ACCT10001 Lecture Notes - Lecture 1: International Financial Reporting Standards, Cash Flow Statement, Jb Hi-Fi
12 May 2018
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Accounting Week 1
1.1 IDENTIFYING BUSINESS TRANSACTIONS
Accounting: The process of identifying, measuring and communicating economic
information about an entity to a variety of users for decision-making purposes.
Business Transactions: Occurrences that affect the assets, liabilities and equity items in an
entity and must be recognised (recorded).
MEASURING INFORMATION
• identifies how transactions will affect the entity position, and groups together similar
items such as expenses and income
COMMUNICATING
• accounting information is communicated through various reports such as statements of
profit or loss, balance sheets and statements of cash flows
DECISION MAKING
• accounting information is used for a range of decisions by external and internal users
Components of Accounting:
1. Identifying Business Transactions
2. Measuring Information: the analysis, recording and classifying of business transactions
3. Communication of Relevant Information through Accounting Reports
4. Decision Making
1.2 ACCOUNTING INFORMATION AND ITS ROLE IN DECISION MAKING
Internal Users: Owner(s) or managers of the entity who use the information to assist in
various aspects of business decision making.
• accounting info is meant to meed needs of internal & external users
• useful to a etits oe/aageet iteal uses) and help achieve:
o making decisions of operations of business entity
o evaluate success of business in achieving goals (comparing performance of
business entity against budgets)
o weigh alternatives when investing resources
External Users (stakeholders): Parties outside the entity who use information to make
decisions about the entity.
• Current stakeholders will seek accounting info to evaluate how effectively management
has invested assets and whether it has made appropriate business decisions on behalf of
investors, known as stewardship function of management
• Prospective investors will seek info to determine if an entity is a good investment using
current financial performance and future growth prospects
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• “upplies ad aks gauge etits ailit to epa det ad leel of isk i ledig fuds
using cash flow statement and balance sheet
• Employees concerned about the future prospects of the entity
• Government authorities such as the ATO will be interested in reported profit for year
and associated GST to calculate tax payable/refunded in financial year, ASIC will seek to
identify whether business has complied with Corporations Act 2001
1.3 FINANCIAL ACCOUNTING AND MANAGEMENT ACCOUNTING
Financial Accounting: Preparation and presentation of financial information for users to
enable them to make economic decisions regarding the entity.
• General purpose financial statements (reports) are prepared to meet the
information needs common to users who are unable to command reports to suit
their own needs, while special purpose financial statements (reports) are prepared
to suit a specific purpose and do not cater for the generalised needs common to
most users
• This information is governed by Generally Accepted Accounting Principles (GAAP)
• Financial accounting is also guided by rules in Corporations Act and Listing Rules of
Australian Securities Exchange (ASX)
• Traditionally based on historical figures
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Financial Statements: A set of statements directed towards the common information needs
of a wide range of users.
Statement of Cash Flows: “tateet that epots o a etits ash iflos ad ash
outflows for a specified period.
Statement of Profit or Loss: Statement that reports on the income and expenses of an
entity for a period, and the resulting profit or loss.
Statement of Financial Position/Balance Sheet: Statement that reports on the assets,
liabilities and equity of an entity at a particular point in time.
Management Accounting: Field of accounting that provides economic information for use
by management in internal planning and decision making. Core activities:
• Formulating plans and budgets
• Providing information for monitoring and control of entity
• Management accounting reports are bound by few rules and are therefore less
formal
• Tailored to suit needs of management ∴ provide any level of detail
• Must be up to date and can prepared at any time for any period
There will be an interaction between financial and management accounting because
management accounting will provide economic information for internal users that is then
reflected in financial accounting statements for external users
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Document Summary
Accounting: the process of identifying, measuring and communicating economic information about an entity to a variety of users for decision-making purposes. Business transactions: occurrences that affect the assets, liabilities and equity items in an entity and must be recognised (recorded). Measuring information identifies how transactions will affect the entity position, and groups together similar items such as expenses and income. Communicating: accounting information is communicated through various reports such as statements of profit or loss, balance sheets and statements of cash flows. Decision making: accounting information is used for a range of decisions by external and internal users. Components of accounting: identifying business transactions, measuring information: the analysis, recording and classifying of business transactions, communication of relevant information through accounting reports, decision making. 1. 2 accounting information and its role in decision making. Australian securities exchange (asx: traditionally based on historical figures. Financial statements: a set of statements directed towards the common information needs of a wide range of users.
