ACCG1000 – Accounting in Society

26/02/20 – WEEK 1

“language of business”
- Allows communication between managers, stakeholders
- Is the communication of financial information about a business to all relevant
business stakeholders
- All about decisions
- Long lasting decisions require more information – e.g. What to wear, buying a car
- In order to see if your business is running profitably or not, you must gather some
information from your accounting information system

What is accounting in the business world?

GOAL  How to make your business grow?, Where do we source our finance?
DECISION  Success in business requires countless decisions
FINANCIAL INFO  Decisions require financial and other types of information.

- Plays a key role in the provision of financial information for decision-making

Definition – is a “Process of identifying, measuring, recording and communicating

economic transactions and events of a business operation” (Carlton et al. 2016:5-6)
- Identifying business transactions – Sales of g/s, expenses, wages, = business
transactions are the inputs of the accounting process
- Measuring or quantifying business transactions – expressing everything in monetary
terms
- Recording the transactions – classification and summarisation of business
transactions. Eg. Apple’s sales of iPhone’s are summarised into a single line of info on
a financial statement
- Communicating economic transactions – expresses through financial reports – cash
flow, balance sheet, income statement.
- All this information is communicated to internal or external environments and
stakeholders

Accounting and its stakeholder

- Stakeholders are individuals or organisations whom are interested or affected by the
success or failure of a specific business. Stakeholders base their decisions on a
company from provided accounting information
- Suppliers, Business, Employees, Shareholders
- Think about each reason why these stakeholders care about their financial info, e.g
able to pay back loans, pay dividends, provide employment
Branches of Accounting
- Management
- Financial
- Tax
- Auditing

Management
- Internal focus – Planning, Controlling, Decision-making
- Cost behaviour/ breaking even
- Budgeting
- Strategy

Financial
- External focus
- Reporting information – performance, position
- Financing and Investing
- Legal compliance
- Highly regulated
ETHICS WEEK 2

- Ethics in broader sense is about human conduct

- Good and bad
- It is the application of values to decision making  these. Values include honesty,
fairness, responsibility, respect and compassion
- Morals = personal
- Ethics = social system

Theories
- Teleological/Consequential ethics
 the consequences of a decision is the sole determinant of what is right from
wrong
 a morally correct action occurs when benefits outweigh costs
 how you get to the result is less important than the outcome
 ALL ABOUT THE OUTCOME / COSTS VS BENEFITS
- Deontological/Non-consequential ethics
consequences are not important
 the intention to do the right thing is more important than the final result
 one does the right because it is the right thing to do
 INTENTION ONLY / OUTCOME IS IRRIVELANT / MORALITY
Example
VW 0% Emissions Scandal
7/11 Paying foreign workers below minimum wage

Ethical Decision-making process practically

Identify ethical issues  Gather info & consider ethical principlesIdentify and evaluate
alternative courses of action  decide a course of action
Codes of Ethics – Accounting
- Integrity
 be straightforward and honest in all professional and business relationships
- Objectivity
 Professional or business judgments cannot be compromised because of bias,
conflict of interest or the undue influence of others
- Professional competence and due care
 Must attain in maintain professional and technical knowledge for clients or
employers
Requires diligence and appropriate training and supervision
- Confidentiality
Must not disclose outside of the firm, confidential information required as a result
of professional and business relationships, unless the client or diploid authorises it
there is a legal duty to disclose it
- Professional behaviour
 Members must comply with relevant laws and regulations
Must avoid any action or omission which may discredit the image of profession

Ethical requirements on independence

- Independence of mind
 a state of mind which permits the expression of a conclusion without being
affected by influences that compromise your professional judgement
DON’T THINK ABOUT UNETHICAL BEHAVIOUR
- Independence in appearance
 avoidance of facts and circumstances that are so significant that a reasonable
and informed third party, having knowledge of all relevant info, would reasonably
conclude… integrity, objectivity or professional scepticism had been impaired
DON’T PLACE YOURSELF IN UNCOMPROMISING POSITIONS
WEEK 3 FINANCIAL ACCOUNTING FOR BUSINESS

Double-entry Accounting

Accounting
1. Identifying what to record
 Financial Impact = does the event change the financial
position
 Should be able to change your assets, liabilities and equity
 And within the organisation
2. Measuring – quantifying the transactions = DOLLAR TERMS
3. Recording
 recording, analysing and summarising
 MOST IMPORTANT PART OF ACCOUNTING
4. Communicating
 Financial Statements, P/L, B/S, C/F, Statement of changes
in equity, notes

Accounting Cycle
- Recognise & Record Transactions ( I, M and R)
- Journalise Transactions (R)
- Post to ledger accounts (R)
- Prepare trail balance(R)
- Prepare financial statement (C)
RECORDING

Source Documents
- Original record of a transaction (Bank statements, Sales Invoices, Vouchers)
- Evidence of transaction

Process of transferring Source Docs to the general journal is called journalising

General Journal
- DAYBOOK
- Records daily transactions

Process of transferring transactions from the general journal to the ledger is called posting

General Ledger
- Accounts
- CASH ACC
- SALES ACC

Trial Balance
- List of account balances

= FINANCIAL STATEMENTS

Types of Transactions

External
- Involve an outside party
- Exchange of economic resources and/or obligations
- Sales
Internal
- Within the business
- Transformation of economic resources
- Use of office supplies
Non-Transactional Events
- Not usually recorded, but maybe in the future
- Receiving an order from a customer
Five Financial Elements - ALOIE
Asset Accounts: Present economic resources controlled by the entity
- Cash at Bank
- Acct Relievable
- Inventory
- Prepaid expenses
- Plant and equipment
- Buildings
Assets – an asset is a present economic resource controlled by the entity as a result of past
events. An economic resource is a right that has the potential to produce economic benefit

Liability Accounts: Transfer an economic resource

- Acct Payable
- Unearned Revenue
- Loan payable
- Interest Payable

Liabilities – A liability is a present obligation of an entity to transfer an economic resource as

a result of past events

Equity Accounts: Claims of owners

- Capital (the owner share of the business, i.e. Owner’s Capital)
- Drawings or Withdrawals – cash taken out from the business by owner

Equity – is the residual interest in the assets of the entity after deducting all its liabilities
- Assets – Liabilities = equity

Income Accounts: Sales and other increases in equity

- Sales revenue = ordinary business activities
- Interest income = investments

Income – Increases in assets, or decreases in liabilities, that result in increases in equity,

other than those relating contributions from holders of equity claims
Expense Accounts: cost of assets consumed, or services used
- Salary expense
- Rent expense

Profit
When total income exceeds total expenses
Loss
When total expenses exceed total income

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

INCOME – EXPENSES = PROFIT

ACCOUTNING EQUATION

ASSETS = LIABILTIES + OWNERS’ EQUITY = ALO

ASSETS – LIABILITIES = NET ASSETS AND OWNERS EQUITY

ASSETS = LIABILITIES + OWNERS’ EQUITY

OWNERS EQUITY = Capital + Income – Expenses – Drawings

 Assets = Liabilities + (Capital + Income – Expenses – Drawings)

Setting up Accounts
- Set up accounts before recording transactions
- T – Account
WEEK 4
What are the common accounts of ALOIE?

Assets – Inventory, Acc Rec, Cash

Liabilities – Acc Payable, Loans, Mortgage
Equity – Capital
Income – Sales revenue, Interest income
Expenses – Rent, Wages

1. Assets – Increase Debit, Decrease Credit

2. Liabilities – Increase Credit, Decrease Debit
3. Equity – Increase Credit, Decrease Debit
4. Income – Increase Credit, Decrease Debit
5. Expenses – Increase Debit, Decrease Credit

General Journal or Day Book

- Date
- Accounts impacted – two or more
- Transaction Narrative under each accounts (narrative is brief
description of a transaction)
- Reference
- Debit value(s) (top left)
- Credit value(s) (bottom right)
E.g. on 1/3/2020, Company X purchased a computer for $2000
- bought with cash so credit, computer is a asset so it’s a debt
- debit entry first
- slight indent for the credit entry

General Journal
Date Description Reference Debit Credit
1/3/2020 Computer XXX 2000
Cash XXX 2000
(Purchase of a
computer)
^ Called a narration

“Chart of Accounts”
- Names of accounts and accounting code (reference number)
- Assets 100-199
- Liabilities 200-299
- And so on for equity, income and expenses

Question
Wong Pty purchases office equipment on credit for $5000
- Office equipment debit
- Credit is Accounts Payable
 General Journal
Date Description Ref # Debit Credit
1/6 Cash XXX 10,000
Capital XXX 10,000
(Jackson
Contribution)
4/6 Rent Expense XXX 400
Cash XXX 400
(Cash
Payment for
Rent)
4/6 Phone XXX 160
Expenses XXX 160
Phone
Bill
(Phone Bill)
9/6 Cash XXX 260
Service 260
Rev.
(Cash paid for
service)
12/6 Inventory XXX 700
700
 Acc XXX
Payable
(Stock bought
on credit
12/6 Acc Rec XXX 140
Service XXX 140
Rev
(Tax invoice)

Recording of Transactions
- 2 Methods
- Accrual Basis – mostly used
 Timing of recording transactions “when?”
 Recognise transactions when they occur, not when the cash
is received or paid.
 Occurred = Recognised when the revenue is earned, reason
why we debit acc rec and credit sales rev. Expenses are
recorded when they’re incurred.
- Cash Basis
 When the cash is received or paid
 Revenue is only recognised when cash is received
 Exp. Are only recognised when cash is paid

Accounting Entity Assumption

- The owners personal must remain separate
 - 500,000 building must be listed at cost, you may revaluate it

These ARE IN THE CONCEPTUAL FRAMEWORK

WEEK 5
Posting and Trial Balance

Recap
Posting is copying the amounts from the general journal to
the general ledger
- All accounts e.g. Cash, Sales e.c.t
- Records increases and decreases
 Cash
Date Explanation Amount Date Explanation Amount
Oct. 1st Share capital 10,000

Share Capital
Date Explanation Amount Date Explanation Amount
Oct. 1st Share capital 10,000
- Summarises the ledger with the balances
WEEK 6
Adjusting Entries

- 2 methods
- Accrual Basis records when revenue is earned and when
expenses are incurred
- Cash basis – when revenue is received and when
expenses are paid
Week 7
Closing entries
- Closing Process
- Income – expense = profit
- Revenue and Expense accounts are temporary and nominal accounts +
drawings account
 All of these accounts must be closed at the end of the period.
- Assets, Liabilities and Capital are permanent and real accounts which we
don’t close at the end of the period
- In order to facilitate the closing process we follow
- PROFIT OR LOSS SUMMARY ACCOUNT

- Collects all expenses and revenues

- Balance in the drawing account directly trans??? To capital a/c
IF LOSS
Do not carry the balance of permanent accounts e.g ASSETS,
LIA, CAPITAL

- Identify the accounts first before closing

***To close BALANCE THEN SUMMARISE THAT BITCH***
- ONCE SUMMARISED IN A P/L FUCK IT OFF TO THE CAP
ACC
Week 8
Preparing and Interpreting Financial Statements

+ Cash Flow statement

- 10 Column is not a financial statement but an internal document

1-3 are a daily basis

4-6 are period basis
7-8 are EOFY
- Accountants can prep financial statements directly from Adjusted TB
- 10 column can help adjusting and with financial statements

1. How well a business can utilise assets to generate profits = income

statement
2. Assets, Liabilities and Equity = Balance Sheet
3. Generate cash inflows and outflows = Cash flow statement
- Name of company
- Year and time
- Income 1st Expenses 2nd = P/L
- Assest = resources
- Liabilities = obligations
- Equities = ownership
- ALL PERMANT ACC BALANCES
Order of Statements
1st Profit/Loss- Income Statement
2nd Changes in Equity
3rd Balance Sheet

- Profit in the income statement is a debt in the balance sheet and vice
versa
Week 9
Interpreting Financial Statements

- Rational analysis
- Horizontal ‘’
- Vertical ’’
- Comparison ‘’
- Difference between income and expenses
- Avg. Total Assets = (Opening total assets + Ending total assets) / 2
- How quickly a businesses assets can be turned into cash = how liquid
- Ability of a business to pay its short term obligations
- Ratio expresses the relationship between CA and CL
 how much current assets exceed current liabilities
 Most widely accepted ratio is 1.5 : 1

- Long term
- Higher = more risky
Week 10
Management Accounting

1st Purpose / Objective

2nd Make decisions to achieve ^
3rd Manage resources effectively

In order to do these 3 steps managers, need information e.g. Financial,

Operations

‘Informed decisions’ Management Accounting tools assist

managers in making informed decisions regarding their
finaincal and non-financial resources
 Difference between Financial and Management Accounting
External vs Internal
Financial statements vs Reports

Management Functions

- In order to perform these functions effectively managers require

information
- Very reliable and relevant cost information
Manufacturing Costs

Converting Inputs  Outputs

Raw materials  Finished Goods

Direct Materials
Cost of raw materials directly traceable to finished products
e.g. flour for bread
Direct labour
Wages and salaries paid to employees whose time and costs
can be traced directly to products
e.g bakers in bakery
Manufacturing overhead
Indirectly associated with the manufacture of finished goods
Cost Terminologies

2 ways to categorise costs

Prime Costs = Direct Materials and Labour

Directly associated with the manufacturing of the
product
Conversion Cost = Direct Labour and Manufacturing
Overhead
They are incurred converting raw materials into finished
goods
Week 11
Cost Volume Profit Analysis

Fixed costs & Variable costs

Managers must identify the relationship between cost and the level of
activity  call cost behaviour analysis
- 2 types of cost behaviour. Below.
CVP Analysis
CVP= Cost-volume-profit
Contribution Margin

Total CM = Rev- Variable cost

CM Per unit = selling price – variable cost per unit

CM RATIO = CM PER UNIT / SELLING PRICE

The left over after expenses have been paid

Break-even point (BEP)
MOS = Actual sales – Break even sales
Required Sales = FC + Target Profit / CM ratio
Week 12
Sustainability

- Long term survival

- Intra/inter generational equity = have resources for now and
the future
We can measure a business by each pillar of sustainability
Economically
Socially
Environmentally

Previously traditional accounting was only interested in economic

development (profits), now shareholders are interested in all the
pillars and now nothing is a secret

- Stakeholder want to invest in more socially sustainable

businesses
- Lot of pressure on business now days to ensure
environmentally sustainable development
- Most companies issue sustainability report
- Global Reporting Initiatives
Sustainability Reporting
- Environmental impacts are not recorded in financial statements

- Looks at accounting for society

- Aims to access the impact of a company on people
 - Traditional accounting mainly focuses on the economic
performance of a business
- Social accounting focuses on the broader social impact

Integrated reporting
- Different to suitability reporting
- Connects between the six capitals, financial, manufacturing,
intellectual, human, social and relationship and natural
- Aims to show a link between the six capitals, strategies and
their business model

- Not a mandatory requirement

- Yes they care
- Companies who engage impacts each above.
 - Responsibility of the accountant
- Role of the accountant is to provide accurate information
- Use their skills of aggerating data into valuable information

2010 Mexican Oil Spill

Limitations of sustainability reporting