大连职业技术学院
Accounting
English
Topic 1 Lecture 龚玲玲
The accounting
environment and
accounting reports
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Administration
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Lecturer
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Ms 龚玲玲 mechelle_gong@hotmail.com
Important Information
 Assessment results – You MUST complete assignments to our
satisfaction AND MUST achieve a Pass grade or better in the Exam
 READ the Unit Guide on DSO
 The Study Guide is provided in hard-copy and CD formats, and on DSO
 Course Software – CAL programs Accounting Equation & General
Ledger are available on Web via DSO Resources page, QuickBooks on
lab PCs
 Weeks 4 - 7 one hour in computer labs in lieu of third hour of seminars
 Quicken’s QuickBooks software package – QuickBooks CD should be
purchased just like the textbook – There is an Assessment Task
 Prescribed textbook – Jackling et al (2004)
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Administration
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In weeks 4, 5, 6 & 7 one hour of class time will
be spent in a computer lab. Two computer labs
have been booked for each seminar group.
In these classes students will use the Accounting
Equation Program, the General Ledger program
and QuickBooks.
QuickBooks knowledge will be tested via a case
study due 4th September.
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Topic Introduction
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An introduction to the environment of accounting in the business
context
The fundamental ideas that underpin accounting practice
The nature of accounting, it’s function and purpose
Study Habits:
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You read the Topic in the Study Guide
You read each reading suggested
You try to answer each question suggested
You check with the suggested answers at the end of each topic
You log-on to the prescribed textbook publisher website and attempt the
available multiple-choice (MC) questions. MC are a KEY component of
assessment and final exam
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Accounting Defined
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the process of identifying, measuring and
communication economic information to permit
informed judgements and decisions by users of the
information.
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identify (record and classify)
measure (analyse, compare)
communicate (report)
economic information (income, exp., profit/loss, assets, liabilities,
owners equity, etc, etc.)
users (managers, shareholders, investors, employees, government
bodies, customers, economic analysts, etc)
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Key Financial Statements
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Statement of Financial Performance (Profit and Loss
Statement). Reports revenue and expenditure for a given period and
determines the profits earned or losses made for that period
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Statement of Financial Position (Balance Sheet). Reports
the resources of value, called Assets, the Debts, and the Owners
Claim on Equity, as at a specific point in time)
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Statement of Cash Flow Reports the cash flows for a given
period from operating, investing and financing activities.
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Accounting Entities
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An Accounting Entity is a discrete unit of substance. –
what does this mean?
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Is considered separate and distinct from it’s owners
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Could be a business, division, department, cost-centre,
group of businesses, government or non-profit entity
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Could be a sole owner, partnership or company
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Owners – non-legal entities
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Sole Proprietorships
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For accounting purposes the business and the proprietor
(owner) are separate entities
For legal purposes the 2 are the same, the business is not a
legal entity, and the owner is legally responsible for business
debt
Partnerships
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For accounting purposes the business and the proprietors
(owners) are separate entities
For legal purposes the 2 are the same, the business is not a
legal entity, and the owners are individually legally
responsible for business debt
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Owners – legal entities
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Shareholders in Companies
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A Company is both a legal and an accounting entity
Shareholders liability is limited to their investment. They could
lose part or all of that but cannot be held responsible for
company debt
As a legal entity a company can form contract, sue and be sued,
own assets etc, etc
Public Sector Proprietorship
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Government entities that operate similar to private sector
entities. Consider the sorts of reasons they might have been
created for?
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The Environment of Accounting
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Accounting is a part of Society
accounting influences, and is influenced by, the
environment that surrounds it.
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Regulatory
Economic decision-making
International
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The Environment of Accounting
The Regulatory Environment
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Accounting Regulations govern structure,
content, audit and disclosure of information
Accounting Regulations are designed to protect
investors, creditors, and other users
Who are the Regulators? Jackling et al pp 11-14
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Company legislation
Stock Exchange Listing Requirements
Accounting Standards
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Accounting and Society
The Regulatory Environment
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Organisations are an integral part of society
Companies provide much of the
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World’s employment, products, services and technology
Are major sources of Government revenue
Such actions contribute to standards of living
But such actions also contribute to environmental problems
through pollution, land degradation etc, and Companies fail
adversely affecting communities, employment, investment etc
Regulatory Authorities exist
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To offer society a degree of protection through law-making,
monitoring and action disciplinary where required
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Accounting and Society
The Regulatory Environment (cont)
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Accounting information and the regulatory environment
can also
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Provide employer group, unions and governments with
information to drive their economic agendas
Give the government influence over essential services such as
banks, utilities etc
Encourage struggling industries through targeted government
support and subsidies
Provide information for political decisions on government
services such as health, transport and education
Provide data for redistribution of wealth through society via
government intervention
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The Environment of Accounting
The Economic Decision-making Environment
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A focus on the relationship between financial statements
and the USERS who make resultant economic decisions
Shareholders (Investors) make decisions about:
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Lenders (Creditors) make decisions about:
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Dividend returns, Capital Gains on their investment, should they
buy, hold, or sell shares, being risk adverse, or choosing a level
of risk
Short-tern, long-term, level of risk, rate of return
Other Users - Discuss
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Accounting and Society
Economic Decision-Making
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Decision-Making concerned with the allocation of scarce
economic resources to achieve growth
An efficient well-functioning economy delivers
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Higher standards of living
Better technologies
Higher employment levels
Better healthcare and education
Many other social benefits to the community
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The Environment of Accounting
The International Accounting Environment
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Different countries employ accounting
regulations and practices distinct to their
environment
The state of economic development
 The state of business complexity
 The state of political persuasion
 Reliance on a system of law
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Accounting and Society
The International Environment
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Foreign investment in Australia is an important part of
the economy and many companies seek overseas
capital in order to grow their business.
The quality of financial statements and their compatibility
with those of other advanced industrialised nations is a
vital part of international capital and trade
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Session Objectives – Section B
- Chapter 2 Jackling et al
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Explain the differences between FINANCIAL and
MANAGEMENT Accounting
Identify the elements of financial statements
Describe the structure, content and uses of the major
financial statements
Discuss the concept of financial ratio analysis
Describe the historical cost basis of accounting
Explain the nature and use of estimation and judgements
in accounting
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Accounting Reports
2 major forms of accounting
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FINANCIAL ACCOUNTING
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Primarily reporting to external users of accounting information
 Investors, employees, lenders, suppliers, creditors,
customers, governments, community groups and other
interested parties
Use of General Purpose Financial Reports and
Special Purpose Financial Reports
MANAGEMENT ACCOUNTING
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Primarily reporting to internal users of accounting information at
all levels of the organisation to aid in the functions of business
management
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Accounting Reports
Financial Reporting
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General purpose financial reporting
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Reports to external users who do NOT have influence to demand
special reports
These reports assist users to make economic decisions
Are usually periodic – for example half-yearly or annually
Special purpose financial reporting
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Reports for external users who DO have influence to demand
special reports
Users such as taxation authorities, central banks, credit
agencies etc
Are usually periodic but might also be on-demand
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The Major Financial Statements
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3 major questions asked by Users
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How well has the entity performed
What is the financial position of the entity
What is the ability of the entity to generate cash to pay it’s debts
The 3 major financial statements available to Users on a
periodic basis to answer the above are
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Statement of Financial Performance (Profit and Loss Statement)
Statement of Financial Position (the Balance Sheet)
Statement of Cash Flow
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The Major Financial Statements
Statement of Financial Performance (P&L)
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A calculation of an entities Profits or Losses for a
particular accounting period by deducting periodic
Expenses from periodic Revenue
Emphasis is on earning Revenue and does not depend
on having received that Revenue. Expenses must be
matched to Revenue in the same period
Operating items arise from ordinary course of business
Review page 41 of Jackling et al - Performance Report
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The Major Financial Statements
Statement of Financial Position (Balance Sheet)
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A financial statement of the entities Assets and Liabilities
at a specific point in time
It shows the resources of value controlled by the entity
Value does not necessarily mean the original cost price
of a resource but represents a considered value of that
resource at a specific point in time
It is a measure of the owners net claim on the resources
of the entity. This is called shareholders equity
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The Major Financial Statements
Statement of Financial Position (Balance Sheet)
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Assets are something considered of economic benefit to the entity
and are classified as being current or as being non-current
depending on the time it might take to convert them into cash
Liabilities are the debts of the entity and are classified as being
current or as being non-current depending on the time it might take
to discharge them
More detailed review in Topic 2
Review page 43 Jackling et al Statement of Financial Position
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Segment reporting
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Information by geographical location or business group
Jackling et al p. 45
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The Major Financial Statements
Statement of Cash Flow
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Most enterprises fail because of Cash Flow problems
Statement of Cash Flow
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The flow of funds from all sources in and out of an entity during a
specific accounting period
Users can analyse an entities liquidity/short-term cash position
A business entity may be asset rich yet fail because of
lack of cash to pay short-term debt
Review page 46-47 Jackling et al Statement of Cash
Flow
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Recognition Criteria
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When and how should certain things be
recorded in financial accounts?
Before recording assets liabilities, revenues and
expenses they must meet certain criteria
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Must be capable of reliable measurement
Their existence must be probable
If they fail these tests they are not recorded
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Valuation Issues
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Items may be valued in many ways:
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Their original purchase price (historical cost)
The original price modified for inflation
The current replacement price
The current selling price
The current market price
The difficulty is determining which value is both
 the
most relevant and useful
 and the most reliable
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Estimation and Judgement
The accrual accounting system involves
substantial estimation and judgment in
arriving at figures
 In preparing reports accountants are
required to make a numbers of choices,
estimates and approximations
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 Different
estimates and assumptions can result in
different results
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Discussion Issues
Jackling et al page 49 Case 2.1
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Discuss the Brasco Opal valuation case
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