Student Week 1 Chapter 1 PDF

2/03/2018 What is Accounting? What is Accounting? http://www.zazzle.com/welcome_to_accountin g_department_poster‐...

2/03/2018 What is Accounting? What is Accounting? http://www.zazzle.com/welcome_to_accountin g_department_poster‐ 228367339817288418 Reference Price Tag https://www.youtube.com/watch?v=q MxX‐QOV9tI Accounting Fundamentals Learning Objectives After studying this topic, you should be able to acquire knowledge on: 1. The changing business environment 2. Private enterprise and its three categories 3. Entrepreneurship and sources of capital 4. Forms of ownership 5. The regulatory environment of business 6. The accounting system 7. The difference between management accounting and financial accounting 8. The basic financial statements 9. Ethics in business and accounting 10. Goods and Services Tax (GST) Accounting Fundamentals Chapter 1 Introduction to business accounting and the role of professional skills Accounting Fundamentals 1  2/03/2018 The changing business environment Accounting information is a powerful tool for making good business decisions. People inside a business use accounting information to help determine and manage costs, set selling prices and control the operations of the business. People outside the business use accounting information to help make investment and credit decisions about the business. Accounting Fundamentals The changing business environment Accounting Fundamentals Private enterprise Business in most countries operate in an economic system called private enterprise. In Australia, we call this term ‘private enterprise‘ as proprietary. In this system, individuals own business that produce and sell services and/or goods for a profit. These business generally fall into three categories, Service, Merchandising and Manufacturing. Accounting Fundamentals 2  2/03/2018 Service business Service business performs services or activities that benefit individuals or business customers. Professional practices such as accounting, law and medicine are all service businesses. Examples include companies such as Qantas Airlines and LJ Hooker Real Estate. Accounting Fundamentals Merchandising business Merchandising business purchases goods for resale to their customers. Some merchandising businesses are wholesalers, meaning they sell their goods to retailers or other commercial users. Examples include companies such as Woolworths, Toys ‘R’ Us and Aldi. Accounting Fundamentals Manufacturing business Manufacturing business makes their products and then sells these products to their customers. Unlike merchandisers who purchase ready-to-sell merchandise, a manufacturer has no goods to sell until they are manufactured. Examples include companies such as Ford Australia, Black & Decker and BHP Steel. Accounting Fundamentals 3  2/03/2018 Entrepreneurship and sources of capital All business requires capital to begin to operate and then to grow. Entrepreneurs can raise capital in two ways: 1.Investing their own money into the business or finding other investors to do the same. 2.Borrowing money from a bank or other lending sources. Accounting Fundamentals The forms that business takes Sole proprietorship or sole trader – owned by one person who is the sole investor of capital. Partnership – owned by two or more individuals who each invest capital into the business. Company or corporation – a separate legal entity independent of its owners and run by a board of directors. Accounting Fundamentals The forms that business takes Accounting Fundamentals 4  2/03/2018 Learning Activity 1 Class Discussion What are the advantages and disadvantages of a sole proprietorship, partnership and company business structure? Tutor: please use the next two slides to discuss the above question and provide the learning activity handouts to the students. Accounting Fundamentals Learning Activity 1 Advantages Sole Proprietorship Partnership Company Accounting Fundamentals Learning Activity 1 Disadvantages Sole Proprietorship Partnership Company Accounting Fundamentals 5  2/03/2018 The regulatory environment of business Many different laws and authorities regulate the business environment, covering issues such as: consumer protection environmental protection employee safety hiring practices taxes. Accounting Fundamentals The regulatory environment of business Companies must comply with different sets of regulations depending on the nature of their business. Regulations are imposed by local, state and federal government. When a business conducts business internationally, it also must abide by the laws and regulations of the other countries in which it operates. Accounting Fundamentals The accounting system An accounting system allows users to identify, measure, record and summarise information about the activities of a business. Branches of Accounting Management accounting is using information in the accounting system to produce reports for internal users. Financial accounting is using information in the accounting system to produce reports for external users. Accounting Fundamentals 6  2/03/2018 Management accounting information Accounting Fundamentals Financial accounting information Financial accounting information is organised for use by interested people outside of the business. As opposed to management accounting information, financial accounting information follows specific guidelines, or rules, known as generally accepted accounting principles (GAAP). Accounting Fundamentals Basic financial statements Financial statements summarise and communicate financial information to external users. The accounting system produces three major financial statements: the income statement the balance sheet the cash flow statement as well as a supporting financial statement – the statement of changes in owner’s equity. Accounting Fundamentals 7  2/03/2018 Income statement An income statement summarises the results of a business’ operating activities for a specific time period. It shows the profit for that period. It is also called the statement of financial performance Information appearing in an income statement includes revenues, expenses and net income (net loss). Another account title for net income is net profit Accounting Fundamentals Balance sheet A balance sheet shows the financial position of a business on a given date. It is also called a statement of financial position. Information appearing in a balance sheet includes assets, liabilities and owner’s equity. Accounting Fundamentals Statement of changes in owner’s equity This statement provides information about the amount shown in the owner’s equity section of the balance sheet. Information appearing in the statement of changes in owner’s equity includes beginning equity, net income or net profit (net loss), owner’s contributions and withdrawals, and the ending equity. Accounting Fundamentals 8  2/03/2018 Cash flow statement The cash flow statement summarises cash receipts, cash payments and net change in cash for a specific time period. Information appearing in the cash flow statement includes cash flows from operating activities, cash flows from investing activities and cash flows from financing activities. Accounting Fundamentals Ethics in business and accounting A business’ financial statements should convey information about the business to internal and external users in order to facilitate decision making. If this information does not convey a realistic picture, the decisions may have disastrous consequences. For this purpose, it is important that accountants maintain high ethical standards. Accounting Fundamentals Accounting information and decision making Accounting Fundamentals 9  2/03/2018 The Goods and Services Tax In Australia, taxation is regulated by the Australian Taxation Office (ATO) If the business is registered for GST, ATO collects 10 percent Goods and Services Tax (GST) from business activities through Business Activity Statement (BAS) Accounting Fundamentals The Goods and Services Tax Businesses offset the GST they pay (GST Paid) on business inputs, such as inventory, against the GST they collect (GST Collected) on the sales of goods or services to customers. GST Paid is an asset ‐ represents the amount the business could claim from ATO GST Collected is a liability – represents the amount the business pays to ATO Accounting Fundamentals The Goods and Services Tax Calculation of GST GST‐inclusive price (price includes GST): Price / 11 = GST GST‐exclusive price (price does not include GST): Price x 10% = GST Accounting Fundamentals 10  2/03/2018 Thank you! Prepared by Maria Santiago‐Jolley Accounting Fundamentals 11