New Zealand Practical Accounting Guide
The New Zealand Practical Accounting Guide is a user-friendly introduction to New Zealand accounting processes, concepts and principles. The book has a very practical approach, with numerous worked examples, diagrams, checklists, tables and FAQs.
Whether you are new to accounting or just need to fine-tune your skills, this practical and comprehensive book will provide the resources you need in one handy volume.
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Practical accounting Q & As
What is the difference between the cash basis and the accruals basis of accounting? Which method should I adopt in preparing the management accounts for my client?
Under the cash basis of accounting, revenues are recorded in the period in which the cash is received, not the period in which the goods have been sold or services provided. Similarly, expenses are recorded in the period in which the cash is paid, not in the period in which the expenses have been incurred.
Under the accrual basis of accounting, revenue is recognised in the period in which the revenue has been derived, not when the cash has been received. Similarly, expenses are recognised in the period in which they have been incurred.
Hence, where possible when entering transactions into the accounting system, the bookkeeper should endeavour to process transactions under accrual accounting principles.
Despite the fact that some small business entities are entitled to use a “cash accounting method” for income tax purposes, the management accounts and the external financial statements should be prepared under accrual accounting principles.
What is meant by the “accounting equation”, and is it supposed to remain in balance after every transaction?
The entire accounting framework is based on the accounting equation. The accounting equation is expressed as follows:
[Assets – Liabilities] = Equity
This equation states that if one side of the equation changes, then, to keep the equation in balance, the other side of the equation must also change by the same amount.
When processing each business transaction, bookkeepers must ensure that the accounting equation is kept in balance at all times. This is referred to as the concept of “double-entry bookkeeping”, meaning that every transaction has an impact on at least two accounts.
Put simply: if the accounting equation does not balance, an error has been made.
How do I determine the legal structure of my client’s business?
One of the quick and simple ways to determine the legal structure of the business is to look at the equity section of the balance sheet.
In the case of a sole trader, the equity section should contain the term “owner’s equity” with the name of the owner shown next to the capital account.
In the case of a partnership, the equity section should contain the term “partners’ equity” with the name of each of the partners shown next to their respective capital account.
In the case of a trust, the equity section should contain the term “corpus” or “settled funds”. This represents the amount contributed by the settlor when the trust was established.
In a discretionary trust, the beneficiaries do not own “equity” in the trust. Because they are entitled to a share of the profits, when the profit is distributed their beneficiary loan accounts are credited with their share of the profit distribution.
In the case of a company, the equity section should contain the term “share capital” or “issued capital”, showing the amounts contributed by the shareholders. As profits are retained within a company, the equity section of the balance sheet should also show the term “retained profits” or “accumulated losses”. Some companies also provide for reserves, which are also shown in the equity section of the balance sheet.
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The New Zealand Practical Accounting Guide is the ideal resource for business owners, bookkeepers, accounting graduates and new accountants.
Practical and easy-to-understand, this affordable guide:
- provides a clear overview of basic accounting and bookkeeping principles
- demonstrates how to prepare a set of financial statements
- highlights key taxation principles that bookkeepers need to be aware of
- presents real-life examples showing how to prepare a GST return under both the invoice and payments basis
- a list of commonly asked questions at the conclusion of each chapter.