8/02/2018

BUSS 1030 Accounting, Business and

Society
Lecture 2 : Key Accounting Concepts
Abdul Razeed

Read Chapter 2 Pages 47 – 52, Exclude the effect of trading operations on the statement of financial position,
Read Chapter 2 Pages 55-58 and Read Chapter 4 Pages 162-177

BUSINESS SCHOOL

Ground Rules
Lecture and Tutorial Ground Rules
What you can expect out of lecturers:
1. Thought provoking lectures
2. Punctuality
3. Professional
4. Interactive
5. Respect

What we expect out of you:

1. Punctuality
2. Professional
3. Clarify doubts
4. Doubts
5. Zero tolerance on any kind of distracting behaviour (talking, using mobile
phones, using computer and working other tasks, reading newspaper,
listening to music, walking out of the lecture before it has concluded…)
6. Attendance of in FULL (NO EXCEPTIONS!)
7. NO mobile phone
•Refer to Student Code of Conduct:http://sydney.edu.au/ab/policies/

1
 8/02/2018

Learning Objectives

1. Explain the nature and role of Accounting

2. List the main groups that use accounting reports of a business
entity
3. Compare and contrast financial and management Accounting
4. Identify the main purpose of a business
5. Outline an overview of the main financial reports prepared by a
business
6. Outline the main types of business ownership
7. Identify ways in which business and Accounting has been
changing
8. Explain why Accounting Information is generally considered
useful

Quick Recap

Write down what the principle/accounting term is:

1)When the business has to be accounted for as being separate from the
owner. What principle?
2)All revenues are reconciled with the appropriate expenses. What
principle?
3)The best objective system to record the costs of goods. What principle?
4)Revenue should be earned only when service/goods have been provided.
What principle?
5)Which business has limited liability?

2
 8/02/2018

Learning Objectives

KEY ACCOUNTING CONCEPTS

Chapter 2 (read Pages 47 – 52, Exclude the effect of trading operations on
the statement of financial position, read Pages 55-58)
1. Explain the accounting equation (LO2)
2. Classify assets and claims (LO1/LO2/LO3)

Chapter 4 (Pages 162-177)

1. Provide an overview of the recording processes (LO1)
2. Explain how the use of double-entry bookkeeping mirrors the first
principles appaorach (LO2)
** For this lecture, refine your review of the textbook material by focusing on
what is being covered in lectures.

Accounting Terms (LO8)

Account Owners’
equity
Journal Assets
Double-entry
accounting
T-account
Liabilities
Trial
Ledger balance

3
 8/02/2018

Enron-Creative Accounting

Enron Creative Accounting – Multiple trading entities

In Enron's case, the company would build an asset, such as a power plant, and
immediately claim the projected profit on its books, even though it hadn't made
one dime from it. If the revenue from the power plant were less than the
projected amount, instead of taking the loss, the company would then transfer
these assets to an off-the-books corporation, where the loss would go
unreported. This type of accounting enabled Enron to write off losses without
hurting the company's bottom line.

Read more: Enron Scandal: The Fall of a Wall Street Darling |

Investopedia http://www.investopedia.com/updates/enron-scandal-
summary/#ixzz4YGST3lbM

Enron Scandal - https://www.youtube.com/watch?v=Mi2O1bH8pvw accessed 7th

Feb 2018

Also see 2017 scheme in AU: http://www.smh.com.au/national/how-the-alleged-

165-million-tax-scam-worked-20170518-gw7wuz.html accessed on 7th Feb 2018
7

The Accounting Equation (LO8)

Economic
Resources

Claims to
Economic Resources

4
 8/02/2018

Assets and Liabilities (LO8)

› What is an asset?
- It is something a company owns which has future economic value.
–E.g. land, building, equipment, goodwill, Accounts Receivable,
Bills Receivable, Inventories, Prepaid Expenses, Land, Buildings
and Plant and Equipment
› What is a liability?
- It is something a company owes.
–E.g. Money, service – legal retainers, Accounts Payable, Bills
Payable, Accrued Liabilities (for expenses incurred but not paid),
Long-term (Non-Current) Liabilities (mortgages and debentures)

Owners’ Equity (LO8)

› What is owners’ equity?

- It is what’s left of the assets after liabilities have been deducted.
– the same as net assets
– the owner’s claim on the entity’s assets
– OE Accounts - Capital (or owners’ interest in the business),
Drawings, Revenues, Expenses. Dividends

5
 8/02/2018

Revenues and Expenses (LO8)

› What are revenues?
- They are amounts received or to be received from customers for
sales of products or services.
– sales
– performance of services
– rent received
– interest received
› What are expenses?
- They are amounts that have been paid or will be paid later for costs
that have been incurred to earn revenue.
– salaries and wages
– electricity and gas
– supplies used
– advertising

Lecture Example 1 (LO1 – S2.1 Amended ABS

Textbook)

1) What is a Receivable?
2) What is Debit?
3) What is a Journal?
4) What is an Expense?
5) What is Profit?
6) What is a Ledger?
7) What is Payable?
8) What is Equity?

6
 8/02/2018

Double-Entry Accounting (LO8)

› Double-entry bookkeeping means to record the dual effects of
each business transaction.
› Assets = Liabilities + Owners’ Equity
› Assets are on the left (debit) side.
› Liabilities and Equity are on the right (credit) side.

Each transaction is recorded with at least:

One debit AND One credit

Total debits must equal total credits.

The Rules of Debit and Credit

7
 8/02/2018

The T-Account (Ledger Account)

Account Title
Debit Credit

LEFT SIDE RIGHT SIDE

Accounting Processes (LO9)

Business Transactions Weeks 2/3

Journal Week 3

Ledger Weeks 3/4

Trial Balance Weeks 3/4

Financial Statements Week 6/7/8/9

8
 8/02/2018

Lecture Example 2 (LO1/2 – P2.1 Amended ABS

Textbook)

Date Description
Sep 1 Doug Cowra invested $370,000 personal cash in the business by
depositing that amount in a bank
Sep 2 Paid $360,000 cash to purchase a theatre building
Sep 5 Borrowed $260,000 from the bank
Sep 10 Purchased theatre supplies on credit $1,400
Sep 15 Paid $1,200 on account
Sep 16 Agreed to hire a secretary with annual wages of $55,000
Sep 17 Paid employee salaries of 2,500 for the week
Sep 28 Accepted delivery of theatre supplies

17

QUESTION

Identify the business transactions that need to be recorded in

the accounting records. Classify those transactions according
to their effect on the accounting equation (A = L + OE). For
Owners Equity, specify the type of Owners Equity. Double
entry bookkeeping and accounting
equation/assets/liabilities/equity/income and expenses.

18

9
 8/02/2018

Learning Objectives

KEY ACCOUNTING CONCEPTS

Chapter 2 (Pages 47 – 52 Exclude the effect of trading operations on the
statement of financial position and Pages 55-58)
1. Explain the accounting equation (LO2)
2. Classify assets and claims (LO1/LO2/LO3)

Chapter 4 (Pages 162-177)

1. Provide an overview of the recording processes (LO1)
2. Explain how the use of double-entry bookkeeping mirrors the first
principles appaorach (LO2)
** For this lecture, refine your review of the textbook material by focusing on
what is being covered in lectures.

10