs directly charged to the individual job
• Cost center overheads allocated based on the jobs use of resources

+ Company wide overheads

• Allocated to job on basis of size of job

= job cost

• Rent
• Depreciation
• Maintenance
• Management Salaries
• Overtime premiums
• Electricity
• Rates
• Taxes
• Insurance premiums

• Production Cost Centre
• Service (or Support) Cost Centre
• Ancillary Manufacturing Centre

• A cost centre thta contributes directly to the production of products or services for outside customers
• Examples: factory – machine shop

• A cost centre that provides necessary functions within the organisation but is not directly productive.
• Examples: accounting, personnel, maintenance, cafeteria

• Similar to production cost centre, but concerned with the production of secondary products (eg. packing materials)

A costs that can be identified specifically and wholly within the cost centre.

Costs of resources that are required for the proper working of a cost centre, but that are not entirely and solely caused by the respective cost centre.

Actual overhead costs occur irregularly. It would be very difficult to prepare them into rates for each individual occasion when they are required (eg. for each job costing exercise).

There are often seasonal and other fluctuations in business activities. Applying actual overhead rates in these circumstances would distort the job costing process (for example in a soft-drink company).

• Planning and control
• Compels Planning
• Enables performance to be measured
• Promotes co-ordination, with every employee working towards the same goals
• Provides motivation, with people striving to achieve the budget
• Ensures communication takes place within the organisation
• Provides authority to implement plans and spend money
• Helps to obtain credit and plan bank overdraft levels

• A forecast is simply an opinion as to what might happen.
• A budget by contrast is a COMMITMENT

• generates STANDARDS which have to be met throughout the organisation.
• it does this by determining whether sales forecasts can be achieved and if so how much it will cost

• Ideal standards
• Past standards
• Currently attainable standards

• the best possible outcome
• generally to high & unrealistic
• can easily de-motivate

• follow custom and practise
• people feel comfortable with them
• however likely to contain errors, inefficiencies & anomalies.

• high enough to motivate people
• attainable at a sustainable level

The cost that should be incurred:

>to produce ONE unit of a given product

or

>to perform a particular operation under

• Normal operating conditions, and
• Normal operating efficiency, generally documented in a STANDARD COST SPECIFICATION

• Pre-determine estimates of the cost of products
• compare these pre-determined estimates with actual costs

Pre-determined costs in this context should be attainable usually under normal efficient operating conditions

They represent pre-determined targets towards which management should direct and motivate employees

• Basis for control
• Method of inventory valuation
• To aid the process of setting selling prices

Material costs (quantity x price per unit)

+ Labour costs (hours x rate per hour)

+ Overhead costs (variable/fixed)

= Standard cost

• Establishing budgets
• Controlling costs
• Measuring efficiencies
• Promoting possible cost reduction
• Simplifying costing methods and expediting cost reports
• Assigning costs to Materials, WIP and Finished Goods inventories
• Forming the basis of quoting on contracts
• Setting selling prices

• Establishment of clear objectives at all levels
• Senior management support
• A realistic (timely) preparation timetable
• Discussion of submitted budgets
• Responsibility for control and achievement
• Continuous use of approved budgets
• Continuous scrutiny or results against budget