Week 1 - Intro to accounting Flashcards
Primary function of accounting
to provide financial information for decision making
Management accounting
provides information for decision making WITHIN the business.
Financial accounting
provides information to assist external users decision making
Decisions businesses make include
Should funds be borrowed or raised from owners?
Buy or lease, expand into a new market, introduce new product.
Accounting is the process of
1) Identifying,
2) Measuring,
3) Recording and
4) Communicating,
the economic transactions and events of a business operation.
Transactions are
economic activities relevant to a particular business. They are the basic inputs to the accounting process.
eg
- sale of item to customer
- purchase of office stationery from supplier
Accounting process - identifying, step 1
Taking into consideration all transactions which affect business entity.
Accounting process - measuring, step 2
Quantifying in monetary terms
Accounting process - recording, step 3
analysing, recording, classifying and summarising transactions
Accounting process - communicating, step 4
preparing accounting reports, analysing and interpreting
Commercial accountants
Work in industry & Commerce,
undertake roles such as management accounting and financial accounting
Public accountants
Work for the public and work in a range of small to multinational offices.
- conduct auditing
- tax and advisory service
Government accountants
employed by local councils, state government and federal government.
variety of roles inc financial accounting and auditing
Not for profit accountants
work in not for profit sector
engage in planning, decision making, preparing financial and management reports, for internal and external users
Main forms of business organisation
Sole Proprietorship (sole trader)
Partnership
Company
differ in no of owners, wether it is legal entity, costs to establish, maintain, liability of owners and tax reporting.
Sole trader/proprietorship
owned by one person (restaurants, dentist, panel beaters etc)
more liability on owner
Partnership
owned by more than one individual, eg accountants and doctors
capable f raising more funds than a sole trader
Company
organised as a seperate legal entity and owner by shareholders eg BHP CSR Westpac
limited liability
The conceptual Framework (CF)
Consists of a set of concepts to be followed by preparers of financial statements and standard setters.
basic guidelines are broad and general concepts relating to the preparation of financial reports
accounting standards are more specific for a particular area of accounting
CF Provides answers to the following questions
- What is the purpose of financial statements
- Who are they prepared for?
- What assumptions are made in the preparation of financial statements (fs)
- What type of information should be included?
- What are the elements that make up a f/s?
When should the elements of f/s beinlcuded?
General Purpose Financial Reports (GPFR)
CF Based around this
CF Objectives
Stewardship or accountability and decision making
CF defines elements of 4 basic financial statements (fs)
Statement of Profit and Loss
Statement of changes in equity
Statement of financial position
Statement of cash flows
Statement of profit and loss reports…
revenues less expenses for a particular period of time
Statement of changes in equity reports
total comprehensive income for the period and other changes in equity
Statement of financial position reports
assets, liabilities & equity at a particular point in time.
Statement of cash flows reports
information, regarding cash receipts and cash payments for a particular period of time
Primary users of GPFR
- equity investors
- lenders
- other creditors
- recipients of goods and services
- parties performing a review or oversight function
GPFR For internal users
internal users do not reply on this as they can obtain the information they need internally
managers who plan, organise and run the business
external users have an interest in which 3 main business activities
Financing activities
Investing activities
Operating activities
financing activities
- borrowing from banks
- selling shares to investors
Investing activities
acquisition or sale of resources needed to operate the business
Operating activities
results from operational activities undertaken to earn income
revenue is less expenses = profit/loss
Sustainability
making sure the social, economic and environmental needs of our community are met and kept healthy for future generations
concerned with 3 main areas
- economic
- environmental
- social
What information would you require to set up and run your own business
creative ideas
marketing plan
information on the business environment - accounting plays a key part in the provision of financial information - the economic model
What is the primary objective of accounting
provide financial information for decision making
What are the four main areas accountants practise in
** double check answer
1) Identifying,
2) Measuring,
3) Recording and
4) Communicating,
the economic transactions and events of a business operation.
