What is bookkeeping

Bookkeeping

Bookkeeping is the task of recording all business transactions—amounts, dates, and sources of all business revenue, gain, expense, and loss transactions. Bookkeeping is the starting point of the accounting process. Having accurate financial records helps managers and business owners answer important questions. Is the business making money, or losing it? How much? Is the business on sound financial ground, or are troubling trends in cash flow pointing to an instability of some kind? A sound bookkeeping system is the foundation for gathering the information necessary to answer these questions.

Bookkeeping involves keeping track of a business's financial transactions and making entries to specific accounts using the debit and credit system. Each entry represents a different business transaction. Every accounting system has a chart of accounts that lists actual accounts as well as account categories. There is usually at least one account for every item on a company's balance sheet and income statement. In theory, there is no limit to the number of accounts that can be created, although the total number of accounts is usually determined by management's need for information.

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The process of bookkeeping involves four basic steps: 1) analyzing financial transactions and assigning them to specific accounts; 2) writing original journal entries that credit and debit the appropriate accounts; 3) posting entries to ledger accounts; and 4) adjusting entries at the end of each accounting period. Bookkeeping is based on two basic principles. One is that every debit must have an equal credit. The second, that all accounts must balance, follows from the first.

A chronological record of all transactions is kept in a journal used to track all bookkeeping entries. Journal entries are typically made into a computer from paper documents that contain information about the transaction to be recorded. Journal entries can be made from invoices, purchase orders, sales receipts, and similar documents, which are usually kept on file for a specified length of time. For example, the journal entry for a transaction involving a cash payment for a new stapler might debit the cash account by the amount paid and credit the office supplies account for the value of the stapler.

Journal entries assign each transaction to a specific account and record changes in those accounts using debits and credits. Information contained in the journal entries is then posted to ledger accounts. A ledger is a collection of related accounts and may be called an Accounts Payable Ledger, Accounts Receivable Ledger, or a General Ledger, for example. Posting is the process by which account balances in the appropriate ledger are changed. While account balances may be recorded and computed periodically, the only time account balances are changed in the ledger is when a journal entry indicates such a change is necessary. Information that appears chronologically in the journal becomes reclassified and summarized in the ledger on an account-by-account basis.

Bookkeepers may take trial balances occasionally to ensure that the journal entries have been posted accurately to every account. A trial balance simply means that totals are taken of all of the debit balances and credit balances in the ledger accounts. The debit and credit balances should match; if they do not, then one or more errors have been made and must be found.

Reconciling bank statements on a monthly basis, of crucial importance in the management of cash flow, is another important task for the bookkeeper. Other aspects of bookkeeping include making adjusting entries that modify account balances so that they more accurately reflect the actual situation at the end of an accounting period. Adjusting entries usually involves unrecorded costs and revenues associated with continuous transactions, or costs and revenues that must be apportioned among two or more accounting periods.

Another bookkeeping procedure involves closing accounts. Most companies have temporary revenue and expense accounts that are used to provide information for the company's income statement. These accounts are periodically closed to owners' equity to determine the profit or loss associated with all revenue and expense transactions. An account called Income Summary (or Profit and Loss) is created to show the net income or loss for a particular accounting period. Closing entries means reducing the balance of the temporary accounts to zero, while debiting or crediting the income summary account.

Good bookkeeping is an essential part of good business management. Bookkeeping enables the small business owner to support expenditures made for the business in order to claim all available tax credits and deductions. It also provides detailed, accurate, and timely records that can prove invaluable to management decision-making, or in the event of an audit.

This News is reprinted from site http://www.encyclopedia.com/topic/bookkeeping.aspx

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Supermarkets' brave new world

Derided as a haven for duopolies, Australia is in fact the scene of a price war in the crucial $88 billion food and grocery industry.

"There is now a more competitive environment for supermarkets than I've seen since my years in the regulatory environment,"  says Graeme Samuel, who chaired the Australian Competition and Consumer Commission for eight years to 2011.

The nation's No. 1 retailer Woolworths has been cutting prices for years as it seeks to ward off the resurgent supermarket chain Coles. Both giants reported price deflation at their most recent half-year resultsin February.

People really took notice though when Woolworths recently slashed its full-year profit growth guidance to as low as 1.8 per cent.

It did so in favour of investing at least half a billion dollars on improving its supermarkets. The move came with a declaration it "won't be beaten on price".  

Even after years of price crunching this is a seismic moment.

Investment bank UBS analysts responded that the Australian food and liquor market was "entering a period of structural change".

Some note there is room to move – Woolworths is among the highest-margin publicly listed supermarkets worldwide.

Deutsche Bank predicts the "relatively favourable dynamics" in food and liquor – from a supermarket's point of view – might be coming to an end.

Coles and German discounter Aldi will likely retaliate as Woolworths cut its prices, it says in a note to clients.

That could lead to a period of sharp deflation, low sales growth and declining profitability for the industry.

Samuel says the bullets have already been flying for some time in a price war over certain products.

"In the areas of bread, milk, some of the staple products, the price war started with the Coles [advertising] campaign of 'Down Down'," he said.

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Coles' decision to slash unbranded milk prices to $1 a litre in early 2011 led to Woolworths, Aldi and the discount supermarket Franklins – now owned by Metcash – heavily discounting their home-brand milk and other dairy products.

Samuel himself was involved in the Australian Competition and Consumer Commission's 2008 inquiry into grocery prices, which found the market was "workably competitive" but not as competitive as it could be.

The report said this was due to struggles at Coles, constraints on the expansion of the then new player Aldi, and a lack of price competition from IGA supermarkets, which are supplied by the wholesaler Metcash.

Six years later, Samuel says competition is healthier.

For a start Coles has got its mojo back, so much so that Woolworths has been lashed for increasing margins over the past few years and pouring money into its struggling hardware chain Masters rather than squeezing Coles when it was vulnerable.

Metcash says it is "making a significant investment to match competitors' prices on thousands of everyday products".

Samuel said to his knowledge IGA stores were still not price competitive but do offer competition in the form of convenience.

At last count, Aldi has 366 stores and says it could reach 15 per cent market share nationwide as it opens in Western Australia and South Australia and adds 20 stores a year in eastern Australia.

And then there is the new entrant in the market – membership-only warehouse company Costco. Its US parent has invested almost half a billion dollars into the local operations, and racking up accumulated losses of more than $44.5 million since the first store opened in 2009.

On Citigroup's analysis, Coles and Woolworths have lost market share recently, with Aldi and Costco's market-share gains "accelerating". Macquarie said Aldi "remains a headwind to Coles and Woolworths, gradually taking share".

Costco Wholesale Australia's last accounts show total revenue surged in 2014 to $878.5 million, but it swung to a loss because of the costs of opening three new warehouses and accounting changes.

Costco Australia managing director Patrick Noone tells Fairfax Media that Australia has "been competitive ever since we opened but we haven't seen anything extraordinary yet on grocery prices".

"I'm sure that now that sales are down, retailers will be out there trying get more sales, and more sales often means that you get better prices to the consumer," he says.

Noone said Australians paid more for imported items due to overheads such as GST, foreign exchange, duties and logistics, but Costco was bringing products to the market as efficiently as possible and was "certainly within its worldwide criteria for margins".

Noone says some products were becoming more expensive even as others were falling in price.

"Petrol certainly is deflationary right now ... [and] if you look at the beef sector, that's been inflationary because of the worldwide demand for more beef and protein products," he says.

And Samuel says it is complex comparing Australian grocery prices with prices charged overseas.

"People look at a tin of coffee and say, 'Is this more expensive or cheaper than the US or wherever it might be?' " he says.

"And I think that's when you've got to start applying the Big Mac Index [which seeks to measure the relative value of currencies]."

It's politic in many ways for Woolworths and Coles to talk up competition in the grocery industry given the power the duopoly has wielded for so  long.

If Aldi, Costco or others gain critical mass there could be more price cutting, earnings and share-price falls for the incumbents. That is certainly the experience overseas.

It could be a brave new world for the big chains.

Read more: http://www.smh.com.au/business/retail/supermarkets-brave-new-world-20150306-13u48v.html#ixzz3TgTzjIph

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Australian Dollar Dips In Anticipation Of RBA Rate Call

The Australian dollar was trading in a holding pattern on Monday afternoon ahead of Tuesday’s interest rate decision by the Reserve Bank of Australia, with odds jumping in favour of a cut.

Better-than-expected Chinese manufacturing PMI data pushed the Australian dollar up to US78.3¢ at the start of trade, but that soon dropped. The dollar was trading around US77.65¢ in late afternoon trade.

“It’s down a bit today, it’s down about half a cent,” said Commonwealth Bank of Australia currency strategist Joseph Capurso.

“We initially got a bump up with the Chinese PMI data, but that was largely ignored and now people are positioning ahead of the Reserve Bank’s decision.”

If the cash rate was cut the dollar would fall about half a cent, he said. If they stayed the same, they would rise half a cent.

“We think they will cut,” he said. “But even if they don’t cut on Tuesday, we think they’ll cut again in the next few months.”

Mr Capurso said odds had recently lifted from 39 per cent to 56 per cent that the bank would cut rates.

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“I think part of it is commodity prices, which are still pretty soft,” said Mr Capurso. “The going-ons in Europe are still not resolved; China’s economy is still softening; and Australian economic data here is OK but still not good. The capital expenditure data we got last week was pretty hopeless and that’s what’s got people thinking they’ll have to cut again, if not on Tuesday then soon enough.”

OzForex Foreign Exchange dealer Michael Judge said the dollar could go above US79¢ on Tuesday should the Reserve Bank cut the cash rate, which is currently at 2.25 per cent.

“While we are favouring a hold result over a cut, we acknowledge a follow up cut may remain just around the corner,” he said.

“The Reserve Bank last month did not signal a quick follow up cut, while previously it has been keen to cut rates in quick succession,” he said. “It must be remembered that rates pre-February were already at record lows with the most recent adjustment coming off the back of a downgrade to its economic outlook.”

If rates were cut, he said, the Aussie would be within range of an eight-year low of US76.2¢.

Capital Economics economist Paul Dales said a rate cut was quite likely. Gross domestic product growth in Australia in 2015 would slow to just 1.8 per cent, he said.

“We believe this will prompt the Reserve Bank to reduce interest rates by more than is widely expected. By the end of the year, we expect that the Reserve Bank will have cut interest rates to 1.5 per cent.”

This news story is reprinted from www.smh.com.au

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Tax Office Knew About Australians Channelling Money Into Swiss Accounts

The Tax Office has revealed it has investigated hundreds of Australians with Swiss bank accounts as a massive international data leak named prominent Australians, including late media baron Kerry Packer, model Elle Macpherson and former ANZ chairman Charles Goode, as having held accounts in the famous haven.

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An International Consortium of Investigative Journalists investigation found that the Swiss arm of HSBC had almost 500 clients linked to Australia, with 856 accounts, and total combined holdings of about $US959.2 million ($1.24 billion).

The Tax Office told Fairfax Media on Monday it was already aware of the ICIJ data and had initiated reviews and audits after an infomer in 2010 handed the agency a list of hundreds of Australians with Swiss bank accounts.

“The ATO received a disk from a tax treaty partner containing data on 261 HSBC Swiss bank accounts held by Australian taxpayers. We believe this to be the same data received by the ICIJ and reported today,” a Tax Office spokesman said.

“The reporting by the ICIJ of the HSBC Swiss data highlights that no taxpayer is safe from being uncovered.”

It said in some cases, it was found that taxpayers had correctly reported their accounts to the ATO. In others there were “a number where there were discrepancies” that resulted in reviews and audits.

The Tax Office said to date these audits had resulted in more than $30 million being recovered.

On top of that the Tax Office last year ran an amnesty for wealthy Australians with hidden income and assets in Swiss accounts and tax havens to come forward. The amnesty ended in December and led to 1750 Australians declaring a total of $240 million in income and $1.7 billion in assets. Another 800 expected were expected make voluntary disclosures.

This news story is reprinted from www.smh.com.au

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‘Why I walked away from $250,000’: Travis Osborne on the Shark Tank deal that fell through

Mobile Tyre Shop founder Travis Osborne on Sunday night’s Shark Tank. Source: Supplied

VIEWERS of Network Ten’s Shark Tank on Sunday night watched Travis Osborne walk away with a $250,000 investment for his mobile tyre-changing business. But that all happened months ago. Here’s why the deal fell through after the cameras stopped rolling.

If you were following the media in the lead-up to the last episode, you would have been told to watch out for the amazing shark-repellent surfboard, or the 14-year-old tech whiz set to be the next Steve Jobs.

You wouldn’t have heard a peep about Mr Osborne’s Mobile Tyre Shop (MTS), a business idea so obvious most people would be surprised to hear it’s the only one of its kind currently in Australia.

The reason? After the show was filmed in December, the $250,000 offer from Sharks Steve Baxter and John McGrath quietly fell through. And with no deal to talk up, Ten didn’t want Mr Osborne put forward for interviews.

The parties differ on the actual reason.

According to Ten, the offer was dropped because MTS didn’t come through with its required due diligence in time. Mr McGrath, founder of McGrath Estate Agents, said “for a variety of reasons”, MTS did not pass due diligence.

According to Mr Osborne, however, it’s simple: he got a better offer. Mr Osborne, a former business development manager with Gloria Jean’s, said the proposal on the show “brought to a head” other discussions, with another investor coming forward to more than quadruple the $250,000.

Steve Baxter and fellow Shark John McGrath went in for $250,000. Source: Supplied

Mr Osborne can’t disclose who the investor is or the precise amount as the paperwork is still being finalised, but he is confident the seven-figure funding deal will go through. “I haven’t walked away from $250,000 for nothing,” he said.

“We went in with the best intentions to do a deal, but at the same time we’re a business that’s been growing very quickly and have been looking for investment for some time. Everything came to a head a couple of days before Christmas, and all of a sudden we had a live offer on the table.”

Mr McGrath said in a statement: “We really liked Travis, his presentation and the sector he’s in. However as with every offer, the investment was dependent on due diligence following the show.

“Due diligence is a standard procedure when investing in any business to ensure there are no structural or legal issues. For a variety of reasons, MTS did not pass due diligence. We wish Travis the best of luck with his business.”

A Network Ten spokesperson said: “Deals in the program are solely between the Shark and the entrepreneur. Following the program, each Shark then carries out their own due diligence, as well as finalising any agreement that was reached with an entrepreneur during the program. If after this, no full agreement can be reached, then neither party is legally obliged to complete the deal.”

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A Shark Tank junkie, Mr Osborne said he’s been watching the US version of the show on YouTube for years. His biggest piece of advice? Know your numbers. “These Sharks are very smart people. They know the questions to ask to drill down pretty quickly to find out whether you know your stuff,” he said.

While the segment on the show lasts only a few minutes, contestants are actually grilled by the Sharks for over an hour. “It’s a three-minute pitch, but people don’t realise we were actually in front of the cameras for an hour and 20 minutes.”

The Sharks don’t know anything about the contestants before they walk in the door — but they make up their minds pretty quickly. “I was definitely nervous, not only because you’re up against $1 billion worth of value between those five, but there are a lot of people behind the scenes,” he said. “There seem to be people everywhere.”

The Australian tyre market is worth around $5 billion annually. Eighteen million tyres are sold each year, with the top five brands — Goodyear, Bridgestone, Tyrepower, Bob Jane and Kmart — controlling 49 per cent of the market.

For time-poor consumers, taking half a day off work to get the car’s tyres changed is a tyre-some chore. Mr Osborne explains how the idea first came to him. “I was working six days a week, I had a young family,” he said.

“The car needed tyres, but price wasn’t the issue — it was the time, having to go down to the store with two young children. I assumed there was a business like that in Melbourne, but when I Googled it, European businesses started popping up.”

In Europe, as he discovered, 8 per cent of all tyres are sold online; in the US, $2 billion worth of tyres were sold online last year. A German company which MTS is closely modelled after, DeltaCom, did 500 million euro in turnover last year.

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Mr Osborne, who had no automotive experience, immediately realised the untapped opportunity in Australia. The MTS model strips out all the major costs associated with the big retailers, with the higher labour costs offset by the lower fixed overheads.

He says currently MTS offers the same price as the majors, with the aim to be able to undercut on price once the business begins to scale nationally.

“Unlike a traditional store that can only afford to hold stock for two or three major brands, we work as a broker,” he said. “The customer makes their order and we get the best deal. We get two deliveries a day from the major companies, so if you order today, we can fit them tomorrow.”

The past two years have been spent forging relationships with the manufacturers and refining the business model. MTS has just two vans and five employees at the moment, but Mr Osborne dreams of 4 per cent market share.

“There are 2200 places in Australia you can buy your tyres. You only need a couple of percentage points in market share because it is so significant. There’s no reason why this couldn’t be a $200 million business.”

The business will work on a franchise model. Franchisees will be able to lease the vans from MTS, which will also operate a central warehouse in each major city where the tyres are collected.

“Essentially that’s the model,” Mr Osborne said. “We drop off the tyres in the morning and the drivers have their iPad telling them the jobs for the day. We’ve benchmarked this business against a number of other mobile van-based businesses, and because our average sale is quite high there’s good margin to be made.”

frank.chung@news.com.au

This news is reprinted from site http://www.news.com.au/finance/work/why-i-walked-away-from-250000-travis-osborne-on-the-shark-tank-deal-that-fell-through/story-fnkgbb3b-1227237656732

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Share Market Ends The Day Lower With Investors Unimpressed By Profit Results

The Australian share market has ended the day lower, with investors unimpressed by the raft of profit results being released.

There was also a cautious mood globally after talks over Greece’s debt crisis broke down.

The All Ordinaries fell 27 points to 5,822 and the ASX 200 was down 30 points at 5,858.

The banking sector ended lower, pushed down by ANZ. Its shares slid 2.5 per cent on shrinking first-quarter margins and flat trading income.

Commonwealth Bank was down almost 4 per cent as it went ex-dividend, but the other two big banks were up a touch.

The big miners also weighed on the market.

Fortescue Metals’ shares slumped almost 5 per cent as it reported an 81 per cent drop in first half profit.

BHP Billiton and Rio Tinto also fell a fraction.

Investors shrugged off a narrow interim loss at Pacific Brands, the company behind Bonds underwear. Its shares rose more than 2 per cent.

Packaging giant Amcor was up 2.5 per cent on a rise in first half profit.

Investors welcomed Coca-Cola Amatil’s massive jump in profit – pushing its shares up 6.3 per cent.

Online job ads business Seek fell almost 9 per cent as its increase in interim profits missed analysts’ expectations.

Shares in the freight logistics company Asciano fell 1.5 per cent after it posted a slight rise in first half profit.

Sonic Healthcare lifted its interim dividend despite suffering a fall in first half profit, but its shares fell a fraction.

At 5:00pm (AEDT) the Australian dollar was buying 77.94 US cents, 68.6 Euro cents, 50.67 British pence, 92.35 Japanese yen, and $1.04 New Zealand.

West Texas intermediate crude oil was selling at $US52.61 a barrel, Tapis crude oil in Singapore was worth $US64.85 a barrel and spot gold was trading at $US1,228 an ounce.

This news story is reprinted from www.abc.net.au

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Australia’s Reform Agenda Is Now A Car Wreck

As the haze lifts (in the short term at least) on Canberra’s leadership ructions, we can see the extent of the car wreck that is Australia’s economic reform agenda.

“Political uncertainty hits business”, screams one headline.

“Wrong turn on budget repair”, says another.

They’re right.

The reality confronting even the most optimistic reform advocate is that little of reform substance will now emerge from the current government, and probably the next.

This at a time when the tide continues to go out on the mining boom, the jobless rate hits 13-year highs, and reform of our economy is becoming increasingly urgent.

A year or so ago all seemed possible.

The corporate sector lobby had done a lot of ear-bending in Canberra to shape much of the tone and substance for a “big-bang” approach to economic reform.

So it was delighted to see tax reform, workplace relations, federal-state relations, budget repair and infrastructure all on the table – at the head of which was a new “business-friendly” government with a big stock of political capital and an apparently big reform appetite to match.

One terribly-conceived federal budget later – compounded by repeated missteps and gaffes by the prime minister and his senior team – and all this has given way to plummeting opinion polls and a backbench revolt.

When political leadership is under such potentially terminal pressure, the animal ‘ism’s of politics take over.

This news story is reprinted from www.businessspectator.com.au

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