1. Role of Accounting in an Entity’s Life
Warm up question – Accounting is a process. Accounting is not just _____ _____
“Crunching Numbers”
Congratulations have 100 free points !
"Yay !!"
What is the underlying framework of accounting called?
“The Conceptual Framework”
True or False. Elements come from the owner’s equity equation never balance. (remember Assets – Liabilities = Owner’s Equity)
“False. They MUST balance”
State the definition of Accounting.
Eg. “Accounting is a record keeping mechanism that assists in providing information throughout the entire life cycle of a business”
Name two types of users.
“Internal & External users”
Define Accounting standards
“The formal rules that guide financial accounting practices”
List the 5 elements of accounting.
“Assets, Liabilities, Owner's Equity, Income, Expenses”
Draw a typical operating cycle with at least 4 steps
*in any order eg. “Purchase goods and services -> Pay cash to suppliers -> Sell goods and services -> Receive cash from customers”
Match “External & Internal” users to “management & financial” accounting.
Internal – management. External – financial.”
List 5 of the qualitative characteristics in the Conceptual Framework. (there are 8 all together!)
*any 5 of the following “relevant information, understandable information, timelines, reliable, consistent, comparable, materials, prudence”
Write down the 'extended equation'
Assets= Liabilities + Owner’s Equity + Income – Expenses
What are the 3 steps in the accounting system?
“1. Transaction occurs. 2. Transaction recorded. 3. Useful for decision making.”
Give two real life examples of both internal users and externals users
Any two of “Internal - Managers, officers, internal auditors, sales staff, budget officers, controllers”
“External - Lenders, Shareholders, govt, consumer groups, external auditors, customers”
Why is understanding the underlying framework important?
“Because understanding ambiguous qualitative characteristics of information reinforces importance of quantitative accounting”
Free 100 points (not 400)
"yayyy"
What are the 3 types of ways do users use information in accounting to help them make decisions. Elaborate on their roles in an entity.
“Identifies – transactions and events that relate to an entity.
Measures/Records – information into the accounting system.
Communicates – information is in a meaningful format to users.”
Describe the types of users, frequency, time period focus, content and format of ONE type of accounting
“Financial Accounting
External users. Must be produced at least once a year at a minimum. Focus is on the past. General and summarised content. Strict formats required."
"Management Accounting
Internal users. Produced as and when it is needed. Future (projections). Specific and detailed. Lenient formats”
Justify which one the qualitative characteristics in the Conceptual Framework is the most important. (there are 8 all together!)
As long as you have rational justification, you are correct
Provide a list of assets, liabilities, incomes and expenses that would likely be seen in the financial statements of a restaurant.
"ASSETS - Cash, Prepaid expenses, food inventory, Tables & chairs
LIABILITIES - Wages owing, Creditors, Loans, GST Payable
EXPENSES - Utilities, Wages, Depreciation, Advertising, Rent
INCOMES - Sales, Bank Interest, Tips"