Business School

ACCT1501 Accounting and Financial Management 1A

Session 1 2015

Week 1

Introduction to Financial Accounting & Key

Financial Statements
Student Handout

Lecturer:
Dr. Youngdeok Lim
School of Accounting
UNSW
QUAD 3069
[email protected]

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

Session 1, 2015

ACCT1501

WEEK 1: Introduction to Financial Accounting & Key Financial

Statements
Welcome to Accounting and Financial Management 1A.
In this first lecture you will be introduced to the lecture staff on the course and be
given the Course Outline. 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 be referring to the Woolworths
2011 Annual Report throughout the course. The annual report is included as an
appendix in your course textbook (5th edition, Trotman Gibbons & Carson, pages 746787). We will then begin to explore the nature of accounting and introduce general
purpose financial reports.

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 2011 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

underlying assumptions of financial reporting

Required Reading
1. ACCT 1501, 2015S1 Course Outline
2. Trotman, Gibbins & Carson Chapter 1
3. Woolworths 2011 Annual Report (familiarise yourself with the contents)
(Appendix 1)

ACCT1501

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.
This will be important and essential information for you when you complete your
reflection task.

DQ 1.1, 1.2, 1.7, 1.12

P1.6, P1.14
Case 1A

Tutorial Questions
The answers to tutorial questions are the focus of the tutorial class work:

DQ 1.3, 1.16
P1.7, P1.12, P1.23

ACCT1501

ABC faced insolvency in 2007

Colin Kruger
May 22, 2010
ABC Learning was staring down the barrel of a $1.78 billion loss for the 2008
financial year when it collapsed, but the company may have been insolvent as early as
mid-2007, according to a report from its administrators, led by Ferrier Hodgson's
Greg Moloney.
In the final drafts of ABC's financial statements prepared for the year ending June 30,
2008, its auditors included impairment charges totalling $1.168 billion, and a $364
million loss on the disposal of a majority stake in ABC's US business.
Significant contributors to the loss - $1.2 billion more than previous estimates - are a
$686 million cut in the valuation of childcare licences and a $127 million write-down
of debts owed by ABC's childcare developer, 123 Group.
The massive loss means the net assets on ABC's balance sheet were reduced from
$2.22 billion the previous year to just $284.5 million at June 30, 2008, putting the
company in breach of its covenants almost five months before administrators were
appointed.
But the bombshell in the report to creditors is the administrators' analysis that for the
2007 and 2008 financial years ABC had just 30 and 40, respectively, of current
assets for every dollar of current liabilities.
This equates to a current ratio of 0.3 and 0.4 for those years. The administrator's
report notes that ''a current ratio and quick ratio less than one may indicate a potential
liquidity crisis''.
An analysis of the company's quick ratio showed ABC had just 20 of ''liquid'' assets
for every dollar of current liabilities in 2007, and 10 in 2008.
The quick ratio is lower because it does not include potential proceeds from assets
held for sale.
''This indicates that there was a reliance on the sale of assets to discharge short-term
liabilities as at 20 June 2008,'' the report said.
In an examination into ABC's collapse, senior executives told the Federal Court last
month there were no liquidity concerns when ABC began a fire sale of assets in early
2008, despite evidence to the contrary from junior ABC management.
The report also spells out just how reliant ABC was on the banks and investors for its
cash. Over the six-year period leading up to its collapse, ABC generated $3.43 billion
from debt and equity markets against $375 million cash generated from its childcare
operations.

ACCT1501

''This reliance on external capital, combined with failing support by equity and debt
investors as well as underwhelming financial performance, led to a liquidity crisis and
was a major contributor to the failure of the ABC Group,'' the report said.
The administrators said they have yet to determine exactly when ABC became
insolvent.
The second creditors' meeting, expected to vote to wind up ABC, is scheduled to be
held June 2 at the Tattersall's Club in Brisbane.

Read more: http://www.smh.com.au/business/abc-faced-insolvency-in-200720100521-w1tf.html#ixzz1Rc0qPPKJ

If you are interested in what comes after the ABC collapse, read more:
http://www.smh.com.au/national/what-comes-after-abc-20120519-1yxf2.html

ACCT1501

Todays lecture objectives:

ACCT1501
Semester 1, 2015

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

Week 1: Introduction

3. Begin to become familiar with the Woolworths 2011 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.

Lecturer: Dr Youngdeok Lim

Lecturer in Charge
Quad 3069

5.

Begin to understand the accrual concept

6. Understand the foundations of modern accounting practices including

the underlying assumptions of financial reporting

1. The Course Outline

Introduction

Teaching staff

What you need to know?

1. Understand the course
structure

Dr. Youngdeok Lim (Lecturer-in-Charge)

Jeffrey Knapp (Lecturer)
Dr. Radzi Jidin (Lecturer)

Other tutors Abarna, Alice, Brian, Carmel, Chi, Derek,

Dickson, Hien, Jason, Katherine, Kevin L, Kevin W, Mary,
Nathalie, Phuc, Sudipta, Susan, Tyler

PASS Leaders Darshi, Vicki, Lohith, Joshua, Sarah, Benjamin,
Christopher

2. Course objectives
3. Clarify roles and
responsibilities

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.

Required Texts

New Management Accounting Supplement

Lecture outlines
and additional
readings
Available on Moodle

Practice Set

Totally re-written Management

Accounting Supplement
Bundled in with the Text when
purchased new from the
bookstore (a separate code is
provided)
The management supplement can
be purchased independently
online for $19.95 (see
https://www.cengagebrain.com.au
/shop/search/9780170351973).
Comes in an e-book format

http://www.perdisco.com.au/home.asp

+
Management Accounting Supplement

All the instructions on how to log on and

use Perdisco are covered in the Course
Outline

Lectures: How do you prepare for lectures

Course schedule (see page 16 in course
outline )

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 (EchoCenter). This is recommended as an
additional resource not a substitute for face-to-face interaction
in the lectures.

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. 4 marks)

Your tutor will randomly choose 5 weeks to review your written
answers to the assigned tutorial questions (not preparation
questions) and mark the best 4 weeks (no half mark).

Tutorial individual participation (max 3 marks)

Tutorial group participation (max 3 marks)

Help tutors help you, by proactively asking questions!

Interaction in the tutorial helps everybody learn it might even be fun!!!!

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 problems at the end of chapter 1. Let us try these
P4.25 & P6.22 - How will you find these???

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Learning Assessment (or how to pass ACCT1501)

In order to pass, students must

Assessment Item / Due date

Weight

Tutorial participation (complete each week)

10%

Mid-session class test (Week 8)

Multiple Choice Tests 3 quizzes 5% each

15%

(Quiz 1 due on March 27 @ 3pm;

Quiz 2 due on April 24 @ 3pm;
Quiz 3 due on May 29 @ 3pm)

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%

15%

Perdisco Practice Set Assignment

(Monday May 18 @ 3pm)

10%

Final examination

50%

TOTAL
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100%
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Practice Set Assignment (10%, due Monday May 18 @ 3pm)

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.
Important feedback!!!!
For you & us!

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Perdisco on-line practice set an individual assignment.

This assignment is a comprehensive accounting exercise
designed to integrate your knowledge of accounting systems
and the accounting cycle.
This task is expected to take approximately 20 working
hours to complete. The practice set will be made available to
you on 20 April 2015 at 9am in week 7. When you have
sufficient information (e.g. special journal), you can start working
on this exercise.
DO NOT LEAVE THIS TASK TO THE LAST MINUTE !!!!
I do think the perdisco is very good exercise, which give me
a overview of the real accounting practice. (excepted from one
of student comments)
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Special Consideration and Supplementary examinations:

There will be a very limited opportunity to sit a
supplementary mid-session exam. To apply for this, see
Part B. 4 regarding general information on special
consideration.

There is only one opportunity to sit for a supplementary
final exam which will be held on 14 July 2015 exams for
the School of Accounting after the final exam session.

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.

No special consideration will be granted for the Perdisco online Practice Set or the on-line MCQ quizzes.
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Additional resources

Face to face consultation with full-time staff

Tutors will hold extra consultation for mid-session exam
and final exam (to be announced).

PASS (Peer Assistance Support Scheme)

Discussion boards on Moodle

For questions of a private/personal nature, please email
[email protected]

Email policy: Use UNSW student email by identifying
yourself with ID & full name

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Student responsibilities:

The Course Website

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.

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

Announcements!!! your responsibility to read

View preparation and tutorial solutions

Use the Discussion board - 3 Categories
Course Content,
Course Administration
On-line Practice Set (student only)
- overseen by staff members

Use appropriately and with respect for others

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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

Well 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

Introduction to Financial Accounting &

Key Financial Statements (Ch 1)

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2. 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. by Warren Buffett
Grammar
Vocabulary
Practice
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Dont forget to use the Glossary! (T,G&C, p. 788)

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!)

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Accounting System

What is your estimate for total salary of CEO in

Woolworths for the year ended 30 June 2014?

1. 0-$ 500,000
2. $500,001-$ 1,000,000
3. $1,000,001-$ 5,000,000
4. $5,000,001 or above

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Financial Accounting System

Managerial Accounting System

Periodic financial statements and

related disclosures

Detailed plans and continuous

performance reports

External Decision Makers

Internal Decision Makers

Investors, creditors,
suppliers, customers, etc.

Managers throughout the

organization

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How ACCT1501 is positioned within an accounting major

Financial accounting will be the focus of this course.

ACCT 1501 & 1511

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

ACCT 2A & 3B
Management Accounting
Information gathering & reporting
for people inside the organisation

What is financial accounting?

Also
Exciting
electives!

Financial accounting focuses on the provision of

information to users external to the enterprise.
The focus is on reporting financial position and financial
performance.

ACCT 2B & 3A
Financial Accounting

We discuss financial accounting in weeks 1 to 10.

Information gathering & reporting for

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

25

26

Accounting information and share prices: Facebook's revenue

surges higher, stock hits record high (July 24, 2014, SMH)

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 11 &

12

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Facebook Inc's fast-growing mobile advertising business

helped drive a 61 per cent increase in revenue during the second
quarter, beating Wall Street's financial targets and sending shares
to a record-high in after-hours trading on Wednesday.

The world's No.1 Internet social network said on Wednesday
that it saw increased interest from both advertisers and from
users during the second quarter.

Facebook now counts 1.5 million advertising customers and
the company's ad business saw strong growth across all of its
geographic regions in the second quarter, Chief Operating Officer
Sheryl Sandberg told Reuters in an interview on Wednesday.
"We're seeing our existing advertisers spend more and we're
seeing new people come on to the platform," Sandberg said.
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Accounting information and share prices: Facebook's

revenue surges higher, stock hits record high (July
24, 2014, SMH)

Some examples of an economic

consequence

Facebook said that mobile advertising revenue represented 62

per cent of its ad revenue in the second quarter, up from 41 per
cent in the year-ago period and 59 per cent in the first quarter of
2014.

Shares of Facebook were up roughly 4 per cent at $US74.10
in after-hours trading on Wednesday.

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The Accounting Scandals such as Enron, Worldcom,

Misleading reporting
Mismanagement ABC learning
Collapse of the company
Indictments

The nature of accounting

(ABC Learning Why is accounting important?)

March, 2001: stock price=$2

December, 2006: stock price=$8.6
August, 2009: stock price=$0.54
http://www.youtube.com/watch?v=YYF6JW9vJKo

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We have focused mainly on the economic consequences in

the equity markets

The decision maker in this situation is the investor / owner

Their decisions are based on what value they are willing to
either buy or sell shares in the market
Can you think of other users of accounting information?
And, for what purposes will they use the accounting information?
Small group (two to 4 people) discussion.

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Is accounting really important?

Other users of accounting information:

User

Type of Information

Bankers

The likelihood of the company meeting its

interest payment on time
Financial position and performance of a
company issuing shares to the public for the first
time

ASIC

Used by:
Management in making business decisions
Shareholders for decision making
Board of directors in takeover battles
Bankers and creditors in lending decisions

Suppliers
Australian Tax Office

Profitability of company based on tax law

Trade Unions

Profitability of company since last contract with

employees was signed

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Is accounting really important? (cont.)

Used by:
Boards in rewarding and removing executives
Management and unions in wage negotiations
Impacts communities
Impacts workers

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3. What is an annual report?

Glossy magazine that contains
a lot of descriptive information
about the company and the
general purpose financial
statements.
How to get it?

4. Key financial statements

Introduction to the Balance Sheet

Balance sheet
Financial position of an enterprise at a particular point in time.
What are the entitys resources and how were they financed?

The balance sheet reports the financial position of an entity

at a point in time.

Income statement
Financial performance of an enterprise 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)

Jan 1 2013

Cash flow statement: (To be covered in 1B)

Cash inflows and outflows.

Dec 31
2013
Balance
Sheet

Dec 31
2014
Balance
Sheet

Dec 31
2015
Balance
Sheet

Used to assess financial structure and ability to pay debt

Notes to the financial statements (additional detail)

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Balance sheet

Balance sheet

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

Assets are due to debt or equity!

The balance sheet shows resources (assets), and claims
on those resources (liabilities and equity) at a point in time.

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We can represent this with the accounting equation:

Assets
Resources

Liabilities + Equity
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
40

Consolidated Balance Sheet Woolworths limited (2014)

Example (To be continued)

You purchased one bed room apartment at $500,000 on
1/7/2011 and rented it.

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 B/S as of 1/7/2011

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Appendix: Consolidated financial statement

Income Statement

Financial statements that factor the holding company (parent

company)'s subsidiaries into its aggregated accounting figure.

Shows the results of business operations over a specific

time period

A subsidiary is a company controlled by parent company. Control exists

when the parent company 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

Reports revenues earned, and any expenses incurred

Revenue: inflows of economic benefits that increase owners equity
 e.g., sales revenue, service revenue, fees earned

Expenses: Use or loss of economic benefits that decrease owners
equity.
 Incurred when you use resources to generate revenue
(matching principle)

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.

43

If revenues are greater than expenses, there is a profit

If revenues are less than expenses, there is a loss

44

Consolidated Income Statement Woolworths limited (2014)

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!

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Business Model (Week 3 slide)

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

Investors (e.g. banks,

shareholders)

Statements of cash flows provide details of movements

in an entitys cash balance over a specific time period.

Financing activities
Sale

Purchase

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

Suppliers
(e.g. farmers)

Operating
activities

Company
(e.g. Woolworths)

Payment
(Cash/Accounts
Payable)

Operating
activities

Payment
(Cash/Accounts
Investing activities

Receivable)

Property Plant and Equipment,

financial securities etc

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Customers
(e.g. You)

Consolidated Cash Flow Statement Woolworths limited (2014)

5. Accrual vs. Cash Accounting (Week 2)

An income statements reports revenues and expenses

Accrual accounting
A cash flow statement reports cash inflows and outflows

Cash accounting

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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?

51

6. Financial statement assumptions

Financial statement assumptions include:

accounting entity

accounting period

monetary

historical cost

going concern

materiality.

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Accounting entity assumption

Accounting Period 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

Economic entity a group of entities where the goals of
the controlling entity are pursued:

Life of business is divided into discrete time periods of

equal length to determine financial performance and
position.

Production of regular, comparable financial statements.

e.g. companies, partnerships, funds, associations, public sector

bodies.

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Jan 1 2014

54

Dec 31
2014
Balance
Sheet

Dec 31
2014
Balance
Sheet

Dec 31
2015
Balance
Sheet

Monetary assumption

Historical cost assumption

Universally accepted medium of exchange.

Measure economic activity by a common denominator.

Transactions are initially recorded at their original cost.

Treats assets in terms of their use rather than for resale.
Example: Land purchased in 1995 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.

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Going concern assumption

Materiality assumption

Assumes continued operation of accounting entity into

foreseeable future

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

No set rules on determining materiality (auditors use
5% as a guide)

e.g. Financial statements in $million (see
Woolworths example in the Appendix)

There is no intention or need to liquidate

Produces demand for financial information during life of
entity

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Take away and coming upnext week!

Revision Question
In profit measurement, private transactions of
owners are not taken into account. What
assumption/concept underlies this procedure?
1. Materiality
2. Monetary concept
3. Accounting period
4. Accounting entity

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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. Vs . Accrual Profit

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