WELCOME TO

22107
LECTURE 1
ACCOUNTING FOR BUSINESS
DECISIONS A

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to access this lecture zeetings.com/accountinga
 WELCOME TO
UNIVERSITY OF TECHNOLOGY, SYDNEY

22107
ACCOUNTING FOR BUSINESS
DECISIONS A
OFFERED BY

THE ACCOUNTING
DISCIPLINE GROUP
UTS BUSINESS SCHOOL
ACADEMIC STAFF

Subject coordinator:
Lecturer: Dr James Wakefield
Email: James.Wakefield@uts.edu.au

Head Tutor:
Lecturer: Kristina Vojvoda
Email: Kristina.Vojvoda@uts.edu.au

1-3
LEARNING SEQUENCE
 READ: Textbook and papers
 LECTURE: Introduction and application
 HOMEWORK: Apply what you have learnt in
the lecture
 TUTORIAL: Close the gap – ask your tutor
questions
 LEARNING QUIZZES: Complete and identify
areas requiring further revision
 SUPPORT: Discussion boards, tutors,
U:PASS, consultation
1-4
 LECTURES
 There is a lot of material
 Some slides we spend 10 minutes on – these are
very important. Some slides we spend 10 seconds
on – these are less important.
 PowerPoint slides are on UTSOnline on Friday
evening (after all lectures) but on Zeetings before
the lecture.
 Lecture slides, complement and reinforce the
textbook, they are not substitutes for the textbook
 Overall we expect you to spend about 10 hours per
week studying each subject – 3 hours face to face
(in class) 7 hours of self study (oh yeah).
 TUTORIALS

 Tutorials started THIS week.

 Come to class reasonably well prepared – look
over the ‘Tutorial Guide’ on UTSOnline.

 Aim of tutorials is for you to fill in the gaps in

your knowledge - ask questions.
 Tutorial questions are in the Subject Outline.
 SUBJECT OUTLINE
 Must read
 Includes SCHEDULE of what and when we are
covering content, AND what preparation you are
required to complete
 Schedule also provided in Learning Content
“Module” folders on UTSonline
 Let’s go through it now together…..
STUDENT SUPPORT
(INFO IN “SUBJECT OUTLINE”)
 Student Services (counselling and more)
 Accessibility
 Academic Liaison Officers
 HELPS – improve communication skills
 Math Study Center
 Career Services
 Consultations
 UTSOnline and the “Discussion Board”
 UPASS (Peer Assisted Study Sessions)
1-8
1-9
 TEXTBOOK - ESSENTIAL

ACCT3 Financial and ACCT3 Management

 By Tyler et al, Sivabalan et al. (use both)

 Both are also used in the second accounting subject

22207 (Acc B in Spring 2019)
 Available as both hard copies and e-books
 If ordering from Cengage, use discount code TENOFF at
checkout

1-10
 WE ARE ON THE WEB
http://online.uts.edu.au/
Announcements, lecture slides, tutorial guides, subject
guide and discussion board.

Students are required to look over the tutorial guide

before going to tutorials.

In each “Learning Module” do the learning

quizzes each week to assess your progress
and get detailed feedback to help you
learn key concepts
1-11
WEEKLY EMAILS
 Email tailored to you and your studies straight to
your UTS email account.

 Important updates on your progress, assessments,

materials and other information in the subject.

 Sent most Wednesdays during the Session.

 Sender: Dr James Wakefield (subject coordinator)

 ASSESSMENT AUTUMN 2019

Flexible Assessment – YOU Choose in week 4

A 40% Mid-Semester & 60% Final Exam

Or
B 10% Class, 30% Mid-Semester Exam
& 60% Final Exam
(tutorials are optional - but once sign up, committed)

I will tell you about the bonus screencast assignment

in week three 1-13
 HOUSEKEEPING

 Recommended
 Simple Calculator - no text memory
 (You cannot use your phone in exams)

 Internet access - (available at UTS)

 Time – (priorities, time jealous)

 More details in your subject outline

– read it please.
1-14
 Excel – THE SPREADSHEET

 The Greatest Business Tool

 Better than any calculator

 You don’t have to use it – great tool

 Part of Microsoft Office:

 Word, PowerPoint, Excel…..

 You can +, -, /, * up to complex statistics.

1-15
DO I NEED TO BE GOOD AT MATH?
 Yes

 In week 2 we will do some adding

 In week 3 we will do some subtracting

 In week 8 we will do multiplying and

dividing (but not at the same time).
1-16
UNIVERSITY IS ALL NEW TO ME
 Welcome to the club

 About half of you are still living at home

 good and bad

 About 10% previous study is non-English

 About 30% are new to Sydney

1-17
 UPASS
UTS Peer Assisted Study Success
U:PASS Video:
https://www.youtube.com/watch?v=UjiM4OTxpDg
Sign up:
www.tinyurl.com/upass2019

“I have many experiences with U:PASS leaders, I attend the U:PASS

regularly and I am really happy about the atmosphere there - that I can
discuss what I am not sure about and the leaders are also great.”
 Accounting for Business Decisions A

Please use your

UTS Student Email address.

Plagiarism is the crime at

University – taking another’s
ideas and presenting them as
your own. 1-19
Lecture attendance:
As a courtesy to your
fellow students please be
seated not later than 5
minutes after the
timetabled start
ASK QUESTIONS

1-21
LECTURE 1
ACCOUNTING IN THE
WORLD OF BUSINESS
Textbook [ACCT Financial] Ch. 1

1-22
LECTURE LEARNING OBJECTIVES

LO1: Examine the four assumptions made when

communicating accounting information and
define GAAP.

LO2: Describe the purpose & structure of a

Income statement and the terms, principles &
subtotals used in creating it.

LO3: Describe the purpose of a Balance sheet and

the terms, principles & structure used in
creating create it.
LEARNING OBJECTIVES (continued)
LO4: Briefly describe the purpose & structure of a
Statement of changes in equity and how it links
the Income statement & Balance sheet.

LO5: Briefly describe the purpose & structure of a

of Cash flow statement.

LO6: Appreciate the objectives of financial

reporting and qualitative characteristics that
make accounting information useful.

LO7: Review the language of accounting.

LO1 BEGINNING ASSUMPTIONS

Examine the four assumptions made when

communicating accounting information.

Accounting is the process of identifying, measuring

and communicating economic information to permit
informed judgments and decisions.
Accounting is the ‘language of business.’
 FOUR ACCOUNTING ASSUMPTIONS
 Economic entity: financial activities of a business can
be separated from those of the business’s owner.
 Time period: economic information can be
meaningfully captured and communicated over short
periods of time.
 Monetary unit: accountants assume that the dollar is
the most effective means to communicate economic
activity.
 Going concern: accountants assume that a company
will continue to operate into the foreseeable future.
LO2 REPORTING PROFITABILITY:
THE INCOME STATEMENT (Y/S)

Describe the purpose & structure of an Income statement

and the terms, principles & subtotals used in creating it.

One of the first questions any business wants to know

is whether they are profitable. These answers can be
found in the income statement.
THE INCOME STATEMENT &
TERMS
An income statement reports a company’s
expenses and revenues.

• Expense: a decrease in resources resulting from

the sale of goods or services

• Revenue: an increase in resources resulting

from the sale of goods or services

• We recognise rev and exp when earned and

incurred regardless of when the cash flows.
 THE INCOME STATEMENT &
TERMS
• Matching principle: expenses should be recorded
in the period resources are used to generate the
revenues

• Revenue recognition principle: a revenue

should be recorded when a resource has been earned

• Revenues – Expenses = Profit or Loss

• Reported for a specific period, e.g. the year ended

June 30, 2018 .
INCOME STATEMENT EXAMPLE

Lawn Service
Income statement
For the month ending 31 January 2018
Revenues $1120
Expenses:
Fuel $ 80
Interest 5
Depreciation 70
Total expenses 155
Net profit (total comprehensive income) $965

Exhibit 1-1 (from the textbook)

LO3 BALANCE SHEET (B/S)

Describe the purpose & structure of a Balance sheet and the

terms, principles & structure used in creating it.

The second question often asked about a business is what is

the financial position. Does the business have more assets
(what the business own) than liabilities (what does it owe)?
What is the business ‘worth’?
THE B/S & RELATED TERMS

• Asset: an economic resource that is objectively

measurable, that results from a prior transaction,
and that will provide future economic benefit.

• Cost principle: assets should be recorded

and reported at the cost paid to acquire them.

• Liability: an obligation of a business that results

from a past transaction and will require the
sacrifice of economic resources at some future
date.
THE B/S & RELATED TERMS

• Equity: The difference between a company’s

assets and liabilities, representing the share of
assets that is claimed by the company’s owners.

• Contributed capital: The resources that

investors contribute to a business in exchange
for ownership interest.

• Retained Earnings : The earnings (income,

profits) that have been retained – not paid out
to the owners (Dividends or drawings).
BASIC STRUCTURE OF THE B/S

Accounting equation
Assets = Liabilities + Equity
Reported at a given time or date

The Balance sheet is sometimes known as

the statement of financial position
BALANCE SHEET: EXAMPLE
Lawn Service
Balance sheet
At 31 January 2018

Cash $194 Note payable (to Mum) $200

Accounts receivable 120 Total liabilities 200
Supplies (petrol) 10 Contributed capital 100
Lawnmower 195 Retained earnings 234
Petrol can . 15 Total equity . 334
Total assets $534 Total liab and equity $534

Exhibit 1-2 (from the textbook)

LO4; THE STATEMENT OF
CHANGES IN EQUITY (SCE)

Briefly describe the purpose and structure of a

statement of changes in equity and how it links the
Income statement and the Balance sheet.

A statement of changes in equity shows the change in

a company’s equity, particularly in retained earnings
over a specific period of time.
STATEMENT OF CHANGE IN EQUITY
(THE RETAINED EARNINGS PART)
 Most companies refer to the three equity accounts
from the balance sheet: (1) Share capital, (2) & (3)
Reserves (4) Retained earnings, (5) Total.
 We are primarily concerned with changes in
retained earnings.
 Retained earnings are exactly what you expect
them to be; earnings that have not been paid out
(have been retained - kept).
BASIC STRUCTURE OF THE
STATEMENT OF CHANGES IN EQUITY
(RETAINED EARNINGS PART)

Retained earnings, beginning balance

+/– Net income/Loss (profit or loss)

– Dividends (Drawings)

= Retained earnings, ending balance

STATEMENT OF RETAINED EARNINGS:
EXAMPLE

Lawn Service
Statement of retained earnings
For the month ending 31 January 2018

Retained earnings, 1 January

$ 0
+ Net income (or Net profits)
Exhibit 1-3 (from the textbook)
LINKING THE Y/S TO B/S
Exhibit 1-4
from the textbook

Income statement
Profits $ 965 The
Statement of changes in equity Statement of
Retained earnings, 1 January $ 0 changes in
+ Profits 965 Retained
– Drawings 731 Earnings links
Retained earnings, 31 January $ 234 the Income
Balance sheet statement and
Liabilities 200 the Balance
Contributed capital 100 sheet.
Retained earnings 234
Total assets $ 534 Total liab & equity $ 534
LO5 THE CASH FLOW STATEMENT

Briefly describe the purpose and structure of a Cash flow

statement (CFS)

Is the business solvent (liquid)?

• Where does a business get its cash?
• Where does its cash go?
• Will there be enough cash to pay bills?
These answers can be found in the cash flow statement.
REPORTING CASH FLOWS: THE
CFS

The details of cash inflows and outflows for a

business are reported on a cash flow statement in
the following three sections:

 Operating activities
 Investing activities
 Financing activities
CASH FLOW STATEMENT EXAMPLE
Cash Flow Statement For the month ending 31 January 2018
Operating activities
Cash received from customers $1000
Cash paid for petrol (90) Exhibit 1-5
Cash paid for interest (5) (from the textbook)
Net cash provided by operating activities $ 905
Investing activities
Cash paid for lawnmower $(260)
Cash paid for petrol can (20)
Net cash used by investing activities (280)
Financing activities
Cash received from borrowing $ 200
Cash received from owner 100
Drawings (dividend) (731)
Net cash used by financing activities (431)
Net increase in cash $194
Plus Cash balance, 1 January 0
Cash balance, 31 January $194
LO6 MORE INFORMATION

Discuss the type of information usually disclosed along

with the financial statements

There is additional information, beyond the four financial

statements that expands on, explains and adds credibility to
the financial statements
 INFORMATION BEYOND THE
FINANCIAL STATEMENTS
A company’s financial statements contain
information about the financial activities and
position of the company. However, much
information that is useful to creditors and
investors is actually found in:
• Notes to the financial statements
• Auditor’s report
• Management’s discussion and analysis
LO 6 & 7 QUALITATIVE CHARACTERISTICS OF
ACCOUNTING INFORMATION

Question the qualitative characteristics that make

accounting information useful.

What makes any product or service desirable?

Specifically what makes information valuable?
QUALITATIVE CHARACTERISTICS
OF ACCOUNTING INFORMATION

 Understandability
 Relevance
 Reliability
 Comparability
 Consistency
 Materiality
 Conservatism (prudent)
THE CONCEPTUAL FRAMEWORK

The conceptual framework of accounting is the

collection of concepts that guide the manner in which
accounting is practiced.

The conceptual framework is the grammar, punctuation,

spelling and sentence structure of the financial accounting
language or the ‘rules of the road’ . Like road rules in NSW
there some general rules (give way to the right) and some
specific rules (at a stop sign give way the right and the left)
 QUALITATIVE
CHARACTERISTICS
Term Definition Ramification
Understandability Accounting information Users must spend a
should be reasonable amount of time
comprehensible by studying accounting
those willing to spend a information for it to be
reasonable amount of understandable.
time studying it.

Relevance The capacity of Information should have

accounting information predictive or feedback value
to make a difference in and should be timely.
decisions.
 QUALITATIVE
CHARACTERISTICS
Term Definition Ramification
Reliability The extent to which Information should be free
accounting information can from error, a faithful
be depended upon to representation and neutral.
represent what it purports
to represent, both in
description and in number.

Comparability The ability to use Entities must disclose the

accounting information to accounting methods that
compare or contrast the they use so that
financial activities of comparisons across
different companies. companies can be made.
 QUALITATIVE
CHARACTERISTICS
Term Definition Ramification
Consistency Accounting information should An entity should use the same
be comparable across accounting methods year to
different time periods within a year and disclose when they
company. change methods.

Materiality The threshold over which an When an amount is small

item could begin to affect enough, normal accounting
decisions. procedures are not always
followed.

Conservatism When uncertainty exists, An entity should choose

(Prudence) accounting information should accounting techniques that
present the least optimistic guard against overstating
alternative. revenues or assets.
End of Lecture 1