Accounting Environment

YEAR 11

NAME BUSINESS STUDIES DEPARTMENT VILLANOVA

The accounting environmentCore Studies 1

Introduction to accounting

• Accounting is that discipline which measures,

records and processes financial and other

information about an entity, and reports and

interprets that information to interested parties

to enable them to make appropriate decisions.

(from transactions and other sources)

•Measured in monetary terms

• Define problem/goals

• Alternatives• Decisions

(timely and accurate)

•Relevance•Reliability•Materiality•Comparability•understandability

• Manipulation of data into useful information

feedback

The accounting profession in Australia

• Wide and varied career path

• Private: work for one business as financial controller, CFO

• Public: provide independent professional services to the public as an auditor, advisor

• Government: prepare reports and ensure laws/regulations are followed.

• 2 accounting associations exist

• Certified Practicing Accountants Australia (CPA)and

• Institute of Chartered Accountants in Australia (CA)

• Both set standards and ethical conduct for their members, represent accountants with other bodies

• Both have entry qualifications and aim to keep their members up-to-date

Objectives of accounting

• To provide information for decision-making

• Decisions concerning the efficient acquisition and allocation of economic resources

• General purpose reports (eg income statement) assist interested parties to determine continued profitability, financial stability of business.

• Special purpose reports (analysis of sales by product) may help to identify poorly performing products.

• Discharge accountability

• Refers mainly to the accountability of the management in meeting their responsibility to owners in terms of performance, control and governance.

• Also refers to employees who are accountable to management. They have a responsibility to do their jobs efficiently and honestly.

• Accountants also assist organisations with their legal responsibilities.

• Evaluating performance

• General purpose reports allow the evaluation of management performance in using resources efficiently, earning profits, achieving financial stability.

• Special purpose reports allow the performance of individuals and groups within the organisation to be evaluated by management or interested external users.

Accounting for business organisations

Sole Traders

•A one person business

•Supplies most of the funds

•Responsible for the debts of the business

•Takes all profits/bears all losses

•Owner and business are the same legal entity, ie in the eyes of the law the business and the owner are one therefore the owner has – unlimited liability – the owner bears all losses to full extent of their own private assets.

Partnership

•2 or more (usually not more than 20) people operate a business

•Not regarded as a separate legal entity

• Owners are jointly liable for the debts of the business and personal passessions may be sold to pay for such debts

• Like sole traders, each partner has unlimited liability.

Companies

•Bodies formed to overcome disadvantages of the sole trader and partnership

•Can be formed by only one shareholder but usually have a large number of owners/shareholders

•Owners of companies are regarded by the law as separate from the company.

• Owners have limited liability – personal possessions are safeguarded

•Owners are entitled to a share of the profits generated by the company – called dividends.

• Two common types of companies are: private and public.

• Private companies are generally family concerns and have Proprietary Limited (PTY LTD) after their name.

• Public companies obtain share capital and loans from the public and are usually very large businesses.

• Have Limited (LTD) after their name.

Public-sector organisations

•Organisations whose primary motive is to provide a focus and service for people with common interests eg religious, sporting

Trusts

•A legal arrangement whereby assets are transferred to the control of trustees to administer for the benefit of someone else, called a beneficiary.

•Trustees control the assets but cannot benefit from them

•Beneficiaries benefit from the assets but cannot control them