Stage 2 | Subject outline | version control

Accounting Stage 2
Subject outline

Version 4.0
For teaching in Australian and SACE International schools from January 2024 to December 2024.
For teaching in SACE International schools only from May/June 2023 to March 2024, and from May/June 2024 to March 2025.
Accredited in August 2018 for teaching at Stage 2 from 2020.

Stage 2 | Subject outline | Content

Content 

Stage 2 Accounting is a 20-credit subject structured around three focus areas:

  • understanding accounting concepts and conventions
  • managing financial sustainability
  • providing accounting advice.

These focus areas provide real-world opportunities and environments in which students can develop, extend, and apply their skills, knowledge, understanding, and capabilities to study accounting practices in a range of enterprises, including, for example:

  • local, national, and multinational enterprises
  • small, medium, and large businesses
  • public–private partnerships
  • primary, secondary, and tertiary enterprises
  • online enterprises
  • not-for-profit organisations.

Through their study of each of the three focus areas, students develop and apply their understanding of the following underpinning learning strands: 

  • financial literacy
  • stakeholder information and decision-making
  • innovation.

These learning strands outline the knowledge, skills, understanding, and capabilities fundamental to the learning in the subject. The strands of financial literacy and stakeholder information and decision-making provide opportunities for students to understand and apply accounting concepts and conventions. The learning strand of innovation is focused on the use of new and emerging technologies to create, store, and communicate accounting information. Technology enables effective connections with business and opens up opportunities to better understand the changing nature of the accounting needs of stakeholders and to better provide advice and recommendations to meet these needs.

The diagram below illustrates the framework for Stage 2 Accounting:
 

Accounting practice and accounting activities

The practice of accounting is the process of identifying, measuring, and communicating economic information to facilitate informed decision-making for the stakeholders, as well as to enable control and discharge of accountability by management.

Accounting activities are the actions taken within this process.

Accounting concepts and conventions

The following concepts and conventions underpin all accounting focus areas and inform the practice of accounting studied at Stage 2:

  • accrual accounting
  • accounting entity
  • accounting period
  • consistency
  • duality
  • going concern
  • monetary unit
  • legal entity
  • historical cost
  • materiality
  • prudence
  • realisation
  • relevance
  • faithful representation.

These concepts and conventions are drawn from the Framework for the Preparation and Presentation of Financial Statements prepared by the Australian Accounting Standards Board.

Accounting reports

Report and purpose
Information
Income statement
The measurement of profit or loss 
  • Components: revenue and expenses
  • Classification of the components for service and trading entities. 
Balance sheet
Statement of financial position
  • Components: assets, liabilities, and owner’s equity
  • The accounting equation
  • The concept of duality, showing the effects of transactions on the balance sheet
  • Classification of the components: current and non-current assets, liabilities, and owner’s equity. 
Statement of changes in equity
  • Components: opening and closing capital, capital contributions, drawings, profit or loss. 
Statement of cash flows
Sources of cash inflows and outflows
  • Components: cash (sources and uses)
  • Differences between net profit and net cash flows in an accrual accounting system.

Links between accounting reports

Report and purpose
Information
Income statement and statement of changes in equity  Calculation of profit
Income statement and balance sheet Impact of profit on the entity’s equity position
Income statement and statement of cash flows Cash versus accrual representation of periodic flows (especially from operations)
Balance sheet and statement of changes in equity  End of period equity position of the entity
Balance sheet and statement of cash flows  Flow analysis of change in cash position over a period

Analysis tools

Students may use the following ratios for analysis of financial information:

TEST - table

Analysis tools

Students may use the following ratios for analysis of financial information:

Name
Calculation
Expressed as

Profitability (Return)

For all entities:

     Return on equity

     Return on total assets

     Profit margin

     Expense

     Gross profit margin 

For all entities:

     Earnings per ordinary share

     Earnings yield

     Dividend per ordinary share

     Dividend yield

 

 

Return on equity

Return on total assets

Profit margin

Expense

Gross profit margin 

 

Earnings per ordinary share

Earnings yield

Dividend per ordinary share

Dividend yield

 

 

%

%

%

%

%

 

$

%

$

%

Balance sheet
Statement of financial position
  • Components: assets, liabilities, and owner’s equity
  • The accounting equation
  • The concept of duality, showing the effects of transactions on the balance sheet
  • Classification of the components: current and non-current assets, liabilities, and owner’s equity. 
 
Statement of changes in equity
  • Components: opening and closing capital, capital contributions, drawings, profit or loss. 
 
Statement of cash flows
Sources of cash inflows and outflows
  • Components: cash (sources and uses)
  • Differences between net profit and net cash flows in an accrual accounting system.