2018
ACCG 100
ACCOUNTING IN SOCIETY
LECTURE NOTESTable of Contents
WEEK 1: ACCOUNTING, ACCOUNTABILITY AND SOCIETY ... 4
Importance ... 4
Role and requirements ... 4
Types of Accounting ... 4
Management ... 4
Financial ... 4
Types of businesses ... 4
Sole proprietorship ... 4
Partnership ... 4
Company ... 4
WEEK 2: ETHICS ... 5
Ethics vs morals ... 5
Ethical theories ... 5
Teleological/Consequential ethics ... 5
Deontological/Non-‐Consequential ethics ... 5
The Accounting Code of Ethics ... 5
Ethical requirements on independence ... 6
WEEK 3: FINANCIAL ACCOUNTING FOR BUSINESS: ACCOUNTING CYCLE AND DOUBLE ENTRY METHOD ... Error! Bookmark not defined.
Accounting Cycle ... Error! Bookmark not defined.
Type of transactions ... Error! Bookmark not defined.
External transactions ... Error! Bookmark not defined.
Internal transactions ... Error! Bookmark not defined.
Non-‐Transactional Events ... Error! Bookmark not defined.
Five Financial Elements ... Error! Bookmark not defined.
1.
A ... Error! Bookmark not defined.
2.
L ... Error! Bookmark not defined.
3.
O ... Error! Bookmark not defined.
4.
R ... Error! Bookmark not defined.
5.
E ... Error! Bookmark not defined.
Debit and Credit rules ... Error! Bookmark not defined.
Double-‐Entry Accounting ... Error! Bookmark not defined.
WEEK 4: FINANCIAL ACCOUNTING FOR BUSINESS: RECORDING TRANSACTIONS ... Error! Bookmark not defined.
T-‐Accounts ... Error! Bookmark not defined.
Trial Balance ... Error! Bookmark not defined.
WEEK 5: FINANCIAL ACCOUNTING FOR BUSINESS: ADJUSTING ENTRIES & ADJUSTED TRIAL BALANCE ... Error! Bookmark not defined.
Accrual Accounting ... Error! Bookmark not defined.
Accrual Basis Assumption ... Error! Bookmark not defined.
Most common use of accrual-‐based accounting ... Error! Bookmark not defined.
Cash-‐based accounting ... Error! Bookmark not defined.
Why do we need Adjusting Entries? ... Error! Bookmark not defined.
Classification of adjusting entries ... Error! Bookmark not defined.
Deferrals ... Error! Bookmark not defined.
Prepaid Expenses: ... Error! Bookmark not defined.
Unearned Revenue: ... Error! Bookmark not defined.
Accruals ... Error! Bookmark not defined.
Accrued Expenses: ... Error! Bookmark not defined.
Accrued Revenue ... Error! Bookmark not defined.
What is next? ... Error! Bookmark not defined.
WEEK 6: FINANICAL ACCOUNTING FOR BUSINESS: CLOSING ENTRIES ... Error! Bookmark not defined.
Temporary and Permanent Accounts ... Error! Bookmark not defined.
Closing Entries ... Error! Bookmark not defined.
Step 1 ... Error! Bookmark not defined.
Step 2 ... Error! Bookmark not defined.
Step 3 ... Error! Bookmark not defined.
Step 4 ... Error! Bookmark not defined.
The End Result ... Error! Bookmark not defined.
WEEK 7: FINANCIAL ACCOUNTING FOR BUSINESS: PREPARING FINANCIAL STATEMENTS . Error! Bookmark not defined.
Users of Accounting Information ... Error! Bookmark not defined.
Internal User ... Error! Bookmark not defined.
External User ... Error! Bookmark not defined.
Information ... Error! Bookmark not defined.
1. Financial performance ... Error! Bookmark not defined.
2. Financial position ... Error! Bookmark not defined.
3. Cash movements ... Error! Bookmark not defined.
Income Statement ... Error! Bookmark not defined.
Balance Sheet ... Error! Bookmark not defined.
Statements of Changes in Equity ... Error! Bookmark not defined.
Accounting Assumptions ... Error! Bookmark not defined.
Accounting Entity Assumption ... Error! Bookmark not defined.
Accrual Basis Assumption ... Error! Bookmark not defined.
Going Concern Assumption ... Error! Bookmark not defined.
Period Assumption ... Error! Bookmark not defined.
Qualitative Characteristics ... Error! Bookmark not defined.
Relevance ... Error! Bookmark not defined.
Faithful Representation ... Error! Bookmark not defined.
Comparability and Consistency ... Error! Bookmark not defined.
Understandable ... Error! Bookmark not defined.
Materiality ... Error! Bookmark not defined.
WEEK 8: FINANCIAL ACCOUNTNG FOR BUSINESS: FINANCIAL STATEMENTS .. Error! Bookmark not defined.
Ratios ... Error! Bookmark not defined.
Ratio Analysis ... Error! Bookmark not defined.
Profitability ratios ... Error! Bookmark not defined.
Liquidity ratios ... Error! Bookmark not defined.
Solvency ratios ... Error! Bookmark not defined.
WEEK 9: INTRODUCTION TO MANAGEMENT ACCOUNTING AND BUDGETING Error! Bookmark not defined.
What is management accounting? ... Error! Bookmark not defined.
Functions ... Error! Bookmark not defined.
Manufacturing costs ... Error! Bookmark not defined.
Terminology ... Error! Bookmark not defined.
Budgeting ... Error! Bookmark not defined.
WEEK 10: COST VOLUME PROFIT ANALYSIS ... Error! Bookmark not defined.
Variable and Fixed Costs ... Error! Bookmark not defined.
CVP Analysis ... Error! Bookmark not defined.
Contribution Margin ... Error! Bookmark not defined.
Break-‐Even Point ... Error! Bookmark not defined.
Margin of Safety ... Error! Bookmark not defined.
Target Profit ... Error! Bookmark not defined.
WEEK 11: SUSTAINABILITY ... Error! Bookmark not defined.
Limitations of traditional accounting ... Error! Bookmark not defined.
Environmental accounting ... Error! Bookmark not defined.
Social accounting ... Error! Bookmark not defined.
Benefits of the triple bottom line for businesses ... Error! Bookmark not defined.
Stakeholders ... Error! Bookmark not defined.
Limitations ... Error! Bookmark not defined.
WEEK 1: ACCOUNTING, ACCOUNTABILITY AND SOCIETY
o
Accounting is a “process of identifying, measuring, recording and communicating economic transactions and events of a business operation”
Importance
o
Accounting plays a key role in the provision of financial information for decision-‐making. These decisions from a business owner’s or manager’s perspective may be:
1. Operating decisions (e.g. what do I produce? And how I produce?)
2. Financial decisions (e.g. how much funds do I need? And how to get financed?)
3. Investment decisions (e.g. what assets do I need for production? And do I build it in house or acquire it externally?
Role and requirements
oRecording
o
Reporting
oBudgeting
o
Financial Analysis
o
Technical competency (financials, audit, regulation etc.) BUT ALSO
o
Professional skills/judgement
oCommunication
o
Group work
oEthics
o
Accountability
oLeadership Types of Accounting
Managemento
Internal focus on managers and their decision making
oCosting
o
Planning and controlling
oPerformance measurement
oTend to be forward looking
o
Extensively used in strategy making
Financialo
External focus on shareholders, regulators, creditors and reporting information
oFinancial performance
o
Financial position
oCash flows
o
Information reported reflects the past
oHighly regulated
Types of businesses
Sole proprietorshipo
Owned by one person
Partnershipo
Owned by more than one individual
Company
o
Organised as a separated legal entity and owned by shareholders
WEEK 2: ETHICS
“Ethics in its broader sense, deals with human conduct in relation to what is morally good and bad, right and wrong. It is the application of values to decision making. These values include honesty, fairness, responsibility, respect and compassion”
Ethics vs morals Ethics:
o
What are they?
-‐ Principles of right conduct
oWhere do they come from?
-‐ Social system, external
oWhy we do it?
-‐ Because society says it is the right thing to do Morals:
o
What are they?
-‐ Principles with respect to right or wrong conduct
oWhere do they come from?
-‐ Individual, internal
oWhy we do it?
-‐ Because we believe in something bring right or wrong Ethical theories
o
Prescriptive principles or rules for determining right from wrong -‐ beliefs about how people ‘should’
behave
o
Principles and methods are used as a guide for avoiding and resolving ethical issues.
o
Two classifications:
Teleological/Consequential ethics
o
The consequences of a decision or action is the sole determinant of what is right from wrong.
o
A morally correct action occurs when benefits outweigh costs.
o
How you get to the result is less important than the outcome itself. -‐ e.g. telling a lie is OK if people benefit at the end of the day.
o
Limitation: tends to be a selfish approach to ethics. Emphasis is placed on the individual or majority which may be unfair to the minority or may abuse individual rights.
Deontological/Non-‐Consequential ethics o
Consequences are not important.
o
The intention to do the right thing is more important than the final result.
o
One does the right thing because it is the “right thing to do”
o
e.g. telling a lie is never OK regardless of whether people are better off or not.
The Accounting Code of Ethics
o
APES 110 Code of Ethics for Professional Accountants
oFundamental Principles:
(a) Integrity
-‐ Be straightforward and honest in all professional and business relationships (b) Objectivity
-‐ Professional or business judgments cannot be compromised because of bias, conflict of interest or the undue influence of others
(c) Professional competence and due care
-‐
Must attain and maintain professional and technical knowledge for clients or employers -‐ Requires diligence and appropriate training and supervision
(d) Confidentiality
-‐ Must not disclose outside of the firm, confidential information acquired as a result of professional and business relationships, unless the client or employer authorizes it or there is a legal duty to disclose it.
(e) 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
1. Independence of mind
-‐ a state of mind which permits the expression of a conclusion without being affected by influences that compromise your professional judgment.
-‐ don’t think about unethical behaviour 2. Independence in appearance
-‐ avoidance of facts and circumstances that are so significant that a reasonable and informed third party, having knowledge of all relevant information, would reasonably conclude integrity, objectivity or professional skepticism had been impaired
-‐ don’t place yourself in uncompromising positions
