Week 1: Introduction to Financial Accounting & Key Financial Statements
Define 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” – Warren Buffett Users are able to make better, well-informed decisions with the correct and sufficient information provided * The CEO salary is regarded as an expense on the financial statement as it is a deduction and it reduces the company’s overall profit. (Salary is >$5 million) To find information about a company, we rely on: 1. Information asymmetry, voluntary disclosures 2. Annual reports - contains information about company and general purpose financial statements *Information asymmetry: a situation in which one party in a transaction has more or superior information compared to another (such as the seller knowing more than buyer) Woolworths Example: To find the annual report of Woolworths: 1. Search for the company website 2. Find the category – ‘Woolworths Limited’ 3. Locate ‘Invest in us’ – find all the history of annual reports Most of this information in annual reports is based on accounting. Woolworths Example: To check/reference the validity of CEO’s salary, we view 1. Company’s overall performance 2. Company’s competitors, in this case, Wesfarmers (including Coles): Richard Goyder (CEO with salary of $8.6 million in 2013)

1|Page

Financial Accounting System and Managerial Accounting System

Woolworths Example: Woolworths have external decision makers such as ASIC, ASX, ATO, shareholders, consumers, suppliers (e.g. farmers), government, auditors, bank and analysts – involved in the financial accounting system

The managers of a company would be considered in the managerial accounting system. They have the most information about the company. The insiders of companies can