PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis 2011 McGraw-Hill Australia Pty Ltd
CHAPTER 1 Introduction
Learning outcomeGain a grounding in accounting and
bookkeeping principles
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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
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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
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PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis 2011 McGraw-Hill Australia Pty Ltd
ACCOUNTING STANDARDSAccounting 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).
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PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis 2011 McGraw-Hill Australia Pty Ltd
DEVELOPMENT OF ACCOUNTING STANDARDS
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PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis 2011 McGraw-Hill Australia Pty Ltd
ACCOUNTING REPORTSInternal 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
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PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis 2011 McGraw-Hill Australia Pty Ltd
ACCOUNTING SYSTEMSAccounting 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
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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
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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
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PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis 2011 McGraw-Hill Australia Pty Ltd
ACCOUNTING ETHICSVirtues considered essential to professionals:• Honesty and integrity• Trustworthiness• Reliability and dependability• Care for others• Confidentiality
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PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis 2011 McGraw-Hill Australia Pty Ltd
DEFINITION OF ACCOUNTINGAccounting 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
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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
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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
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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 productsService industries—providing servicesManufacturing—producing products for sale
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PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis 2011 McGraw-Hill Australia Pty Ltd
FIVE BASIC ACCOUNTING PRINCIPLES1. Principle of double entry 2. Principle of recording3. Principle of profit determination4. Principle of reporting5. Principle of control
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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
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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
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PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis 2011 McGraw-Hill Australia Pty Ltd
REVENUE AND EXPENSESRevenue
– Revenue items are earnings of the business
Expenses– Expenses are outflows of the business
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PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis 2011 McGraw-Hill Australia Pty Ltd
PROCESS OF THE OPERATING CYCLEtable
GoodsGoods CustomersCustomers
SuppliersSuppliers CashCash
PURCHASES
SALES
PAYMENT
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PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis 2011 McGraw-Hill Australia Pty Ltd
ACCOUNT TYPESAssets
– 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
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PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis 2011 McGraw-Hill Australia Pty Ltd
INVENTORIES/TRADING STOCK ACCOUNTSOpening inventories
– Start-of-year balance
Purchase of inventories– Expense
Sale of inventories– Income/Revenue
Closing inventories – End-of-year balances
Value of inventory – Asset
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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
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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
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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 + PA = L + EQ + (R – E)A + E = L + EQ + R
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