ACCG100 Lecture Notes - Lecture 1: Accounting Equation, Bermagui, New South Wales, Settlor

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taupemole7

11 May 2018

School

Macquarie University

Department

Accounting and Corporate Governance

Course

ACCG100

Professor

Colly He

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Introduction to Accounting

Accounting, Accountability, and Society

Aoutig a e referred to as the laguage of usiess' as it is a eas of oo

communication where information flows from one party to others. The primary function of

accounting is to provide reliable and relevant financial information for decision making. Accountants

work in businesses as part of management teams who analyse the information gathered to make

decisions. They can work in 2 different accounting fields:

MANAGEMENT ACCOUNTING - the provision of

accounting information for decision making

within the business entity. They prepare

specifically tailored reports for management use

FINANCIAL ACCOUNTING – oversight of

transaction recording, and preparation and

presentation of financial reports for external

users (shareholders and creditors)

• Internal Focus

• External Focus

- Planning

• Reporting Information

- Controlling

- Performance

- Decision-making

- Position

• Cost Behaviour/Break-even

• Financing and Investing

• Budgeting

• Legal compliance

• Strategy

• Highly Regulated

Both fields draw on the same information system used to record and summarise the financial

implications of transactions and events.

Aounting is the proess of identifying, measuring, recording and communicating economic

transations and events of a usiness operation

The stages of the accounting process/cycle are summarised below:

• Identifying - Taking into consideration all transactions which affect the business entity. This

involves determining which economic events represent transactions.

• Measuring – Quantifying in monetary terms.

• Recording - Analysing, recording, classifying and summarising the transactions. The

recording process results in a systematic record of all of the transactions of an entity and

provides a history of business activities. To enhance the usefulness of the recorded

information, it must be classified and summarised.

o Classification allows for the reduction of thousands of transactions into meaningful

groups and categories. E.g. all sales transactions can be grouped as one total sales

figure and all cash transactions can be grouped to keep track of the business's bank

balance.

o The process of summarisation allows the classified economic data to be presented in

financial reports for decision making by a variety of users. These reports summarise

business information for a specific period of time such as a year, 6 months, one

quarter or even a month.

• Communicating - Preparing the accounting reports for potential users of the information;

analysing and interpreting. Users of financial information, both internal and external to the

entity, will require financial information to make decisions in relation to the business. Once

the users have acquired the information they can use a variety of techniques to analyse and

interpret the data.

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o Other reasons for maintaining accurate financial accounting records include legal

and other reporting requirements created by the ATO and the New Zealand Inland

Revenue (NZIR), which require businesses to provide a variety of financial

information to comply with legal requirements.

The tasks of an accountant include:

• Determining whether businesses are profiting or making losses

• Effective resource management

• Making decisions on financing business (e.g. When you need to expand your operations,

where do you get money to finance the expansion — should you borrow, should you issue

shares, should you use your own funds?)

• Persuading creditors and investors

In other words, accountants provide an economic model of the business world and play a key role in

the provision of financial information for decisions made by people inside and outside a business. As

success in business requires countless decisions, and decisions require financial and other

information, accounting is necessary for making businesses grow, and become widely recognised.

e.g. The continued growth of Domino's in both the European and the Australian and New Zealand

markets required a variety of information including the past and current performance of the

Domino's operations.

Projections on future store sales growth, and potential market share growth from opening new

stores was also required to plan ahead and to help towards the achievement of targets.

The information provided by accounting on the ever changing business environment is critical to

understanding the context of your business. Driven by technology, life cycles of businesses are

shortening. New technologies, new processes, new products, faster information flows are driving

changes. Computers provide the technology to process the information so more time is devoted to

the analysis of the information to make the best-informed decision.

Accounting is a process constructed o the eed to e aoutale. Hee, usinesses also need to

provide information on the environment and the community within which the business operates.

Stakeholders include anyone who holds a stake in the business operations, this could include people

directly effected by the business and people who care about the business.

• Society

• Customers / Individuals

• Government

• Environment

• Suppliers / Creditors

• Business

• Employees

• Shareholders

*Some of the stakeholders are included because of the contemporary issues in accounting

• Economic/Financial

• Regulatory

• Social

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• Environmental

Accounting for Organisations

In selecting a suitable business structure, some of the factors to consider are:

• establishment fees and maintenance costs

• asset protection (business and personal assets)

• the type of business and how it impacts on your record keeping

• legitimate tax minimisation.

The type of accounting needed depends on the type of business organisation. In this unit, we will be

focusing mostly on sole traders.

Pros

Cons

Sole proprietorship / trader

(e.g. restaurants, dentists)

- Owned by one person

• Simplest form of business

structure

• Few legal formalities

• Quick and inexpensive to

establish, and inexpensive to

wind down.

• Business fully owned by you

and you have total autonomy

over strategic direction and all

business decisions.

• Assets and profits completely

belong to you.

• The business's income is

treated as the business

owner's individual income (no

separate legal existence). They

pay tax according to the

marginal tax rates instead of

the 30% company tax rate.

Con at higher incomes.

• Business is limited by the

owner's skills, funds and time.

• Owner bears full personal

liability for business's debts.

Partnership

(e.g accountants, solicitors)

- Owned by at least 2

individuals who share

control

- a written partnership

agreement formalises

duties and contributions,

and specifies conditions on

who can be admitted as a

new partner if a partner

sells their share.

• More economic resources

than sole trader

• Partners bring unique skills or

resources

• Profits (and losses) are shared.

The Partnership Act in each

state requires that partners

decide on how profit (or

losses) should be allocated

among themselves.

• Partners have full control

• Personal responsibility for

debts, even if they are caused

by decisions made by other

partners.

• Limited life; If a partner wishes

to sell or leave the

partnership, or a partner dies,

a new partnership agreement

must be formed.

• Disputes can be costly and

damaging to business and

friendships

Company

(e.g. BHP, Qantas)

- Organised as a separate

legal entity under the

Corporations Act 2001

-owned by shareholders,

whose ownership interests

are represented by the

number of shares they own

- vary from small, privately

owned (Pty Ltd) to large,

public companies on a

securities exchange (Ltd).

• Shareholders have limited

liability, and are liable for the

debts of the business only to

the extent of amounts unpaid

on their shares. This is because

the company can sue and be

sued and enter into contracts

in its own name.

• Indefinite life: owners can

easily transfer ownership

interest by selling their shares.

• More expensive to run than

unincorporated business

structures as it involves

Establishment costs and

ongoing fees and regulations

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Document Summary

A(cid:272)(cid:272)ou(cid:374)ti(cid:374)g (cid:272)a(cid:374) (cid:271)e referred to as the (cid:858)la(cid:374)guage of (cid:271)usi(cid:374)ess" as it is a (cid:373)ea(cid:374)s of (cid:272)o(cid:373)(cid:373)o(cid:374) communication where information flows from one party to others. The primary function of accounting is to provide reliable and relevant financial information for decision making. Accountants work in businesses as part of management teams who analyse the information gathered to make decisions. They can work in 2 different accounting fields: Management accounting - the provision of accounting information for decision making. Financial accounting oversight of transaction recording, and preparation and within the business entity. They prepare presentation of financial reports for external specifically tailored reports for management use users (shareholders and creditors) Both fields draw on the same information system used to record and summarise the financial implications of transactions and events. A(cid:272)(cid:272)ounting is the (cid:862)pro(cid:272)ess of identifying, measuring, recording and communicating economic transa(cid:272)tions and events of a (cid:271)usiness operation(cid:863) The stages of the accounting process/cycle are summarised below:

Related Questions

You work as a Management Accounting officer in a small andmedium organization operating in either a Manufacturing, Retail,Hospitality or Construction sector with not more than fifty (50)employees and an annual net turnover not exceeding Â£500,000.

Management accounting plays a key role in organizations todayand therefore decision makers in the organization must understandhow to create and use good management accounting information. Intodayâs business environment, business wants to track performanceinformation that goes beyond just the cost-based information ofhistoric general ledger systems provided by traditional financialaccounting information. Good management accounting involves aresponsibility to manage a wide variety of critical managementaccounting information using management accounting system andmanagement accounting techniques such as cost-volume- profitanalysis, marginal costing and absorption costing to producerelevant management report for informed decision making.

This was the summary of the speech delivered by a conferencespeaker about the role of management accounting and managementaccounting system in an organization. The General Manager of yourorganization sees management accounting function as very crucial inproviding management information well informed decision makingwithin the organization. Knowing that you are studying managementaccounting at the HND level, the organization sponsored you toattend this conference. After this conference the Generalmanagement has asked you (Management Accounting Officer) to write areport to him covering management accounting and managementaccounting system together with different costing techniques andreporting to enable the organization implement them.

Using the above scenario and in your capacity as ManagementAccounting Officer in your organisation, continue the word reportto the General Manager addressing other issues in managementaccounting function such as budgeting and budgetary control,performance indicators and variances to bolster his/her interest tomake the management accounting function in your organisation a fulldepartment rather than a unit. The fact that management accountingsystem could enable organisations identify financial problems toenable them adopt a strategy to investigate and address them madethe General Manager determined to place much importance toestablish the department. As Management AccountingOfficer, using various relevant management accountingmaterials such as news bulletin, stakeholder reports, the YouTube,twitter, academic articles, magazine, text books, websites,journals, newspapers, and other relevant resources, your report tothe General Manager should be convincing and compelling supportedwith relevant illustrations that would generate and preserve valuefor the organisation.

Explain the advantages and disadvantages of differenttypes of planning tools that can be used for budgetary control forthe chosen scenario. This should be supported with examples andillustrations. Compare how organisations (Scenario mentioned above)such as yours should adapt management accounting systems to respondto financial problems. This should be supported with examples andillustrations (1000 words). PLEASE NO PLAGIARISM

Chapter 1 Financial Accounting and Accounting Standards

The essential characteristics of accounting are (1) theidentification, measurement, and communication of financialinformation about (2) economic entities to (3) interested partiesFinancial accounting is_________________________________________________________________________________________________________________________________________________.For example accounting information is used by financial accountingto decide whether to invest in the company, evaluate borrowingcapacity to determine the extent of a loan to grant or buy, sell,hold equity and debt instruments.

Managerial accounting is_________________________________________________________________________________________________________________________________________________.

The financial statements* most frequently provided are (1)_______________________ (2) _______________________ (3)_______________________ (4) _______________________ *Also part ofthe financial statements are the notes of the financial statements.Other means of financial reporting that are not financialstatements include the presidentâs letter or supplementaryschedules in the corporate annual report, prospectuses, reportsfiled with government agencies, news releases, managementforecasts, and social or environmental impactstatements.

a) The objectives of Financial Reporting The objective;__________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

General-purpose financialstatements_______________________________________________________________________________________________________________________________________________________________.

Entity perspective____________________________________________________________________

Provide decision-useful_________________________________________________________________________________________________________________________________________________.

The accounting profession has developed a set of standards andprocedures called _________________________________________________________

Which of the following represents a form of communicationthrough financial reporting but not through financialstatements?

A. Notes to financial statements. B. Balance sheet. C.President's letter. D. Income statement.

The objective of financial reporting places most emphasison:

A. providing specific guidance related to specific needs. B.providing information to individuals who are experts in the field.C. reporting on stewardship. D. reporting to capital providers.

General-purpose financial statements are prepared primarily for:A. external users. B. auditors. C. internal users. D. governmentregulators.

LO 1.2 Identify the major policy-setting bodies and their rolein the standard-setting process.

Three organizations: Securities and Exchange Commission (SEC):______________________________

American Institute of Certified Public Accountants (AICPA):_______________________________________________________________

Financial Accounting Standards Board (FASB):____________________________

The federal government established the SEC to help develop andstandardize financial information presented to stockholders. Mostcompanies that issue securities to the public or are listed on astock exchange are required to file audited financial statementswith the SEC._____________________________________________________________________________________________________________________________________.

Under the direction of the SEC the__________________________________ was created by the AICPA in_______. It was the first private sector organization that had thetask of setting accounting standards in the United States. ï·___________________________________________________ that narrowedthe wide range of alternative accounting practices then inexistence. In _______. the __________________________________ wasformed to meet the demand for more structured accounting standards.The APB issued pronouncements on accounting principles until_______. the pronouncements where known as _________________, whenit was replaced by the __________________________________ .WheatCommitteeâs recommendations resulted in creation of FASB.

The FASB represents the current rule-making body within theaccounting profession. The mission of the FASB is to establish andimprove standards of financial accounting and reporting for theguidance and education of the public, which includes issuers,auditors, and users of financial information. The FASB differs fromthe predecessor APB in the following ways: a.__________________________________ b.__________________________________ c.__________________________________ d.__________________________________ e.__________________________________

In 1984, the FASB created the __________________________________The purpose of the Task Force is to reach a consensus on how toaccount for new and unusual financial transactions that have thepotential for creating differing financial reporting practices.

Which organization was responsible for issuing AccountingResearch Bulletins? A. The Accounting Principles Board. B. The SEC.C. The Committee on Accounting Procedure. D. The FASB.

The Financial Accounting Standards Board (FASB) was proposed bythe A. Study Group on the Objectives of Financial Statements. B.American Institute of Certified Public Accountants. C. Study Groupon establishment of Accounting Principles (Wheat Committee). D.Accounting Principles Board.

The major distinction between the Financial Accounting StandardsBoard (FASB) and its predecessor, the Accounting Principles Board(APB), is A. a majority of the members of the FASB are CPAs who aredrawn from public practice. B. all members of the FASB possessextensive experience in financial reporting.C. all members of theFASB are fully remunerated, serve full time, and are independent ofany companies or institutions. D. the FASB issues exposure draftsof proposed standards.

The FASB issues two major types of pronouncements: a. When theFASB issues a new standard it is refers as_________________________________to communicate changes to the FASBCodification. They are considered GAAP and must be followed inpractice. o How the FASB has changed US GAAP, including eachspecific amendment to the FASB Codification o Why the FASB decidedto change US GAAP and background information related to the changeo When the changes will be effective and the transition method. b.__________________________________ The SFACs represent an attemptto move away from the problem-by-problem approach to standardsetting that has been characteristic of the accounting profession.The Concept Statements are intended to form a cohesive set ofinterrelated concepts, a conceptual framework that will serve astools for solving existing and emerging problems in a consistentmanner. Unlike FASB statements, the Concept Statements do notestablish GAAP.

Prior to 2009 the FASB issued several type of pronouncementswhich had different levels of authority. The type of pronouncementsare listed in descending order of relative weight of authority theyhad within GAAP

ï· __________________________________

ï· ______________ : these pronouncements refined GAAP byclarifying conflicting or unclear issues relating to previouslyissued standards

ï· ______________ FASB staff issued pronouncements to providemore timely and consistent application guidance and to make narrowand limited revision of standards.

ï· ______________: FASB staff issue these pronouncements toclarify and explain, or elaborate on accounting and reportingproblems. ï· __________________________________

Which of the following is not a publication of the FASB? A.Statements of Financial Accounting Concepts B. Accounting ResearchBulletins C. Interpretations D. Technical Bulletins

_________________________________________________________________________The FASB has established the following procedures for developingaccounting standards. These procedures are used for major projects.Not all of the steps may be necessary for projects focused onnarrower application and implementation issues. Many other stepsare followed during the course of the project that are notspecifically required by the Boardâs Rules of Procedures.

Why was it believed that accounting standards that were issuedby the Financial Accounting Standards Board would carry moreweight? A. The FASB board had a smaller membership. B. The FASBboard members were well-paid. C. The FASB follows due process. D.The FASB board members were CPAs.

GAAP

The FASB developed the Financial Accounting Standards BoardAccounting Standards Codification _____________________________ toprovide in one place all the authoritative literature related to aparticulartopic._________________________________________________________________________________________________________________

Major sources of GAAP:

ï· _______________________________________

Most countries have recognized the need for more globalstandards. _____________________________________________ and U.S.rule-making bodies are working together to reconcile U.S. GAAP withthe IASB _________________________________________

Major challenges in the financial reporting environment.

ï·______________________________________________________________________

carminecrab519

QUESTION 1 The knowledge of financial accounting can assist people with decisions such as whether to extend credit to a business. True False 0.2 points Saved QUESTION 2 Employees of a company would not have a reason to use the information provided by financial accounting. True False 0.2 points Saved

QUESTION 3 Financial accounting should be used for assessing the financial health of large organizations only. True False 0.2 points Saved

QUESTION 4 Financial accounting can be helpful for a job candidate who is assessing the financial future of a potential employer. True False 0.2 points Saved QUESTION 5 Lenders might use the information produced by financial accounting when making loan decisions. True False 0.2 points Saved

QUESTION 6 Credit analysts prefer not to use information provided by financial accounting, as it is not accurate. True False 0.2 points Saved

QUESTION 7 Financial accounting is helpful to investment advisors. True False 0.2 points Saved

QUESTION 8 Financial accounting is more useful than managerial accounting. True False 0.2 points Saved

QUESTION 9 The decision to buy or rent equipment is an example of a decision aided by managerial accounting. True False 0.2 points Saved

QUESTION 10 Which of the following statements is true of financial accounting? A. It is used by external parties to make investment decisions. B. It is used to make lease or purchase decisions. C. Managerial accounting is another name for financial accounting, D. It is primarily used to make internal decisions of a business. E. The effectiveness of advertising can be judged using financial accounting. 0.2 points Saved QUESTION 11 The charge for using money over time, often associated with long-term loans, is known as: A. interest. B. principal. C. distribution charge. D. cash dividend. E. preferred dividend. 0.2 points Saved QUESTION 12 Which of the following is a common feature of financial and managerial accounting? A. Both have same objectives B. Both are prepared according to U.S. GAAP C. Both are reported at year end in the annual report D. Both are analyzed by external users while making investment decisions E. Both are used by the management in making decisions 0.2 points Saved

QUESTION 13 Dividends are required to be paid to stockholders on an annual basis. True False 0.2 points Saved

QUESTION 14 An individual who owns one or more shares of stock in a corporation is an owner of that corporation. True False 0.2 points Saved

QUESTION 15 Corporations do not exist as separate legal entities apart from their owners. True False 0.2 points Save Answer

QUESTION 16 It is very difficult to buy or sell ownership shares of a corporation in a stock exchange. True False 0.2 points Saved

QUESTION 17 Stock markets match up investors who wish to buy shares with those who wish to sell them. True False 0.2 points Saved

QUESTION 18 Legal process by which owners of an organization apply to a state government to have it identified as an entity legally separate from its owners is called: A. stocking. B. filling. C. attributing. D. registration. E. incorporation. 0.2 points Saved

QUESTION 19 An advantage of ownership in a sole proprietorship over ownership in a corporation is: A. tax benefits. B. having a board of directors. C. the ability to raise capital through issuance of stock. D. separation of owner and business as legal entities. E. limited liability for debts. 0.2 points Saved

QUESTION 20 Who hires the management of a corporation? A. Stockholders B. Board of directors C. Creditors D. Government E. SEC 0.2 points Saved QUESTION 21 Inventory refers to the: A. excess amount paid for an asset over its fair value. B. intangible assets of a business. C. merchandise bought or manufactured for the purpose of selling. D. amount of net income reinvested by company for future operations. E. revenue generated from investment. 0.2 points Saved QUESTION 22 Investors use financial information to predict whether a: A. company will recruit more employees. B. company's stock price will increase C. company has invested in buildings. D. company will pay salaries. E. company's bond price will increase. 0.2 points Saved

QUESTION 23 Financial accounting can be compared to a portrait. True False 0.2 points Saved

QUESTION 24 Financial statements provide the form and structure for the conveyance of financial information that will create a likeness of the reporting organization. True False 0.2 points Saved

QUESTION 25 The information reported in financial statements must be exact for an investor to make any decision. True False 0.2 points Saved

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ACCG100 Lecture Notes - Lecture 1: Accounting Equation, Bermagui, New South Wales, Settlor

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