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ACCT1501_LEC01 3rd March 2017

ACCT1501 Accounting and Financial Management 1A


Course Outline
ACCT1501s main focus is on the balance sheet and income statement
WK1-10 Financial Accounting, please use the prescribed textbook.
Wk11-12 Management Accounting (refer to the e-book).
The main focus of the tutorials is in the Tutorial Question pg13 of the course outline.
To prepare your tutorial questions to refer to p14.

Assessment task
There are four main types of assessments outlines in the p8 of the Course Outline Booklet

Ch1 Introduction to Financial Accounting


Define Accounting: is the process of identifying, measuring, recording and communicating
economics information to assist users in making decisions.
Financial performance - is the generation revenue from the use of assets
Financial position - is the enterprises set of financial resources & obligations at a given time
Financial statements - are the reports describing financial performance and position (balance
sheet and income statement)
Notes part of the statements, adding explanations to the numbers.
The companys performance dictates the total remuneration package of a CEO and senior directors.

Enterprises Stakeholders:

Shareholders
Banks
Suppliers
Employees
Governments (ATO & GST charged by the federal governments)
Consumers
Regulatory bodies (ASIC, RBA)
Community
Special interest groups

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ACCT1501_LEC01 3rd March 2017

Two streams of Accounting System


Financial accounting system (periodic financial statements and related disclosures) is
directed to external decision makers. It focuses on reporting the financial position and
financial performance of the company. Financial Accounting has accounting rules which
structure the reports and the presentation of information.
Management accounting system - detailed plans directed to internal decision makers
(employees, managers). Balance sheet and income statements are key statements in
Management Accounting.
Accounting scandal consequences of poor economic decisions and poor accounting reporting led to
the collapse of ABC Learning.

Key financial statements


Balance sheet
o Financial position of an enterprise at a particular time (e.g. the financial year)
Income Statement
o Financial performance of an enterprise over a period (Profit and Loss
Statement P&L)
Cash flow statement
o Cash inflows and outflows over a period of time

Balance sheet

Assets (resources)
o Current assets cash, accounts receivable, inventory,
o Non-current assets (+property + plant and equipment accumulation
deprecation = net property plant equipment),
Liabilities
o Current liabilities taxes, interest, accounts payable, bank overdraft, factoring
o Non-current liabilities mortgages, debentures, unsecured notes, leasing
Equity (net assets)
o Ordinary shares, preference shares, retained earnings, private equity
Assets = Liabilities Equity

Income Statement

Measures the profit generated by a firm over a specific time period.


Revenues and expenses are recognised when an economically meaningful event has
occulted (i.e. Accrual Accounting), NB it does not involve cash
Revenue expenses = profit
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ACCT1501_LEC01 3rd March 2017

Appendix: Consolidated financial statement

it measures the financial performance of the Group (e.g. Wesfarmers Group)


A financial statement that covers all of its subsidiaries accounting figures by its holding (parent)
company. Control exists when the parent company directly, or indirectly govern the financial
and operation policy.

Cash flow statements

Operating activities: main revenue producing activities


Investing activities: acquisition an disposal of long term assets
equity capital and borrowing

Accrual vs Cashing accounting


Accrual Accounting

An income statement reports revenues and expenses.


It includes when the transaction where revenue and expense occur rather than when
the cash is received or paid (usually for larger companies)
Cash Accounting

A cash flow statement reports cash inflows and outflows


Only accounts when a revenue or expense when cash is paid or received

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ACCT1501_LEC01 3rd March 2017

Answers to p49 Understanding the Accrual concept

June ($) July ($) TOTAL ($)


Sales (accrual accounting) 30,000 0 30,000
Cash inflow (cash accounting) 10,000 20,000 30,000

Financial statement assumptions


According to the Framework of IFRS (International Financial reporting Statement), the
underlying assumptions for the preparation include:
1. Accrual basis
2. Accounting entity
3. Accounting period
4. Monetary
5. Historical cost
6. Going concern

Accrual basis: revenues and expenses are recognised at the time occurred, not when the cash
is paid or received.
Accounting entity assumption: activities entity(company) is separate from those of its
owners/members (shareholders)
Accounting entity assumption includes, but not limited to, legal entities (e.g. consolidated
entity); an economic entity (companies, partnerships, funds associations and public sector
bodies).
Accounting Period assumption: assumes that business divides into discrete time periods of
equal length (every half year 1st Jan to 30th Jun). So that, the production of regular,
comparable financial statements can be used to compare and determine the financial
performance and position of the company.
Monetary assumption: if the business is based in Australia then an accepted medium
exchange is in AUD.
Historical cost assumption: Transactions are initially recorded at their original cost; i.e. treat
assets regarding their use rather than resale.
Going concern: assumes the continued operation of the business with no intention to
liquidate and therefore produces the for financial information.
Materiality: the concept of materiality allows you to ignore figures that are so small that it
will not mislead the information user. Therefore immaterial stuff doesnt need to be included.

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