Accounting in action

  1. What is accounting?
    an information system that identifies, records and communicates the economic events of an entity to interested users
  2. What is the role and value of accounting information?
    • Accounting provides information that assists users to understand where the entity has been by looking at its past performance, to understand where it is now by looking at its current financial position, and to provide insight into what its likely future prospects are
    • By using this information, users are able to make informed decisions.
  3. Identify the users and uses of accounting
    • Management: uses accounting information for planning, controlling and evaluating business operations. 
    • Investors (owners): decide whether to buy, hold or sell their financial interests 
    • Creditors (suppliers and bankers): evaluate the risks of granting credit or lending money 
    • Other groups: ATO, customers, labour unions
  4. Why is ethics a fundamental business concept?
    • Ethics are the standards of conduct by which actions are judged as right or wrong.
    • It is necessary for effective communication and economic activity
  5. What is the role of corporate governance in enhancing the quality of financial reporting
    • Corporate governance: the system in which entities are directed or controlled, managed and administered.
    • It influences how the objectives of a company are set and achieved, how risks is monitored and assessed and how performance of the entity is optimised.
    • How corporations are 'governed'
  6. What is the importance of sustainability, and sustainability reporting, for business
    • It is the reporting and management of non financial performance to interested stake holders
    • How the business is impacting society at large.
    • Want to know that the business is not causing any unwanted harm or disadvantage to the community
  7. How have accounting standards been regulated and developed?
    In Australia: standards issued by AASB, which are developed within the context of international financial reporting standards issued by IASB.
  8. What is the nature of a reporting entity?
    • Reporting entity: an entity in which it is reasonable to expect the existence of users who depend on general-purpose financial statements for information to enable them to make economic decisions. 
    • Questions to classify as a user:
    • 1. Do they need the information?
    • 2. do they have the power to obtain it?
  9. Accounting equation and what it is
    • Assets= liabilities + OE
    • Assets are resources controlled by the entity and liabilities are external claims on total assets. 
    • OE is the owner's claim on total assets
  10. What are the 2 recognition criteria that must be met before an item can be included in the financial statements?
    • 1. Is it probable?
    • 2. Can it be reliably measured?
Card Set
Accounting in action
Chapter 1