ACCT1101 Lecture Notes - Lecture 1: Financial Plan, Financial Statement, Environmental Resource Management
Lecture 1 - Intro and CVP
Friday, 23 February 2018
12:00 PM
<<ACCT1101 Lecture 1.pdf>>
• Accounting is the language of business, it is useful for planning and control
• Private enterprise
o Service businesses
o Merchandising businesses
o Manufacturing businesses
• Common business forms
o Sole proprietor (one person owns the business)
o Partnership (two or more people with different skills come together to formulate a
business)
o Company/corporation
• Choice of legal business form is an important decision because it determines:
o Business owners' personal obligation for the debts of the business
o Taxation
o Legal/regulatory requirements including financial reporting requirements
• Users inside the business (managers, supervisors, work groups etc.) rely on management
accounting information to support planning, operating and evaluating activities
o Budgets, cost analysis, cost reports for products and services, periodic actual financial
results for business sub-units, one-off reports or analysis to support non-routine
business decisions
• Users external to the business (shareholders, potential investors, bankers, analysts) rely on
financial accounting information to decide whether to engage in some activity with the
business
o Form and content determined by Generally Accepted Accounting Principles (GAAP),
periodic reporting
• Planning is the process of thinking about and organising the activities required to achieve a
desired goal
• Many businesses prepare a business plan which sets out the business' goals and its current
plans for achieving those goals
• A business plan typically includes:
o Description of the business
o Marketing plan
o Operating plan
o Environmental management plan
o Financial plan
o Executive summary
• Projected Financial Performance: CVP
o CVP analysis (cost-volume-profit) shows how profit will be affected by different sales
volumes, selling price and costs
o It considers cost behaviour over a range of activity, usually volume
o Fixed costs
• Constant in total for a specific time period and are not affected by difference in
volume over that time period e.g rent, advertising, admin costs
• Over the relevant range and time period, total fixed costs will remain constant but
unit fixed costs will decrease as volume increases
o Variable costs
• Variable costs change in total for a specific time period in direct proportion to
changes in volume over that time period
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