ACN3101: Accounting in Business Overview

Course Information

• Course code: ACN3101
• Course title: Accounting & Financial Information
• Lecturer: Dr. Zaidi Mat Daud
• Contact information:
  • Room: A218
  • Tel: 016-6647500
  • Email: [email protected]

Topic 1: Accounting in the Business

• Learning Outcomes:
  • Understand the role of accounting
  • Understand the forms of business entity
  • Understand the types of business entity

Roles of Accounting

• Language of business: Accounting uses words and symbols to communicate financial information that's useful to internal and external users. The terminology and symbols aim for effective communication.

Slide 3 Simplify Technique

• Accounting shares information using simple language and symbols, like numbers, to communicate financial facts.
• This information helps people inside and outside the business make decisions.
• The language and symbols in accounting are designed to display the financial picture clearly.

Accountability and Control

• Accountability: Management is responsible for preparing and presenting accounting reports to demonstrate the business's performance and position. The reports must provide adequate information.
• Controlling: Controlling resources involves monitoring financial structure to manage limited economic resources effectively.

Accountability and Control (S5)

• Management is responsible for preparing and sharing financial reports that show business performance.
• Control involves tracking finances and resources, ensuring they're used wisely.
• An example is Amazon's managers using reports to monitor earned and spent funds, improving their control over company finances to maintain profitability.

Information System

• Accounting is an information system that gathers, processes, and communicates financial information about an identifiable economic entity.
• It's a vital service for decision-making about resource allocation in business and the economy.

K.I.S.S.USB (Detailed)

• Accounting is a system collecting, processing, and sharing information about business money and resources. It helps with planning and decision-making.
• Good accounting provides information vital for managers and decision-makers to use limited resources efficiently.

Information System in Accounting (S7)

• Accounting is an information system that gathers, processes, and shares financial data for a business.
• This information facilitates informed decisions about limited resources.
• Example: Tesla uses accounting to track costs, profits, and investments, and to decide where to spend, save, or expand, developing new models or creating more production capacity.

Management Information System (MIS)

• The MIS uses data from the AIS (Accounting Information System) to give managers a broad view of the business.
• It analyzes trends, gives summaries, and helps make strategic decisions.

Explanation of Each System (S10)

• Transaction Processing System (TPS) functions as a digital record keeper, tracking transactions in real-time, like customer purchases. This is a foundational system for data gathering.
• Accounting Information System (AIS) processes TPS data into meaningful financial reports. For example, they report crucial data such as total sales, expenses, and profit for a specified period.
• Management Information System (MIS) uses AIS data to give managers complete business insight by generating summaries and analyzing trends. This enables strategic decision-making.

Current Situation Example with E-commerce (Amazon)

• TPS records details like products, prices, quantity and payments.
• AIS takes TPS data and organizes it into financial reports that show daily, monthly or yearly earnings or expenses.
• MIS analyses reports to identify patterns, adjust pricing or marketing accordingly for improvements

Forms of Business Entity

• Sole Proprietorship: Owned by one person, like restaurants, mini markets. Simple to start but the owner takes all the risks.
• Partnership: Owned by two or more people. Accounting firms, legal firms and clinics often use this structured. Partners share profits and responsibilities and each contributes skills or finances for the venture.
• Company: A separate legal entity owned by shareholders. Examples include large corporations like BHP, Coles, Myer, CSR, or Westpac. Profits go to the shareholders and company debts do not impact their personal finances.

Types of Business Entity

• Services Business: Accounting firms, banks, or salons/beauty supplies that mainly provide services rather than selling products.

Merchandising/Trading/Retailing

• Buying goods in bulk from manufacturers to sell to customers. Businesses range from hypermarkets to specialist stores.

Manufacturing

• Producing goods by processing raw materials in factories. Finished products may be sold to wholesalers/retailers or to other manufacturers as component parts.

Business Stakeholders

• They have interest in a firm's economic performance.
• Their interest hinges on reports from the business for effective decision-making.

What are the Two Types of Reports from Accounting Information?

• Internal Reports: Used by management for planning and making decisions. Example: implementing plans and controlling costs.
• External Reports: Used by external parties with a financial interest in the company. Examples include balance sheets, income statements, and statements of cash flows.

Financial Accounting vs. Management Accounting

• Financial Accounting: Provides financial information about a business's performance to external users, such as shareholders. It follows recording practices like double-entry bookkeeping to produce financial reports like profit and loss and cash flow statements.
• Management Accounting: Provides internal reports to support business decision-making, planning, and control. It's not regulated by external law. It can evaluate cost accounting and decision-making.

User Information Requirements

• Internal Users: Management, employees. Need information about costs, decisions, planning, and control, or job security.
• External Users: Shareholders, lenders, suppliers, customers, tax authorities. Need information like company assets, cash position, future prospects, and profits, for instance, to calculate taxes. They also want information about a company's social or environmental impact.