9/02/2015

YOUR JOURNEY INTO
ACCOUNTING

CHAPTER 1
Decision making and the role of accounting

• Accountants
– Not just ‘bean counters’ or ‘number crunchers’
– Varied and interesting work in a variety of roles
– More focus on analytical and communication skills

• Non-accountants
PowerPoint Presentation by
Phil Johnson
©2015 John Wiley & Sons
Australia Ltd

LEARNING OBJECTIVES
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.

Outline the dynamic environment in which accountants work
Discuss the nature of decisions and the decision-making process
Outline the range of economic decisions made in the marketplace
Explain the nature of accounting and its main functions
Identify the potential users of accounting information
Apply information to make basic economic decisions
Describe the role of accounting information in the decision-making process
Compare accounting information for management and external users
Summarise how the accounting profession is organised in Australia
Identify the different areas of the economy in which accountants work
Identify the importance of ethics in business and accounting and how to recognise and handle ethical dilemmas as part of the decision-making process. YOUR JOURNEY INTO
ACCOUNTING
• Accounting
– Not ‘boring’ (mostly!)
– Much more than just bookkeeping
– Dynamic environment
– The language of business
• If you don’t have some understanding, you’re not in the conversation – Benefits of basic understanding
– Engineers - product design (reduce costs/increase price) – Marketing – maximise sales
– HR – major organisational cost

THE ACCOUNTING
ENVIRONMENT
• Accounting evolves as society and business changes. • Some of these changes include
– Rapid developments in information and communication technologies
– Increasing demand for a range of information about organisational impact
– Globalisation of business
– Development of international regulations and standards THE DECISION-MAKING PROCESS
• Life is full of decisions
• Decisions mean making choices
– We must choose how to spend our time
– We must choose how to spend our resources
– Often competing options available

• Decisions affect the future
– “Act in haste, repent at leisure”

• Good decisions require good processes

1

9/02/2015

STEPS IN DECISION MAKING
Goals
Information
Consequences
Choose

ACCOUNTING DEFINED
Identification

• What are we trying to achieve? Transactions (internal/external)

Measurement

• What information do we need? Quantification in monetary terms ($)

Recording

• What are the consequences of different alternatives?

Recording; classification; summarisation

Communication

• Which course of action should we choose?

Accounting reports

USERS OF ACCOUNTING
INFORMATION

ECONOMIC DECISIONS
• Many (most) decisions involve economic resources • Economic resources have a price as they are scarce • Must also consider:
– Personal taste
– Social factors
– Environmental factors
– Religious and/or moral factors
– Government Policy

THE NATURE OF ACCOUNTING

Analysis and interpretation

Internal Users
•
•
•
•
•
•
•

How much profit?
What should be produced?
What resources are available?
How much does it cost?
How much do we owe?
What would happen if…?
Do we have enough cash?

External Users
• Should I invest?
• Can the business pay?
– Wages? Loans?

• Will they make a profit?
• Are they behaving ethically?
• Is the business socially and environmentally friendly?

FINANCIAL REPORTS AND USERS

• Accounting is a service activity
– Its function is to provide and interpret financial information to assist in decision making.
• Steps 2, 3 and 4 of decision making process

• Accounting is used in a range of organisations
– Business
– Government
– Charities
– Not-for-profits

2

9/02/2015

USING INFORMATION IN
ECONOMIC DECISIONS
• Consider Cynthia, a hard-working retail sales assistant, who is ready to take on a new career. • She has the opportunity to start her own beauty therapy business.
• Using the decision making process already outlined she needs to decide if this is the right decision for her.

GOALS

GATHER INFORMATION
• Estimated weekly running costs
Power, beauty products and laundry

320

Part-time employee (Fred)

150
$470

• Estimated client numbers
Waxing (regular program)

42

Facials, manicures and pedicures (regular program)

12

Spray tans (as requested)

24

GATHER INFORMATION

• Cynthia wants to do something different to standing behind a sales counter all day. So clearly a beauty therapy business will meet this goal.
• She also wants to be financially secure. To establish this will require additional information • Approximate charges per client
Waxing

$ 40

Facials, manicures & pedicures

$ 80

Spray tans

$ 10

• Estimated weekly receipts
7 waxes for each of 6 days @ $40 each
2 facials, manicures and pedicures for each of 6 days @ $80 each

$1 680
960
$2 640

GATHER INFORMATION
• First he will need a range of equipment:
Second-hand van

$32 000

Massage tables

2 500

Manicure tables and chairs

1 950

Booking information system

2 600

Facial skin machine

2 150

Manicure and Pedicure machine

1 600

Waxing pots

1 700

Uniforms

2 000

Towels

2 400

Robes

1 800

Cash register

DETERMINE CONSEQUENCES
• Based on these estimates Cynthia would expect gross annual turnover for a 48 week year of $2 640 x 48 = $126 720
• This is before including additional income from spray tans.
• After taking into account costs this should equate to a net weekly cash inflow of at least
$2 136 before tax.

1 850
$52 550

3

9/02/2015

ACCOUNTING AS A PROFESSION
AN AUSTRALIAN PERSPECTIVE

CHOOSE
• With all these factors in mind Cynthia can now make an informed decision about her future. • Would also include non-financial factors.

• Self-regulated profession
• Three major professional associations
– CPA Australia (CPA)
– Institute of Chartered Accountants Australia
(ICAA)
– Institute of Public Accountants (IPA)

• Membership requires
– Tertiary qualification
– Ongoing professional development

ACCOUNTING INFORMATION
AND DECISIONS
• Many decisions require significant amounts of financial information
– Accounting information is very important part of this process • Accountants report on the past
– Still useful as a guide for making decisions about the future • past performance not necessarily indicative of future results

– Also useful for assessing/confirming past decisions

• Accountants also look to the future
– Budgeting: future plans, strategy and planning

MANAGEMENT AND FINANCIAL
ACCOUNTING
MANAGEMENT ACCOUNTING
• Internal Focus
- Planning
- Controlling
- Decision-making

FINANCIAL ACCOUNTING
• External Focus
• Reporting Information
- Performance
- Position

• Cost Behaviour/Break-even

• Financing and Investing

• Budgeting

• Legal compliance

• Strategy

• Highly Regulated

PUBLIC ACCOUNTING
• Accountants who offer their professional services to the public for a fee
• Can vary in size from quite small to large international organisations
• Four main areas with many specialties
– Auditing and assurance services
– Taxation services
– Advisory services
– Insolvency and administration

ACCOUNTING IN COMMERCE
AND INDUSTRY
• Accountants who are employed in business entities • Many areas of interest
– General accounting
– Cost accounting
– Accounting information systems design
– Budgeting
– Taxation accounting
– Internal auditing and audit committees

4

9/02/2015

NOT-FOR-PROFIT ACCOUNTING
• Many accountants work in the not-for-profit area • This requires a slightly different approach as profit is not the primary focus
• Includes a range of organisations
– Government
– NGO
– Charities

ETHCS AND ACCOUNTANTS
• Ethics in business
– Important in all business dealings
– More recent failures has raised awareness

• Ethics and professional accounting bodies
– Important for the standing of the profession

• Ethics in practice
– Identify the ethical issue
– Analyse key issues and stakeholders
– Assess consequences
– Select appropriate course of action

5