Managing financial sustainability

In the focus area of managing financial sustainability, students apply their understanding of accounting concepts and conventions to produce accounting information that takes into consideration local and global perspectives to meet the needs of a variety of stakeholders. Students analyse and interpret qualitative and quantitative information to manage financial sustainability for a range of enterprises.

Financial literacy

Students understand the purpose and procedures for controlling assets and liabilities. Using prudence in valuation, as well as accounting concepts of historical cost, consistency, and faithful representation, students record accounting information related to:

• cash, including:
  • receipts and payments.
• inventory, including:
  • the preparation of perpetual inventory records using inventory cards and ledgers (first-in first-out and specific identification methods).
  • stock adjustments on the inventory card, in the general journal, and in the inventory control account. Through stock adjustments, students develop their understanding of the role of a stocktake.
• debtors, including:
  • preparation of debtors’ ledger, control account, and schedule of debtors. The preparation of specialised journals is not required.
  • bad debt write-off and creation of an allowance for doubtful debts. Through the recording of bad and doubtful debts, students develop their understanding of the distinction between bad and doubtful debts and their importance when creating financial reports.
• non-current assets, including:
  • depreciation using the various methods of straight-line, diminishing-balance, and units-of-use. Through the recording of depreciation in the general journal and ledger, students develop their understanding of the need to account for depreciation.

Students recognise and interpret reports of different accounting entities but generate reports only for a sole trader. In preparing reports, students apply their understanding of the difference between profit and cash flow (including accrual accounting concepts) for financial sustainability and business management.

Using the concepts of materiality and accrual accounting, students prepare balance-day adjustments in the general journal to create adjusted account balances to produce classified final reports. They interpret this information to evaluate business performance.

Students prepare budgeted final reports, including cash budgets. They use this information to forecast business performance.

In preparing bank reconciliation statements, students extend their understanding of the importance of the control of assets and liabilities through the reconciliation of cash records with the bank statement.

Students analyse business performance by calculating appropriate ratios to measure return and risk, including the calculation and analysis of inventory turnover, debtor turnover, and the debt ratio.

When using financial information for accountability, control, and decision-making, students identify the limitations inherent in the accounting concepts and conventions, such as in the use of:

• monetary unit
• historical cost
• consistency
• prudence
• the accounting period.

Stakeholder information and decision-making

Within the practice of accounting, students analyse the existing and emerging social, legal, economic, technological, environmental, and/or ethical considerations that affect or are affected by decision-making.

Students understand the purpose of accounting reports to manage financial sustainability. They use qualitative and quantitative information to evaluate financial sustainability.

Students understand the need for procedures to control assets by exploring the importance of monitoring the amounts, turnover, and storage and security of inventory. Students also recognise the importance of credit-control procedures including screening debtors, determining credit limits, providing discounts, and charging interest.

Students apply their understanding of the impact of various sources of information on stakeholder decision-making by applying the ‘lower of cost or net realisable value’ rule to inventory and through the interpretation of a debtors’ ageing analysis.

Students analyse and interpret final and budgeted financial statements, including breakeven analysis. They comment on the implications of this accounting information for financial sustainability and business decisions.

Students explore types and sources of finance and develop their understanding of the differences between external and internal sources of funds and the associated costs, benefits, and risks. They consider the implications of those sources of finance for an enterprise and its stakeholders.

Students understand the suitability of various depreciation methods for different types of assets in order to produce materially accurate information for stakeholder decision-making.

Innovation

Students evaluate the use of digital and emerging technologies to manage financial sustainability, such as, but not limited to:

• the real-time availability of financial information facilitated by cloud-based and webbased accounting systems
• the changing nature of a stakeholder’s requirements for the preparation, interpretation, and analysis of financial information, such as:
  • the (decreasing) reliance on accounting professionals for the preparation of accounting information
  • the (increasing) requirement for the interpretation and analysis of accounting information
  • advice from accounting professionals on the set-up, use, and maintenance of digital accounting systems.
• the ability to manage financial sustainability remotely and in real time
• the timeliness and nature of communication with accounting professionals.

Students consider the impact of internal and external influences when evaluating the accounting information needs of stakeholders, such as, but not limited to:

• domestic and global interest rates
• business objectives
• political influences.

Students create financial information to meet these needs.