ACCT 1501

Accounting and Financial Management 1A

Session22016
Week1
IntroductiontoFinancialAccounting
DrHelenKang
SchoolofAccounting
helen.kang@unsw.edu.au

WelcometoACCT1501Semester22016!
Please
Beontimetothelecture Lecturesstartat5minutespastthe
hourandfinishat5minutestothehour
TurnmobilephonesonSILENT
Bringlecturenotesandtakenotes
Beconsiderate thismeansnotalkingwhenIam!
Echo360Lecturerecording

LectureOneOutline
IntroductiontotheCourse
CourseOutlineandOverviewofAssessments
IntroductiontoFinancialAccounting
EssentialreadingforTopic1 TGCChapter1

Topic1:DesiredLearningOutcomes(LO)
1.
2.
3.
4.

Understandanddescribethepurposeofaccounting
Appreciatewhyitisimportant,andtowhom
Identifytheusersandpreparersofaccountinginformation
Demonstrateawarenessofthecontentsofanannualreport the
3keyfinancialstatementsandthenotes andunderstandtheir
roles
5. Identifyhowaccrualinformationdiffersfromcashaccounting
6. Calculateaccrualprofitforanorganisation
7. Demonstrateunderstandingoftheunderlyingassumptionsand
principlesoffinancialreporting

IntroductiontotheCourse
CourseOutline
AvailableonMoodle
Pleasereadthecourseoutlinecarefully

Pleaseuseyourstudentemailaccount
z5555555@student.unsw.edu.au
Checkyouremailregularly
Ifyouhaventreceivedanemailfrommetodownloadcourse
outlineandlecturenotes,youarenotcheckingyouraccount!

IntroductiontotheCourse
TeachingStaff
DrHelenKang(weeks1to6),LecturerInCharge
DrConorClune(weeks7to12)

Tutorials
Startnextweek
Youmustattendyourenrolledtutorialclass

PeerAssistanceSupportScheme(PASS)
InformationonMoodle
6

IntroductiontotheCourse
Textbooks
FinancialAccounting:AnIntegratedApproach,6th Edition
ManagementAccountingSupplement

IntroductiontotheCourse
Additionalreadings(ifany)
Moodle

TutorialQuestions
Preparationquestions
Tutorialquestions

Moodle

IntroductiontotheCourse
Lectures
Pleaseattendyourenrolledlecture
NoteswillbeavailableonMoodleonpriorFridays
BringlecturenotesandTAKEnotes
Echo360recording

Tutorials
Pleaseattendyourenrolledtutorial
PreparationQuestions(PQ)andTutorialQuestions(TQ)
Assessments
9

IntroductiontotheCourse Assessments
TutorialParticipation
Homeworkpreparation
Grouppresentation

10

10%
5%
5%

OnlineQuizzes

15%

Midsessionexam

20%

Finalexam

55%

IntroductiontotheCourse Assessments
Homeworkpreparation 5%
TwobestreviewsoutofthreeofHQ(notPQ)
Refertothecourseoutline
Tutorialsinweek2

Grouppresentation

5%

Groupsof4/5
Refertothecourseoutline
Tutorials

11

IntroductiontotheCourse Assessments
ThreeOnlinequizzes

15%(5%each)

Quiz1 3pm19Augustto3pm26August
Quiz2 3pm16Septemberto3pm23September
Quiz3 3pm14Octoberto3pm21October
Eachquizwillconsistof20multiplechoicequestions
Itisrecommendedthatyoucompleteeachquizin40minutes;
howevertherewillbenoofficialtimelimit
YouonlygetOneattempt
AdditionalinformationwillbeavailableonMoodle

12

IntroductiontotheCourse Assessments
Midsessionexam
Week7
Duringyourenrolledtutorials
Courseoutline
Furtherdetailstobeannouncedlater
Specialconsideration seecourseoutline

13

IntroductiontotheCourse Assessments
Studentsmust:
Achieveafinalcompositemarkofatleast50;and
Attemptallassessmenttasks

14

IntroductiontotheCourse Assessments
Specialconsiderations
Midsessionexam
Finalexam

Nospecialconsiderationfor
Homeworkpreparation
Grouppresentation
Onlinequizzes

Refertothecourseoutline

15

IntroductiontotheCourse Moodle
https://moodle.telt.unsw.edu.au/login/index.php
Announcements
LectureNotes
PQ(withsolutions)andHQ
UsetheDiscussionboard
Refertothecourseoutline
Monitoredbythestaff
Useappropriatelyandwithrespectforothers

16

Questions?

17

WhatisAccounting?(LO1)
Accountingistheprocessofidentifying,measuring,recording
andcommunicatingeconomicinformationtoassistusersto
makedecisions.
Accountingisthelanguageofbusiness(WarrenBuffett)
Accountingisnotaboutcounting:Acounting
Numbersare partofAccounting

18

WhatisAccounting?(LO1)

19

AccountingSystem

FinancialAccountingSystem

ManagerialAccountingSystem

Periodicfinancialstatementsandrelated
disclosures

Detailedplansandcontinuous
performancereports

ExternalDecisionMakers

InternalDecisionMakers

Investors,creditors,
suppliers,customers,etc.

Managersthroughoutthe
organisation

Reportingstandard:
AASBstandards(GAAP)

Reportingstandard:
??

20

ACCT1501andBCom,Accountingmajor
ACCT1501&1511
Providingthefoundation&Settingthescene
Basicterminology,recordkeeping,understanding&preparingbasicfinancial
statements,exposuretomanagementaccounting

Also
Exciting
electives!

ACCT2522&3583

ACCT2542&3563

ManagementAccounting

FinancialAccounting

Informationgathering&reportingfor
peopleinside theorganisation

Informationgathering&reportingfor
peopleoutside theorganisation

ACCT3708 checkingthatproceduresareinplacetopreparefinancialstatementsthatare
trueandfairreflectionofcompanyposition&performance

21

Whatis(financial)Accounting?(LO1)
Financialaccountingwillbethefocusofthiscourse
Financialaccountingfocusesontheprovisionofinformation
tousersexternaltotheenterprise
Thefocusisonreportingfinancialpositionandfinancial
performance
Wediscussfinancialaccountinginweeks1to10

22

Whatis(management)Accounting?(LO1)
Managementaccountingwillbethefocusoflaterpartofthis
courses
Managementaccountingfocusesontheprovisionof
informationtouserswithintheenterprise(toaidin
operationalplanningandcontroldecisions)
Westarttolookatmanagementaccountinginweeks11&12

23

WhatisAccounting?(LO1)
AccountingScandals
2000s Enron,WorldCom,Ansett
2008 ABCLearning
2011 RedGroupRetail
2011 Olympus
2012 DarrellLea
2015 DickSmith

24

IsAccountingImportant?(LO2)
Usershavestakesintheorganisation!
Economicconsequences
Visibleandyetinvisibleprocessesandoutcomes
Doeseveryorganisationneedanaccountant?
Relianceonaccountinginformationfordecisionmaking
Budget
Governance
Globalisation
Tax
25

PreparersofAccountingInformation(LO3)
UsersandPreparersofaccountinginformation
Mutuallyexclusive?

Preparers
ManagersandDirectors
Accountants

Users

26

UsersofAccountingInformation(LO3)
Owners/shareholders:Willinvestmentgenerateenoughreturn,givenrisk?
Creditors:Canthebusinessrepaymoneyloaned?
Suppliers:Willtherebepaymentforservices/goodsprovided?
Government: Istherecompliancewithregulation?Suitabletaxation?
Customers:Satisfactoryproductqualityandwarranty?
Financialanalysts:Shouldthebusinessberecommendedforinvestment?
Competitors:Howcanwedobetter,oraswell?
Other: Researchers,public
Employees:Jobsecurityandremunerationprospects?
Management:Howcanperformbetter?Isourstrategyworking?

27

UsersofAccountingInformation(LO3)
Owners/shareholders:Willinvestmentgenerateenoughreturn,givenrisk?
Creditors:Canthebusinessrepaymoneyloaned?
Suppliers:Willtherebepaymentforservices/goodsprovided?
Government: Istherecompliancewithregulation?Suitabletaxation?
Customers:Satisfactoryproductqualityandwarranty?
Financialanalysts:Shouldthebusinessberecommendedforinvestment?
Competitors:Howcanwedobetter,oraswell?
Other: Researchers,public
Employees:Jobsecurityandremunerationprospects?
Management:Howcanperformbetter?Isourstrategyworking?

28

RevisionQuestion1
Whichofthefollowingorganisationsusesfinancial
statements?

1.
2.
3.
4.
5.

29

AustralianTaxationOffice
CharityOrganisation
University
LocalfootballClub
Privatecompany

WhatisanAnnualReport(LO4)
Glossymagazinethatcontainsalotofdescriptiveinformation
aboutthecompanyandthegeneralpurposefinancial
statements.
Wheredoyougetitfrom?

30

WhatisanAnnualReport(LO4)

31

KeyFinancialStatementsinAnnualReports(LO4)
Balancesheet
Financialpositionofanenterpriseataparticularpointintime
Enterprisessetoffinancialresourcesandobligationsatapointintime
Whataretheentitysresourcesandhowweretheyfinanced?
Incomestatement(profitandlossstatement)
Financialperformanceofanenterpriseoveraperiodoftime.
Generatingnewresourcesfromoperationsoveraperiodoftime
Hastheentityuseditsresourcesefficientlyandeffectively?
Cashflowstatement:(Tobecoveredin1B)
Cashinflowsandoutflows
Notestothefinancialstatements(additionaldetail)

32

KeyFinancialStatementsinAnnualReports(LO4)
Thebalancesheetreportsthefinancialposition ofanentityata
pointintime.

July 1 2013

June 30 2014

June 30 2015

June 30 2016

Balance
Sheet

Balance
Sheet

Balance
Sheet

Usedtoassessfinancialstructureandabilitytopaydebt
33

KeyFinancialStatement BalanceSheet(LO4)
Threemainelements
Assets
Resources theywillbenefitthecompanythisyear(current)orin
futureyears(noncurrent)
e.g.,cash,property,equipment,inventory

Liabilities
Whatthecompanyowes
e.g.,accountspayable,loanpayable

Equity(netassets)
Whatbelongstotheowners,theresiduali.e.whatisleftafter
liabilitiesaretakencareofe.g.,sharecapital,retainedprofits
34

KeyFinancialStatement BalanceSheet(LO4)
Assetsareduetodebtorequity
Thebalancesheetshowsresources(assets),andhowthey
werefinanced(liabilitiesandequity)atapointintime
Wecanrepresentthiswiththeaccountingequation:
Assets
=
Liabilities+Equity
Resources
Sources
Thiswillbeveryimportanttousinlaterweekswhenwe
considerdoubleentrybookkeeping
Therearealwaystwoaspectsofatransaction
35

ConsolidatedBalanceSheet Woolworthslimited(2015)

KeyFinancialStatement BalanceSheet(LO4)
Consolidatedbalancesheet theparentcompanyand
subsidiaries
A subsidiaryisa company controlledbyparentcompanywhich
hasthepower,directlyorindirectly,togovernthefinancialand
operatingpoliciesofanentitysoastoobtainbenefitsfromits
activities
Intragroupbalances,andanyunrealisedgainsandlossesor
incomeandexpensesarisingfromintragrouptransactions,are
eliminated

Itshowshowtheholdingcompanyisdoingasagroup.The
consolidatedaccountsshouldprovideatrueandfairviewof
thefinancialandoperatingconditionsofthegroup.
37

KeyFinancialStatement BalanceSheet(LO4)
Bunnings
Coles
BiLo
Liquorland
Kmart
Target
HarrisTechnology

38

Volkswagen
Audi
Ducati
Porsche
Lamborghini
VolkswagenFinancialServices

KeyFinancialStatement IncomeStatement(LO4)
Resultsofbusinessoperationsoveraspecifictimeperiod
Reportsrevenuesearned,andanyexpensesincurred
Revenue:inflowsofeconomicbenefitsthatincreaseowners
equity
Expenses:Useorlossofeconomicbenefitsthatdecrease
ownersequity
Incurredwhenyouuseresourcestogeneraterevenue(matching
principle)

Ifrevenues
Ifrevenues

39

expenses,thereisanetprofit
expenses,thereisanetloss

KeyFinancialStatement IncomeStatement(LO4)
RevenuesandExpensesarerecognisedwhenaneconomically
meaningfuleventhasoccurred
ThisiscalledAccrualAccounting
Itdoesnothavetoinvolvecashperse!

Saleoncredit
Purchaseoncredit

40

ConsolidatedIncomeStatement Woolworthslimited(2015)

KeyFinancialStatement CashFlowStatement(LO4)
CashFlowStatementprovidedetailsofmovementsinan
entityscashbalanceoveraspecifictimeperiod
Thecashflowsarenormallycategorised into:
Operatingactivities:mainrevenueproducingactivities
Investingactivities:acquisitionanddisposaloflongtermassets
Financingactivities:equitycapitalandborrowing

CoveredinACCT1511AFM1B

42

ConsolidatedCashFlowStatement Woolworthslimited(2015)

AccrualversusCashaccounting(LO5)
Anincomestatementreportsrevenuesandexpenses
Accrualaccounting

Acashflowstatementreportscashinflowsandoutflows
Cashaccounting

44

AccrualversusCashaccounting(LO5)
Accrualaccountingincludestheimpactoftransactionsonthe
financialstatementsinthetimeperiodswhererevenuesand
expensesoccurratherthanwhenthecashisreceivedorpaid.
Cashaccountingonlyaccountsforrevenuesandexpenses
whencashispaidorreceived.

45

AccrualversusCashAccounting Examples(LO6)
InJune,acompanymakescashsalesof$10,000andcreditsalesof
$20,000(alltobecollectedinJuly)

1. SalesrevenueusingaccrualaccountinginJune?
2. SalesrevenueusingcashaccountinginJune?
3. SalesrevenueusingaccrualaccountinginJuly?
4. SalesrevenueusingcashaccountinginJuly?

46

AccrualversusCashAccounting Examples(LO6)
Whichdoyouthinkismorerelevant?

Whichismorereliable?

Whichisbetter?

47

AccrualAccounting Examples(LO6)
Assets =
Whatwehave
Resources

Liabilities
whatweowe

+
Equity
whatwecontributed
Sources

Ivejuststartedajuicebarbusiness(onJune1st 2016).
Iboughtajuicerfor$200fromMyeroncredit (12monthsinterestfree)
Whatpartsoftheequationareaffected?
A =L
+
OE
200=200
+
OE

48

AccrualAccounting Examples(LO6)
Assets =
Whatwehave
Resources

Liabilities
whatweowe

+
Equity
whatwecontributed
Sources

ImaginenowthatIboughtthejuicerfor$200fromMyerwithcashthat
wasinthebusinessbankaccount
Whatpartsoftheequationareaffected?
A
=L+ OE
A200andA200

49

AccrualAccounting Examples(LO6)
Assets =
Whatwehave
Resources

Liabilities
whatweowe

+
Equity
whatwecontributed
Sources

Ilikedthejuicersomuch,Iboughtoneformyhomeaswell!($200
fromMyer,oncredit)
Whatpartsoftheequationareaffected?
A
=L+ OE

50

AccrualAccounting Examples(LO6)
Assets =
Whatwehave
Resources
Building
Inventories
Cash
Bankloan
Profit
Salesrevenue

51

Liabilities
whatweowe

+
Equity
whatwecontributed
Sources

AssumptionsandPrinciplesofFinancialReporting(LO7)
1.
2.
3.
4.
5.
6.

52

Accrualbasis
Accountingentity
Accountingperiod
Monetary
Historicalcost
Goingconcern

1.

AccrualBasis
Revenuesandexpensesarerecognisedatthetimethey
occurratherthanwhenthecashisreceivedorpaid.

53

2.

AccountingEntityAssumption

Theentityforwhichfinancialstatementsareprepared
Activitiesoftheentityareseparatefromthoseofits
owners/members
Includes,butnotlimitedto,legalentities(e.g.consolidatedentity)
Economicentity agroupofentitieswherethegoalsofthe
controllingentityarepursued:(e.g.consolidatedentity)
e.g.companies,partnerships,funds,associations,publicsectorbodies.

54

3.

AccountingPeriodAssumption

Lifeofbusinessisdividedintodiscretetimeperiodsofequallength
todeterminefinancialperformanceandposition.
Productionofregular,comparablefinancialstatements.
Incomestatement

Jan 1 2014

55

Incomestatement

Dec 31 2014
Balance
Sheet

Incomestatement

Dec 31 2015
Balance
Sheet

Dec 31 2016
Balance
Sheet

4.

MonetaryAssumption
Universallyacceptedmediumofexchange.
Measureeconomicactivitybyacommondenominator.

56

5.

HistoricalCostAssumption
Transactionsareinitiallyrecordedattheiroriginalcost
Treatsassetsintermsoftheiruseratherthanforresale
Example
Landpurchasedin1995atcostof$50,000andstillownedbythebuyer
willbereportedonthebuyer'sbalancesheetatitshistoricalcostof
$50,000eventhoughitsmarketvalueis$500,000in2016.

57

6.

GoingConcernAssumption

Assumescontinuedoperationofaccountingentityintoforeseeable
future
Thereisnointentionorneedtoliquidate
Producesdemandforfinancialinformationduringlifeofentity

58

RevisionQuestion2
Inprofitmeasurement,privatetransactionsofownersare
nottakenintoaccount.Whatassumption/conceptunderlies
thisprocedure?
1.
2.
3.
4.
5.

59

Goingconcernassumption
Monetaryassumption
Accountingperiodassumption
Accountingentity
Historicalcostassumption

Whathavewelearnttoday?(LOs)
1.
2.
3.
4.

Understandanddescribethepurposeofaccounting
Appreciatewhyitisimportant,andtowhom
Identifytheusersandpreparersofaccountinginformation
Demonstrateawarenessofthecontentsofanannualreport the
3keyfinancialstatementsandthenotes andunderstandtheir
roles
5. Identifyhowaccrualinformationdiffersfromcashaccounting
6. Calculateaccrualprofitforanorganisation
7. Demonstrateunderstandingoftheunderlyingassumptionsand
principlesoffinancialreporting

60

Notes

61

Nextweek

62