Financial accounting

Topics: Balance sheet, Generally Accepted Accounting Principles, Financial statements Pages: 97 (13613 words) Published: October 6, 2013
BUSN1002
Financial Accounting Processes
Semester 2, 2013

LECTURE OUTLINES 1 – 6

Topic Coordinator:
Philip Palmer
Room 3.70 Law and Commerce Building
Email: philip.palmer@flinders.edu.au
Ph: 8201 2013

FLINDERS UNIVERSITY
FLINDERS BUSINESS SCHOOL
BUSN1002 Financial Accounting Processes

Philip Palmer

Lecture Outline 1
Introduction to Financial Accounting
Reading: Hoggett et al., Chapters 1 and 2

1 Introduction to Accounting
Accounting is an information system designed to communicate financial information to interested users for making economic decisions. Accounting information is useful to those inside and outside of the entity.

Accounting is known as the language of business and generally fulfils two roles: Stewardship


The more traditional role of providing accountability reports of transactions for a given period

Decision usefulness


Is about assisting users with making informed choices about issues e.g. resource allocation

Accounting seeks to satisfy the needs of a wide range of users: Internal Users

• Management

Focus

• Internal focus
• Planning
• Organising
• Directing
• Controlling
• Decision-making
• Cost behaviour
• Budgeting Reports on-demand

Information Requirements

• How much profit is being earned?
• What products should be produced?
• What resources are available?
• What is the most efficient production
process?

• What is the cost to reduce carbon

emissions?
• What will be the effect of increasing
or decreasing selling prices?
• How much profit is owing to
outsiders?
• Will cash be available to pay debts as
they fall due?
• What are benefits of owning vs
leasing?

1

External Users
• Investors
• Employees
• Lenders
• Suppliers and
other trade
creditors
• Customers
• Governments and
their agencies
• Public

• External focus

Focus

(shareholders/stakeholders)

• Reporting information
• Performance (Income statement flow concept)

• Position (Balance Sheet - stock

concept)
• Financing and investing
• Compliance
• Reports at regular intervals

Information Requirements
• Should I invest money in this
business?
• Will the business be able to repay
money lent to it?
• What are the business’s earning
prospects?
• Is the business financially sound?
• Is the business providing products
that are socially and environmentally
friendly?

2 Introduction to Financial Accounting
Financial accounting communicates financial information to interested users, external to the entity, for making economic decisions.
Financial Accounting

Management Accounting

Focus

Mainly external

Internal only

Nature of reports

General purpose

Specific purpose

Level of detail

Broad overview

Quite detailed

Restrictions

Accounting standards and other
regulations

No restrictions

Reporting interval

Mainly semi-annual or annual

Whenever required

Time horizon

Mainly historical

Both past and future

Range of information

Quantifiable in money terms; focus
on objective and verifiable data

Can contain non-financial
information; less focus on
objectivity and verifiability

General Financial Purpose Report (GPFR): A financial report intended to meet the information needs common to users who are unable to command the preparation of reports tailored so as to satisfy, specifically, all of their information needs (SAC 1, par 6).

The objective of financial statements is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions (AASB Framework, par 12) Accounting as an information system

• Identify and capture relevant economic information
• Measure the economic information in monetary terms
• Record the information (classify and summarise)
• Communicate the information in a manner suitable to the needs of users 2

Accounting as a service function...
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