ACC1000 Lecture Notes - Lecture 1: Going Concern, Accrual, Basis Of Accounting

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6 Jun 2018

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1-The role of accounting

[Definition of accounting]

Accounting is (an essential information service that involves) the collection and recording

of financial data, and the reporting, analysis and interpretation of financial information to

assist business owners in decision making.

[The purpose of accounting]

The purpose of accounting is to provide (business owners with) financial information that

will assist them with decision-making (about the activities of their firm).

*This does not mean that accounting will ensure owners make the right decision; however,

it will help them to make more informed decisions, which will hopefully improve the

performances of the firm and increases its chances to success.

[Users for accounting information]

² Owner-assist in making a more informed decision about the activities of the firm;

² Debtors and other customers-may wish to know about the firm’s continuing ability to provide them

with stock;

² Bank& other financial institution-want to know the firm’s current level of debt before providing them

with any additional finance;

² Employees-may wish to know about the firm’s long term viability& their long term employment

prospects(its ability to afford improvements in wages and conditions);

² Prospective owners-may wish to know about the firm’s financial structure and earning performance;

² Australian tax office (ATO)-require financial information for taxation purposes.

*Accounting system should provide whatever information the users decides is necessary!

[Financial data vs. Financial information]

Financial data refers to the raw facts and figures upon which financial information will be

based. (eg. Receipts, cheque butts, invoice, memos and other business documents)

Financial information refers to the financial data that has been sorted, classified and

summarized into a more useable and understandable form.

[The Accounting process]

4 stages: collecting source document—recording—reporting—providing advice;

Stage 1: Collecting source document (the ‘input stage’)

The business collects the source documents relating to its transactions.

Transaction is an exchange of goods or services with another party.

Source document are papers or electronic documents that provide both the evidence that

a transaction has occurred and the details of the transaction itself. (It provides the data on

which the accounting information will be based. Some common source documents include:

1.receipts: provide evidence of cash receives by the business; 2. Cheque butts: provide

evidence of cash paid by the business; 3. Invoices: provide evidence of credit sales and

purchases; 4. Memos: provide the evidence of transactions within the firm itself.)

Stage 2: Recording(the ‘processing stage’ where financial data becomes information)

Sorting, classifying and summarizing the data contained in the source documents so that it

is more useable. (Common accounting records include: 1.journals: record daily transactions

of a common type, such as all cash paid or stock purchased on credits; 2.ledgers: record the

effect of each transaction on the items in the firm’s accounting reports; 3.stock cards: record

all the movements of stock in and out of the business.)

Stage 3: Reporting (the ‘output’ stage)

The preparation of financial statements that communicate financial information to the

owner. (3 general purpose reports are: 1.cash flow statement: reports on the firm’s cash

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Document Summary

Accounting is (an essential information service that involves) the collection and recording of financial data, and the reporting, analysis and interpretation of financial information to assist business owners in decision making. The purpose of accounting is to provide (business owners with) financial information that will assist them with decision-making (about the activities of their firm). *this does not mean that accounting will ensure owners make the right decision; however, it will help them to make more informed decisions, which will hopefully improve the performances of the firm and increases its chances to success. Owner-assist in making a more informed decision about the activities of the firm; Debtors and other customers-may wish to know about the firm"s continuing ability to provide them with stock; Bank& other financial institution-want to know the firm"s current level of debt before providing them with any additional finance;

Related Questions

1. Creditors' claims on the assets of a company are called: (Points : 2)

2. The primary objective of financial accounting is: (Points : 2)

To serve the decision-making needs of internal users

To provide financial statements to help external users analyze and interpret an organization's activities

To monitor and control company activitiesTo provide information on both the costs and benefits of managing products and services

To know what, when and how muchto produce

3. Assets created by selling goods and services on credit are: (Points : 2)

4. The debt ratio is used: (Points : 2)

To measure the amount of equity relative to the expenses

To reflect the risk associated with a company's debts

Only by banks when a business applies for a loan

To determine how much debt a firm should pay off

5. Net Income: (Points : 2)

Decreases equity

Represents the amount of assets owners put into a business

Equals assets minus liabilities

Is the excess of revenues over expenses

Represents the owners' claims against assets

6. Internal users of accounting information include: (Points : 2)

Shareholders

Customers

Creditors

Government regulators

Line Supervisor

7. Risk is: (Points : 2)

Net income divided by average total assets

The reward for investment

The uncertainty about the expected return that will be earned from an investment

Unrelated to expected return

8. An example of an operating activity is: (Points : 2)

Paying wages

Purchasing office equipment

Borrowing money from a bank

Selling stock

Paying off a loan

9. Which accounting assumption assumes that all accounting information is reported monthly or yearly? (Points : 2)

Business entity assumption

Monetary unit assumption

Value assumption

Cost assumption

Time period assumption

10. Distributions of assets by a business to its stockholders are called: (Points : 2)

QUESTION 1 The knowledge of financial accounting can assist people with decisions such as whether to extend credit to a business. True False 0.2 points Saved QUESTION 2 Employees of a company would not have a reason to use the information provided by financial accounting. True False 0.2 points Saved

QUESTION 3 Financial accounting should be used for assessing the financial health of large organizations only. True False 0.2 points Saved

QUESTION 4 Financial accounting can be helpful for a job candidate who is assessing the financial future of a potential employer. True False 0.2 points Saved QUESTION 5 Lenders might use the information produced by financial accounting when making loan decisions. True False 0.2 points Saved

QUESTION 6 Credit analysts prefer not to use information provided by financial accounting, as it is not accurate. True False 0.2 points Saved

QUESTION 7 Financial accounting is helpful to investment advisors. True False 0.2 points Saved

QUESTION 8 Financial accounting is more useful than managerial accounting. True False 0.2 points Saved

QUESTION 9 The decision to buy or rent equipment is an example of a decision aided by managerial accounting. True False 0.2 points Saved

QUESTION 10 Which of the following statements is true of financial accounting? A. It is used by external parties to make investment decisions. B. It is used to make lease or purchase decisions. C. Managerial accounting is another name for financial accounting, D. It is primarily used to make internal decisions of a business. E. The effectiveness of advertising can be judged using financial accounting. 0.2 points Saved QUESTION 11 The charge for using money over time, often associated with long-term loans, is known as: A. interest. B. principal. C. distribution charge. D. cash dividend. E. preferred dividend. 0.2 points Saved QUESTION 12 Which of the following is a common feature of financial and managerial accounting? A. Both have same objectives B. Both are prepared according to U.S. GAAP C. Both are reported at year end in the annual report D. Both are analyzed by external users while making investment decisions E. Both are used by the management in making decisions 0.2 points Saved

QUESTION 13 Dividends are required to be paid to stockholders on an annual basis. True False 0.2 points Saved

QUESTION 14 An individual who owns one or more shares of stock in a corporation is an owner of that corporation. True False 0.2 points Saved

QUESTION 15 Corporations do not exist as separate legal entities apart from their owners. True False 0.2 points Save Answer

QUESTION 16 It is very difficult to buy or sell ownership shares of a corporation in a stock exchange. True False 0.2 points Saved

QUESTION 17 Stock markets match up investors who wish to buy shares with those who wish to sell them. True False 0.2 points Saved

QUESTION 18 Legal process by which owners of an organization apply to a state government to have it identified as an entity legally separate from its owners is called: A. stocking. B. filling. C. attributing. D. registration. E. incorporation. 0.2 points Saved

QUESTION 19 An advantage of ownership in a sole proprietorship over ownership in a corporation is: A. tax benefits. B. having a board of directors. C. the ability to raise capital through issuance of stock. D. separation of owner and business as legal entities. E. limited liability for debts. 0.2 points Saved

QUESTION 20 Who hires the management of a corporation? A. Stockholders B. Board of directors C. Creditors D. Government E. SEC 0.2 points Saved QUESTION 21 Inventory refers to the: A. excess amount paid for an asset over its fair value. B. intangible assets of a business. C. merchandise bought or manufactured for the purpose of selling. D. amount of net income reinvested by company for future operations. E. revenue generated from investment. 0.2 points Saved QUESTION 22 Investors use financial information to predict whether a: A. company will recruit more employees. B. company's stock price will increase C. company has invested in buildings. D. company will pay salaries. E. company's bond price will increase. 0.2 points Saved

QUESTION 23 Financial accounting can be compared to a portrait. True False 0.2 points Saved

QUESTION 24 Financial statements provide the form and structure for the conveyance of financial information that will create a likeness of the reporting organization. True False 0.2 points Saved

QUESTION 25 The information reported in financial statements must be exact for an investor to make any decision. True False 0.2 points Saved

beigeant306

You work as a Management Accounting officer in a small andmedium organization operating in either a Manufacturing, Retail,Hospitality or Construction sector with not more than fifty (50)employees and an annual net turnover not exceeding Â£500,000.

Management accounting plays a key role in organizations todayand therefore decision makers in the organization must understandhow to create and use good management accounting information. Intodayâs business environment, business wants to track performanceinformation that goes beyond just the cost-based information ofhistoric general ledger systems provided by traditional financialaccounting information. Good management accounting involves aresponsibility to manage a wide variety of critical managementaccounting information using management accounting system andmanagement accounting techniques such as cost-volume- profitanalysis, marginal costing and absorption costing to producerelevant management report for informed decision making.

This was the summary of the speech delivered by a conferencespeaker about the role of management accounting and managementaccounting system in an organization. The General Manager of yourorganization sees management accounting function as very crucial inproviding management information well informed decision makingwithin the organization. Knowing that you are studying managementaccounting at the HND level, the organization sponsored you toattend this conference. After this conference the Generalmanagement has asked you (Management Accounting Officer) to write areport to him covering management accounting and managementaccounting system together with different costing techniques andreporting to enable the organization implement them.

Using the above scenario and in your capacity as ManagementAccounting Officer in your organisation, continue the word reportto the General Manager addressing other issues in managementaccounting function such as budgeting and budgetary control,performance indicators and variances to bolster his/her interest tomake the management accounting function in your organisation a fulldepartment rather than a unit. The fact that management accountingsystem could enable organisations identify financial problems toenable them adopt a strategy to investigate and address them madethe General Manager determined to place much importance toestablish the department. As Management AccountingOfficer, using various relevant management accountingmaterials such as news bulletin, stakeholder reports, the YouTube,twitter, academic articles, magazine, text books, websites,journals, newspapers, and other relevant resources, your report tothe General Manager should be convincing and compelling supportedwith relevant illustrations that would generate and preserve valuefor the organisation.

Explain the advantages and disadvantages of differenttypes of planning tools that can be used for budgetary control forthe chosen scenario. This should be supported with examples andillustrations. Compare how organisations (Scenario mentioned above)such as yours should adapt management accounting systems to respondto financial problems. This should be supported with examples andillustrations (1000 words). PLEASE NO PLAGIARISM

ACC1000 Lecture Notes - Lecture 1: Going Concern, Accrual, Basis Of Accounting

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