relevant, faithfully represented (reliable), understandable and able to be compared from year to year.

eg
financial comparisons of operating alternatives,
projections of revenue from new sales campaigns and
forecasts of cash needs for the next year.

to make decisions to buy, hold or sell shares.
Creditors such as suppliers and bankers use accounting information to evaluate the risks of granting credit or lending money

Regulators (ATO) if the entity complies with the tax laws. (ASIC) is it operating within prescribed rules. Customers want product warranties and support its product lines. Employees and labour unions want to know whether the entity can pay increased wages and benefits. Economists use accounting information to forecast economic activity.

The monetary unit assumption requires that only transaction data that can be expressed in terms of money be included in the accounting records. This assumption enables accounting to quantify (measure) economic events

The economic entity assumption requires that the activities of the entity be kept separate and distinct from the activities of its owner and all other economic entities.

cost principle - assets are recorded at their cost. Cost is the value exchanged at the time something is acquired. aka historical cost principle

Assets are used in carrying out such activities as production, consumption and exchange. The common characteristic possessed by all assets is the capacity to provide future services or benefits

Liabilities are existing debts and obligations.

Expenses decreases equity that result from operating the business

Equity is increased by an owner's investments and by revenue from business operations. In contrast, equity is decreased by an owner's withdrawals of assets and by expenses. Profit results when revenue exceeds expenses. A loss occurs when expenses exceed revenue.

Income
Income is the gross increase in equity resulting from business activities entered into for the purpose of earning profit. Income includes both revenue and gains. Revenue arises in the course of the ordinary activities of a business. We will tend to use the term ‘revenue’ more often than ‘income’ when describing particular transactions and labelling accounts. What you need to remember is that revenue is a component of income.
Income usually results in an increase in an asset. It may arise from different sources and is identified by various names depending on the nature of the business. Campus Pizza, for instance, has two categories of sales revenue — pizza sales and drink sales. Common sources of revenue are sales, fees, services, commissions, interest, dividends, royalties and rent. Gains include gains on disposal of non-current assets and unrealised gains on revaluing assets. Given that revenue is a subset of income, the items ‘revenue’ and ‘income’ will both appear throughout this book. Remember that ‘revenue’ is the term that applies to income arising in the ordinary course of an entity’s activities.

1 acting in the public interest;
2 acting with integrity (i.e. with honesty, fairness and sincerity);
3 avoiding conflicts of interest;
4 independence;
5 respect for confidentiality;
6 maintaining technical competence;
7 acting with due care; and
8 behaving ethically.

Purpose of accounting is to assist people, whether internal or external to an entity, to make decisions about the allocation of scarce resources

STATEMENT OF FINANCIAL POSITION
aka BALANCE SHEET
reports the financial position of an entity at a specific point in time ie it reports the assets, liabilities and equity at a specific date.
Uses the basic accounting equation
ASSETS = LIABILITIES + EQUITY

CASH FLOW STATEMENT reports on the cash flows in (receipts) and out (payments) of the entity for a specific period of time. Divided into
1 Operating
2 Investing
3 Financing

NOTES
include a summary of significant accounting policies used to prepare the financial statements, and other explanatory notes and supporting schedules

A separate income statement displays income and expenses, resulting in a profit or loss,

the statement of comprehensive income
begins with profit or loss and displays items of other comprehensive income. Other comprehensive income comprises income and expenses that are not recognised in profit or loss as required or permitted by the accounting standards.

IAS 1/AASB 101 shows the movements in each major equity item during the annual reporting period

IAS 1/AASB 101 must disclose

1. the total comprehensive income for the period
2. the amounts of transactions with owners in their capacity as owners showing separately contributions by and distributions to owners
3. for each component of equity a reconciliation between the carrying amount at the beginning and the end of the period, separately disclosing each change.

generally accepted accounting principles (GAAP) - provide appropriate measurement rules and levels of disclosure of information are presented in financial statements* eg relevant, reliable, comparable and understandable.

2. SAC 2 Objective of General Purpose Financial Reporting

Objective of financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity. Is done for the general not specialist user.

Providing information about the
financial position (statement of financial position),
financial performance (statement of comprehensive income) and
cash flows (statement of cash flows)
of an entity assists users to evaluate and predict, among other things:

● the entity's ability to generate cash in the future
● the entity's future borrowing needs and how future profits and cash flows will be distributed among those with an interest in the entity
● the entity's likely success in raising further finance and meeting its financial commitments as they fall due
● the entity's investing, financing and operating activities during the reporting period.

1. Relevant statement (SAC 1 Definition of the Reporting Entity) explains which companies or entities should use accounting standards to issue GPFR

0. need to consider
1. separation of management from economic interests
2. economic or political importance/influence
3. financial characteristics

Accrual basis the effects of transactions and other events are recognised when they occur

Going concern the entity will continue in operation long enough to carry out its existing objectives. If a going concern assumption is not used, then property, plant and equipment assets should be stated at their liquidation value (selling price less cost of disposal) — not at their cost.

Entity

4 ENHANCING QUALITATIVE CHARACTERISTICS ARE

● comparability
results when different entities use the same accounting principles therefore financial information should be consistent
● verifiability
the ability to support or confirm the existence and amount of an event or transaction
● timeliness
providing information in a timely manner such that its relevance is not lost
● understandability.
users should have knowledge of business and economic activities and accounting however complex financial information should not be excluded from financial statements because it is difficult to understand, if the information is relevant to users’ decision making.