ACCOUNTING FOR BUSINESS

WEEK 1
INTRODUCTION TO ACCOUNTING AND BUSINESS DECISION MAKING
AND
BUSINESS STRUCTURE

UNIVERSITAS BINA NUSANTARA

SUBJECT MATTER EXPERT

MARIA PARAMASTRI HAYUNING ADI, S.E., M.Sc,
CertDA
 LEARNING OUTCOME

LO1: Explain the accounting concept and principle, the role of accounting
information in business and business structure
 These slides have been adapted from:

Birt, J., K. Chalmers., S. Maloney., A. Brooks., J. Oliver., D. Bond. (2020). Accounting: Business Reporting for Decision Making. 7th
Edition. Australia: John Wiley & Sons Ltd. ISBN: 9780730369295.

Weygandt, J.J., P.D. Kimmel., D.E., Kieso. (2019). Financial Accounting with IFRS. 4th Edition. Hoboken: John Wiley & Sons Inc.
ISBN: 9781119503408

Acknowledgement
UNIVERSITAS BINA NUSANTARA

Juni 2023
INTRODUCTION TO ACCOUNTING
AND BUSINESS DECISION MAKING
OUTLINE

THE ACCOUNTING PROCESS

ACCOUNTING INFORMATION AND ITS ROLE IN DECISION MAKING

FINANCIAL ACCOUNTING AND MANAGEMENT ACCOUNTING

ROLE OF ACCOUNTING INFORMATION IN BUSINESS PLANNING

GLOBALIZATION OF ACCOUNTING

BUSINESS, SUSTAINABILITY, DRIVERS, PRINCIPLES AND THEORIES

 THE ACCOUNTING PROCESS

• Accounting is the process of identifying, measuring and communicating economic information

about an entity to a variety of users for decision making purposes.

• Business transactions:
are the external exchange of something of value between 2 or more entities affect assets, liabilities and equity
can be reliably measured and recorded.
 ACCOUNTING ACTIVITIES AND USERS
THREE ACTIVITIES

Image Sources: Weygandt, J.J., P.D. Kimmel., D.E., Kieso. (2019). Financial Accounting with IFRS. 4th Edition. Hoboken: John Wiley & Sons
 ACCOUNTING ACTIVITIES AND USERS
INTERNAL USERS

Image Sources: Weygandt, J.J., P.D. Kimmel., D.E., Kieso. (2019). Financial Accounting with IFRS. 4th Edition. Hoboken: John Wiley & Sons
 ACCOUNTING ACTIVITIES AND USERS

External Users (2/2)

Taxing authorities: Does the company comply with the tax laws?
Regulatory agencies: Is the company operating within prescribed rules?
Labor unions: Does the company have the ability to pay increased wages and benefits to union
members?

Image Sources: Weygandt, J.J., P.D. Kimmel., D.E., Kieso. (2019). Financial Accounting with IFRS. 4th Edition. Hoboken: John Wiley & Sons Inc
 ACCOUNTING INFORMATION AND ITS ROLE IN DECISION MAKING

• Accounting information is designed to meet the needs of both internal and external users.

• Accounting information is extremely valuable to an entity’s owner or management (internal users).

• External users (stakeholders) are parties outside the entity who use information to make decisions
about the entity. Stakeholders can include:

• shareholders (both current and prospective)

• customers

• suppliers and banks

• employees

• government authorities (e.g. ATO and ASIC).

ACCOUNTING INFORMATION AND ITS ROLE IN DECISION MAKING
 FINANCIAL ACCOUNTING AND MANAGEMENT ACCOUNTING

preparation and presentation of financial statements

Financial
accounting: allow users to make economic decisions about the entity.

a set of statements
Financial
statements: directed towards the common information needs of a wide range of users (both internal and
external).
statement of cash flows
Financial
statements statement of financial position

consist of: statement of profit or loss.

the statement of profit or loss and other comprehensive income

For
companies: the statement of changes in equity.
 FINANCIAL ACCOUNTING AND MANAGEMENT ACCOUNTING

• Management accounting:
• Economic information for internal users.

• Reflected in financial accounting statements

for external users.

• Predominately about planning and decision making

for future events.

• Core activities include:

• formulating plans and budgets

• providing information to be used in monitoring
and control within the entity.
 ROLE OF ACCOUNTING IN BUSINESS DECISION MAKING

• Benefits of a business plan:

• The business plan provides a clear, formal statement of direction and purpose.

• Allows management and employees to work towards defined goals in the daily operations of the business.

• The business entity in evaluating the business.

• Operation of the business:

‒ Accounting information provides managers and owners with the tools they require to:

‒ make decisions regarding the daily running of the business entity

‒ evaluate whether the goals set by the business entity in the planning process are being achieved.

‒ Cost–volume–profit analysis: understanding how profits will change in response to changes in sales
volumes, costs and prices.
 ROLE OF ACCOUNTING IN BUSINESS DECISION MAKING

• Evaluation of the business plan:

• Accounting information provides management with the tools necessary to:
•evaluate the business plan
•encourage the management and owners to review all aspects of the
operations.

• Management can make changes to the entity’s operating activities to ensure

that they keep on track with the original business plan.
 GLOBALISATION OF ACCOUNTING

• Entities are becoming larger, more diversified and multinational.

• Therefore, more complicated accounting and auditing services are required
• In recent years we have seen the emergence of:
• fintech industry
• Big Data and data analytics
• cloud computing
• mobile phone technology
• AI
• social media.
• All of these have consequences for the accounting profession.
 BUSINESS SUSTAINABILITY, DRIVERS, PRINCIPLES AND THEORIES

• A growing environmental and societal awareness has put pressure on entities to consider their non-financial impacts. Business
sustainability refers to use of the world’s resources in a way that does not compromise the ability of future generations to meet their
needs.
• Entities need to account for:
• all resources used (labour, material, energy, forests, water, air etc.)
• all outputs produced (products/services, carbon emissions, waste etc.).
• Key drivers of sustainability:
• Competition for resources:
• The world’s population is continuously growing.
• Climate change:
• We have a fossil-fuel based economy.
• Economic globalisation:
• The integration of national economies into the global economy.
• Connectivity and communication:
• Increases in connectivity has led to less time to both build reputations and/or destroy reputations.
BUSINESS SUSTAINABILITY, DRIVERS, PRINCIPLES AND THEORIES
 BUSINESS SUSTAINABILITY, DRIVERS, PRINCIPLES AND THEORIES

• Theories of business sustainability:

• Corporate social responsibility (CSR): Does the entity have a responsibility to stakeholder all equally (in regard
to CSR)?

• Shareholder value: Shareholder (owner) returns are the primary focus of an organisation.

• Agency theory: Managers act on behalf of shareholders

• Stakeholder theory: Holds that the purpose of the entity is to work for the good of all stakeholder groups, not
just to maximise shareholder wealth.

• Stewardship theory: Directors act in the interest of a group(s) of stakeholders and not shareholder value.
Contributes to the rise of independent non-executive directors.

• Legitimacy theory: Theory that entities must conduct operations in accordance with societal expectations.
Society allows the entity to operate (pursue its objectives and rewards) so long as the entity agrees to act in a
socially acceptable manner.
BUSINESS STRUCTURE
OUTLINE

FORMS OF BUSINESS ENTITITES

SOLE TRADER AND PARTNERSHIP

TYPES OF COMPANIES

COMPARISON OF BUSINESS REPORT

 SOLE TRADER

• Definition of a sole trader:

• A sole trader is an individual who controls and manages a business, and is solely liable for all the business debts.
• Advantages:
• Quick, inexpensive and easy to establish; inexpensive to wind down.
• Not subject to company regulation.
• Owner has total autonomy over business decisions.
• Owner claims all the profits of the business and all the after-tax gains if the business is sold.
• Disadvantages:
• Unlimited liability — bears full responsibility for business debts and legal actions such as negligence.
• Limited by skill, time and investment of owner.
• Restrictive structure due to non-legal status of the entity.
• Business will cease to exist if owner leaves, retires or dies.
 FORMS OF BUSINESS ENTITIES

• The choice of an appropriate business structure is important for individuals contemplating a

business.

• The basic forms of business structure are:

• sole trader
• partnership
• company
 PARTNERSHIP

• Partnership definition:
• An association between two or more persons who: carry on a business as partners; share profits or
losses according to partnership agreement.

• Advantages:
• Relatively easy and simple to set up.
• Informal business structure — not bound by accounting standards.
• Ability to share capital, skills, talents, knowledge and workload between two or more people.
• Disadvantages:
• Unlimited liability for business debts and obligations by all partners.
• Limited life: if one partner dies or withdraws from the business then the partnership must dissolve.
• Mutual agency: each partner is seen as being an agent for the business and so is bound by any
partnership contract.

• Many partnership disputes arise from profit sharing and decision-making issues.
 TYPES OF COMPANY

• Proprietary companies and SMEs:

• Proprietary companies, also known as private companies.

• Public companies:
• Four types of public company:

1. whose capital is limited by shares

2. whose share capital is limited by guarantee

3. which are no-liability companies

4. whose share capital is unlimited.

 FORM OF BUSINESS ENTITIES
COMPANY

• Company definition:
• A company is a business structure that has a separate legal identity from its shareholders and is taxed on its taxable income.
• Company features:
• Independent legal entity (i.e. separate from the people who own, control and manage it).
• Shareholders have limited liability: for the purchase price of their shares only (not company debts).
• A company has unlimited life: not dissolved when owners die or change.
• Company advantages:
• Limited liability for shareholders.
• Business expansion networks made easier due to legal structure.
• Can raise additional equity (capital) through public share offerings.
• Disadvantages:
• More time consuming and costly to set up.
• Must comply with complex company rules and other legal requirements.
• Taxed from the first dollar of profit.
• Separation of ownership and control.
COMPARISON OF BUSINESS REPORTS
SOLE TRADER REPORTS

• Sole trader reports:

• The statement of profit or loss shows income less expenses. No taxation is shown.
 SOLE TRADER REPORTS

• Statement of financial position has only one capital account. Profit (or loss) added (or subtracted) to capital
account (in statement of financial position).

Note : This book adopted by Australia Standards. In Indonesia’s Standar  Aset = Liabilities + Equity. The “net assets” in the statement can be delete
PARTNERSHIP REPORT

• Partnership reports:

• Profit and loss split according to original capital contributions as specified in partnership agreement. No taxation is shown.
 PARTNERSHIP REPORT

• Statement of financial position has a capital account (and often a current account) for each partner.

Note : This book adopted by Australia Standards. In Indonesia’s Standar  Aset = Liabilities + Equity. The “net assets” in the statement can be delete
COMPANY REPORT
PRIVATE COMPANY

• Company reports — private company:

• Income tax being deducted directly from company profit.

 COMPANY REPORT
PRIVATE COMPANY

• Share capital as opposed to owner’s or partner’s capital account. Retained earnings.

Note : This book adopted by Australia Standards. In Indonesia’s Standar  Aset = Liabilities + Equity. The “net assets” in the statement can be delete
COMPANY REPORT
PUBLIC COMPANY

• Company reports — public company : Consolidated report

COMPANY REPORT
PUBLIC COMPANY
SUMMARY
COMPARISON OF BUSINESS REPORT – CHARACTERISTICS
SUMMARY
COMPARISON OF BUSINESS REPORT – FINANCIAL STATEMENT
REFERENCES

• Birt, J., K. Chalmers., S. Maloney., A. Brooks., J. Oliver., D. Bond. (2020). Accounting: Business
Reporting for Decision Making. 7th Edition. Australia: John Wiley & Sons Ltd. ISBN: 9780730369295.

• Weygandt, J.J., P.D. Kimmel., D.E., Kieso. (2019). Financial Accounting with IFRS. 4th Edition.
Hoboken: John Wiley & Sons Inc. ISBN: 9781119503408
 THANK YOU
INTRODUCTION TO ACCOUNTING AND BUSINESS DECISION MAKING
AND BUSINESS STRUCTURE

UNIVERSITAS BINA NUSANTARA