advanced accounting


1. provisions

amounts set aside for specific purposes, e.g. project payment due

	
	assets			
									10M cash

	liabilities
		provisions
			project payments due, < 7 days			2 M

	net assets							8 M


effectively cash that is already set aside for a specific transaction is not included in the net assets total




2. capitalised expenses

money spent on building an asset is not put though 'costs', doesn't appear in the profit/loss statement

an asset is added to the balance sheet

spent on advertising: 5M


	P/L

	income
						8M
	expenses
	    ... (other items)			0M

	net income				8M




	balance sheet

	assets
		brand name			5M



alternative:


	P/L

	income
						8M
	expenses
						5M

	net income				3M



	balance sheet

	assets
		... (other items)



has the effect of increasing apparent net income and increasing net assets

this should only be used when the money spent has created an actual asset (physical structure, strong brand name, etc),
	not for expenses (rent, other costs, etc)




	
3.double-entry bookkeeping

accounting was invented during the middle ages by monks at monestaries to record stocks and supplies on hand

the system requires two entries, removing value from one account and adding it to another

due to bank statements being reversed (printed from the bank's perspective not the customer's), the correct accounting signs are:

	debit (add value to an account)
	credit (remove value from and account)

[check this]



banking practice uses the opposite convention


	credit (add value to an account)
	debit (remove value from an account)



e.g.



	house maintenance costs budget				

	opening balance				1M

	1/1/2012	gas supply		1.2t DB
				



	gas supply costs


	...
	...
	1/1/2012	gas supply		1.2t CR




ie. two entries per tranasction. not generally used in practice





4.cashflow statement to profit/loss


add expense items for depreciation

remove outgoing cashflow items that will be capitalised as assets added to the balance sheet

timing differences etc.





5.accrued expenses

expenses that have been incured however a cash payment has not yet been made.

e.g. 12 month rental agreement involving a single payment at the end of the 12 months.

after 11 months, 11 months rent has been used and is effectively owed, even though no payments have yet been made.



assets

							50t

liabilities

accrued expenses
	office rental   11/12 x 24,000 = 		22t



net assets						28t




cash actually on hand					50t

