1102AFE Lecture Notes - Lecture 1: General Insurance, Listing Rules, Consumer Protection
Accounting for decision making lecture 1 notes
1.
What is Accounting
• Accounting is the process of identifying, measuring and communicating relevant
economic information (business transactions) about a particular business to a variety
of users for decision making
Identify →
Measuring→
Communicating→
Decision making
Transactions that
are able to be
reliably measured
and recorded
Analysis, recording
and classifying
transactions
Via income
statements, balance
sheets and
statements of cash
flows
Used for a range
of decisions by
external and
internal users
What are business transactions?
• They involve the:
o External exchange of something of value between two or more entities (one
of which is the business firm)
o They can be reliably measured and recorded
o They affect assets, liabilities and equity (see topic 6)
What is relevant information?
• Information that makes a difference in decision making
2.
Accounting Information and Its Role in Decision Making
• Accounting information is designed to meet the needs of both:
o Internal users (management) = special purpose reports
o External users (stakeholders) = general purpose reports
• External users (defined as all users other than management) include:
o Investors (i.e. owners)- both current and prospective
o Suppliers and banks
o Employees
o Government authorities (e.g. ATO, ASIC)
o Customers
3.
Financial Accounting and Management Accounting
• Financial accounting (lectures 1-6)
o Preparing and presenting financial statements primarily for external parties
o Statements are prepared in accordance with Generally Accepted Accounting
Principles (GAAP)
• Financial statements (general purpose reports) consist of:
o Income statement (chapter 6, lecture 5)
o Statement of changes in equity (chapter 6)
o Balance sheet (chapter 5, lecture 4)
o Statement of cash flows (chapter 7, lecture 6)
• Income statement→ calculates profit
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• Statement of changes in equity→ calculates how the equity has changed during the
accounting period
• Balance sheet→ sapshot of assets, liailities ad oe’s euity for the business at
any given time (physical representation of the accounting equation)
o Assets- liailities= total oe’s euit
• Management accounting (lectures 7-11)
o Preparing internal reports for management to assist decision making
o Not regulated by rules like financial accounting
• Core activities include
o Formulating plans and budgets
o Providing information used in monitoring and controlling performance
• Some management accounting reports are used by financial accountants in
pepaig the fi’s external reports
• Managers of firms make use of both internal (management accounting) reports and
external (financial accounting) reports for decision making
• INSERT TABLE ON SLIDE 28
4.
Role of professional accounting bodies
• There are two major professional accounting bodies in Australia
o CPA Australia
o The institute of Chartered Accountant in Australia (ICAA)
• Play an important role in regulating Australian businesses through
o Stringent regulation of their members
o Input into the standard-setting process (rules for preparing Financial
Statements) via the AASB (Australian Accounting Standards Board)
5.
Accounting Regulation in Australia
5.1
Extent of Accounting Regulation
• The volume of rules and regulations behind (depend of type of business structure)
how accountants do things depends primarily on:
o Weather financial accounting or management accounting (discussed above)
o The type of business structure (discussed in detail in lecture 2 and not
pursued here) n
o Where a firm is required to produce general purpose reports for a wide range
of users
• Where a firm is required to produce general purpose reports for a wide range of
users, those firms must comply with:
o GAAP (generally accepted accounting principles) developed over many years,
and
o Accounting standards (AASBs), developed by the AASB and professional
bodies (ICAA, CPA Australia)
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find more resources at oneclass.com
Document Summary
What is accounting: accounting is the process of identifying, measuring and communicating relevant economic information (business transactions) about a particular business to a variety of users for decision making. Transactions that are able to be reliably measured and recorded. Used for a range of decisions by external and internal users. Via income statements, balance sheets and statements of cash flows. Information that makes a difference in decision making. Accounting information and its role in decision making: accounting information is designed to meet the needs of both: Internal users (management) = special purpose reports: external users (stakeholders) = general purpose reports, external users (defined as all users other than management) include: Investors (i. e. owners)- both current and prospective: suppliers and banks, employees, government authorities (e. g. ato, asic, customers. Financial accounting and management accounting: financial accounting (lectures 1-6, preparing and presenting financial statements primarily for external parties, statements are prepared in accordance with generally accepted accounting.