Accounting and Financial Management
ACCT1501 ACCOUNTING & FINANCIAL MANAGEMENT 1A SEMESTER 1 2008 COURSE NOTES
Last Revised: 13th August 2008. kaheiyeh.web.officelive.com
Contents
Page 3: The Nature of Accounting Page 5: The Balance Sheet & Transaction Analysis Page 8: The Income Statement & Transaction Analysis Page 13: Financial Reporting Principles Page 18: Adjustment to Accounting Entries Page 23: Completing the Accounting Cycle Page 26: Accounting for Cash Holdings & Receivables Page 30: Accounting for Inventory Page 37: Accounting for Non-Current Assets I Page 42: Accounting for Non-Current Assets II Page 45: Accounting for Liabilities
~2~
Week 1 – The Nature of Accounting
What is Accounting? Accounting is the main way in which organisations present the financial performance and financial position of that organisation. Essentially, it is a "language". It is also used to convey economic information to the decision-makers (users). The Rise of Economic Consequences Economic consequences have a very acute relationship with accounting. Take, for example, the collapse of Enron in 2001. This was due to: Misleading accounting Accounting scandals Accounting along took the business down and also the auditing firm and demonstrates this relationship. There is a focus on economic consequence in equity markets. This means that the decision maker is usually the investor/owner and they decide the value and the amount of shares they are willing the buy or sell. Users of Accounting Some users of accounting include: Management: To Monitor and Control Creditors: To decide lending amounts and terms Customers: To buy the product or not? (This generally applies to large buyers, not the end consumer) Tax Office: To see the assessable income Regulators: To check for compliance with legislation and laws Analysts: To provide recommendations to potential and current shareholders Competitors: To gain insight into the business's strategies Managers: To decide on performance incentives (Pay rises, bonuses
Last Revised: 13th August 2008. kaheiyeh.web.officelive.com
Contents
Page 3: The Nature of Accounting Page 5: The Balance Sheet & Transaction Analysis Page 8: The Income Statement & Transaction Analysis Page 13: Financial Reporting Principles Page 18: Adjustment to Accounting Entries Page 23: Completing the Accounting Cycle Page 26: Accounting for Cash Holdings & Receivables Page 30: Accounting for Inventory Page 37: Accounting for Non-Current Assets I Page 42: Accounting for Non-Current Assets II Page 45: Accounting for Liabilities
~2~
Week 1 – The Nature of Accounting
What is Accounting? Accounting is the main way in which organisations present the financial performance and financial position of that organisation. Essentially, it is a "language". It is also used to convey economic information to the decision-makers (users). The Rise of Economic Consequences Economic consequences have a very acute relationship with accounting. Take, for example, the collapse of Enron in 2001. This was due to: Misleading accounting Accounting scandals Accounting along took the business down and also the auditing firm and demonstrates this relationship. There is a focus on economic consequence in equity markets. This means that the decision maker is usually the investor/owner and they decide the value and the amount of shares they are willing the buy or sell. Users of Accounting Some users of accounting include: Management: To Monitor and Control Creditors: To decide lending amounts and terms Customers: To buy the product or not? (This generally applies to large buyers, not the end consumer) Tax Office: To see the assessable income Regulators: To check for compliance with legislation and laws Analysts: To provide recommendations to potential and current shareholders Competitors: To gain insight into the business's strategies Managers: To decide on performance incentives (Pay rises, bonuses