Accounting English Topic 1 Lecture 龚玲玲

1. 大连职业技术学院 AccountingEnglish Topic 1Lecture 龚玲玲 The accounting environment and accounting reports

2. Administration • Lecturer • Ms 龚玲玲 mechelle_gong@hotmail.com • Important Information • Assessment results – You MUST complete assignments to our satisfaction AND MUST achieve a Pass grade or better in the Exam • READ the Unit Guide on DSO • The Study Guide is provided in hard-copy and CD formats, and on DSO • Course Software – CAL programs Accounting Equation & General Ledger are available on Web via DSO Resources page, QuickBooks on lab PCs • Weeks 4 - 7 one hour in computer labs in lieu of third hour of seminars • Quicken’s QuickBooks software package – QuickBooks CD should be purchased just like the textbook – There is an Assessment Task • Prescribed textbook – Jackling et al (2004)

3. Administration • In weeks 4, 5, 6 & 7 one hour of class time will be spent in a computer lab. Two computer labs have been booked for each seminar group. • In these classes students will use the Accounting Equation Program, the General Ledger program and QuickBooks. • QuickBooks knowledge will be tested via a case study due 4th September.

4. Topic Introduction • An introduction to the environment of accounting in the business context • The fundamental ideas that underpin accounting practice • The nature of accounting, it’s function and purpose • Study Habits: • You read the Topic in the Study Guide • You read each reading suggested • You try to answer each question suggested • You check with the suggested answers at the end of each topic • You log-on to the prescribed textbook publisher website and attempt the available multiple-choice (MC) questions. MC are a KEY component of assessment and final exam

5. Accounting Defined • the process of identifying, measuring and communication economic information to permit informed judgements and decisions by users of the information. • identify (record and classify) • measure(analyse, compare) • communicate(report) • economic information (income, exp., profit/loss, assets, liabilities, owners equity, etc, etc.) • users (managers, shareholders, investors, employees, government bodies, customers, economic analysts, etc)

6. Key Financial Statements • Statement of Financial Performance (Profit and Loss Statement). Reports revenue and expenditure for a given period and determines the profits earned or losses made for that period • Statement of Financial Position(Balance Sheet). Reports the resources of value, called Assets, the Debts, and the Owners Claim on Equity, as at a specific point in time) • Statement of Cash Flow Reports the cash flows for a given period from operating, investing and financing activities.

7. Accounting Entities • An Accounting Entity is a discrete unit of substance. – what does this mean? • Is considered separate and distinct from it’s owners • Could be a business, division, department, cost-centre, group of businesses, government or non-profit entity • Could be a sole owner, partnership or company

8. Owners – non-legal entities • Sole Proprietorships • For accounting purposes the business and the proprietor (owner) are separate entities • For legal purposes the 2 are the same, the business is not a legal entity, and the owner is legally responsible for business debt • Partnerships • For accounting purposes the business and the proprietors (owners) are separate entities • For legal purposes the 2 are the same, the business is not a legal entity, and the owners are individually legally responsible for business debt

9. Owners – legal entities • Shareholders in Companies • A Company is both a legal and an accounting entity • Shareholders liability is limited to their investment. They could lose part or all of that but cannot be held responsible for company debt • As a legal entity a company can form contract, sue and be sued, own assets etc, etc • Public Sector Proprietorship • Government entities that operate similar to private sector entities. Consider the sorts of reasons they might have been created for?

10. The Environment of Accounting • Accounting is a part of Society • accounting influences, and is influenced by, the environment that surrounds it. • Regulatory • Economic decision-making • International

11. The Environment of AccountingThe Regulatory Environment • Accounting Regulations govern structure, content, audit and disclosure of information • Accounting Regulations are designed to protect investors, creditors, and other users • Who are the Regulators? Jackling et al pp 11-14 • Company legislation • Stock Exchange Listing Requirements • Accounting Standards

12. Accounting and SocietyThe Regulatory Environment • Organisations are an integral part of society • Companies provide much of the • World’s employment, products, services and technology • Are major sources of Government revenue • Such actions contribute to standards of living • But such actions also contribute to environmental problems through pollution, land degradation etc, and Companies fail adversely affecting communities, employment, investment etc • Regulatory Authorities exist • To offer society a degree of protection through law-making, monitoring and action disciplinary where required

13. Accounting and SocietyThe Regulatory Environment (cont) • Accounting information and the regulatory environment can also • Provide employer group, unions and governments with information to drive their economic agendas • Give the government influence over essential services such as banks, utilities etc • Encourage struggling industries through targeted government support and subsidies • Provide information for political decisions on government services such as health, transport and education • Provide data for redistribution of wealth through society via government intervention

14. The Environment of AccountingThe Economic Decision-making Environment • A focus on the relationship between financial statements and the USERS who make resultant economic decisions • Shareholders (Investors) make decisions about:- • Dividend returns, Capital Gains on their investment, should they buy, hold, or sell shares, being risk adverse, or choosing a level of risk • Lenders (Creditors) make decisions about:- • Short-tern, long-term, level of risk, rate of return • Other Users - Discuss

15. Accounting and SocietyEconomic Decision-Making • Decision-Making concerned with the allocation of scarce economic resources to achieve growth • An efficient well-functioning economy delivers • Higher standards of living • Better technologies • Higher employment levels • Better healthcare and education • Many other social benefits to the community

16. The Environment of AccountingThe International Accounting Environment • Different countries employ accounting regulations and practices distinct to their environment • The state of economic development • The state of business complexity • The state of political persuasion • Reliance on a system of law

17. Accounting and SocietyThe International Environment • Foreign investment in Australia is an important part of the economy and many companies seek overseas capital in order to grow their business. • The quality of financial statements and their compatibility with those of other advanced industrialised nations is a vital part of international capital and trade

18. Session Objectives – Section B- Chapter 2 Jackling et al • Explain the differences between FINANCIAL and MANAGEMENT Accounting • Identify the elements of financial statements • Describe the structure, content and uses of the major financial statements • Discuss the concept of financial ratio analysis • Describe the historical cost basis of accounting • Explain the nature and use of estimation and judgements in accounting

19. Accounting Reports2 major forms of accounting • FINANCIAL ACCOUNTING • Primarily reporting to external users of accounting information • Investors, employees, lenders, suppliers, creditors, customers, governments, community groups and other interested parties • Use of General Purpose Financial Reports and • Special Purpose Financial Reports • MANAGEMENT ACCOUNTING • Primarily reporting to internal users of accounting information at all levels of the organisation to aid in the functions of business management

20. Accounting ReportsFinancial Reporting • General purpose financial reporting • Reports to external users who do NOT have influence to demand special reports • These reports assist users to make economic decisions • Are usually periodic – for example half-yearly or annually • Special purpose financial reporting • Reports for external users who DO have influence to demand special reports • Users such as taxation authorities, central banks, credit agencies etc • Are usually periodic but might also be on-demand

21. The Major Financial Statements • 3 major questions asked by Users • How well has the entity performed • What is the financial position of the entity • What is the ability of the entity to generate cash to pay it’s debts • The 3 major financial statements available to Users on a periodic basis to answer the above are • Statement of Financial Performance (Profit and Loss Statement) • Statement of Financial Position (the Balance Sheet) • Statement of Cash Flow

22. The Major Financial StatementsStatement of Financial Performance (P&L) • A calculation of an entities Profits or Losses for a particular accounting period by deducting periodic Expenses from periodic Revenue • Emphasis is on earning Revenue and does not depend on having received that Revenue. Expenses must be matched to Revenue in the same period • Operating items arise from ordinary course of business • Review page 41 of Jackling et al - Performance Report

23. The Major Financial StatementsStatement of Financial Position (Balance Sheet) • A financial statement of the entities Assets and Liabilities at a specific point in time • It shows the resources of value controlled by the entity • Value does not necessarily mean the original cost price of a resource but represents a considered value of that resource at a specific point in time • It is a measure of the owners net claim on the resources of the entity. This is called shareholders equity

24. The Major Financial StatementsStatement of Financial Position (Balance Sheet) • Assets are something considered of economic benefit to the entity and are classified as being current or as being non-current depending on the time it might take to convert them into cash • Liabilities are the debts of the entity and are classified as being current or as being non-current depending on the timeit might take to discharge them • More detailed review in Topic 2 • Review page 43 Jackling et alStatement of FinancialPosition • Segment reporting • Information by geographical location or business group • Jackling et al p. 45

25. The Major Financial StatementsStatement of Cash Flow • Most enterprises fail because of Cash Flow problems • Statement of Cash Flow • The flow of funds from all sources in and out of an entity during a specific accounting period • Users can analyse an entities liquidity/short-term cash position • A business entity may be asset rich yet fail because of lack of cash to pay short-term debt • Review page 46-47 Jackling et al Statement of Cash Flow

26. Recognition Criteria • When and how should certain things be recorded in financial accounts? • Before recording assets liabilities, revenues and expenses they must meet certain criteria • Must be capable of reliable measurement • Their existence must be probable • If they fail these tests they are not recorded

27. Valuation Issues • Items may be valued in many ways: • Their original purchase price (historical cost) • The original price modified for inflation • The current replacement price • The current selling price • The current market price • The difficulty is determining which value is both • the most relevant and useful • and the most reliable

28. Estimation and Judgement • The accrual accounting system involves substantial estimation and judgment in arriving at figures • In preparing reports accountants are required to make a numbers of choices, estimates and approximations • Different estimates and assumptions can result in different results

29. Discussion IssuesJackling et al page 49 Case 2.1 • Discuss the Brasco Opal valuation case