Kế toán, kiểm toán - Chapter 1: Accounting in business

Chapter 1Accounting in Business Copyright © 2015 by McGraw-Hill Education (Asia). All rights reserved.IdentifyingSelect transactions and eventsRecordingInput, measure and classifyCommunicatingPrepare, analyze and interpretImportance of AccountingAccountingC 1Users of Accounting InformationExternal UsersLendersShareholders GovernmentsConsumer GroupsExternal AuditorsCustomersInternal UsersManagersOfficers/DirectorsInternal AuditorsSales StaffBudget OfficersControllersC 2External UsersFinancial accounting provides external users with financial statements.Internal UsersManagerial accounting provides information needs for internal decision-makers.C 2Users of Accounting InformationOpportunities in AccountingC 2Beliefs that distinguish right from wrongAccepted standards of good and bad behaviorEthicsEthics - A Key ConceptC 3C 3Ethics - A Key ConceptFinancial accounting practice is governed by concepts and rules known as generally accepted accounting principles (GAAP).Generally Accepted Accounting PrinciplesRelevant InformationAffects the decision of its users.Reliable InformationIs trusted by users.Comparable InformationIs helpful in contrasting organizations.C 4International StandardsThe International Accounting Standards Board (IASB), an independent group (consisting of 16 individuals from many countries), issues International Financial Reporting Standards (IFRS) that identify preferred accounting practices.IASBC 4Generally Accepted Accounting PrinciplesC 4Principles and Assumptionsof AccountingCost PrincipleAccounting information is based on actual cost. Actual cost is considered objective.Revenue Recognition PrincipleRecognize revenue when it is earned.Proceeds need not be in cash.Measure revenue by cash received plus cash value of items received. Expense Recognition or Matching PrincipleA company must record its expenses incurred to generate the revenue reported.Full Disclosure PrincipleA company is required to report the details behind financial statements that would impact users’ decisions.C 4Accounting AssumptionsMonetary Unit AssumptionExpress transactions and events in monetary, or money, units.Business Entity AssumptionA business is accounted for separately from other business entities, including its owner.Time Period AssumptionPresumes that the life of a company can be divided into time periods, such as months and years.NowFutureGoing-Concern AssumptionReflects assumption that the business will continue operating instead of being closed or sold.C 4Forms of Business EntitiesSole ProprietorshipPartnershipCorporationC 4Owners of a corporation or company are called shareholders (or stockholders). Shareholders are not personally liable for corporate acts. When a corporation issues only one class of shares, wecall it ordinary shares (or common stock).CorporationC 4IASB Conceptual Framework for Financial ReportingC42 Fundamental Qualitative Characteristics4 Enhancing Qualitative CharacteristicsConceptual FrameworkCost-benefit constraint: The cost of providing the information must be weighed against the benefits that can be derived from using it. C4Relevant financial information is capable of making a difference in users’ decisions. Predictive value: can be used as an input to processes to predict future outcomes。Confirmatory value: provides feedback about (confirms or changes) previous evaluations. Materiality: Information is material if omitting it or misstating it could influence decisions. Fundamental Qualitative CharacteristicsC4Complete: includes all information necessary for a user to understand the phenomenon. Neutral: without bias in the selection or presentation of financial information. Free from error: no errors or omissions in the description of the phenomenon, and the process used to produce the reported information. Fundamental Qualitative CharacteristicsC4Comparability: enables users to identify and understand similarities in, and differences among, items. Verifiability: different knowledgeable and independent observers could reach consensus. Timeliness: having information available to decision-makers in time. Understandability: Classifying, characterizing and presenting information clearly and concisely makes it understandable. Users are assumed to have reasonable knowledge of business.Enhancing Qualitative CharacteristicsC4Transaction Analysis and the Accounting EquationAssets=Liabilities+EquityAccounting EquationA 1LandEquipmentBuildingsCashVehiclesStore SuppliesNotes ReceivableAccounts ReceivableAssetsA 1Resources owned or controlled by a company expected to yield future benefits.Taxes PayableWages PayableNotes PayableAccounts PayableLiabilitiesCreditors’ claims on assetsA 1EquityOwner’s Claims on AssetsA 1Transaction AnalysisBusiness activities can be transactions and events. Record those that affect the accounting equation and can be reliably measured.Examples of transactions:Selling of products and services (external transactions). The business used its supplies, which are reported as expenses (internal transactions).Examples of events:Changes in the market value of certain assets and liabilities and natural events such as floods and fires that destroy assets and create losses. P 1Transaction Analysis The accounting equation MUST remain in balance after each transaction.LiabilitiesEquityAssets=+P 1Transaction 1: Investment by OwnersThe accounts involved are: (1) Cash (asset) (2) Owner Capital (equity) On December 1, Chas Taylor invests $30,000 cash to start a consulting business, Fast Forward, which records:P 1Transaction 2: PurchaseSupplies for CashThe accounts involved are: (1) Cash (asset) (2) Supplies (asset) FastForward purchases supplies paying $2,500 cash.P 1Transaction 3: PurchaseEquipment for CashThe accounts involved are: (1) Cash (asset) (2) Equipment (asset) FastForward purchases equipment for $26,000 cash.P 1Transaction 4: PurchaseSupplies on CreditThe accounts involved are: (1) Supplies (asset) (2) Accounts Payable (liability)FastForward purchases Supplies of $7,100 on account.P 1Transaction 5: ProvideServices for CashThe accounts involved are: (1) Cash (asset) (2) Revenues (equity) FastForward provides consulting services receiving $4,200 cash.P 1Transaction 6 and 7: Paymentof Expenses in CashThe accounts involved are: (1) Cash (asset) (2) Expenses (equity) FastForward pays $1,000 rent and $700 in salary to the company’s only employee.P 1Transaction 8: Provide services and facilities for creditThe accounts involved are: (1) Accounts Receivable (asset) (2) Revenues (equity) FastForward provides consulting services of $1,600 and rents out its test facilities for $300, both on account.P 1Transaction 9: receipt of cash from accounts receivableThe accounts involved are: (1) Cash (asset) (2) Accounts Receivable (asset) FastForward receives $1,900 from client of test facilities in transaction 8.P 1Transaction 10: Paymentof accounts payableThe accounts involved are: (1) Cash (asset) (2) Accounts Payable (liability) FastForward pays $900 as partial payment for transaction 4 on supplies.P 1Transaction 11: Withdrawal of Cash by OwnerThe accounts involved are: (1) Cash (asset) (2) Withdrawals (equity) The owner withdraws $200 cash.P 1Summary of TransactionsThe summary of all transactions is shown below:P 1Financial StatementsP 2Statement of profit or loss and other comprehensive incomeStatement of changes in equityStatement of financial positionStatement of cash flowsThe income statement describes a company’s revenues and expenses along with the resulting net profit or loss over a period of time due to earnings activities.Income StatementP 2to Statement of Changes in Equity STATEMENT OF CHANGES IN EQUITYP 2from Income Statementto Statement of Financial PositionThe statement of changes in equity reports information about how equity changes over the reporting period.The Statement of Financial Position describes a company’s financial position at a point in time.Statement of Financial PositionP 2from Statement of Changes in Equityto Statement of Cash FlowsStatement of Cash FlowsP 2from Statement of Financial PositionThe Statement of Cash Flows describes a company’s cash flows for operating, investing, and financing activities.Decision AnalysisReturn on assets (ROA) is stated in ratio form as profit divided by assets invested.Net profitAverage total assetsReturn on assets =A 21A Return and Risk AnalysisA 3Many different returns may be reported.ROAInterest return on savings accounts.Interest return on corporate bonds.Risk is the uncertainty about the return we will earn.The lower the risk, the lower our expected return.1B - Business Activities and the Accounting EquationThere are three major types of activities in any organization:Financing Activities – Provide the means organizations use to pay for resources such as land, buildings, and equipment to carry out plans.Investing Activities - Are the acquiring and disposing of resources (assets) that an organization uses to acquire and sell its products or services.Operating Activities – Involve using resources to research, develop, and purchase, produce, distribute, and market products and services.C 5END OF CHAPTER 1