YEAR 11 ACCOUNTING

CLASSIFICATION OF ACCOUNTS

REASON OF CLASSIFICATION

Each accounting element is further classified into different categories. The reason of classification is to:

Give more detailed information in the financial statements

ASSETS

Assets are further classified into:

CURRENT ASSETS

NON CURRENT ASSETS, which are further classified into:

Property, Plant and Equipment

Intangible Assets

Investments

ASSETS

Current Assets Non Current Assets

Property, Plantand

EquipmentInvestments

IntangibleAssets

CURRENT ASSETS

Current Assets are assets that: Is Cash OR Can or expected to be turned into cash in the

next 12 months (For Example: Accounts Receivable) OR

Will be or expected to be used up in the next 12 months (For example: Stationary on Hand).

NON CURRENT ASSETS

Non Current Assets are assets other than Current Assets.

That means the assets will be retained in the business for more than 12 months

Property, Plant and Equipment

Property, Plant and Equipment are tangible assets which will be retained in the business for

Property, Plant and Equipment are used:To Produce goods and services (such as Machinery)For business’s administration purpose (such as Office Equipment)For Rental to others (like Property to Rent)

more than 12 months.

Investments

Investments are investments with using business’s surplus cash. These kinds of investments are usually due:

Within 12 months

After 12 months

Intangible Assets

Intangible Assets are assets which are UNTOUCHABLE but brings in future economic benefit.

For example:

Goodwill (Business’s reputation) brings in future economic benefit of extra income due to good business’s reputation.

Examples

Inventory

Cash at Bank

Term Deposit (due June 2006)

Shares in AIA Ltd(expected to be sold in 2010)

Current Assets

Current Assets

Current Assets

Investments

Petty Cash

Goodwill

Delivery Vehicle

Furniture and Fittings

Computers

Trademark

Current Assets

Intangible Assets

Property, Plant and Equipment

Property, Plant and Equipment

Property, Plant and Equipment

Intangible Assets

LIABILITIES

Liabilities are further classified into: Current Liabilities Non Current Liabilities

Current Liabilities

Guess what do we mean by Current Liabilities

Current Liabilities are liabilities that are settled or expected to be settled in the next 12 months.

Non Current Liabilities

Non-current liability means….

Any liability that is settled or expected to be settled after 12 months.

LIABILITIES

Current LiabilitiesNon Current

Liabilities

Examples

Accounts Payable

Bank Overdraft

Loan (due Jan 2007)

Mortgage (due Jan 2017)

GST Payable

Current Liabilities

Current Liabilities

Current Liabilities

Non Current Liabilities

Current Liabilities

Hire Purchase (due Dec 2006)

Loan (due Dec 2011)

EXAMPLES (cont’d)

Current Liabilities

Non-Current Liabilities

INCOME

Income are classified into the following:

Revenue Other Income

Revenue

Main source of income for businesses

Trading Entity(like Dairy Store)

Service Entity(like Health clinic)

Sales

Fees Received

Other Income

Incomes other than Revenue. Examples could be:

Interest ReceivedGain on SaleCommission ReceivedDividends ReceivedRent Received

INCOME

Revenue Other Income

EXPENSES

Expenses are further classified into different categories according to their function.

Expenses are further classified into:Distribution ExpensesAdministration ExpensesFinancial Costs

Distribution Expenses

Distribution expenses are costs incurred in transferring ownership of finished goods to the consumer.

Those expenses incurred through the promotion, storage, selling and delivery of the inventory for sale.

Distribution Expenses Example

Give us examples of distribution expenses in a florist shop (Refer back to the features of Distribution Expenses)

Administration Expenses

Administrative expenses are costs associated with the administration of the entity as a whole.

Examples

Give us examples of administration expenses in a florist shop. (Remember, Administration Expenses relates to the administration side of the entity)

Financial Costs

Finance costs arise from an entity financing its operations from external sources. (i.e. costs relate to funding from outsiders)

Finance Costs are limited to different types of interest paid.

EXPENSES

DistributionExpenses

AdministrationExpenses

FinancialCosts

Examples

Advertising

Wages (Office workers)

Interest on Loan

Rent (Shop)

Wages (Shop Assistants)

Distribution ExpensesAdmin. Expenses

Financial Costs

Distribution ExpensesDistribution Expenses

Examples cont’dInterest on Hire Purchase

Delivery Truck Expenses

Maintenance to Office Equipment

Loss on Sale on Shop Equipment

Stationery

Commission Paid

Distribution Expenses

Financial Costs

Admin Expenses

Distribution Expenses

Admin Expenses

Distribution Expenses