09_1 T01 S - ACCT2101 Financial Reporting Tutorial 1 -...

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ACCT2101 – Financial Reporting Tutorial 1 - Solutions 1 TOPIC 1: FINANCIAL REPORTING FOR BUSINESS ENTITIES. Discussion Question 1.15 – Key financial statements and relevant information they provide The key financial statements that and the information they provide are: 1. a balance sheet which shows the financial position at a point in time; 2. an income statement which measures financial performance over a defined period (such as a month or a year) by deducting expenses (including losses) from income (including revenue and gains) during the period to obtain profit (or loss) for the period; 3. a cash flow statement which shows the sources and uses of cash during the period on operating, financing and investing activities. Discussion Question 1.16 – Financial accounting assumptions: 1. Accounting entity : under this concept the accounting entity is separate and distinguishable from its owners. For example, the accounting entity of a sole trader is differentiated from the financial affairs of the owner. Similarly, a company is a separate entity from its shareholders. If either the sole trader or a shareholder of a company goes out and buys a new set of golf clubs, it may affect their personal finances but does not affect the accounting entity. Accounting entities do not necessarily correspond to legal entities. For example, as noted above the personal financial affairs of the sole trader can be separated from the finances of the business, even though there is no legal distinction. This concept puts a boundary on what transactions are to be recorded for any particular accounting entity. It also allows the owner to evaluate the performance of the business. 2. Accounting period : the life of a business needs to be divided into discrete periods to evaluate performance for that period. Dividing the life of an organisation into equal periods to determine profit or loss for that period is known as the accounting period concept. The time periods are arbitrary but most organisations report at least annually, with large companies preparing half-yearly and quarterly financial statements for outside purposes and at least monthly (sometimes more frequently) for management purposes. 3. Monetary : accounting transactions need to be measured in a common denominator that in Australia is, not surprisingly, the Australian dollar. This allows comparisons across periods and across different companies. Transactions that cannot be reasonably assigned a dollar value are not included in the accounts. This concept also assumes that the value of the monetary unit is constant
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This note was uploaded on 06/06/2009 for the course 2131 FFF taught by Professor Mrhuh during the Three '09 term at Queensland.

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09_1 T01 S - ACCT2101 Financial Reporting Tutorial 1 -...

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