ACCT1501 Study Guide - Final Guide: Australian Taxation Office, Cash Flow Statement, Accrual

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ACCT1501 – Financial Accounting

Introduction to Financial Accounting

Accounting: Identifying, measuring, recording and communicating economic info to assist users to

make decisions

- Financial Accounting System: Periodic financial statements and related disclosures.

External decision makers such as investors, creditors, suppliers, customers.

Reporting standard: AASB standards

: focuses on the provision of info to users external to the enterprise.

- Managerial Accounting System: Detailed plans and continuous performance reports.

Internal decision makers such as managers throughout the organisation.

: information to users within the enterprise (to aid in operational planning and

control decisions).

Users of accounting information:

- Bankers: The likelihood of company meeting its interest principal payment on time

- ASIC: Financial position and performance of a company issuing shares to the public for the

first time

- Suppliers: Probability that the company will be able to pay for its purchases on time

- Australian Tax Office: Profitability of company based on tax law

- Trade Unions: Profitability of company since last contract with employees was signed

Annual report: Descriptive information about the company and the general purpose financial

statements

Balance sheet: (A=L+OE)

- Financial position of an enterprise at a particular point in time (financial resources and

obligations)

Income statement: (R-E)

- Financial performance of an enterprise over a period of time (generating new resources

from operations)

- Revenue: inflows of eooi eefits that iease oes euit

- Epeses: use o loss of eooi eefits that deease oes euit

- Revenues & Expenses are recognised when an economically meaningful event has occurred

(Accrual Accounting)

Cash flow statement:

- Cash inflows and outflows over a period of time

Accrual Accounting: includes the impact of transactions on the financial statements in the time

periods where revenues and expenses occur rather than when the cash is received or paid

Cash Accounting: Only accounts for revenues and expenses when cash is paid or received

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Financial statement assumptions:

- Accrual basis: Revenues & Expense recognised at the time they occur

- Accounting entity: Separate business from owners

- Accounting period: Discrete time periods of equal length to determine financial performance

- Monetary: Universally accepted medium of exchange

- Historical cost: Transactions are initially recorded at their original cost

- Going concern: Continued operations of accounting entity into foreseeable future

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Measuring and Evaluating Financial Position and Performance

Balance Sheet: separate into CURRENT AND NON-CURRENT = to interpret long-term liquidity

- Assets: Resources – What benefit the company this year (current) or in future years (non-

current) e.g. cash, property, equipment, inventory

- Definition: A resource that is controlled by an entity as a result of past events, and from

which future economic benefits are expected to flow to the entity.

- Control = capacity of an entity to benefit from the asset in pursuing its objectives and to deny

or regulate the access of others.

- Past transactions = future economic benefits must have occurred e.g. paid cash or credit

- Liabilities: What company owes. E.g. A/c Payable, Loan payable

- Definition: A liability is a present obligation of the entity arising from past events, the

settlement of which is expected to result in an outflow from the entity of resources

embodying economic benefits.

- Present obligation = obligation involves settlement in the future.

- Sacrifice economic benefits = adverse financial consequences for the entity.

- Equity: What belongs to the owners (left after liabilities are taken care of) e.g. share capital,

retained profits

Connecting Balance Sheet & Income Statement:

- Equity ( VIA RETAINED PROFITS ) = Link the balance sheet and income statement

- Income statement (rev&exp) = temporary accounts

- Balance Sheet (A,L,SE) = permanent accounts

- Ioe stateet aouts ae losed , alae tasfeed to ‘P aout at ed of eah

acc/ period.

• At = Lt + {SCt + (RPt-1 + (R-E) –D)}

Retained profits: The sum of net profits earned over the life of a company less dividends declared to

shareholders.

- RP cl/bal = RP op/bal + (R-E) - D

*DIVIDENDS are NOT an expense

Revenue: Gross inflows of economic benefits during the period arising in the ordinary activities of an

entity when those inflows result in increases in equity other than those relating to contributions

from equity participants

- Wealth of business

- Recognised when it is considered to be earned

- Trigger point: DELIVERY OF GOODS TO CUSTOMERS*

Epeses: Deeases i the etits ealth. Iued i ode to ea eeue.

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Document Summary

Accounting: identifying, measuring, recording and communicating economic info to assist users to make decisions. Financial accounting system: periodic financial statements and related disclosures. External decision makers such as investors, creditors, suppliers, customers. : focuses on the provision of info to users external to the enterprise. Managerial accounting system: detailed plans and continuous performance reports. Internal decision makers such as managers throughout the organisation. : information to users within the enterprise (to aid in operational planning and control decisions). Bankers: the likelihood of company meeting its interest principal payment on time. Asic: financial position and performance of a company issuing shares to the public for the first time. Suppliers: probability that the company will be able to pay for its purchases on time. Australian tax office: profitability of company based on tax law. Trade unions: profitability of company since last contract with employees was signed. Annual report: descriptive information about the company and the general purpose financial statements.

Related Questions

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

Question 1

Identify the item below that is not one of the four different types of data processing activities.

		deleting
		reading
		creating
		using

Question 2

All of the following are advantages of an ERP system except

		ERPs permit manufacturing plants to receive new orders in real time.
		in an ERP, data input is captured or keyed once.
		it takes considerable experience and training to use an ERP system effectively.
		ERPs permit management to gain greater visibility into every area of the enterprise.

Question 3

Sam Jones has been the controller of Downtown Tires for 25 years. Ownership of the firm recently changed hands and the new owners are conducting an audit of the financial records. The audit has been unable to reproduce financial reports that were prepared by Sam. While there is no evidence of wrongdoing, the auditors are concerned that the discrepancies might contribute to poor decisions. Which of the following characteristics of useful information is absent in the situation described above?

		relevant
		reliable
		complete
		timely
		understandable
		verifiable
		accessible

Question 4

An ERP system might facilitate the purchase of direct materials by all of the following except

		preparing a purchase order when inventory falls to reorder point.
		routing a purchase order to a purchasing agent for approval.
		communicating a purchase order to a supplier.
		selecting the best supplier by comparing bids.

Question 5

Antia Carmie is the largest collector and retailer of Japanese fans in the St. Louis area. Antia uses computer technology to provide superior customer service. The store's database system was designed to make detailed information about each Japanese fan easily accessible to her customers. Accordingly, the fan price and condition are provided for each fan, along with many pictures of each fan. In Antia's database, the price of the Japanese fans is a(n)

		entity.
		attribute.
		field.
		record.

Question 6

Which of the following is not considered a source document?

		A copy of the company's shipping document.
		A copy of the company's ledger.
		A copy of the company's sales journal.
		A copy of the company's financial statements.

Question 7

In an ERP system, the module used to record data about transactions in the disbursement cycle is called

		financial.
		order to cash.
		customer relationship management.
		purchase to pay.

Question 8

Baggins Incorporated identifies new product development and product improvement as the top corporate goals. An employee developed an innovation that will correct a shortcoming in one of the company's products. Although Baggins current Return on Investment (ROI) is 12%, the product innovation is expected to generate ROI of only 10%. As a result, awarding bonuses to employees based on ROI resulted in

		goal conflict.
		information overload.
		decreased value of information.
		goal congruence.

Question 9

________ are examples of activities that constitute inbound logistics.

		Activities that transform inputs into final products or services
		Activities that provide post-sale support to customers
		Activities that consist of receiving, storing, and distributing the materials used as inputs by the organization to create goods and/or services it sells
		Activities that help customers to buy the organization's products or services

Question 10

In which transaction cycle would information for inventory purchases be most likely to pass between internal and external accounting information systems?

		the revenue cycle
		the expenditure cycle
		the human resources / payroll cycle
		the financing cycle

Question 11

The collection of customer payment is part of which transaction cycle?

		the human resources cycle
		the production cycle
		the revenue cycle
		the expenditure cycle

Question 12

Which of the following is an example of source data automation?

		POS (point-of-sale) scanners in retail stores
		a bill of lading
		a subsidiary ledger
		a utility bill

Question 13

All of the following are guidelines for developing a good coding system except

		be as sophisticated as possible to promote usage.
		be consistent with its intended use.
		be flexible to allow for growth.
		be consistent with the company's organization structure.

Question 14

What is a key decision that needs to be made with regards to borrowing money from lenders?

		the location
		pro forma income statement
		how much capital to acquire
		job descriptions

Question 15

Identify the false statement below.

		A service company does not have an inventory system.
		Retail stores do not have a production cycle.
		Financial institutions have installment-loan cycles.
		Every organization should implement every transaction cycle module.

Question 16

The chart of accounts of a fast-food restaurant would probably include

		a list of customers.
		a list of financial statement accounts.
		a list of vendors.
		a list of employees.

Question 17

Which statement below regarding the AIS is false?

		Traditionally, most AIS have been designed so that both financial and operational data are stored in a manner that facilitates their integration in reports.
		The AIS must be able to provide managers with detailed and operational information about the organization's performance.
		Both traditional financial measures and operational data are required for proper and complete evaluation of performance.
		The AIS was often just one of the information systems used by an organization to collect and process financial and nonfinancial data.

Question 18

In Petaluma, California, electric power is provided to consumers by Pacific Power. Each month Pacific Power mails bills to 186,000 households and then processes payments as they are received. What is the best way for this business to ensure that payment data entry is efficient and accurate?

		well-designed paper forms
		turnaround documents
		source data automation
		sequentially numbered bills

Question 19

Data must be converted into information to be considered useful and meaningful for decision making. There are seven characteristics that make information both useful and meaningful. If the same information can be reproduced by two independent and knowledgeable people, it is representative of the characteristic of

		verifiability.
		truthful.
		relevance.
		reliability.

Question 20

		entity.
		attribute.
		field.
		record.

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ACCT1501 Study Guide - Final Guide: Australian Taxation Office, Cash Flow Statement, Accrual

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