UNSW Business School

School of Accounting
ACCT1501 Accounting and Financial Management 1A
Term 1 2019

Week 1
Introduction to Financial Accounting & Key
Financial Statements

Student Handout

Lecturer:
Dr. Youngdeok Lim
School of Accounting
UNSW

QUAD 3069
youngdeok.lim@unsw.edu.au

Moodle: https://moodle.telt.unsw.edu.au/login/index.php

Term 1, 2019 ACCT1501

 WEEK 1: Introduction to Financial Accounting & Key Financial
Statements

Welcome to Accounting and Financial Management 1A.

In this first lecture, we will be outlining the objectives of the subject, its structure and
requirements as described in the Course Outline and answer any questions you may
have about the course.

We will then begin to explore the nature of accounting and introduce key financial
statements and the users of these reports. We will be referring to the Woolworths
2017 and 2018 Annual Report throughout the course. The 2017 annual report is
included as an appendix in your course textbook (7th edition, Trotman Gibbons &
Carson, pages 658-696).

Learning objectives
At the end of this topic you will be able to:
! Understand the overall course requirements and assessment tasks for this unit.
! Define Accounting
! Begin to become familiar with the Woolworths 2017 annual report and the
information it contains.
! Be aware of key financial statements and the users of these reports.
! Begin to understand the accrual concept
! Understand the foundations of modern accounting practices including the
qualitative characteristics and underlying assumptions of financial reporting

Required Reading
1. ACCT 1501, 2019T1 Course Outline
2. Trotman, Carson & Morgan Chapter 1
3. Woolworths 2017 Annual Report (familiarise yourself with the contents)
(Appendix 1)

ACCT1501 2
2. Tutorial Questions – Week 2
Preparation Questions
You should attempt these questions before the tutorial. The answers to the preparation
questions will be made available on the course website at the end of the relevant
lecture week. In this way you can check your understanding of these questions before
the tutorial class. You are welcome to raise any unresolved issues that you have with
the preparation questions with your tutor.

• DQ1.1, DQ1.3, DQ1.7, DQ1.11,

• P1.2, P1.15

Tutorial Questions
You should also attempt these questions before the tutorial. The answers to tutorial
questions are the focus of the tutorial class work.

• DQ1.2, DQ1.15, DQ1.16,

• P1.5, P1.11, P1.20,
• Case 1A

ACCT1501 3
 Woolworths swings to $973m loss, appoints new CEO
Catie Low
February 26, 2016

Supermarket giant Woolworths has sunk $972.7 million into the red in the first half
after booking $1.9 billion in write-downs on its disastrous Masters home
improvement foray.

Announcing the retailer's first loss in 23 years, chairman Gordon Cairns also ended
months of leadership speculation, announcing supermarkets boss Brad Banducci will
step up as the company's new chief executive.

With Woolworths latest results and Coles lowering prices on its fresh produce lines,
the supermarket wars are heating up again,

The stock fell as much as 6 per cent in early trading to a four-year low before
rebounding to be 37¢ higher at $22.26 at 12.38am.

Sales in the six months to January 3 fell 1.4 per cent to $32 billion. Underlying profit,
excluding the write-downs, slumped 33.1 per cent to $925.8 million.

The retailer slashed its interim dividend by 34 per cent to 44¢ a share.

Analysts were expecting the group to unveil an impairment for the Masters business,
but the elevation of Mr Banducci to CEO may come as a surprise.

While he was the only internal candidate for the top job, many analysts and investors
were keen to see an outsider take the helm and drive real cultural change, particularly
in the core supermarkets business, which is struggling to claw back market share from
rivals such as Coles and Aldi.

Comparable sales in food and liquor fell 0.8 per cent to $22.3 billion in the half as
Woolworths cut prices on popular groceries to try to lure back shoppers. The
Wesfarmers-owned Coles chain has beaten Woolworths' supermarkets on a like-for-
like sales basis for 23 consecutive months.

Coles like-for-like sales jumped 4.3 per cent in the half and the growth was even
stronger in the second quarter, with comparable food sales up 5.3 per cent.

Coles is investing heavily in cutting prices on popular meat and green grocery items
and improving its fresh food lines in a bid to safeguard its customer base from any
improvements at Woolworths.

'Listening culture'

Mr Cairns said Woolworths was rebuilding its reach, but he warned it would be a
three-to-five year process.

ACCT1501 4
"At the AGM I outlined clear business priorities to rebuild Woolworths, with a
particular focus on our supermarkets business to ensure we are competing
vigorously," Mr Cairns said.

"This is underway with significant investment in improving customer experience.

"Our second priority is to optimise our portfolio, the decision to exit home
improvement will allow Woolworths to focus its energy and resources on
strengthening and execute its plan in its core business."

Mr Cairns said the final priority was to "embrace a listening culture", which he said
was fundamental to ensure that the strategies and programs they implemented
enhanced value for shareholders.

Mr Cairns has been working hard to find a new chief executive for Woolworths since
he joined the board in September but he revealed earlier this year that the recruitment
drive overseas and in Australia had been challenging.

Mr Cairns admitted he couldn't convince any of the local candidates to come in for an
interview to lead Australia's biggest supermarket chain.

The appointment of Mr Banducci has also triggered the departure of encumbent chief
executive Grant O'Brien, who leaves Woolworths today.

Mr O'Brien has been keeping the seat warm since his retirement in June as part of a
controversial deal that was expected to deliver him almost $10 million through
Woolworths' defined benefit superannuation scheme.

The arrangement has attracted a lot of criticism, given Mr O'Brien's part in

Woolworths' disastrous foray into hardware and the loss-making Masters chain.

Its partner in the Masters joint venture, US retailer Lowe's, this week set the scene for
legal action against Woolworths after writing down the value of its 33 per cent stake
by $US530 million ($737 million).

https://www.smh.com.au/business/companies/woolworths-announces-supermarkets-
boss-brad-banducci-as-chief-executive-20160226-gn42mz.html

ACCT1501 5
ACCT1501 Accounting and Financial Management 1A
Term 1, 2019

Week 1: Introduction

Lecturer: Dr Youngdeok Lim

Quad 3069
 Today’s learning objectives: LO

At the end of this topic you will be able to:

1. Understand the overall course requirements and assessment tasks for

this unit.

2. Define Accounting

3. Begin to become familiar with the Woolworths 2017 annual report and
the information it contains.

4. Be aware of key financial statements (Balance sheet, Income statement,

and Cashflow statement) and the users of these reports.

5. Begin to understand the accrual concept

6. Understand the foundations of modern accounting practices including

the qualitative characteristics and underlying assumptions of financial
reporting

2
 LO1. The online course outline

What you need to know?

1. Understand the course

structure

2. Course objectives

3. Clarify roles and

responsibilities

3
 Introduction
! Teaching staff
! Dr Youngdeok Lim (Lecturer-in-Charge)
! Dr Chuan Yu (Lecturer)
! Dr Conor Clune (Lecturer)
! Tutors – Andrew, Anna, Dale, Fan, Gavin, Harry, Irene,
Jingduan, Kurt, Menglong, Michael, Paula, Phuc, Raul, Rob,
Sandeep, Suneel, Tiffany, Xin, Xinyi, Yichelle, Yuhao
! Take a couple of minutes and introduce yourself to two people near you. Ask
them what tutorial group they are in & what else they are studying.

4
 Financial accounting: An Integrated approach 7th
edition
Required Texts (UNSW Bookstore paperback price: $129.96,
eBook price: $74.95)

Lecture notes, tutorial material

and additional readings
Available on Moodle

+
Companion Ebook: Management Accounting Supplement, 7th edition
(eBook price: $24.95)

eBook purchase: www.cengagebrain.com.au/shop

discount code: UNSW10

5
Lectures: How do you prepare for lectures

Read the assigned reading materials before the lecture

! Lectures are only a summary and are not a substitute for reading
Bring your Lecture Notes to every lecture & tutorials !!!!!
! The lecture notes follow the lecture outline with space for you to
make your own additional notes during the lecture
! Lecture notes will be posted on Moodle.
! Lectures will be Podcast recorded with screen captures of the
lecture slides (UNSW Lecture Recordings+). This is
recommended as an additional resource not a substitute for
face-to-face interaction in the lectures.

6
How to maximize the return on your investment (ROI)
Participation in class (both lectures & tutorials)
! Students do not benefit from copying solutions
! Attempting your work is essential to identifying concepts/ issues you do
not understand
! Tutorial homework (Max. 3 marks)
! Your tutor will randomly choose 4 weeks to review your written
answers to the assigned tutorial questions (not preparation questions)
and mark the best 3 weeks (no half mark).
! Tutorial individual participation (max 3 marks)
! 80% attendance rule - a student that attends fewer than 8 classes will
receive a mark of 0/3.
! Tutorial group participation (max 4 marks)
! Help tutors help you, by proactively asking questions!
! Interaction in the tutorial helps everybody learn – it might even be fun!!!!

7
Preparation & Tutorial Questions:
Work you must do to pass the course !!

• Preparation Questions: Attempt all preparation questions and

check the solutions on Moodle before your tutorial.
• Tutorial Questions (also attempt before class): The goal of
the tutorial is to discuss the questions and clarify any concerns
you may have. The process in an interactive one and you are
required to engage with your tutor by asking and answering
questions.
Note:
DQ1.1 means Chapter 1, discussion question 1.
P1.6 refers to problem 6 at the end of chapter 1.

8
Learning Assessment (or how to pass ACCT1501)

Assessment Item / Due date Weight

Tutorial participation (complete each week) 10%
Mid-session class test (week 7) 25%
Multiple Choice Tests – 3 online quizzes 5% each
Quiz 1 – Due March 29th @ 3pm
Quiz 2 – Due April 19th @ 3pm
Quiz 3 – Due May 3rd @ 3pm 15%
Final examination 50%
TOTAL 100%

9
 In order to pass, students must

• Achieve a composite mark of at least 50% AND

• Achieve a satisfactory level of performance in
the final exam, usually means a minimum mark of
50%

10
 Three Quizzes – YOU must read the instructions!!!!

! Each quiz will be open for 1 week.

! Each quiz will consist of 20 multiple choice questions.
! It is recommended to be completed in 40 minutes; however
there will be no official time limit. One attempt.
! They will be available on moodle.

Important feedback!!!!

For you & us! ☺

11
Special Consideration and Supplementary examinations:
! There will be a very limited opportunity to sit a
supplementary mid-session exam. To apply for this, the
Course Outlines Policies webpage for supplementary exam
information.
! Supplementary exams for Term 1, 2019 will be held during
the period 27-31 May, 2019. Students wishing to sit a
supplementary exam will need to be available during this
period.
! If you are too ill to perform reasonably on the final exam, do
not attend the final and apply for a supplementary instead.
! Applying for special consideration does not automatically
mean that you will be granted a supplementary exam.

12
 Additional resources
! Face to face consultation with lecturers (from week 2)
! Tutors will hold extra consultation for mid-session exam and
final exam (to be announced).
! PASS (Peer Assistance Support Scheme) – from week 2
! Keep in mind that you can attend any class you like!
! Discussion boards on Moodle
! For questions of a private/personal nature, please email
acct1501@unsw.edu.au
! Email policy: Use UNSW student email by identifying yourself
with ID & full name

13
 The Course Website
! Moodle:
https://moodle.telt.unsw.edu.au/login/index.php
! Announcements!!! – your responsibility to read
! View preparation and tutorial solutions
! Use the Discussion board - 2 Categories
• Course Content,
• Course Administration
- overseen by staff members

! Use appropriately and with respect for others

14
 Student responsibilities:

! Preparation – for lectures & tutorials

! Workload and other commitments – balance!!!
! Attendance 80% rule University & UNSW Business
School
! Conduct and behaviour – respectful to others at all times
in lectures, tutorials, via email and on Moodle
! Keeping informed !!! – Read the course outline; Moddle
Announcements & your university email.
! ONLY attend the lectures and tutorials that you are
officially enrolled to attend.

15
 Questions?

Answers are likely to be in the

Course Outline!

16
 Introduction to Financial Accounting (Ch 1)

17
 Some ground rules
Please put your mobile phone on SILENT
Lectures start at 5 minutes past the hour, and finish at 5
minutes to the hour
! We’ll aim to have a 5-10 minute break half way
through
Be considerate
! This means no talking!
! If you are late, come in quietly, with minimal disruption
to others

18
 LO2. What is accounting?

• Accounting is the process of

identifying, measuring,
recording and communicating
economic information to assist
users to make decisions.

Accounting is the language of business.

• Business and communication!
• Grammar – e.g. accounting principle, assumptions
• Vocabulary – e.g. accounts receivable, prepayment,
debit/credit, balance sheet, income statement etc.
• Practice – e.g. accounting cycle

19
Don’t forget to use the Glossary! (textbook, p. 697)

! In the course of your study you will be introduced to many key

Accounting terms; it is like learning a new language.
! You should refer to the glossary as often as needed until you
get to know all the new terms.
! Practice using the glossary - look up the new terms each
week and try to explain them in your terms or think of an example
to explain it. (Tip: Define, explain, example!)

20
 Accounting System

Financial Accounting System Managerial Accounting System

Periodic financial statements and Detailed plans and continuous
related disclosures performance reports

External Decision Makers Internal Decision Makers

Investors, creditors, Managers throughout the
suppliers, customers, etc. organization
governement ato asx asic

Reporting standard: Reporting standard:

AASB standards (GAAP) N/A
21
 How ACCT1501 is positioned within an accounting major

ACCT 1501 & 1511 Also…

Providing the foundation & “Setting the scene” Exciting
Basic terminology, record keeping, understanding & preparing basic electives!
financial statements, exposure to management accounting

ACCT 2A & 3B ACCT 2B & 3A

Management Accounting Financial Accounting
Information gathering & reporting Information gathering & reporting for
for people inside the organisation people outside the organisation

AUDIT: checking that procedures are in place to prepare financial statements that
are true and fair reflection of company position & performance

22
 What is financial accounting?
Financial accounting will be the focus of this course.
Financial accounting focuses on the provision of
information to users external to the enterprise.
The focus is on reporting financial position and financial
performance.
! We discuss financial accounting in weeks 1 to 9.

23
 What is management accounting?
Management accounting will be the focus of later part of this
courses.
Management accounting focuses on the provision of
information to users within the enterprise (to aid in
operational planning and control decisions).
! We start to look at management accounting in weeks 9 &
10

24
Users and their needs (P1.3):
User Type of Information

probability of interest payment

Company management The profitability of each division of the company

Bankers lending decisions

?

Shareholders Prospects for future dividend payments

Probability that the company will be able to pay for
Suppliers
its purchases on time
Australian Tax Office Profitability of company based on tax law
Profitability of company since last contract with
Trade unions
employees was signed
Australian Securities
Financial position and performance of a company
and Investments
issuing shares to the public for the first time
Commission

25
 Is accounting really important?

Used by:
Management in making business decisions
– If you can’t measure it, you can’t improve it. – Peter Drucker
Shareholders for decision making
Board of directors in takeover battles
Bankers and creditors in lending decisions

26
 Is accounting really important? (cont.)

Used by:
Boards in rewarding and removing executives
Management and unions in wage negotiations
Impacts communities
Impacts workers
http://www.smh.com.au/business/retail/dick-smith-to-
close-all-stores-3000-staff-to-go-20160225-gn3ios.html

27
LO3. What is an annual report?
Glossy magazine that contains a lot of descriptive
information about the company and the three key financial
statements, together with a wide range of additional
information about the company provided in the notes.

Where do you get it from?

• Company websites
• Stock exchanges
 For example,

29
LO4. Key financial statements
! Balance sheet
• Financial position of an enterprise at a particular point in time.
– Sometimes referred to as the Statement of Financial Position
• Financial position: Enterprise’s set of financial resources and obligations at a
point in time
• What are the entity’s resources and how were they financed?
! Income statement
• Financial performance of an enterprise over a period of time.
• Financial performance: Generating new resources from operations over a
period of time
• Has the entity used its resources efficiently and effectively?
– Sometimes referred to as the Profit and Loss Statement (P&L)
! Cash flow statement: (To be covered in 1B)
• Cash inflows and outflows over a period of time.
! Notes to the financial statements (additional detail)

30
 Introduction to the Balance Sheet

The balance sheet reports the financial position of an entity

at a point in time.

Jan 1 2016 Dec 31 Dec 31 Dec 31

2016 2017 2018
Balance Balance Balance
Sheet Sheet Sheet

Used to assess financial structure and ability to pay debt

31
 Balance sheet

borrow from bank

Three main elements:
! Assets
– Resources - they will benefit the company this year (current) or in future
years (non-current)
– e.g., cash, property, equipment, inventory

! Liabilities
– What the company owes
– e.g., accounts payable, loan payable

! Equity (net assets)

– What belongs to the owners, the residual i.e. what is left after liabilities are
taken care of e.g., share capital, retained profits

32
 Balance sheet
! Assets are due to debt or equity!
! The balance sheet shows resources (assets), and claims on those

oe：owners equity
resources (liabilities and equity) at a point in time.

! We can represent this with the accounting equation:

Assets = Liabilities + Equity

Resources Sources

! This will be very important to us in later weeks when we consider

double-entry book keeping
• There are always two aspects of a transaction

33
 Example (To be continued)
! You purchased one bed room apartment at $500,000 on
1/7/2015 and rented it to tenants.
! Financing source: Your own money $100,000, Borrowing
from bank $400,000 (maturity: 3 years, Principal will be
paid at the end of maturity)
! Rent revenue (cash) $400/week, Interest expense (cash)
$200/week, Tax expense (cash) $1000/year
! Assume 52 weeks per year and no depreciation.
! Prepare your Balance Sheet as of 1/7/2015.

34
Consolidated Balance Sheet – Woolworths group (2018)

35
 Note: Consolidated financial statement
• Financial statements that factor the holding company (parent
company)'s subsidiaries into its aggregated accounting figure.
# A subsidiary is a company controlled by parent company which has the
power, directly or indirectly, to govern the financial and operating policies
of an entity so as to obtain benefits from its activities.
# Intragroup balances, and any unrealised gains and losses or income and
expenses arising from intragroup transactions, are eliminated
• It shows how the holding company is doing as a group. The
consolidated accounts should provide a true and fair view of the
financial and operating conditions of the group.

36
For example
Woolworths group Wesfarmers group
• Woolworths limited • Bunnings
• Countdown • Coles
• BWS • Bi-Lo
• Dan murphy's • Liquorland
• BigW • Kmart
• Masters (discontinued) • Target
• Harris Technology

37
Income Statement
! Shows the results of business operations over a specific
time period
! Reports revenues earned, and any expenses incurred
! Revenue: inflows of economic benefits that increase owner’s equity
# e.g., sales revenue, service revenue, fees earned

! Expenses: Use or loss of economic benefits that decrease owner’s

equity.
# Incurred when you use resources to generate revenue (matching principle)

! If revenues are greater than expenses, there is a net profit

! If revenues are less than expenses, there is a net loss

38
 Income Statement

! Revenues & Expenses are recognised when an economically

meaningful event has occurred
! This is called Accrual Accounting
! It does not have to involve cash!

39
Consolidated Income Statement – Woolworths group (2018)

40
 Statement of cash flows (To be covered in 1B)

! Statements of cash flows provide details of movements

in an entity’s cash balance over a specific time period.

The cash flows are normally categorised into:

! operating activities: main revenue producing activities
! investing activities: acquisition and disposal of long term
assets
! financing activities: equity capital and borrowing

41
 Business Model (Week 3 slide)
Investors (e.g. banks,
shareholders)

Financing activities

Purchase Sale

Suppliers Operating Company Operating Customers

(e.g. farmers) activities (e.g. Woolworths) activities (e.g. You)

Payment Payment
(Cash/Accounts (Cash/Accounts
Payable) Investing activities
Receivable)

Property Plant and Equipment,

financial securities etc

42
Consolidated Cash Flow Statement – Woolworths group (2018)

43
 Revision Question 1
Which of the following organisations may use
financial statements?
1. Australian Taxation Office
2. A church congregation
3. A university
A. 1 and 2 only.
B. 2 and 3 only.
C. 1 and 3 only.
D. 1, 2 and 3.

44
 Revision Question 2
Financial performance means:
A. providing information about the cash position
of an entity.
B. setting out the enterprise’s set of financial
resources and obligations at a point in time.
C. identifying, measuring and communicating
economic information to allow informed decisions.
D. generating new resources from day-to-day
operations over a period of time.

45
 LO5. Accrual vs. Cash Accounting (Week 2)

An income statement reports revenues and expenses

! Accrual accounting
A cash flow statement reports cash inflows and outflows
! Cash accounting

46
 Accrual vs. Cash Accounting (Week 2)

Accrual accounting includes the impact of transactions on

the financial statements in the time periods where revenues
and expenses occur rather than when the cash is received
or paid.

Cash accounting only accounts for revenues and expenses

when cash is paid or received.

47
A Key objective for this session: begin to
understand the Accrual concept***

! In June, a company makes cash sales of $10,000 and credit

sales of $20,000 (all to be collected in July)

• What are sales using accrual accounting in June?

• What are cash inflows using cash accounting in June?

• What are total sales using accrual accounting in June and July?
• What are total cash inflows using cash accounting in June and
July?

48
 LO6. Qualitative characteristics and financial
statement assumptions (related to Chapter 6)
1. Qualitative characteristics: the attributes that make
the accounting information useful to users.

Fundamental qualitative characteristics

• Relevance
• Faithful representation
Enhancing qualitative characteristics
• Comparability
• Verifiability
• Timeliness
• Understandability

49
 Relevance
The financial statements need to contain information that is
useful for decision-making.

Faithful representation
The financial statements should be free from bias.

50
 Comparability

Information about one organisation is more useful when it

can be compared with similar information from another
organisation and also is comparable over time within the
same organisation.

Verifiability
The numbers in the financial statements can be verified
(e.g. looking at documentation, direct observation,
checking inputs and outputs to a model formula)

51
 Timeliness
• Providing information in time for the user to incorporate
the information in their decisions.

Understandability
• Information is more useful if it is understandable to
informed decision-makers.

52
 Note: Materiality

! A piece of information is said to be material if its

omission or misstatement could influence the economic
decisions of users made on the basis of the financial
statements
! e.g. Financial statements in $million (see Woolworths
example in the Appendix)

53
 2. Financial statement assumptions include:
! accrual basis
! accounting entity
! accounting period
! monetary
! historical cost
! going concern

54
 Accrual basis

! Revenues and expenses are recognised at the

time they occur rather than when the cash is
received or paid.

55
 Accounting entity assumption
! The entity for which financial statements are prepared
! Activities of the entity are separate from those of its
owners/members
! Includes, but not limited to, legal entities (e.g.
consolidated entity)
! Economic entity – a group of entities where the goals of
the controlling entity are pursued: (e.g. consolidated entity)
! e.g. companies, partnerships, funds, associations, public sector
bodies.

56
 Accounting Period assumption

! Life of business is divided into discrete time periods of

equal length to determine financial performance and
position.
! Production of regular, comparable financial statements.
Income statement Income statement Income statement

Jan 1 2016 Dec 31 Dec 31 Dec 31

2016 2017 2018
Balance Balance Balance
Sheet Sheet Sheet

57
 Monetary assumption

! Universally accepted medium of exchange ($).

! Measure economic activity by a common denominator.

58
 Historical cost assumption

! Transactions are initially recorded at their original cost.

! Treats assets in terms of their use rather than for resale.

Example: Land purchased in 2000 at cost of $50,000 and

still owned by the buyer will be reported on the buyer's
balance sheet at its historical cost of $50,000 even though
its market value of $500,000.

59
 Going concern assumption

! Assumes continued operation of accounting entity into

foreseeable future
! There is no intention or need to liquidate
! Produces demand for financial information during life of
entity

60
 Revision Question 3

The Great Drink Company, in preparing its balance sheet,

excludes the general manager’s personal motor vehicle
(not used in the business) because of the following
accounting assumption:

1. Going concern
2. Monetary concept
3. Accounting period
4. Accounting entity

61
 Take away and coming up…next week!

Accounting entity assumption, accounting period assumption

Balance Sheet
! Assets
! Liabilities
! Shareholders’ equity
Income Statement
! Revenue (flow of income generated by selling goods or services)
! Expense (flow of expenses incurred in providing the goods or services
for sale)
Cash profit versus accrual profit

62