ACC1100 Chapter Notes - Chapter -: Balance Sheet, Income Statement, Accounts Receivable
31 May 2018
School
Department
Course
Professor
Week 1
Monday, 26 February 2018
6:00 PM
Accounting is an information system or process that:
• Identifies
• Records
• Communicates
Economic events of an entity to permit informed judgements and decisions by interested users
of the information
Users of accounting can be classified as either:
• Internal Users
• External Users
Internal Users
Managers who plan, organise and run the business
Eg. Chief executive officers (CEO), Chief financial officers (CFO), Marketing managers,
production supervisors, other employees
Detailed and frequent information is needed by these managers to make business decisions on
a day-to-day basis
External Users
Vary in their nature and information requirements
Eg. Investors (shareholders use information to make decisions to buy, hold or sell shares)
Creditors/Lenders (suppliers, bankers who use information to evaluate risks of giving credit and
lending money)
Government and regulatory bodies (ATO, ASIC use information to determine an entity's
compliance with rules and regulation
Forms of Business Organisations
Sole proprietorship (sole trader):
• Owned by one person: lawn mowing business, handyman business
Partnership:
• Owned by more than one individual: accountants, solicitors, doctors
Company:
• Organised as a separate legal entity and owned by shareholders: BHP, CSR, Westpac, RM
Williams
History of Regulation of Accounting
• Over time, Generally Accepted Accounting Principles (GAAP) were developed to guide the
practice of accounting.
• As entities grew in size and complexity, more formal rules for accounting were required
• Today, 'accounting standards' are mandatory for many entities to follow in the preparation of
financial statements
• While these accounting standards provide 'rules' for dealing with various accounting issues,
there exists an underlying 'conceptual framework' upon which the standards should be based.
• This framework attempts to derive a theory for determining the information to be provided in
financial statements.
What is the Conceptual Framework?
• The conceptual framework can be considered the general principles of financial reporting
find more resources at oneclass.com
find more resources at oneclass.com
• Think of it as the underlying set of concepts and theory that underpins accounting
• The conceptual framework is used as the basis for developing specific accounting rules and
regulations
2 Components - in Summary:
• SAC 1
a. Definition of a 'reporting entity' ----> WHO? (Who has to prepare)
• The AASB Framework
a. The objective of general purpose financial reporting ---> WHY? (Why they have to
prepare)
b. The qualitative characteristics of information
c. The assumptions underlying financial reports
d. The give elements of accounting and the criteria for their recognition
e. Statements of financial performance, position and cash flow ---> WHAT? (What has
to be prepared)
Balance sheet, income statement and cash flow statement are made from the five elements of
accounting
Statement of Accounting Concepts (SAC) 1
1 a) Definition of the Reporting Entity <---Specifics which entities are required to prepare
financial statements
• Defines a 'Reporting Entity' as an entity in which it is reasonable to expect the existence of
users who depend on general-purpose financial reports for information for making and
evaluating resource allocation decisions.
• If an entity meets this definition, it must prepare financial report
• The AASB Framework
The AASB Framework contains the following:
a. Assumptions underlying financial reports
b. Objective of financial reports (Appendix Chapter 1)
c. Qualitative Characteristics of financial reports (Appendix Ch 3)
d. Elements of financial reports and their recognition criteria (don't do in VCE)
Assumptions underlying Financial Reports
a. Going Concern
Entity assumed to continue indefinitely
b. Accrual Basis
Records transactions when they occur rather than only when cash is received/paid
Has sie ee reoed as a assuptio…ill e disussed ext eek
Objective of Financial Statemen
To provide financial information about the reporting entity that is useful to existing and
potential investors, lenders and other creditors in making decisions about providing resources
to the entity
Qualitative Characteristics of Useful Financial Information
Main two are:
Relevance and Faithful representation (reliability)
Others: Comparability, Verifiability, Timeliness, Understandability
Elements of Financial Statements (read up on definitions)
1. Assets
2. Liabilities
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Accounting is an information system or process that: Economic events of an entity to permit informed judgements and decisions by interested users of the information. Users of accounting can be classified as either: Managers who plan, organise and run the business. Chief executive officers (ceo), chief financial officers (cfo), marketing managers, production supervisors, other employees. Detailed and frequent information is needed by these managers to make business decisions on a day-to-day basis. Investors (shareholders use information to make decisions to buy, hold or sell shares) Creditors/lenders (suppliers, bankers who use information to evaluate risks of giving credit and lending money) Government and regulatory bodies (ato, asic use information to determine an entity"s compliance with rules and regulation. Sole proprietorship (sole trader): owned by one person: lawn mowing business, handyman business. Partnership: owned by more than one individual: accountants, solicitors, doctors. Company: organised as a separate legal entity and owned by shareholders: bhp, csr, westpac, rm.
