PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis  2011 McGraw-Hill Australia Pty Ltd CHAPTER 1 Introduction Learning outcome Gain a grounding in accounting and bookkeeping principles 1-1

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis  2011 McGraw-Hill Australia Pty Ltd KEY TERMS Australian Accounting Standards International Accounting Standards A brief history Definition of accounting Types of businesses Basic accounting principles 1-2

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis  2011 McGraw-Hill Australia Pty Ltd KEY TERMS cont. Revenue and expenses Assets, liabilities and equity Five groups of accounts Accounting equation Accrual accounting Financial statements Chart of accounts Internal controls 1-3

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis  2011 McGraw-Hill Australia Pty Ltd ACCOUNTING STANDARDS Accounting standards: provide concepts for recording transactions require specific disclosure of certain transactions in reports increase the value of information standardise financial reports are mandatory for reporting entities (Corporations Act 2001). 1-4

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis  2011 McGraw-Hill Australia Pty Ltd DEVELOPMENT OF ACCOUNTING STANDARDS 1-5

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis  2011 McGraw-Hill Australia Pty Ltd ACCOUNTING REPORTS Internal reports –give assurance to managers to allow them to perform tasks to optimise the benefits of the business External reports –allow a company to comply with legislation and regulations 1-6

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis  2011 McGraw-Hill Australia Pty Ltd ACCOUNTING SYSTEMS Accounting systems are designed to: provide information to aid management decision making disclose to interested parties relevant and reliable financial information on which to base their decision making 1-7

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis  2011 McGraw-Hill Australia Pty Ltd INTERNAL CONTROLS Controls need to be built into the accounting system to ensure that information meets the needs of users 1-8

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis  2011 McGraw-Hill Australia Pty Ltd INTERNAL CONTROLS cont. Some examples of internal controls Clear allocation of staff responsibilities Procedure and practice manuals Segregation of duties Physical controls to safeguard assets Staff rotation Independent checks, verifications and reconciliations 1-9

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis  2011 McGraw-Hill Australia Pty Ltd ACCOUNTING ETHICS Virtues considered essential to professionals: Honesty and integrity Trustworthiness Reliability and dependability Care for others Confidentiality 1-10

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis  2011 McGraw-Hill Australia Pty Ltd DEFINITION OF ACCOUNTING Accounting provides information about business organisations to interested parties. Accounting information could include: –profits/losses for a given period –sales figures for the day –comparisons of actuals with budgets –statements of assets and liabilities 1-11

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis  2011 McGraw-Hill Australia Pty Ltd BUSINESS ORGANISATIONS Sole traders Partnerships Limited liability companies Co-operatives Clubs and societies Government and statutory authorities 1-12

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis  2011 McGraw-Hill Australia Pty Ltd INTERESTED PARTIES Owners, managers and shareholders Government authorities Investors Auditors Creditors Bankers 1-13

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis  2011 McGraw-Hill Australia Pty Ltd MAIN TYPES OF BUSINESSES Trading—selling products Service industries—providing services Manufacturing—producing products for sale 1-14

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis  2011 McGraw-Hill Australia Pty Ltd FIVE BASIC ACCOUNTING PRINCIPLES 1.Principle of double entry 2.Principle of recording 3.Principle of profit determination 4.Principle of reporting 5.Principle of control 1-15

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis  2011 McGraw-Hill Australia Pty Ltd OTHER ACCOUNTING PRINCIPLES AND CONCEPTS Accounting entity—separation of business and owner Legal entity—owner and business as same legal entity Reporting entity—large businesses that legally must report their financial activities 1-16

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis  2011 McGraw-Hill Australia Pty Ltd OTHER ACCOUNTING PRINCIPLES AND CONCEPTS cont. Reporting period and balance date (in Australia) –Reporting period—12 months –Balance date—30 June Accrual concept –The recognition of revenues when earned and expenses when incurred 1-17

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis  2011 McGraw-Hill Australia Pty Ltd REVENUE AND EXPENSES Revenue –Revenue items are earnings of the business Expenses –Expenses are outflows of the business 1-18

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis  2011 McGraw-Hill Australia Pty Ltd PROCESS OF THE OPERATING CYCLE table Goods Customers SuppliersCash PURCHASES SALES PAYMENT 1-19

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis  2011 McGraw-Hill Australia Pty Ltd ACCOUNT TYPES Assets –Items owned/controlled by a business Expenses –Outflows from a business Equity –Owner’s investment Revenue –Inflows to a business Liabilities –Amounts owed by a business 1-20

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis  2011 McGraw-Hill Australia Pty Ltd INVENTORIES/TRADING STOCK ACCOUNTS Opening inventories –Start-of-year balance Purchase of inventories –Expense Sale of inventories –Income/Revenue Closing inventories –End-of-year balances Value of inventory –Asset 1-21

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis  2011 McGraw-Hill Australia Pty Ltd CHART OF ACCOUNTS Assets Liabilities Equity Revenue Expenses 1-22

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis  2011 McGraw-Hill Australia Pty Ltd ACCOUNTING EQUATION ASSETS = LIABILITIES + EQUITY A = L + EQ 1-23

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis  2011 McGraw-Hill Australia Pty Ltd EXTENDED EQUATION — EFFECT OF PROFIT ASSET = LIABILITIES + EQUITY + PROFIT A = L + EQ + P A = L + EQ + (R – E) A + E = L + EQ + R 1-24