Topic 1: (CHAPTER 1)
Accounting Definition: (PG 39)
Accounting involves identifying, measuring, recording, summarizing and communicating economic information about a business for decision making.
-The accounting system provides information to help with decision making
Business Environment: (PG 3)
The business environment is becoming dynamic and is becoming increasingly complex. Such factors include:
-More information is being generated than ever before, and is being made available to more people.
-Technology is advancing rapidly, affecting the way products are used, manufactured, and the way business is being conducted
-Business activities are becoming more globalised -The number of regulations is increasing
-Business transactions are becoming more complex
A business person needs to respond to change and see it as an opportunity rather than an obstacle. This involves being prepared for the opportunity (being willing and able to change).
Types of Businesses (private enterprise): (PG 6)
Service: -Perform services or activities that benefit individuals or business customers EG: Qantas, Gartland Real-estate , Accounting practices
Merchandising: -Purchase goods for resale to their customers (wholesalers and retailers) -Wholesalers primarily sell goods to retailers
EG: beverage distributors
-Retailers sell their goods directly to the customer EG: target, rebel
Manufacturing: -Make their products and then sell these products to their customers EG: Ford, BlueScope steel
Sources of Capital/Finance: (PG 8)
Owner’s Investments: -Business uses owner’s funds to commence and operate business -Advantage is that there is no need to pay interest
Borrowings: -Business uses external borrowings to fund business -Requires payment of interest and repayment of debt -Both have their own risks and benefits
Accounting Entities: (PG 10)
Sole -Owned by one person
Ownership: -Owner contributions are called capital -Entity is not incorporated
-Owner must keep personal transactions separate
-Owner is liable for entity’s debts as it is not a separate legal entity Partnership: -Owned by 2-20 people (partners)
-Entity is not incorporated
-Agreement is made between partners regarding contributions, salaries and share of profit
-Partner’s are liable for entity’s debts as it is not a separate legal entity Company: -A legal entity (artificial person)
-Incorporated and registered and usually has limited liability -Owners are called shareholders who receive dividends
-Shareholders are not liable for companies debts (limited liability) -Dividends are taxed at a company rate
-More expensive and time consuming to establish -Owners have little or no say in its running
-PRIVATE or PUBLIC Regulatory Environment: (PG 14)
-Local government issues: council rates, environmental regulations, zoning restrictions -State issues: OHS, Workplace discrimination
-Federal issues: OHS, Fair-Work standards, ABN/ACN, ATO (GST, employees tax) -International issues: Exports and imports, multinational production and marketing
Users of Accounting Information:
Internal: -Managers
External: -Shareholder’s/Investors -Banks/creditors
-Suppliers
-Customers/Employees -Government
-Public
Two Branches of Accounting: (PG 15) Management Accounting:
(internal users)
-Helps managers plan, operate, and evaluate a business’s activities (specific) -Not regulated, no strict format, supplied where required
Financial Accounting:
(external users)
-Production of financial statements (general purpose)
-Organized for the use of interested people outside of the business -Focus on reporting past transactions, highly regulated, strict format
