KCQs for Chapter 1

Key concept and question 1- Different types of businesses and why they need to perform accounting

By reading chapter 1, I gained valuable information about through very interesting examples that as businesses are everywhere, they need to perform accounting functions for reporting purposes. As Martin pointed out that in Yeppoon, small coastal town of central Queensland, he found large number of businesses providing different types to goods and services to customers. As I reflect around me, I live in South Brisbane and around my place large number of businesses is operating from which large number of people earn their livelihood and for which the businesses need to do accounting so that they can know how much profit they are earning and what these balance sheet states as far as the assets they own and the liabilities they owe to there. My husband is a lawyer and therefore, he is providing services to the customers and he also makes use of accounting to know how much he earns. I realise that without accounting, the operations of these businesses will be without any direction as they would not know how much profit they are earning. As an example, I plan to open an exclusive perfume shop in my country and this is a business which is undertaking retail activities of selling perfumes. The reason that I want to open is to make money or as Martin states to earn profits. It is very important that for my business, accounts are properly maintained so that I get to know what are the profits for each month and then for the whole year. If by looking at the monthly profit figures, I see that business is not making very good profits, I will have to make a number of decisions to make it profitable as I do not want to run a loss making business. Also, as I will be running the business myself, it will be sole trader form of business and in sole trader form of businesses; I am personally responsible for making the payments to suppliers. If the business is not making enough profits, I will be personally liable. I would have really liked if Martin would have provided more information about how business operations can be expanded. I do not like partnership and if I want my business to grow further, how can I do that.

Key concept and question 2- Keeping the records of the business

By keeping proper accounts, I can know my profits and financial position. As Martin pointed out, he did his bookkeeping himself. I also plan to do the same that I do the bookkeeping of my business myself so that I get to know how my business is performing. I can do this by learning computer software and I hope that as I finish this course, I can get greater insight regarding this and later on learn the computer software like MYOB. I learnt about what is a journal and a ledger. In the journal, I would record all the transactions that are taking place in my business and after I have entered the transactions, ledger can be automatically produced by the computer. I am confused about debit and credit and I tried a number of times to understand what they really mean but somehow, I am not quite understanding that but hopefully as I go further in this course, things will be different.

Key concept and question 3- 5 elements of accounting

I hope that I have understood the five elements of accounting. For my perfume business, revenue is what I get from selling the perfumes. Expenses are the money that I spent for running my business like rent, electricity, buying perfumes from suppliers, etc. Asset is what the business owns like any furniture. Liability is what the business has to pay to others like if I take a loan from the bank. equity is what I invested to start the business. I also understand that assets should be equal to liabilities plus equity. I could not clearly understand as to what Martin meant by value and how it can be increased. I also understand extended accounting equation as per which profit which is equal to revenue minus expenses is also part of equity as any profits or losses increases or decreases equity.

In summary, I found first chapter very interesting and it was like learning the ABC of new language accounting. There are still a number of concepts which I am not clear about for which I hope to get the answers in coming weeks.