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Financial Accounting Chapter 1 (Conceptual Framework is a type of theory…

- - - - Analysis involves the use of ratios, percentages, graphs and charts to highlight significant financial trends and relationships
      - Interpretation involves explaining the uses, meaning and limitations of reported data.
- - - - Lay solid foundations for management and oversight.
        
        Structure the board to add value.
        
        Promote ethical and responsible decision making.
        
        Safeguard integrity in financial reporting.
        
        Make timely and balanced disclosures.
        
        Respect the rights of shareholders.
        
        Recognise and manage risk.
        
        Remunerate fairly and responsibly.
    - - Australian Accounting Standards Board (AASB) is required to adopt international accounting standards set by the International Accounting Standards Board (IASB)
      - Regulatory bodies, eg ASIC have responsibility for ensuring that entities required to lodge financial statements in compliance with GAAP are doing so. ASIC adminsters company law in Australia
- - - - 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.
  - - - eg
        financial comparisons of operating alternatives,
        projections of revenue from new sales campaigns and
        forecasts of cash needs for the next year.
- - - - ● direct economic impacts
        ● environmental impacts
        ● labour practices and decent work
        ● human rights
        ● society
        ● product responsibility.
- - - - 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.
    - - Liabilities are existing debts and obligations.
    - - 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
    - - 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.
    - - Expenses decreases equity that result from operating the business
- - - - IAS 1/AASB 101 shows the movements in each major equity item during the annual reporting period
      - IAS 1/AASB 101 must disclose
        
        the total comprehensive income for the period
        
        the amounts of transactions with owners in their capacity as owners showing separately contributions by and distributions to owners
        
        for each component of equity a reconciliation between the carrying amount at the beginning and the end of the period, separately disclosing each change.
  - - - 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.