Question

1) Describe the financial reporting environment in Australia.
2) Discuss what accounting is and the accounting process.
3) Discuss the Conceptual Framework and the objective of financial reporting.
4) Discuss the main elements of each of the four main financial statements.
5) Discuss the accounting equation, double entry principle, what is an account, rules for debiting and
crediting, chart of accounts and the accounting cycle.
6) Discuss the basic steps in the recording process, using the transaction of Wong Ltd for the month
ended 31 October (attached). Your discussion and presentation should include the following:
a) Analysis each transaction in terms of its effect on the accounts.
b) Recording of each transaction information in a journal.
c) Transferring (posting) the journal information to the appropriate accounts in the ledger.
d) Preparation of a trial balance (from account balances in the general ledger).

Wong Pty Ltd

The following transactions are for it’s first month of operation, October.
(1) Issues shares for cash. On 1 October Wong Pty Ltd issues shares in exchange for $10 000 cash.
(2) Borrows money from a bank. On 1 October Wong Pty Ltd borrows $5000 from the ANZ Bank.
(3) Purchase of office equipment for cash. On 2 October Wong Pty Ltd acquires office equipment by paying
$5000 cash to Superior Equipment Sales Ltd.
(4) Receipt of cash in advance from customer. On 2 October Wong Pty Ltd receives a $1200 cash advance
from R. Knox, a client.
(5) Renders services for cash. On 3 October Wong Pty Ltd receives $10 000 in cash from Copa & Co. for
advertising services performed.
(6) Payment of rent in cash. On 3 October Wong Pty Ltd pays its office rent for the month of October in cash,
$900.
(7) Payment of insurance in cash. On 4 October Wong Pty Ltd pays $600 for a 1-year insurance policy that will
expire next year on 30 September.
(8) Purchase of supplies on credit. On 5 October Wong Pty Ltd purchases an estimated 3-month supply of
advertising materials on account from Aero Supply for $2500.
(9) Hiring of new employees. On 9 October Wong Pty Ltd hires four new employees to begin work on 15
October. Each employee is to receive a weekly salary of $500 for a 5-day working week, payable every 2 weeks.
Employees are to receive their first pay on 26 October.
(11) Payment of cash for employee salaries. Employees have worked 2 weeks, earning $4000 in salaries,
which are paid on 26 October.

The following transactions are for it’s first month of operation, October.
(1) Issues shares for cash. On 1 October Wong Pty Ltd issues shares in exchange for $10 000 cash.
(2) Borrows money from a bank. On 1 October Wong Pty Ltd borrows $5000 from the ANZ Bank.
(3) Purchase of office equipment for cash. On 2 October Wong Pty Ltd acquires office equipment by paying
$5000 cash to Superior Equipment Sales Ltd.
(4) Receipt of cash in advance from customer. On 2 October Wong Pty Ltd receives a $1200 cash advance
from R. Knox, a client.
(5) Renders services for cash. On 3 October Wong Pty Ltd receives $10 000 in cash from Copa & Co. for
advertising services performed.
(6) Payment of rent in cash. On 3 October Wong Pty Ltd pays its office rent for the month of October in cash,
$900.
(7) Payment of insurance in cash. On 4 October Wong Pty Ltd pays $600 for a 1-year insurance policy that will
expire next year on 30 September.
(8) Purchase of supplies on credit. On 5 October Wong Pty Ltd purchases an estimated 3-month supply of
advertising materials on account from Aero Supply for $2500.
(9) Hiring of new employees. On 9 October Wong Pty Ltd hires four new employees to begin work on 15
October. Each employee is to receive a weekly salary of $500 for a 5-day working week, payable every 2 weeks.
Employees are to receive their first pay on 26 October.
(11) Payment of cash for employee salaries. Employees have worked 2 weeks, earning $4000 in salaries,
which are paid on 26 October.

Answer 1

1) Financila reporting environment in Australian

1) Business in astralia may be required to report to Australian taxasion office,the Australian Securities and Investments Commission (ASIC) or the Australian Securities Exchange (ASX).

2 )The same reporting standard are applicable for all astralian state.

3)This accounting standards are set by Australian Accounting Standards Board.they are applied to private as well as public sector .Atrealian accounting standars meets the requirment of internationalFinancial Reporting Standards

4) Companies operating in australia are required to prepare and lodge financial statement or reports with Astralian Securities and Investments Commission,at the time of financial year end.

5)financial report should be audited but in some cases there is exemption.

2) Accounting and the accounting process:

Accounting means process of summerizing ,analysing,and reporting the business transaction.accounting means communicating the results of business operations to various parties interested in or connected with business :eg owner,creditor, investor, govt financial institutions.

Accounting process:

1)Identifying and Analysing transaction:

Transaction Only related to business are recorded in process. not all transaction are recorded.and it is very important to analysis the document related to transaction

2) Posting in Journal:

After identifying and analysing the transaction need to pass the journal entry , by giving double entry effect means in which debit and credit balance remain equal.

3)posting in ledger:

Ledger is collection of all accounts. After the posting all transactions to the ledger, the balances of each account can be determined.

4)Preparation of un adjusted trial balance:

It is summery of ledger accounts balances it shows the equility of debit and credit balance.

5)Adjusting entries:

At the end of financial year adjusting entries made for expenses incured but not recoreded or income earned but not recoreded in books.Adjusting entries are prepared to update the accounts before they are summarized in the financial statements.

6)Adjusted trial balance:

It makes after adjusting entries are pass and before financial statement prepared

7)Financial statement:

after adjustement trial balance is made the financial statement can make it inclueds income statement ,cash flow ,balancesheet ,equity statement

8) closing entry:

Closing entry made for temporary accounts.Temporary accounts include income, expense, and withdrawal accounts

9)post closing trial balance:

The trial balance shows the balance of assets,liability,capital account ,these balances are transfered to next year as opening balance.

3) Objective of financial report:

Financial report provide the information related to assets ,liability,income and expenses which is useful for investor ,creditors ,stake holders

1)Provide information to investor;

Investor want to know hows your business position to invest in your company .so financial statement helps him to see the business condition.

2) Track cash flow;

From where you are getting money? where are you investing your ,money ? do you have enough cash to pay your liability for all these question financial reporting helps.

3) Analysing assets and liability;equity:

It shows growth of your business ,and fiancial position,

Conceptual Framwork of fianacial reporting:

It is set by IFRS .The Conceptual Framework sets out the fundamental concepts for financial reporting that guide the Board in developing IFRS Standards

It inclueds

1) objective of financial reporting

2)Qualitative characteristics of useful financial information

3)the elements of financial statements

4)recognition and derecognition

5)measurement

6)presentation and disclosure

7)concepts of capital and capital maintenance

4) Main elements of each of the four main financial statements.

1) Assets:

Eg; Land,building,property ,cash etc

2)Liability:

Eg: Bank loan ,creditores ,accounts payable etc

3)Equity capital

Eg: Share capital,Retain earning or retain losses,Revaluation gain,Dividends payment

4)Revenue :

eg:Income

5)Expenses:

salaries expenses,Depreciation,Interest Expenses,Tax expenses,Utility expenses,Transportation Cost,Marketing Expense