Accounting 1b Course Notes
Week 1 – Financial Reporting Principles and Account Standards
Lecture Notes
- Generally Accepted Accounting Principles: the rules, standards and usual practices that companies are expected to follow when preparing their financial statements
The GAAP is made up of the:
Framework for the Preparation and Presentation of Financial Statements
Accounting Standards (AASB)
- Harmonisation is the process by which Australian accounting standards have become similar to international accounting standards in order to increase comparability of financial statements on a global basis
- The Framework:
Provides the: Objective of financial reports
Assumptions underlying financial reports
Qualitative characteristics that determine the usefulness of financial reports
The definition, recognition and measurement of the elements from which financial statements are constructed
“The objective of financial statements is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions”
Useful information allows the users of financial statements to evaluate the ability of an entity to generate cash and cash equivalents
Examples of users include:
Investors: information concerned with risk helps them to determine whether to buy or sell
Employees: information on stability and profitability, anything that will affect employment opportunities and remuneration etc.
Lenders: information on ability to repay debts
- Assumptions:
Accrual basis: revenue and expenses are recognised when they occur
Going concern: assumption that the entity will continue in operation for the foreseeable future
Accounting entity: the accounting entity is separate and distinguishable from its owners
Accounting period: the life of a business needs to be divided into discrete periods
Monetary: accounting transactions need to be measured under a common denominator
Historical costs: assets are
Lecture Notes
- Generally Accepted Accounting Principles: the rules, standards and usual practices that companies are expected to follow when preparing their financial statements
The GAAP is made up of the:
Framework for the Preparation and Presentation of Financial Statements
Accounting Standards (AASB)
- Harmonisation is the process by which Australian accounting standards have become similar to international accounting standards in order to increase comparability of financial statements on a global basis
- The Framework:
Provides the: Objective of financial reports
Assumptions underlying financial reports
Qualitative characteristics that determine the usefulness of financial reports
The definition, recognition and measurement of the elements from which financial statements are constructed
“The objective of financial statements is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions”
Useful information allows the users of financial statements to evaluate the ability of an entity to generate cash and cash equivalents
Examples of users include:
Investors: information concerned with risk helps them to determine whether to buy or sell
Employees: information on stability and profitability, anything that will affect employment opportunities and remuneration etc.
Lenders: information on ability to repay debts
- Assumptions:
Accrual basis: revenue and expenses are recognised when they occur
Going concern: assumption that the entity will continue in operation for the foreseeable future
Accounting entity: the accounting entity is separate and distinguishable from its owners
Accounting period: the life of a business needs to be divided into discrete periods
Monetary: accounting transactions need to be measured under a common denominator
Historical costs: assets are