ACCG1000 Accounting in Society PDF

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ACCG1000 – Accounting in Society26/02/20 – 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...

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ACCG1000 – Accounting in Society 26/02/20 – WEEK 1 “language of business”

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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.

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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)

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Identifying business transactions – Sales of g/s, expenses, wages, = business transactions are the inputs of the accounting process

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Measuring or quantifying business transactions – expressing everything in monetary terms

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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

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Communicating economic transactions – expresses through financial reports – cash flow, balance sheet, income statement.

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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

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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

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

Financial - External focus

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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

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Objectivity  Professional or business judgments cannot be compromised because of bias, conflict of interest or the undue influence of others

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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

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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

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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

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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)

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Journalise Transactions (R) Post to ledger accounts (R) Prepare trail balance(R) Prepare financial statement (C)

RECORDING Source Documents

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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

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DAYBOOK Records daily transactions

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

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Accounts CASH ACC SALES ACC

Trial Balance

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List of account balances

= FINANCIAL STATEMENTS Types of Transactions External - Involve an outside party

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Exchange of economic resources and/or obligations

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Within the business

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Not usually recorded, but maybe in the future

Sales Internal Transformation of economic resources

Use of office supplies Non-Transactional Events Receiving an order from a customer

Five Financial Elements - ALOIE Asset Accounts: Present economic resources controlled by the entity

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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

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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

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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

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Assets – Liabilities = equity

Income Accounts: Sales and other increases in equity

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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

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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

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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. 2. 3. 4.

Assets – Increase Debit, Decrease Credit Liabilities – Increase Credit, Decrease Debit Equity – Increase Credit, Decrease Debit 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

Date 1/3/2020

General Journal Description Reference Computer XXX XXX Cash (Purchase of a

Debit 2000

Credit 2000

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

Date 1/6

4/6

4/6

9/6

12/6

General Journal Description Ref # Cash XXX Capital XXX (Jackson Contribution) Rent Expense XXX XXX Cash (Cash Payment for Rent) Phone XXX Expenses XXX Phone Bill (Phone Bill) XXX Cash Service Rev. (Cash paid for service) Inventory XXX

Debit 10,000

Credit 10,000

400 400

160 160

260 260

700

12/6

Acc Payable (Stock bought on credit Acc Rec Service Rev (Tax invoice)

XXX

XXX XXX

700

140 140

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

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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

Amount

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

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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

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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...