Revision Notes

Reminders & Announcements

• Last Lecture: This is the final lecture; no more lectures or tutorials in the following weeks.
• Consultations: There will be consultations for the next two weeks. A schedule will be published by the end of the week.
  • Consultation Times: Available every day (excluding Monday, which is a public holiday) until the day before the final exam.
  • Mode: Mix of face-to-face and online consultations.
  • Duration: One-hour windows in the morning and afternoon.
• SELT Survey: Complete the SELT survey for the course to provide feedback. It helps improve course delivery. It should only take 5-10 minutes.
• Group Assignment Marks: Marks will be released before the weekend with feedback from tutors.
  • If there's any issues with the marking, contact your tutor immediately.
• Tutorial Participation Marks: Will be available before the final exam. All assessment results will be released before the exam.

Lecture Flow

• First 30-40 minutes: Review each topic, highlighting key and important points.
• Remainder: Revision exercise. A few minutes to review the questions and then answered together.
  • Tips on how to approach similar questions will be shared.

Additional Tips

• Bring a calculator to the exam.
• The exam will be half calculation and half open-ended/essay questions.
• Group assignment marks will be released before the weekend with tutor feedback.

Course Structure

• Two parts:
  • Financial Accounting (first five topics)
  • Management Accounting (second five topics)

Topic 1: Introduction to Financial Accounting

• Definition of accounting and its usefulness in a business context.
• Basic Financial Statements:
  • Income Statement
  • Statement of Changes in Equity
  • Statement of Financial Position
  • Cash Flow Statement
  • Notes to Financial Statements

Accounting Concepts and Principles

• Understanding, not memorization, is key.
• Focus on understanding the essence of each principle and how to apply it in a situation.

Principles:

• Cost Principle: Assets should be initially recorded at their historical cost, regardless of changes in fair value.
  • Historical cost as reliable means of measurement.
• Entity: Business and owner are distinct and separate entities.
  • Personal activities of the owner should not appear in the accounting books.
• Accrual Basis: Revenues are recorded when earned, and expenses are recorded when incurred, regardless of cash receipt or payment.
  • Revenue Recognition: Revenues are earned when the service has been rendered or goods have been fully delivered.
• Monetary Unit: Financial statements are expressed in monetary terms (Australian dollar).
  • The dollar is assumed to be a reliable and stable unit of measure.
• Going Concern: Assumption that the business will continue to operate indefinitely in the foreseeable future, unless there indications otherwise.
• Time Period: The indefinite life of the business is divided into artificial time periods (year, quarter, months).
  • Financial statements are presented at the end of each time period to serve as a boundary for your measurement of business activities.

Qualitative Characteristics of Useful Accounting Information

• Accounting is intended for decision making.
• Information should possess qualitative characteristics to ensure reliability and usefulness.

Fundamental Qualitative Characteristics:

• Relevance: Information is considered relevant if it is capable of influencing a decision.
  *Materiality: The relative importance or significance of an item. It is relative, not absolute, and can be qualitative vs quantitative.
  *Faithful Representation or Representation Faithfulness

Enhancing Qualitative Characteristics

• Comparability: Facilitates comparison of financial statements across periods or companies.
  • Consistency: Same accounting methods/principles are adopted from period to period.
• Understandability: A user with a reasonable understanding of accounting should be able to understand the financial statements.
• Verifiability: Independent persons can reperform procedures and arrive at the same amounts.
• Timeliness: Information should be communicated in a timely manner.

Topic 2: Financial Statements

• Basic Financial Statements:
  • Statement of Financial Position: Assets, liabilities, and equity.
  • Income Statement: Revenues and expenses, resulting in a profit or loss.
  • Statement of Changes in Equity: Movements in the company's equity account, focusing on the retained earnings section.
  • Statement of Cash Flows

Retained Earnings

• Accumulated profits or losses from the beginning of the business up to the current date.
• Affected by profits/losses reported in the period and dividends distributed to owners.
  • Dividends are not expenses but profit distributions.

Statement of Cash Flows

• Three activities:
  • Operating: Cash effects of transactions reported in the income statement, current assets, and current liabilities.
  • Investing: Cash effects of transactions involving long-term assets.
    • Example: Purchase/Sale of property, plant, & equipment.
  • Financing: Cash effects of non-current liabilities and equity transactions.
    • Example: Issuing shares of stock, securing a loan
• Issuance of Shares: Receipt of cash for shares issued is a financing activity.

Exam Preparation Tips

• Remember how to prepare the income statement, statement of changes in equity (retained earnings section), and statement of financial position.
• For cash flow, focus on examples of transactions classified as operating, investing, and financing.
• Know the link between the financial statements.

Topic 3: Recording Transactions

• Steps in the Accounting Cycle:
  1. Transaction Analysis: Analyze the effect of each transaction on the assets, liabilities, and equity accounts of the business (increase, decrease, or no change).
  2. Journalizing: Record the transaction into the general journal (debit and credit).