BUSS1030:Accounting

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BUSS1030:Accounting

Quickdefinition• Accountingequations:thebasictoolofaccounting,statedasAssets=

Liabilities+Equity• Assets:Aneconomicresourcethatisexpectedtobeofbenefitinthefuture• Liability:Aneconomicobligation(debt)payabletoanindividualoran

organisationoutsidethebusiness• Balancesheet:Reportofanentity’sassets,liabilities,andequityasofa

specificdate• Expenses:Decreaseinequitythatoccursfromusingassetorincreasing

liabilitiesinthecourseofdeliveringgoodsorservicestocustomer• Incomestatement:Reportofanentity’srevenues,expensesandprofit/loss

fortheperiod• Netprofit:Excesstotalrevenueovertotalexpenses• Netloss:Excesstotalexpensesoverrevenue• Revenue:Amountearnedbydeliveringgoodsandservicestocustomer• Cashflowstatement:Reportofcashreceiptsandcashpaymentduringa

period• Statementofchangesinequity:reportthatshowschangesincapitalfora

periodoftime

LECT1:IntroductiontoAccountingTextbook:Chapter1pg1-20CH1LO1:Definethemaintypesofaccounting• Accounting:informationsystemthatcommunicatesfinancialinformation• 2typesofaccounting;

Financialaccounting

Forexternaldecisionmakers(i.e.shareholders)

Managerialaccounting

Forinternaldecisionmakers(i.e.managers)

BUSS1030:Accounting

CH1L02:Describehowdecisionmakersuseaccountinginformation• Provideusefulinformationformakinginvestmentandlendingdecisions

(basedonthefinancialreport)o i.e.Investors–reviewfinancialstatementstoanalysehowtheir

investmentisperformingo i.e.taxauthorities–businessdeterminetheirgoodsandservicestax

fromaccountingrecordsCH1L03:Describeprofessionalcareeropportunitiesinaccounting• Tobecomeaprofessionallyqualifiedaccount;

o BecomemembersoftheInstituteofCharteredAccountantinAustralia(ICAA),CPAAustralia(CPAA)ortheInstituteofPublicAccountant(IPA)

• TheCharteredInstituteofManagementAccountant(CIMA):professionalorganisationofmanagerialaccountants

o Qualificationsawardedbythesebodiesareinternationallyrecognised• Twomaintypeofwork:

o Workforasinglebusinessi.e.afirmoragovernmentbody[theirworkinvolvepreparingfinancialstatementsforthebusiness,budget,taxreturnsetc..’

o Workinapublicpractise[workincludeauditing,incometaxplanningetc…]

• Accountingservices;o Audit:independentexaminationthatassuresthereliabilityof

accountingreportsthatmanagementprepareso Taxaccounting:complyingwithtaxlawsandminimisingtaxtobe

paido Managementconsulting:advicepublicaccountantprovidetohelp

managersrunabusinesso Insolvency:toensurethatbusinessesthatareinfinancialdistressis

properlyrestructuredorthattheproceedsfromthesaleofthefirmsaredistributedtothefirms’creditorsappropriately

BUSS1030:Accounting

CH1L04:DescribehowaccountingisregulatedinAustralia• AccountingstandardsareformulatedbytheAustralianAccounting

StandardsBoard(AASB)o TheAASBisoverseenbytheFinancialReportingCouncil(FRC)o Relevance=informationmusthavepredictiveorconfirmatoryvalueo Faithfulrepresentation/reliability=freefromerror

• InternationalharmonisationCH1L05:Explaintheroleofethicsandsustainabilityinaccounting• Ethics:standardofmoralbehaviourexpectedofaccountantsi.e.Codesof

Professionalconduct• ICAAandCPAA’sJointCodeofProfessionalConduct

o Integrity(tobehonest,fairandsincere)o Objectivity(toavoidconflictsofselfinterestandbias)o Professionalcompetenceandduecareo Confidentialityo Professionalbehaviour(compliancewiththelaw)

• Sustainability:o Writsmallsustainability:whetherbusinesscancontinuetobe

profitableinthefutureaswellasinthepresento Writlargesustainability:thesocietyandenvironmentwealllivein

(meetstheneedsofthepresentwithoutcompromisingtheabilityoffuturegenerationstomeettheirownneeds)

CH1L06:Identifythethreemaintypesofbusinessorganisations Advantages DisadvantagesSoleproprietors(single

Ø Totalundividedauthority

Ø Norestrictionon

Ø UnlimitedliabilityØ Limitationonsize–

fundraisingpower

BUSS1030:Accounting

**Sampleofpages21-23LECT7:StatementofFinancialperformanceCH7L01:Purposeofastatementoffinancialperformance• Purpose:tomeasureandreporthowmuchprofit(wealth)thebusinesshas

generatedoveraperiod• Profit(orloss):thedifferencebetweentheincreaseinowners’equity

(capital),knownasincomeorothergains,andthedecreasesinowners’equityknownasexpenseso Income:measureofthetotalinflowofasset(i.e.cashoramounts

ownedtoabusinessbyaccountsreceivable)orthereductioninliabilitiesthatarisefromoperating,tradeingorotheractivities.Itismadeupmadeupof;

§ Revenue(fromoperatingactivities)§ Gains(usuallyfromnon-operatingactivities,eggainonsaleof

non-currentassets)o Revenues:grossinflowsoffutureeconomicbenefitsgainedbythe

differentcategoriesofoperatingactivities(e.g.cashfromsales).o Expensesareoutflowsofassets(orincreaseinliabilities)incurredin

theprocessofcarryingonabusinessbygeneratingincome

CH7L02:Relationshipbetweenthestatementsoffinancialperformanceandposition• Thestatementoffinancialperformancecanbeviewedaslinkingthe

statementoffinancialpositionatthestartofaperiodwiththatattheendoftheperiodo Statementoffinancialposition(balancesheet):reportatasinglepointin

timeandiseffectivelya‘snapshot’ofthestockofwealthheldbythebusiness

o Statementoffinancialperformanceandloss(incomestatement):concernedwiththegenerationofwealthoveraperiodoftime

• Theaccountingequationcanthusbeextendedas:o Assetsend=Liabilitiesend+OEbeg+Profit(or-Loss)+Contributions

–DrawingsorDividendsCH7L03:Formatofastatementoffinancialperformance• Forexternalreporting,thereportingcycleisnormallyoneyear• Forinternalfunctions,itiscommonforprofitfigurestobepreparedona

monthlybasis• Format#1:Simplelistingofaccounts(smallorganisation)orforinternal

purposesforotherorganisationo Listingofincomeandexpensesinalphabeticalorfinancialmagnitude

order

Profit/(loss)fortheperiod=totalincome–totalexpenses

BUSS1030:Accounting

• *Format#2:Classifiedreport(largerorganisations)orforinternalpurposes

o Incomeandexpensesaregroupedintomeaningfulcategoriestoprovidemorerelevantinformation

o Income:(revenueinparticular)isbrokendowntoreflectthenatureofthebusinessandtherelativesignificanceofeachitem)§ sales(cash,credit)§ ‘otherrevenues’(i.e.interestrevenue,commission,rent,

dividends)o Expenses(4categories)

§ Costofsales§ Sellinganddistribution§ Administrationandgeneral§ Financial

CompanyIncomestatementfortheyearendedDMY

$ $Sales xLesscostofsales xGrossprofit xOtherrevenue Interestfrominvestments x Rentfromproperties x X XLessexpenses Sellinganddistribution

BUSS1030:Accounting

Advertising x Commission x Delivery x Display x Salaryandwages(i.e.salesstaff) x XAdministrationandgeneral Salesandwages(i.e.adminstaff) x Rates x Telephoneandpostage x Insurance x Repairsandmaintenance x Depreciationofbuildings x XFinancial Interest x Baddebts x XTotalexpenses XNetprofit X• Format#3:Regulatorypresentation(companies)

o AASB101‘PresentationofFinancialStatements’requiresthattheincomestatementshouldclassifyexpensesaccordingtotheirnatureorfunction(seeparagraph82foralistofrequirements)§ Revenue§ Financecosts§ Shareofprofitsorlossesofassociates/jointventures§ Tax§ Discontinuedoperations

CH7L04/5:Definition,recognition,classificationandmeasurementofincomeandexpenses• Itispossibletorecogniseincomeatdifferentpointsintheproduction/selling

cycleattheparticularpoint• Profitmeasurementandrecognitionofexpenses