ACCT100: Lecture 2

Types of business organisations: -Companies cannot act without directors. -at least 3 in a company -Liabilities of shareholders in a company are limited: one of the biggest advantages of having a company. Make sure shareholders are separate from the company itself. 3 types of company: limited liability companies, public companies, proprietary companies (most common)

Proprietary Companies: no more than 50 shareholders 90% of prop. Companies are not listed on the ASX. Once on ASX, anyone can purchase shares in a company. Liquidity = $$$ When listed, companies can make money quicker.

Accounting measurements: Concepts and Principles: -Useful information MUST BE RELEVANT. -Materiality: KEY concept in accounting. -Important concepts/principles/conventions: read PowerPoint. Always treat business as a separate being/thing Entity Concept: Entity assumption: People and business are not the same thing: separate. Accounting Period Concept: investment cycle: 6 months Break up total lifespan of business into meaningful measurement periods eg. 6 months, 1 year. Historical costs: what you payed for it on the day. (Balance Sheet: Shows all assets.) Historical costs reflect market value. 99% of the time h/costs are our measurement basis. Price you pay on day of transaction. To measure how successful an org is in an accounting period, must capture all revenue, expenses in the period. Going Concern Principle: When in trouble: send assets (like a garage sale)

The Accounting Equation: ASSETS = LIABILITIES + EQUITY

Self Balancing Mechanism.

ASSETS: All resources (stock, equipment, machinery, factory) gives us future economic benefit. Dont have to own it to control it. LIABILITIES: the debts. People who are owed by the business are CREDITORS. Liabilities must be a present obligation. EQUITY: owner has invested capital/borrowed the money. FINANCE. Need to pay back who they owe. Financing: internal and external. The difference between assets and liabilities. Equity is a residual. Income: Revenue and gains. Money the business has earned. Revenue is trading income. Majority of income is trading and revenue. Expenses: Things the business consumes when generating income. Business must have actually consumed that expense in that accounting period.

ON CREDIT: havent payed yet. Any revenue generated belongs to owner. Revenue increases equity. Expenses decrease equity. Accounts receivable: is a future economic benefit, will be payed in future. Debt. When investment goes down, owners ownership goes down.