1. 11ACT - Accounting Concepts (Unit 1)

What is Accounting

• The process of identifying, preparing, measuring & communicating economic info to permit informed judgements & decisions by the users of the info

• the process of recording financial transactions pertaining/belonging to a business

Users of financial information include (there are 10 to remember)

1. Business managers 

2. Clubs & societies 

3. Customers 

4. Employees

5. Families & households 

6. Individuals 

7. Inland Revenue

8. Department 

9. Investors 

10. Lenders

11. Suppliers

Reasons for interest in financial info: Business managers

• To determine the business financial performance (profit) so that decisions can be made about the future.

• Track performance, budgets, and other metrics & maintain a big-picture mindset.

Reasons for interest in financial info: Member of a club

• To determine how their subscriptions have been used

• to determine if the club can continue to operate in the future

Reasons for interest in financial info: Customers

• So they can be confident the business can survive & continue to supply resources

Reasons for interest in financial info: Employees

• Reviews the business profit performance so they’re confident the business can pay their wages in the future

• sees if their actions impact the company's success or failure

Reasons for interest in financial info: Individuals

• To be confident they’re able to meet their bills as they fall due, pay back loans & save for the future.

Reasons for interest in financial info: Inland revenue department

To calculate the taxes on company profit, checks that you've paid the correct amount of tax, & you're following the tax laws

Reasons for interest in financial info: Investors

• To determine the return they will receive on the investment in the business

• To make a new investment deal/decision

Reasons for interest in financial info: Lenders

• To determine whether they will be repaid amounts that’re owed

• To determine any security needed over loans

Reasons for interest in financial info: Suppliers

• To determine whether they’ll be repaid amounts that are owed for goods & services supplied on credit

• To determine the credit history & sustainability of a business

Accounting Concepts:

Accounting Entity Concept

• The economic affairs of business are separate & distinct from the affairs of the owner 

Accounting Concepts:

Monetary measurement 

• All transactions are measured in dollars. The dollar is the common unit of measure

Accounting Elements:

Economic resource 

• A right that has the potential to produce economic benefits 

Eg: cash, land, inventory

Accounting Elements:

Assets

• A present economic resource controlled by the entity as a result of past events 

Eg: vehicles, buildings, furniture, cash

3 characteristics to be met in order to be classified as an asset…

1. Have arisen from a past transaction or event 

2. Be under the business’s present control 

3. Has the potential to produce future economic benefit to the business

Accounting Elements:

Liabilities