Topic 1

• Cash flow statement is prepared to show how cash has been generated or used by an entity during a particular period.
• Accounting


  Often called the "language of business".
• Definition of accounting

  The process of identifying, measuring, recording, and communicating economic information to permit informed judgments and economic decisions by the users of the information
• Decision making


  Choosing from among alternative courses of action to achieve an objective
• Steps in the decision-making process


  1. Establish Goals

  2. Gather available information on alternatives

  3. Determine consequences of alternatives

  4. Choose a course of action

  5. Implement & review (feedback)
• Economic wants are unlimited
• Resources are relatively scarce
• Need to make choices or decisions as to which wants will be satisfied with the resources that are available
• Solution Technique


  To evaluate the expected future returns of each alternative
• Choice in decision making


  Based on the objective of maximizing financial return, the business alternative is chosen
• Implementation & Review


  Monitor the progress of the business venture, implement corrective action if needed, check the decision-making process, and learn from the decision for future similar decisions
• Types of Organisations


  Commercial (for profit), Non-commercial (non-profit), Sole trader, Partnership, Company
• Financial Accounting Process
• Types of Organisations by purpose: Commercial (for profit), Non-commercial (non-profit); by form: Sole trader, Partnership, Company
• Types of organisations by purpose


  • Commercial / "for profit"
  • Non-commercial / "non-profit"
• Types of organisations by form


  • Sole trader
  • Partnership
  • Company
• Accounting Information


  • Transactions
  • Identification
  • Quantification in $ terms
  • Measurement
  • Recording
  • Classification
  • Summarisation
  • Accounting reports
  • Analysis and interpretation
  • Communication
• Introduction to the Conceptual Framework
• The Balance Sheet (Statement of Financial Position)
• Assets are present economic resources controlled by the entity as a result of past events
• Liabilities are present obligations of the entity to transfer an economic resource as a result of past events
• Equity is the residual interest in the assets of the entity after deducting all its liabilities
• The Income Statement (Statement of Financial Performance)
• Income is increases in assets, or decreases of liabilities, that result in increases in equity, other than those relating to contributions from holders of equity claims
• Expenses are decreases in assets, or increases in liabilities that result in decreases in equity, other than those relating to distributions to holders of equity claims
• Profit is the change in the equity in an entity during a period from all events other than direct contributions of capital, or withdrawals of capital by owners
• Loss is the excess of expenses over incomes
• Statement of Changes in Equity is a link between the balance sheet and the income statement that explains the changes that took place in equity during the period
• The Financial Accounting Process Overview
• Steps in the Financial Accounting Process

  1. Identification

  2. Measurement

  3. Recording

  4. Communication
• The Accounting Identity (Accounting Equation)
• Capital Contributions increase equity
• Capital Contributions: amounts contributed by the owners to the entity that increase equity
• Drawings (Capital Withdrawals): The withdrawal of assets from the business by its owners that decrease equity
• The Major Financial Reports

  Income Statement, Balance Sheet, Statement of Changes in Equity
• The accounting profession is regulated by the Australian Securities & Investments Commission (ASIC).
• There are three types of accountants: public practice accountant, corporate accountant, and government accountant.
• Professional associations include CPA Australia, Chartered Accountants Australia New Zealand (CAANZ), Institute of Public Accountants (IPA) and Association of Taxation and Management Accountants (ATMA).
• Financial Accounting Process Overview: 1. Establish Goals, 2: Gather Information on Alternatives, 3: Determine Consequences, 4: Choose a Course of Action