Accounting for Decision Making - Essay 2

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Accounting for Decision Making
Study Notes
Introduction to Accounting (Week One)
Accounting is the process of identifying, measuring and communicating economic information (transactions) of a business to a variety of users for decision making purposes. Business transactions are an external exchange of something of value between 2 or more entities. They can reliably be measured and recorded and can affect the assets, liabilities and equity of a business/ organisation. Accounting information is designed to meet the needs of both internal users (management) and external users (stakeholders). Financial Accounting and Management Accounting

- Financial Accounting includes the preparation and presentation of financial statements (Income Statement, Statement of Changes in Equity, Balance Sheets and Statement of Cash Flow) for interested parties. - Management Accounting includes preparing internal reports to assist management in the decision making process. This mostly involves formulating plans and budgets.

Sources of Regulation
A business has many financial obligations that are legally enforceable. 1. Australian Securities & Investments Commission (ASIC): Acts as company watchdog by enforcing company and financial services laws to protect consumers, investors and creditors. Their main roles include: Uphold the law, Promote informed participation, Ensure company info is publicly available and Improve performance of financial system. 2. Corporations Act 2001 (Cwlth): Purpose is to regulate companies. 3. Australian Securities Exchange (ASX): main Australian market place for trading equities (shares), government bonds and other fixed interest securities. 4. Australian Competition & Consumer Commission (ACCC): administers Trade Practices Act and Prices Surveillance Act. The primary role is consumer protection. 5. Reserve Bank of Australia (RBA): responsible for the stability of Australian financial systems and setting monetary policy (ie interest rates). 6. Australian Prudential Regulation Authority (APRA): role includes ensuring financial institutions honour their commitments, promoting safety of life and general insurance companies and large super funds. 7. Australian Taxation Office (ATO): collects taxes and oversees all self-managed superannuation funds 8. Other government agencies: Targeted to particular areas of commercial operations. Accounting Information Limitations

When Gathering Account Information the consideration of limitations in the information needs to be taken into account. These limitations include - Time lag problems: distribution of information to users affecting its accuracy E.g. increase in market competition, unsettled legal dispute, fire and flood. - Historical information problems: being all historical information there is no forecasts as it’s all based on past information. - Subjectivity of information problems: choices made E.g. Choose value for reporting asset, cost vs current market value, inventory valuation method, when to recognise revue, disclosure of additional financial info. Business Structures (Week 2)

The Basic Forms of Business Structures are:
* Sole Trader
* Partnership
* Company
they differ is terms of owners liability, equity structure, decision making responsibilities, funding opportunities and taxation.

| Definition/ features| Advantages| Disadvantages|
Sole Trader| Being a sole trader the business will have a limited life (if anything happens to the owner the business will not be able to continue. The owner of the business is 100% liable, they are personally responsible for the debts and obligations of the business. As a sole trader you have minimum access to funds and you have minimal financial reporting regulations. Examples include hairdressers, Plummer’s, carpenters and consultants.| * Simple and inexpensive to establish and operate. * Timely decision making is possible * Financial rewards flow straight to...
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