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1
Q

What is accounting?

A

Accounting is an information system of recording and reporting transactions by collecting input (data) and giving an output. Accounting identifies, records and communicates the economic events of an entity to interested users.

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2
Q

Why is accounting important?

A

It is important as it assists people/users either internal and external to the entity by giving them insight in order to make informed decisions. Without reliable financial information, managers would not be able to evaluate how well their business is going or to make decisions about the best way to make their business grow.

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3
Q

Internal users are:

A

employees within the entity such as managers.

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4
Q

External users are:

A

people outside the entity such as investors, creditors (suppliers), banks or regulatory bodies (ATO, ASIC).

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5
Q

Accounting Process Step by Step:

A
  1. Identify - events that are considered evidence of economic activity and relevant to particular business entity.
  2. Record - to provide a permanent history of the financial activities of the entity. This consists of keeping a chronological diary of these measured events in an orderly and systematic manner.
  3. Communicate - Information is communicated through the preparation and distribution of accounting reports (financial reports). A vital element in this step is the accountants ability to analyse and interpret the reported information.
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6
Q

What is the difference between bookkeeping and accounting?

A

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 as well as it involves the use of considerable judgement.

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7
Q

What is Triple Bottom Line Reporting?

A

TBLR includes the social, environmental and economic components of business activities. It also focuses on not only on the determination of profit, but also information regarding social and environmental costs resulting from business activity.

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8
Q

What is Corporate Social Responsibility Reporting?

A

CSRR is the reporting and management of non-financial performance. It focuses on the impact of the operations of the entity have on the society and the environment.

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9
Q

Sustainability means

A

meeting the needs of the present without compromising the ability of future generations to meet their own needs.

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10
Q

Social responsible investors are

A

stakeholders that want more than just financial statements, rather they want to know how they entity is impacting society at large.

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11
Q

Steps to solve an ethical dilemma:

A
  1. Recognise an ethical issue
  2. Identify the stakeholders (people that will be directly affected) and how the issue affects them
  3. Identify the alternatives and judge the impact they will have on the stakeholders
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12
Q

Role of Corporate Governance is to

A

govern how a business is directed or controlled, managed and administrated. It relates to how the objectives of a company are set and achieved, how risk is managed and performance optimised and ensures that goals and decisions made by managers are aligned with stakeholders.

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13
Q

The Global Reporting Initiative is an

A

international organisation that helps businesses, governments and other organisations understand and communicate the impact of business on critical sustainability issues such as climate change, human rights, corruption and many others.

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14
Q

What is Integrated Reporting?

A

IR is a strategic and future orientated communications system about how organisations draw on six capitals. IR allows organisations to consider how their strategies and plans use and impact the capitals.

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15
Q

What are the 6 capitals that IR use?

A
  1. Financial
  2. Manufactured
  3. Intellectual
  4. Human
  5. Social and Relationship
  6. Natural
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16
Q

Sole Proprietorship:

A

Ownership: An individual or one person
Life: Dies with owner
Tax: Personal Income Rate
Liability: Unlimited liability, liable for debts

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17
Q

Partnership:

A

Ownership: Two or more people
Life: Dies with any single partner
Tax: Personal Income Rate
Liability: Unlimited liability, liable for debts

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18
Q

Company:

A

Ownership: Unlimited number of people
Life: Unlimited, shares can be transferred freely
Tax: Company Tax rate
Liability: Limited liability, shareholders not liable for debts

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19
Q

What is the Monetary Unit Assumption?

A

It is when only data that can be expressed in terms of money is included in the accounting records. It assumes unit of measure stays constant over time.

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20
Q

What is the Economic Entity Assumption?

A

It can be any organisation or unit in society. Activities of the entity must be kept seperate and distinct from activities of the owner and all other economic entities.

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21
Q

What is an asset?

A

As asset is a resource controlled by the entity that will generate future economic benefit for the entity and exists as a result of a past transaction.

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22
Q

What are liabilities?

A

Liabilities are the claims against assists or present obligations of an entity arising from a past event; the settlement of which is expected to result in an outflow of resources or economic detriment.

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23
Q

What is Owners Equity?

A

It is the residual claim of ownership of the business. OE is increased by capital and revenue and decreased by drawings and expenses.

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24
Q

What is capital?

A

Assets contributed to the entity by the owner.

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25
What is drawings?
Withdrawals of assets from the entity by the owner.
26
What is revenue?
Gross increases in OE from business activities entered into for the purpose of earning income.
27
What are expenses?
They are the cost of assets consumer or services used in the process of earning income. They are decreases in OE that result from operating the business.
28
What does recognition of the elements mean?
It means that only items that meet the definition of an element may be included in the financial statements.
29
What two criteria must be satisfied for recognition?
1. It is probable that the event or transaction will result in an increase or decrease of economic benefit. 2. The item has a cost or value that can be reliably measured.
30
What is the accounting equation?
Assets = Liabilities + Owners Equity
31
What is a transaction?
A transaction is a record of an economic event or entity. This record may be internal or external. A transaction must affect two or more components of the basic accounting equation.
32
A transaction analysis is
the process of identifying the specific effects of transactions and events on the accounting equation.
33
What are the 4 financial statements?
Income Statement Statement of changes in equity Statement of financial position/Balance sheet Statement of Cash flows
34
Income Statement purpose and content:
The income statement takes the total net revenues minus total net expenses to give net profit or loss. The income statement presents the income and profit or net loss for the specific period of time.
35
Statement of changes in equity purpose and content:
The Statement of changes in equity summarises the changes in OE for a specific period of time. OE will be increased by capital and revenue or decreased by drawings and expenses within the reporting period.
36
Statement of financial position/Balance sheet purpose and content:
The balance shows the business' financial position in a snapshot. It summarises assets, liabilities and OE at the specific date.
37
Statement of cash flows purpose and content:
It summarises all cash inflows and cash outflows for a specific period of time.
38
What is a business plan?
It is a written document that explains and analyses an exisiting or proposed business venture. A business plan helps to visualise and organise the business and its operations.
39
Three functions of a business plan are:
1. To communicate the future of the business 2. To convey the credibility of the business to the reader 3. To act as an organising tool that can help to sell the owners idea and convert it to reality.
40
Advantages of a business plan:
Clear direction Evaluate performance Fosters effective use of resources Demarcates responsibility
41
Disadvantages of a business plan:
Can't guarantee success Reduce flexibility Time consuming
42
What are the elements of business plan?
Marketing Operations Finance
43
The format of the business plan includes:
``` Title Page Executive Summary Background Marketing Plan Operations Plan Finance Plan Implementation Timetable Appendices ```
44
What are the elements of the Management Cost Concept?
1. Products and services are produced by using resources 2. Resources cost money 3. Profit involves selling products and services at a price greater than what they cost to produce 4. When all expenses of running the business are deducted from the revenue earned what remains is the profit or loss.
45
Direct costs are
costs which can be readily traced to a particular product made or service supplies. For example, the costs of all the ingredients that are used to make a cup of coffee are called direct costs for a coffee shop.
46
Indirect costs are
costs that cannot be easily traced to a particular product or service. For example, rent paid for the shop premise, insurance expense.
47
Product costs are
costs that are necessary and integral part of a product or service. For example, purchase cost of a product, the cost of employees providing a service.
48
Period costs are
costs that are matched with the income of a specific time period rather than included as part of a cost of the saleable product. For example, financing costs, selling expenses.
49
Variable costs are
costs that change in total directly with increases and decreases in activity level. For example, direct materials, direct labour, COGS, freight costs, fuel. They are identified on a per unit basis and change in proportion to change in activity level.
50
Fixed costs are
costs that do not change with increases and decreases in activity level. For example, rates, rent, insurance, salaries. Fixed cost per unit = total cost divided by units of activity level.
51
Contribution margin ratio equation:
Contribution margin ratio = contribution margin per unit / selling price
52
Contribution margin per unit equation:
Contribution margin per unit = selling price - variable costs per unit
53
The contribution margin is the
amount of revenue remaining after deducting variable costs from the unit selling price.
54
Cost-volume-profit (CVP) analysis is the
study of the effects of changes in costs and volume on a company's profits.
55
The break-even-record is the
level of activity at which total revenue is equal to total costs (both variable and fixed). A level of sales volume that results in neither a profit not a loss.
56
Target profit is a
profit objective or goal that indicates the sales (in either units or dollars) necessary to achieve a specified level of profit.
57
What are the assumptions of the CVP analysis?
1. Costs and revenues are linear within the relevant range. 2. All costs are identifiable as variable or fixed. 3. Costs are affected only by changes in activity level.' 4. All units produced are sold. 5. Sales mix is constant if there is more than one product
58
Strategic Management Accounting (SMA) is
the merging of strategic business objectives with management accounting information to provide a forward looking model that assists management in making business decisions.
59
SMA elements:
- Looks beyond the financial year to the longer term - Looks beyond the boundary of the organisation to the whole supply chain - Makes comparison with competitors (for competitive advantage)
60
Name 2 SMA techniques.
1. Target costing | 2. Environmental management
61
Target costing (SMA technique)
estimates the cost and selling price of a product/service that are established before design or processes to be used are finalised.
62
The four stages that target costing involves are:
1. Determine target price customers will pay 2. Deduct a target profit margin to determine target cost 3. Estimate actual cost 4. Investigate ways of reducing estimated cost to the target cost
63
Environmental management accounting (SMA technique) is
concerned with recognising environmental costs for the purposes of internal decision making and involves a process of collecting, measuring and reporting costs about the impact the organisations activates have on the environment. This helps to monitor performance towards 'non-financial' objectives and introduce course of actions as necessary.
64
A budget is a
- comprehensive formal plan expressed in monetary terms - covers future activity - based on a defined level of activity
65
A fixed budget is a
budget that covers a defined period, usually a financial year and ends at the specified date.
66
A rolling budget is
continually updated so that the business is always looking 12 months ahead at any given time during the financial year.
67
Forecasting refers to a
revised estimate, part-way through the budget period.
68
What is the role of accountants in budgeting?
Accountants have the responsibility to translate management's budgeting goals and express them in financial terms and then communicate it to the relevant areas of responsibility. Accountants also prepare the periodic budget reports that provide basis for measuring performance. It is however up to management to operate and enforce the budget.
69
Benefits of Budgeting:
- Requires all levels of management to plan ahead and formalise goals regularly. - Creates an early warning system for problems - Facilitates coordination of activities within the business to align with each other and with company objectives. - Greater management awareness of overall operations - Motivates personnel to meet planned objectives.
70
What is a sales forecast?
A sales forecast is a prediction of the company's expected market share of expected sales within the industry.
71
What is the difference between budgeting and long-range planning?
One difference is the time period involved. The maximum length of a budget is usually one year and often shorter. In contract, long range planning usually encompasses a period of at least five years. Another difference is that budgets focus on achieving short-term goals, while long-range planning identifies long-term goals and selects strategies to achieve these goals.
72
What is the master budget?
It is a comprehensive set of interrelated budgets that constitutes a plan of action for a specified time period. It is comprised of the operating budgets and the financial budgets and covers all aspects of the firm's activities.
73
Operating budgets are the
individual budgets that result in the budgeted income statement.
74
Financial budgets are the
cash budget and the budgeted balance sheet.
75
What are the 4 components of preparing the operating budget?
Sales Budget Cost of Sales Budget Selling & Admin Exp Budget Budgeted Income Statement
76
What is the Cash Budget?
It contains the cash receipts, cash disbursements and financing. It shows the starting and ending cash balances.
77
What is Budgetary Control?
It is the use of budgets in controlling operations. 1. Develop Budget 2. Analyse differences between actual and budget 3. Take corrective action 4. Modify future plans
78
Problems with bad budgeting:
- Time consuming and expensive - Provide poor value to users when unrealistic - Fail to focus on key factors - To rigid and prevent fast response
79
What does duality mean?
It means that every business transaction will have a dual effect. For example, the purchase of a car for $19 000 through a bank loan will increase an asset (car) and a liability (loan).
80
A transaction is
a record of an economic event or an entity. This record may be internal or external. A transaction must affect two or more components of the basic accounting equation.
81
A transaction analysis is the
process of identifying the specific effects of transactions and events on the accounting equation.
82
Current assets are
assists that can be easily liquidated (turned into cash). The future economic benefit is limited to the next 12 months or current period and will be used up.
83
Non-current assets are
assets where the benefit will be reaped during and extend beyond the current period.
84
Current liabilities are
liabilities that are expected to be settled or fall due within or by the end of the current period.
85
Non-current liabilities are
obligations to third parties that will still exist beyond the current period. These liabilities are not due within the current period.

Accounting for Decision Making (1 decks)

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