Topic 1: The Accounting Environment

Who are the internal users of accounting?

Managers who plan, organise and run the business e.g., marketing managers, production supervisors, chief-financial officers, other employees.

What is an asset?

-Resources controlled by a business -which are as a result of past transactions or events and have the capacity to provide future economic benefit.

What is recognition?

-the process of incorporating items in the statement of financial position (balance sheet) if it meets the definition of an element. -Must fit the following criteria: 1. There will be a benefit gained or sacrifice made. 2. It is a reliable measurement of performance.

What are the characteristics of assets?

-used in carrying out: production, consumption and exchange. -usually physical in nature, e.g. land, buildings, supplies to be used, and inventory that the business expects to sell to its customers. -sometimes intangible, e.g. trademarks.

What is the difference between bookkeeping and accounting?

Bookkeeping usually involves only the recording of economic events (transactions)...which is only one part of the accounting process. Accounting involves the entire process of 'identifying, recording and communicating' economic events...PLUS it involves the use of considerable judgement.

What is accounting?

an information system that: identifies, records and communicates the economic events of an organisation to interested users.

What is capital?

the assets the owner puts into the business

What are drawings?

withdrawals of cash or other assets by the owner for personal use.

What are expenses?

-Decreases in owner's equity that result from operating the business. -Cost of assets consumed or services used in the process of earning revenue. -e.g., utility expense, rent expense, supplies expense and tax expense.

What is revenue?

-Gross increases in owner's equity from business activities entered into for the purpose of earning income. -May result from sale of merchandise, services, rental of property, or lending money. -Usually result in an increase in an asset.

What is are liabilities?

-Present obligations claimed against assets -are as a result of past transactions or events and lead to an economic sacrifices. -examples include outstanding accounts payable, bank loans, wages payable, etc.

What is owner's equity?

-Represents the ownership claim to total assets. -is increased by: Capital (Investments by the owner[s]) and Revenue -is decreased by Drawings and Expenses

What is a transaction?

A record of an economic event of an entity. may be internal or external, affecting two or more components of the basic accounting equation.

What jobs are possible with an Accounting degree?

Accounting practice, corporate accounting General management, sports management, marketing, finance, real estate, optometry Law practice, Entrepreneurship.

Who are the external users of accounting?

Investors to make decisions to buy, hold or sell shares. Creditors to evaluate risks of giving credit and lending money. e.g. suppliers, bankers, ATO, governments.

What is Transaction Analysis?

The process of identifying the specific effects of transactions and events on the accounting equation.

What is the role of accounting?

it provides the financial information required for making decisions with regards to money and business issues, making it a means of communication and measurement of business activity.