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Copyright 2010 & 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e (revised) by Marshall, McCartney & Van Rhyn PowerPoint presentation prepared by John Tretola
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CHAPTER 1
Accounting—Present and Past
(Introduction)
Copyright 2010 & 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e (revised) by Marshall, McCartney & Van Rhyn PowerPoint presentation prepared by John Tretola
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Why study accounting?
• Accounting is the language of business.
• Anyone involved in the economic activities of our society needs
to know enough of this language to be able to make decisions
and informed judgements about those activities.
• “If you want to be rich long-term, it could be the most important
subject.”
- Robert Kiyosaki author of Rich Dad, Poor Dad
Copyright 2010 & 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e (revised) by Marshall, McCartney & Van Rhyn PowerPoint presentation prepared by John Tretola
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What is accounting?
identifying
measuring
communicating
economic information about an entity
for decisions
and informed
judgements.
Accounting is the process of:
Copyright 2010 & 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e (revised) by Marshall, McCartney & Van Rhyn PowerPoint presentation prepared by John Tretola
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Users and uses of accounting information
User Decision/Informed Judgment MadeManagement Planning, directing and controllingInvestors Assessing amount, timing, and risk of
future cash returns on their investmentCreditors Assessing probability of collection and the
risk of late (or non-) paymentEmployees Assess long-term job prospects and
attractive salary packagesAustralian Securities and Investment Commission
Ensure compliance with regulations for disclosure
Copyright 2010 & 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e (revised) by Marshall, McCartney & Van Rhyn PowerPoint presentation prepared by John Tretola
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What do accountants do?
Financial accounting generally refers to the process that results in the preparation and reporting of financial statements for an entity.
Financial accounting is primarily externally oriented and concerned
with the historical results of an entity’s performance.
Financial Accounting
Copyright 2010 & 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e (revised) by Marshall, McCartney & Van Rhyn PowerPoint presentation prepared by John Tretola
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What do accountants do?
Financial statements reflect what has happened in the past. These past results can also be used to predict future results.
The 3 main Financial Statements we will focus on (in Chapters 4 to 9) are:
• The Income Statement;
• The Balance Sheet; and
• The Cash Flow Statement.
Financial Accounting
Copyright 2010 & 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e (revised) by Marshall, McCartney & Van Rhyn PowerPoint presentation prepared by John Tretola
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What do accountants do?
Management accounting is concerned with the use of
economic and financial information to plan and
control many of the activities of the entity and to support the management decision-
making process.
Cost accounting relates to the
determination and accumulation of
product, process or service costs.
Management / Cost Accounting
Copyright 2010 & 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e (revised) by Marshall, McCartney & Van Rhyn PowerPoint presentation prepared by John Tretola
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Ethics and the accounting profession
• Integrity
• Independence
• Competence
• Objectivity
Obligation to serve employer, client and public
Joint Code of Professional
Conduct
CPA Australia
ICAA
Copyright 2010 & 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e (revised) by Marshall, McCartney & Van Rhyn PowerPoint presentation prepared by John Tretola
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How has accounting developed?
3000 B.C.
3000BC Mesopotamians
record tax receipts on clay tablets.
1494AD - Luca Pacioli published the first textbook describing a comprehensive double-entry
bookkeeping system.
1494 AD
Copyright 2010 & 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e (revised) by Marshall, McCartney & Van Rhyn PowerPoint presentation prepared by John Tretola
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How has accounting developed?
By 2006 – AASB had issued more than 50 accounting
standards and more than 50 interpretations.
3000 B.C.
1494 1800s 1900s 1946 1952 1966 2006
2000
1994
1991
19841928
Copyright 2010 & 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e (revised) by Marshall, McCartney & Van Rhyn PowerPoint presentation prepared by John Tretola
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Accounting standards aka rules
Accounting is not a science.
It is concerned with communication.
Responds to society’s needs
Change over time/ subject to ‘fashion’Change with changes in economic conditionsDepend on professional judgementBest answer at present to a problem- no universal agreementInterpreted variously.
Copyright 2010 & 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e (revised) by Marshall, McCartney & Van Rhyn PowerPoint presentation prepared by John Tretola
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Accounting standards
Financial Accounting and Reporting
AASB – responsible for setting standards
In consultation with: •ICAA and CPA Australia•ASIC•ASX•Institute of Directors•Group 100•academics•others.
Copyright 2010 & 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e (revised) by Marshall, McCartney & Van Rhyn PowerPoint presentation prepared by John Tretola
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Accounting standards
Financial Accounting and Reporting
GAAPsGENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
Principles that have developed over time, in
response to the changing needs of society, to guide
financial accounting and reporting. They are not
codified in a set of rules that can be blindly followed.
Copyright 2010 & 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e (revised) by Marshall, McCartney & Van Rhyn PowerPoint presentation prepared by John Tretola
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Accounting standards
The International
Accounting Standards
Board (IASB) is based in
London and seeks
methods of providing
comparability between
financial statements
prepared according to the
differing accounting
standards of its member
nations.
International Accounting Standards
Copyright 2010 & 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e (revised) by Marshall, McCartney & Van Rhyn PowerPoint presentation prepared by John Tretola
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Australia adopted these
international standards
(known as IFRS) from 1
January 2005. Included
in our law as AIFRS.
Over 90 countries have
also done so.
International Accounting Standards
Accounting standards
Copyright 2010 & 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e (revised) by Marshall, McCartney & Van Rhyn PowerPoint presentation prepared by John Tretola
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The conceptual framework (CF)Statements of Accounting Concepts (SACs) are guidelines that describe the concepts and relationships that underlie the financial accounting standards.
Those still existing today:
SAC1 Definition of the Reporting Entity;
SAC2 Objective of General Purpose Financial
Reporting.
AASB Frame work supports these SACs
Copyright 2010 & 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e (revised) by Marshall, McCartney & Van Rhyn PowerPoint presentation prepared by John Tretola
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Objective of financial reporting-SAC 2: Useful info for decisions
Financial position
• What does the firm own?• How much does the firm owe?
Information about:
Earnings and Cash Flow
• Profitability• Dividends• Cash to pay debt