Accounting in Society

25/02/20

• Accounting, accountability and society

• Accounting for organisations

• Careers in accounting

What is Accounting?
What is accounting in the business world?

 Plays a key role in the provision of financial information for decision-making

 Process of identifying, measuring, recording and communicating economic transactions and
events of a business operation.
o Identifying: economic transaction activities e.g. payroll, purchases, assets etc.
o Measuring: assigning monetary value to transactions
o Recording: analysing and summarising information
 Summarising: aggregated sales value as a single amount
o Communicating: financial statements
 5 types:
 Profit and Loss/Income Statement
 Balance Sheet
 Statement of change in equity
 Equity
 Disclosure notes/Notes to financial statements

Stages to a process

Input –> Process –> Output

Input: Identifying

Process: Measuring, recording

Output: Communicating

What is accounting in the business world? Cont.

Goal:

 How to make your business grow?

 Where do you get money to finance expansion?

Decision:

 Success in business requires countless decisions

Financial information:

 Decisions require financial and other types of information

Accounting and its stakeholders:

 Suppliers/creditors
 Employees
 Shareholders
 Potential investors
 Financial institutions
 Society
 Government
 Environment

Management and Financial Accounting

Branches of accounting:

 Management Accounting
o Internal Focus (for managers)
 Planning
 Controlling
 Decision making
o Cost behaviour/break even
o Budgeting
o Strategy
 Financial Accounting
o External Focus (for shareholders, banks etc)
o Reporting information
 Performance
 Position
o Financing and Investing
o Highly Regulated
 Tax Accounting
 Auditing

Various types of business organisations

 Sole proprietorship (sole trader, unlimited liability)

o Owned by one person (e.g. dentists)
 Partnership (Unimited liability)
o Owned by more than one individual (e.g accountants, solicitors)
  Company (Limited liability)
o Organised as a separate legal entity and owned by shareholders (e.g. BHP, Qantas)

Limited liability is a type of legal structure for an organisation where a corporate loss will not exceed
the amount invested in a partnership or company. In other words, investors' and owners' private
assets are not at risk if the company fails. The limited liability feature is one of the biggest
advantages of investing in publicly listed companies. When either an individual or a company
function with limited liability this means that assets attributed to the associated individuals cannot
be seized in an effort to repay debt obligations attributed to the company. Funds that were directly
invested with the company, such as with the purchase of company stock, are considered assets of
the company in question and can be seized in the event of insolvency. Any other assets deemed to
be in the company’s possession, such as real estate, equipment, and machinery, investments made
in the name of the institution and any goods that have been produced but have not been sold, are
also subject to seizure and liquidation.

3/03/20

 What is ethics
 Why is ethics important
 The role of ethics in Accounting
 Code of ethics for professional accountants

Ethics
What is ethics

 “Ethics in its broader sense, deals with human conduct in relation to what is morally good
and bad, right and wrong. It is the application of values to decision making. These values
include honesty, fairness, responsibility, respect and compassion” – Institute of Global Ethics

Ethics vs. Morals

Ethical theories

 Prescriptive principles or rules for determining right from wrong:

o Beliefs about how people ‘should’ behave
o Principles and methods are used as a guide for avoiding and resolving ethical issues.
 Two classifications:
o Teleological/Consequential ethics
o Deontological/Non-Consequential ethics
 Teleological or Consequential Ethics
 o The consequences of a decision or action is the sole determinant of what is right
from wrong.
o A morally correct action occurs when benefits outweigh costs.
o How you get to the result is less important than the outcome itself. e.g. telling a lie is
OK if people benefit at the end of the day.
o Limitation: tends to be a selfish approach to ethics. Emphasis is placed on the
individual or majority which may be unfair to the minority or may abuse individual
rights.
 Deontology or Non-Consequential Ethics
o Consequences are not important.
o The intention to do the right thing is more important than the final result.
o One does the right thing because it is the “right thing to do” - e.g. telling a lie is
never ok regardless of whether people are better off or not

Ethical decision-making process

Professional Code of Ethics

 Many professional bodies have developed their own codes of ethics

o Counselling
o Teaching
o Nursing
o Law
o Accounting
 Accounting Professional and Ethical Standards Board (APESB)
 APES 110 Code of Ethics for Professional Accountants
o Fundamental Principles:
 Integrity
 Be straightforward and honest in all professional and business
relationships
 Objectivity
 Professional or business judgments cannot be compromised
because of bias, conflict of interest or the undue influence of others
 Professional competence and due care
 Must attain and maintain professional and technical knowledge for
clients or employers
  Requires diligence and appropriate training and supervision
 Confidentiality
 Must not disclose outside of the firm, confidential information
acquired as a result of professional and business relationships,
unless the client or employer authorises it or there is a legal duty to
disclose it.
 Professional behaviour
 Members must comply with relevant laws and regulations
 Must avoid any action or omission which may discredit the image of
profession.

Ethical requirements of independence (Section 290.6)

 Independence of mind:
o State of mind which permits the expression of a conclusion without being affected
by influences that compromise your professional judgment. - don’t think about
unethical behaviour
o Independence in appearance: (how others view us) - avoidance of facts and
circumstances that are so significant that a reasonable and informed third party,
having knowledge of all relevant information, would reasonably conclude…integrity,
objectivity or professional scepticism had been impaired - don’t place yourself in
uncompromising positions

12/03/20

Financial Accounting for business: double-entry accounting

Type of transactions

 External Transactions
o Involve an outside party
o Exchange of economic resources and/or obligations
 Examples include Sale of Inventory and Purchase of Supplies
 Internal Transactions
o Transformation of economic resources
 An example is the use of office supplies
 Non-Transactional Events
o Not usually recorded, but may be in the future
 An example is receiving an order from a customer

Five financial elements – ALOIE

 Asset Accounts: Present economic resources controlled by the entity

o Cash at bank
o Accounts receivable
o Inventory
o Prepaid expenses
o Plant and equipment
o Buildings
 Definition of Assets An asset is a present economic resource controlled by the entity as a
result of past events. An economic resource is a right that has the potential to produce
economic benefits.
 Liability Accounts: transfer an economic resource
o Accounts payable
o Unearned revenue
o Loan payable
o Interest payable
 Definition of Liabilities A liability is a present obligation of the entity to transfer an economic
resource as a result of past events.
 Equity Accounts: claims of owners
 o Capital (the owner share of the business, i.e. Owner’s Capital)
o Drawings or Withdrawals
o Drawings are what the owner(s) take out from the business for their personal use.
This account is used to track money ‘drawn’ from the business by the owners. This
ONLY occurs in businesses that are non-public.
 Definition of Equity (net assets) Equity is the residual interest in the assets of the entity after
deducting all its liabilities
 Income Accounts: sales and other increases in equity
o Sales revenue
o Interest income
 Definition of income Income is increases in assets, or decreases in liabilities, that result in
increases in equity, other than those relating to contributions from holders of equity claims
 Expense Accounts: cost of assets consumed, or services used
o Salary expense
o Rent expense
 Profit
o When total income exceeds total expenses
 Loss
o When total expenses exceed total income
 Definition of Expense
o Expenses are decreases in assets, or increases in liabilities, that result in decreases in
equity, other than those relating to distributions to holders of equity claims

Set up accounts
 17/03/20

Financial accounting for business: preparing general journals