ACCT1501 Lecture Notes - Lecture 1: Accounting Period, Accounts Payable, Historical Cost
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ACCT5 Lecture
What is accounting?
• Accounting is the process of identifying, measuring, recording and communicating
economic information to assist users to make decisions
• Accounting systems
o Financial accounting system – focus on the provision of information to users
external to the enterprise e.g. investors, creditors, also focuses on reporting
financial position and financial performance
o Managerial accounting system – detailed plans and continuous performance
reports – used by internal decision makers e.g. managers to aid in
operational planning and control decisions
• Users of accounting information
o Bankers – the likelihood of the company meeting its interest/principal
payment on time
o ASIC – financial position and performance of a company issuing shares to the
public for the first time
o Suppliers – probability that the company will be able to pay for its purchases
on time
o ATO – profitability of company based on tax law
o Trade unions – profitability of company since last contract with employees
was signed
• The importance of accounting – used by
o Management in making business decisions
o Shareholders for decision making
o Board of directors in takeover battles
o Bankers and creditors in lending decisions
o Boards in rewarding and removing executives
o Management and unions in wage negotiations
o Impacts communities
o Impacts workers
What is an annual report?
• Magazine that contains a lot of descriptive information about the company and the
general purpose financial statements
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Document Summary
What is an annual report: magazine that contains a lot of descriptive information about the company and the general purpose financial statements. Incurred when you use resources to generate revenue (matching principle) If revenues are greater than expenses, there is a net profit. If revenues are less than expenses, there is a net loss: revenues and expenses are recognised when an economically meaningful event has occurred accrual accounting (does not involve cash) Cash flow statement: cash inflows and outflows over a period of time, p(cid:396)o(cid:448)ides details of (cid:373)o(cid:448)e(cid:373)e(cid:374)t i(cid:374) a(cid:374) e(cid:374)tit(cid:455)"s (cid:272)ash (cid:271)ala(cid:374)(cid:272)e, the cash flows are normally categorised into, operating activities: main revenue producing activities. Investing activities: acquisition and disposal of long term assets: financing activities: equity capital and borrowing. Intragroup balances, and any unrealised gains and losses or income and expenses arising from intragroup transactions, are eliminated. It shows how the holding company is doing as a group.