FINANCIAL ACCOUNTING 1

INTRODUCTION

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OBJECTIVES

• Upon completion of this subject, students should be able to:

• Analyse the source documents and record the transactions in the
journals and ledgers using the double entry principles;
• Apply the accounting standards in the preparations of these
accounting records;
• Prepare a full set of accounts for businesses in the service
industry and trading industry;
• Prepare, analyse and interpret financial accounting reports:
Income Statement, Balance Sheet and Cash Flow Statement. and
compare the performance of the business in two or more years.

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 TEXTBOOKS

• PRESCRIBED TEXTS
➢Hoggett, J., Edwards, L., Medlin, J., and Tilling, M., (2009)
Financial Accounting, 7th edn, John Wiley & Sons.
• RECOMMENDED REFERENCES
➢Harrison, Horgren and Oliver (2009) 8th edn; Financial
Accounting. Pearson Education International
➢Benedict & Elliot, (2008) 1st edn. Financial Accounting; An
Introduction. FT Prentice Hall
➢Peirson and Ramsay, (2006) Financial Accounting: An
Introduction. Pearson Education Australia.

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ASSESSMENT DETAILS

In class assessments 40%

1) Mid-Semester Examination 20%

2) Class test, individual/ group
assignments 10%

3) Attendant 10%

Final Examination 60%

Total 100%
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LECTURER INFORMATION

•Full name: Nguyen Kim Quoc Trung

•Email: nkq.trung@ufm.edu.vn
•Mobile phone: 0905 852 335

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 Topic 1
THE ROLE OF ACCOUNTING

©2015 John Wiley & Sons Australia Ltd

LEARNING OBJECTIVES
1. Outline the dynamic environment in which accountants work
2. Discuss the nature of decisions and the decision-making process
3. Outline the range of economic decisions made in the marketplace
4. Explain the nature of accounting and its main functions
5. Identify the potential users of accounting information
6. Apply information to make basic economic decisions
7. Describe the role of accounting information in the decision-making
process
8. Compare accounting information for management and external users
9. Summarise how the accounting profession is organised in Australia
10. Identify the different areas of the economy in which accountants work
11. Identify the importance of ethics in business and accounting and how
to recognise and handle ethical dilemmas as part of the decision-
making process.
YOUR JOURNEY INTO ACCOUNTING

• Accounting
➢Not ‘boring’ (mostly!)
➢Much more than just bookkeeping
➢Dynamic environment
➢The language of business
✓If you don’t have some understanding, you’re not in
the conversation
YOUR JOURNEY INTO ACCOUNTING

• Accountants
➢Varied and interesting work in a variety of roles
➢More focus on analytical and communication skills

• Non-accountants
➢Benefits of basic understanding
➢Engineers - product design (reduce costs/increase
price)
➢Marketing – maximise sales
➢HR – major organisational cost
THE ACCOUNTING ENVIRONMENT

• Accounting evolves as society and business changes.

• Some of these changes include
➢Rapid developments in information and
communication technologies
➢Increasing demand for a range of information about
organisational impact
➢Globalisation of business
➢Development of international regulations and
standards
THE DECISION-MAKING PROCESS

• Life is full of decisions

• Decisions mean making choices
➢We must choose how to spend our time
➢We must choose how to spend our resources
➢Often competing options available
• Decisions affect the future
➢“Act in haste, repent at leisure”
• Good decisions require good processes
STEPS IN DECISION MAKING

Goals • What are we trying to

achieve?

Information • What information do we

need?
• What are the consequences
Consequences of different alternatives?

• Which course of action

Choose should we choose?
ECONOMIC DECISIONS

• Many (most) decisions involve economic resources

• Economic resources have a price as they are
scarce
• Must also consider:
➢Personal taste
➢Social factors
➢Environmental factors
➢Religious and/or moral factors
➢Government Policy
ECONOMIC DECISIONS

What sacrifice does a business owner make

when purchasing machinery for the production
plant?

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ECONOMIC DECISIONS

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THE NATURE OF ACCOUNTING

• Accounting is a service activity

➢Its function is to provide and interpret financial
information to assist in decision making.
✓Steps 2, 3 and 4 of decision making process
• Accounting is used in a range of organisations
➢Business
➢Government
➢Charities
➢Not-for-profits
ACCOUNTING DEFINED
Identification
Transactions (internal/external)

Measurement
Quantification in monetary terms ($)

Recording
Recording; classification; summarisation

Communication
Accounting reports Analysis and interpretation
IMPORTANCE OF ACCOUNTING
Importance of Accounting

is a system that
Accounting Identifies

Records

information that is
Relevant Communicates

Reliable

to help users make

Comparable their economic
decisions
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USERS OF ACCOUNTING INFORMATION

Internal Users
Management IRS

Human Investors
Resources
Users of accounting
Labor
information: Unions
Finance
internal users &
external users Creditors
Marketing

Customers ATO

External Users
 USERS OF ACCOUNTING INFORMATION

Internal Users External Users

• How much profit? • Should I invest?
• What should be produced? • Can the business pay?
• What resources are available? • Wages? Loans?
• How much does it cost? • Will they make a profit?
• How much do we owe? • Are they behaving ethically?
• What would happen if…? • Is the business socially and
• Do we have enough cash? environmentally friendly?
USERS OF ACCOUNTING INFORMATION

• External users
➢Should I invest money in this business?
➢Will the business be able to repay money lent to it?
➢What are the business’s earning prospects?
➢Is the business financially sound?

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External users - owners

• Return on investment
• Risk of investment
• Management performance
• Other external users:
➢Lenders
➢Suppliers of goods and services – creditors
➢General public

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Users of accounting information

• Internal users
➢Stewardship of resources
➢Planning
➢Control
➢Decision making

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Example
Identify the following users of accounting information
as either an (a) external or (b) internal user.

Regulator
CEO
Shareholder
Controller
Executive Employee
External Auditor
Production Manager

© McGraw-Hill Education. 1-25

 MANAGEMENT AND FINANCIAL ACCOUNTING

MANAGEMENT FINANCIAL ACCOUNTING

ACCOUNTING
• Internal Focus • External Focus
- Planning • Reporting Information
- Controlling - Performance
- Decision-making - Position
• Cost Behaviour/Break- • Financing and Investing
even
• Budgeting • Legal compliance
• Strategy • Highly Regulated
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FINANCIAL ACCOUNTING vs.
MANAGERIAL ACCOUNTING
Management accounting Financial accounting
Financial Accounting
Users of reports
• Required by law;
• Mainly for external
users;
• Comply with
Types of reports
applicable financial
reporting standards;
• Historic information;
• Annual accounts.
 1 - 16

ELEMENTS OF FINANCIAL STATEMENTS

Management accounting Financial accounting

External
verification

Format of
reports
FINANCIAL REPORTS AND USERS
ACCOUNTING INFORMATION AND DECISIONS

• Many decisions require significant amounts of financial

information
➢Accounting information is very important part of this
process
• Accountants report on the past
➢Still useful as a guide for making decisions about the
future
✓past performance not necessarily indicative of
future results
➢Also useful for assessing/confirming past decisions
• Accountants also look to the future
➢Budgeting: future plans, strategy and planning
ACCOUNTING AS A PROFESSION AN
AUSTRALIAN PERSPECTIVE
• Self-regulated profession
• Three major professional associations
➢CPA Australia (CPA)
➢Institute of Chartered Accountants Australia (ICAA)
➢Institute of Public Accountants (IPA)
• Membership requires
➢Tertiary qualification
➢Ongoing professional development
PUBLIC ACCOUNTING

• Accountants who offer their professional services to the

public for a fee
• Can vary in size from quite small to large international
organisations
• Four main areas with many specialties
➢Auditing and assurance services
➢Taxation services
➢Advisory services
➢Insolvency and administration
ACCOUNTING IN COMMERCE AND INDUSTRY

• Accountants who are employed in business entities

• Many areas of interest
➢General accounting
➢Cost accounting
➢Accounting information systems design
➢Budgeting
➢Taxation accounting
➢Internal auditing and audit committees
NOT-FOR-PROFIT ACCOUNTING

• Many accountants work in the not-for-profit area

• This requires a slightly different approach as profit is not
the primary focus
• Includes a range of organisations
➢Government
➢NGO
➢Charities
ETHCS AND ACCOUNTANTS

• Ethics in business
➢Important in all business dealings
➢More recent failures has raised awareness
• Ethics and professional accounting bodies
➢Important for the standing of the profession
• Ethics in practice
➢Identify the ethical issue
➢Analyse key issues and stakeholders
➢Assess consequences
➢Select appropriate course of action
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ETHICS IN BUSINESS

• Ethics concern an individual's moral judgements about

right and wrong. Decisions taken within an
organization may be made by individuals or groups,
but whoever makes them will be influenced by the
culture of the company.
• The decision to behave ethically is a moral one;
employees must decide what they think is the right
course of action. This may involve rejecting the route
that would lead to the biggest short-term profit.
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ETHICS IN FINANCIAL REPORTING

▪ Motivation/Pressure:
▪ Method:
Earning managements
• Profit minimization;
• Profit maximization;
• Smooth income.
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ETHICS IN FINANCIAL REPORTING
ETHICS IN FINANCIAL REPORTING

• Ethical behavior and corporate social responsibility can bring

significant benefits to a business. For example, they may:
✓ Attract customers to the firm's products, thereby boosting
sales and profits
✓ Make employees want to stay with the business, reduce
labor turnover and therefore increase productivity
✓ Attract more employees wanting to work for the business,
reduce recruitment costs and enable the company to get the
most talented employees
✓ Attract investors and keep the company's share price high,
thereby protecting the business from takeover.
 ETHICS IN FINANCIAL REPORTING

• Is ethical behavior good or bad for business?

You might think the above question is an easy one for

businesses to answer? Surely acting ethically makes good
business sense? As with all issues in business studies,
there are two sides to every argument:

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The advantages of ethical behavior include:
➢Higher revenues – demand from positive consumer support
➢Improved brand and business awareness and recognition
➢Better employee motivation and recruitment
➢New sources of finance – e.g. from ethical investors
The disadvantages claimed for ethical business include:
➢Higher costs – e.g. sourcing from Fairtrade suppliers rather
than lowest price
➢Higher overheads – e.g. training & communication of
ethical policy
➢A danger of building up false expectations

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