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CHEAT SHEET
ACC1000: Principles of Accounting and Finance
Monash University
1 Accounting in Action
Users - People that depend on and use the financial
information (provided by financial statements) to
make economic decisions.
• Assumptions of Financial Accounting –
• Accrual Accounting
• Going Concern
• Monetary unit
• Accounting Period
• Historical Cost
Qualitative Characteristics –
• Understandability
• Relevance
o Materiality
• Reliability
o Fair representation (represent what
really existed/happened)
o Neutrality (freedom from bias)
o Substance over form (reflects the
economic reality)
o Prudence (caution in estimates)
o Completeness (material info not
omitted, not misleading)
• Comparability
Business Entities: Sole Proprietor,
Company/Corporation, and Partnership
Accounting Equation – A = L + SE
Asset:
Definition: Resource controlled, Provide future
economic benefit, Result of past event
Recognition: Probable economic benefit, Reliably
Measured
Liability:
Definition: Present Obligation, Outflow of future
economic benefit, Result of past event
Recognition: Probable outflow of economic benefit,
Reliably Measured
Shareholders’ Equity:
Definition: Residual Interest
2 Financial Statement and Accounting
Assumptions
Accrual Accounting – Record economic impact of
transaction as they occur
Cash Accounting – Record impact of transaction at
time of cash flow
A L Rev. Exp. SE
Increase DR CR CR
Decrease CR DR DR
Balance DR CR CR DR CR
The Accounting Cycle:
1) Source Document
2) Journal Entries
3) Post to Ledger
4) Pre-Closing Trial Balance
5) Adjusting Entries
6) Adjusted Trial balance
7) Closing Entries
8) Post-Closing Trial Balance
9) Financial Statements
3 Recording Transactions
Perpetual Inventory System - Continually records
the impact of transaction on COGS and Inventory
control accounts.
Purchase Returns and Allowances –
DR Inventory
CR Cash/ Accounts Payable
OR
DR Purchase Returns and Allowances
CR Accounts Payable
Sales Returns or Allowances –
DR Sales Returns and Allowances
CR Cash/ Accounts Receivables
DR Inventory
CR COGS
Write –off:
DR inventory write-down
CR COGS
Periodic Inventory System – Need to deduce COGS
using the formula:
COGS = O/B INVENTORY + PURCHASES - C/B
INVENTORY (AFTER A END OF YEAR Stock take).

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Purchase Returns and Allowances -
DR Cash/ Accounts payable
CR Purchase Returns and Allowances
Sales Returns and Allowances -
Sales Returns or Allowance:
DR Sales Returns and Allowances
CR cash/ accounts receivable
Sales Journal - Records only credit sales during a
period.
Purchase Journal - Records only credit purchases
during a period
Cash Receipts journal - Records entries, which debit
cash at bank
Cash Payment Journal - Records all entries that
credit cash at bank
Accounting For GST
• GST Paid = Represents the amount owed to
you by the ATO
• GST Collected = Represents the amount you
owe the ATO
4 Adjusting Accounts
Expiration of Assets -
DR Insurance Expense
CR Prepaid Insurance
Unearned Revenue -
DR Unearned Revenue
CR Service Revenue
Accrual of Unrecorded Revenue -
DR Accrued Revenue
CR Service Revenue
Accrual of Unrecorded Expenses -
DR Wages expense
CR Accrued Wages
Contra Account - Are accounts that record any
detraction from the historical cost of an asset or
liability control account
Allowance for Doubtful Debt
Creating Allowance for Doubtful Debt
DR Bad Debt Expense
CR Allowance for Doubtful Debt
Writing Off Bad Debt
DR Allowance for Doubtful debt
CR Accounts Receivable
Depreciation
DR Depreciation Expense
CR Accumulated Depreciation
5 Preparing the Financial Statements
Closing Entries - Temporary accounts are closed to
leave them with zero balances in preparation for the
next reporting period.
Post Closing Trial Balance - Lists all permanent
accounts and their balances.
Prepare Financial Statements –
• Prepare Balance Sheet
• Income Statement
• Statement of Cash Flows
6 Financial Statement Analysis
Analytical Methods –
Horizontal/ Trend Analysis: Evaluate series of
financial statement data over period of time
Vertical Analysis: Expressing each item in financial
statement as % of base amount
Ratio Analysis: Expresses Relationship among
selected items of financial data
Useful Ratios –
Performance Ratios
Return on Assets =
!"#$%&'() !"#!"# !"#$%" !"#
!"#$% !""#$"
Activity Ratios
Asset turnover rate =
!"#$% !"#"$%"
!"#$% !""#$"
Liquidity Ratios
Current ratio =
!"##$%& !""#$
!"##$%& !"#$"%"&'
Financial Structure Ratios
Debt
to
Equity
Ratio
=
!"#$% !"#$"%"&"'(
!"#$% !!!"#!!"#$%& !"#$%&
Du Pont Analysis
ROE =
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
𝑇𝑜𝑡𝑎𝑙 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠 𝐸𝑞𝑢𝑖𝑡𝑦
𝑋
𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑝𝑟𝑜𝑓𝑖𝑡 𝑎𝑓𝑡𝑒𝑟 𝑡𝑎𝑥
𝑇𝑜𝑡𝑎𝑙 𝑆𝑎𝑙𝑒𝑠 𝑅𝑒𝑣𝑒𝑛𝑢𝑒
𝑋
𝑇𝑜𝑡𝑎𝑙 𝑆𝑎𝑙𝑒𝑠
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
Limitations
• Estimates
• Atypical Data
• Diversification of Entities

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CHEAT SHEET
7 Management and Control
Non – Financial Performance Management –
Balanced Scorecard: Formulated to translate an
organisation’s mission/strategies into
objectives/performance measures
4 Perspectives:
• Financial
• Customer
• Internal Business Process
• Learning and Growth
Divisional Performance Management:
1) Evaluate a division’s performance
2) Evaluate performance of managers in those
divisions
3) Evaluate level of investment in each division
Responsibility Accounting: Hold managers
accountable for the performance of their business
units
Only consider controllable costs (cost that the
manager can exert control over). Ignore
uncontrollable costs (manager can’t exert control
over these costs).
Financial Methods –
R.O.I =
!"#$%&
!"#$%&'$"& (!"#$%&$' !"#$%"&)
Residual Income = 𝑃𝑟𝑜𝑓𝑖𝑡 𝑏𝑒𝑓𝑜𝑟𝑒 𝑡𝑎𝑥 − (𝐶𝑜𝑠𝑡 𝑜𝑓
𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑥 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡)
8 Cost and Costing
Cost Behaviours –
Variable Costs - Costs that vary directly,
proportionately with changes in activity levels
Fixed Costs - Costs that remain the same, regardless
of changes in activity levels.
High Low Method –
Change in Total Costs (Highest Cost period − Lowest Cost Period)
Highest Activity Level − Lowest Activity Level
= 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝐶𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
CVP Analysis –
!#$% !#$
!#$ !##$% !#$%!!#$ !#$%' !#$
= Units needed
!#$% !#$#
!#$%%' !#$%
+ 𝑈𝑛𝑖𝑡 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝐶𝑜s𝑡 = Unit Selling Price
𝑝𝑟𝑜𝑓𝑖𝑡 𝑎𝑓𝑡𝑒𝑟 𝑡𝑎𝑥
(1 − 𝑡𝑎𝑥 𝑟𝑎𝑡𝑒)
+ 𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡𝑠
𝑈𝑛𝑖𝑡 𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒 − 𝑈𝑛𝑖𝑡 𝑉𝑎𝑟𝑖𝑎𝑏l𝑒 𝐶𝑜𝑠𝑡
= 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑛𝑒𝑒𝑑𝑒𝑑
Overhead Allocation –
Absorption Costing:
𝐸𝑠𝑡𝑖𝑚𝑎𝑡𝑒𝑑 𝐴𝑛𝑛𝑢𝑎𝑙 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 𝐶𝑜𝑠𝑡𝑠
𝐸𝑥𝑝𝑒𝑐𝑡𝑒𝑑 𝐴𝑛𝑛𝑢𝑎𝑙 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐴𝑐𝑡𝑖𝑣𝑖𝑡𝑦
= 𝑃𝑟𝑒𝑑𝑒𝑡𝑒𝑟𝑚𝑖𝑛𝑒𝑑 𝑜𝑣𝑒𝑟ℎ𝑒𝑎𝑑 𝑟𝑎𝑡𝑒
Activity Based Costing:
Uses cost pools to accumulate the cost of significant
business activities, allocating costs from these cost
pools to products based on cost drivers, which
measure each product’s/service’s demand for
activities.
9 Strategic Management Accounting
TQM - Reducing costs in the above phases, but at the
same time, increasing quality/customer satisfaction
JIT Processing - Management of inventory, in
particular, reducing it.
Lifecycle Costing - Estimating and accumulating the
costs of a product over its entire life
Target Costing
𝑇𝑎𝑟𝑔𝑒𝑡 𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 = 𝑇𝑎𝑟𝑔𝑒𝑡 𝑠𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒 − 𝑇𝑎𝑟𝑔𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡
𝑚𝑎𝑟𝑔𝑖𝑛
Kaizen Costing - Making incremental improvements
during the production phase (e.g. improving
processes, reducing costs in production/from
suppliers, collaborative employee teamwork
expertise) when large innovations may not be
possible.
Behavioural Aspects of Budgeting –
Bias: Tension between upper and lower management
Participation: encourage participation by lower
management when setting budgets
Slack: Temptation to inflate costs or depress sales
forecast
10 11 Introduction to Finance and
Financial Mathematics
Steps of Capital Budgeting
1) Estimate all Cash Flows (both inflows and
outflows).
2) Assess the riskiness of these Cash Flows.

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3) Determine the borrowing costs of the project, by
comparing such costs with the WACC – Weighted
Average Capital Cost.
4) Find Net Present Value (NPV) and Internal Rate of
Return (IRR).
5) Accept the project if: NPV 0, IRR WACC.
NPV –
• Calculates the expected net monetary gain or
loss from a project by discounting all
expected cash flows to the present
• The amount of interest deducted is
determined by the desired rate of return
IRR –
• IRR is the rate of return that a company can
expect to earn by investing in a project

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