Topic 1 Accounting for Decision Making 2012

HI5001ACCOUNTING FOR BUSINESS DECISIONSTOPIC 1Accounting for Decision Making

Homes Institute 2012

Homes Institute 2012*IntroductionWelcome to HI5001In this session we look from an overview perspective, why we have accounting and who is involved with accounting.We consider the various stakeholders and the basic accounting decision that they need to make.


Homes Institute 2012*THE CHANGING ENVIRONMENT OF ACCOUNTINGRapid development of information and communication technologyIncreasing demand for information of a non-financial nature by societyGlobalisation of businessAdoption of international regulations including accounting standards


Homes Institute 2012*DECISIONS IN EVERYDAY LIFEDecisions involve choices because resources are limitedEach decision has outcomes that will affect future decisions


Homes Institute 2012*Steps in decision-making2341


Homes Institute 2012*ECONOMIC DECISIONSInvolve the use of economic resourcesMust also considerPersonal tasteSocial factorsEnvironmental factorsReligious and/or moral factorsGovernment policy


Homes Institute 2012*Process of identifying,measuring, recordingand communicating economic informationto permit informedjudgements and economic decisions by users of the informationTHE NATURE OF ACCOUNTINGService activityBusinessGovernment CharitiesClubsFamilies


Homes Institute 2012*THE NATURE OF ACCOUNTING continuedThe accounting processTransactionsAnalysis and interpretationRecording, classification, summarisationQuantification in monetary termsAccounting reports


Homes Institute 2012*USERS OF ACCOUNTING INFORMATIONInternal usersHow 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? This is more complex than you think as there are lease options (financial vs. operating)


Homes Institute 2012*USERS OF ACCOUNTING INFORMATION continuedExternal usersShould I invest money in this business?Will the business be able to repay money lent to it?What are the businesss earning prospects?Is the business financially sound?Is the business providing products that are socially and environmentally friendly?


Homes Institute 2012*


Homes Institute 2012*USING INFORMATION IN ECONOMIC DECISIONSStarting a small businessEquipment purchases Repairs and maintenanceInsuranceAdministrative costsServices to provide What to chargePotential customers


Homes Institute 2012*Refer 1.4 Using Info for economic decisionsThe following example (1.4, pp10-11) shows that Darren will need close to $33K to set up his business. He will also need to consider what the running costs will be, those costs that will be incurred as an ongoing cost such as wages, rent, petrol & oil, etc.


Homes Institute 2012*USING INFORMATION IN ECONOMIC DECISIONS continuedDarrens Lawn-mowing (1.4)Set up costsSecond-hand van$22 000Trailer 1 500Rotary lawn mower 950Cylinder mower 1 600Chainsaw 1 150Edger 600Hedge trimmer 700Blower 1 000Shredder 1 400Brush-cutters 800Other tools, ladders, brooms (approx.) 850Total cost$32 550


Homes Institute 2012*USING INFORMATION IN ECONOMIC DECISIONS continuedOperating costs

Clients

We can see that Darren has also considered how many clients he expects to have, and the type of servicesFuels and oils, repairs and maintenance$500Part-time employee 300$800Lawn-mowing and trimming (regular) 60Gardening, with shredding (regular) 12Tree-lopping and shredding (as requested) 20


Homes Institute 2012*Now based on an understanding/expectation of the client list and the type of services required, he can then determine what fees to charge.

USING INFORMATION IN ECONOMIC DECISIONS continued


Homes Institute 2012*USING INFORMATION IN ECONOMIC DECISIONS continuedChargesEstimated cash receiptsLawn-mowing$45Gardening 90Tree-lopping1355 lawns mowed for each of 6 days @ $45 ea $1,3501 garden for each of 6 days for $90 each 540 $1,890


Homes Institute 2012*Based on these figures, Darren would expect over a 48-week year that his income will be;

$1890 x 48 = $90,720 plus any tree-lopping jobs that comes up. As his earnings are more than $75K per annum, he will need to obtain an ABN from the ATO plus he will be required to collect GST. This will add to his costs and needs to be factored in (estimated to be $50.00 per week).USING INFORMATION IN ECONOMIC DECISIONS continued


Homes Institute 2012*USING INFORMATION IN ECONOMIC DECISIONS continuedWith $800 per week for operating costs, plus the additional $50.00 for preparing annual tax return, GST documents, etc, (total of 2.4K per annum) meaning that his weekly outgoings are $850.00.So if his incomings are $1,890pw, outgoings are $850, he is left with $1,040pw for himself. Plus any extra from tree-lopping.


Homes Institute 2012*ACCOUNTING INFORMATION AND DECISIONSHow much information?Actual vs future eventsOutcomes and results of activityAccounting information assists owners and managers to effectively and efficiently run their business


Homes Institute 2012*MANAGEMENT AND FINANCIAL ACCOUNTINGManagement accountingFinancial accountingInternal focusPlanningControllingDecision-makingCost behaviourBudgetingLittle/no regulationExternal focusReporting informationPerformancePositionFinancing and investingComplianceHighly regulated


Homes Institute 2012*ACCOUNTING AS A PROFESSION AUSTRALIAN PERSPECTIVESelf-regulated by ICAA, CPA Australia and IPAChartered Accountants (CA)Certified Practising Accountant (CPA)Public Accountant (IPA)Three main areas of practicePublic accountingCommercial accountingNot-for-profit accounting


Homes Institute 2012*Public accountingPublic accountants work in businesses which offer services to the public for a feeFour main speciality areasAuditing and assurance servicesTaxation servicesAdvisory servicesInsolvency and administration


Homes Institute 2012*Accountants in commerce and industryAccountants may be employed in business entitiesResponsibilities includeGeneral accounting Cost accountingAccounting information systemsBudgetingTaxation accountingInternal auditing and audit committees


Homes Institute 2012*Not-for-profit accountingGovernment accounting is concerned with the efficient use of resources consistent with the law applying at federal, state and local levelsOther not-for-profit organisations include hospitals, churches, charities, clubs and private educational institutions.These also have specialised accounting needs


Homes Institute 2012*ETHICS AND ACCOUNTINGEthics in businessEthics and professional accounting bodiesEthics in practiceevasion and manipulationconflict of interest and insider informationincompetencebreach of confidence


Homes Institute 2012**TutorialTopic 1 Accounting for Decision Making

Reading:Hoggett & Edwards Chapter One

Questions:Hoggett & Edwards Exercises 1.3, 1.4, 1.5, 1.9 & 1.12Communication/Group ActivityEthical Issues: Ethical practices among friends


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Topic 1 Accounting for Decision Making 2012