Chapter 1 (Accounting Principle) - Đã G P
Chapter 1 (Accounting Principle) - Đã G P
Chapter 1 (Accounting Principle) - Đã G P
Introduction to
Accounting
and Business
Objectives
• Describe the nature of a business
• Describe the role of accounting in business
• Describe the profession of accounting
• Summarise the development of accounting
principles and relate them to practice
• State the accounting equation and define each
element of the equation.
• Describe the financial statements of a sole
proprietorship and explain how they interrelate.
Content
• Nature of a business
• What is accounting?
• Profession of accounting
• GAAP
• Accounting equation
• Financial statement
Nature of a
business
• In general, a business is an
organisation in which basic resources
(inputs) are assembled and processed
to provide goods or services (outputs)
to customers.
• Each business has its own objective!!!
Nature of a business
• Types of businesses:
Manufacturing
Trading
Service
Manufacturing
Trading
Service
Types of Business Organisation
• Sole proprietorship
• Partnership
• Company
Types of Business Organisation
What is accounting?
• Accounting provides
information for stakeholders.
• Accounting = Gathering,
Processing and Communicating
Providing Information to
Stakeholders Assess
Internal/External their
Identify
stakeholders
1 Stakeholders 2 informatio
n needs
Record
economic data 4 Accounti 3 Design the AIS
about business ng
Informatio
n System
Stakeholder
• Internal:
– Manager
– Employee
• External:
– Bank
– Tax authority
Stakeholders’ information needs
• Managers?
• Investors?
• Creditors (such as Bank)?
• Government?
Profession of accounting
Accountant
Accounting Fields
Expenses
Statement of owner’s equity
Summary
of the
changes in
the
owner’s
equity
Balance sheet
A list of
assets,
liabilities
and
owner’s
equity
Statement of cash flows
A summary
of the cash
receipts and
cash
payment
Practice !!
Use the financial statement items and amounts listed
below from the records of Keep-Fit Center for the year
ended April 30, 2014, the company’s first year of
operations, and prepare the following:
• Income statement • Statement of owner’s equity • Balance
sheet
Notes of FS
• List of note to accommodate user of FS
with additional information.
Accounting policies
Detailed information
Contingency liabilities
Events after reporting date
Transactions with related parties
How are they linked together?
Profit and loss Statement of
Balance sheet
statement owner’s equity
EASY???
* Every transaction affects at least two accounts
🞂 Deposit in bank account for initial capital
investment
🞂 Purchase a machine by cash
🞂 Borrow money from your family
🞂 Sell goods to customer and receive cash
🞂 The sum of debits must always equal the
sum of the credits for each transaction.
1
• Transaction Authorised
2
• Transaction takes place
3
• Business document prepared
4
• Entry recorded in journal
5
• Entry posted to ledger
🞂 Steps:
◦ 1: Determine which account is affected by the
transaction
◦ 2: Increase or Decrease?
◦ 3: Debit or Credit?
🞂 “Trial” is process of proving or testing
⚫ Ex:
Supplies balance,
Depreciation Account, etc
⚫ Accruals
◦Cash will not be received or paid until a
future period, the revenue and
expense relates to the current period.
Current Accounting Future Accounting
Period Period
Revenu
Cash e
Deferrals Received Earned
or Paid or
Expens
e
Incurre
d
Revenu
e Cash
Accruals Earned Received
or or Paid
Expens
e
Incurre
d
Deferred Expenses
⚫ Initially
recorded as assets
but are expected to become
expenses.
Expenses
Assets
Owner’s
Equity
Deferred Revenue
⚫ Initial
recorded as liabilities but
are expected to become
revenues.
⚫ Depreciation:
◦Decrease in
usefulness
Recorded
as
expenses
Fixed Assets and Depreciation
⚫ Company bought a machine on
1/1/20X0 at cost of $10,000.At the
year end, the estimated amount of
depreciation for the
year is assumed to be $1,000.
⚫ Deferred Revenue Dr
C
r
⚫ Accrued Expense Dr
C
r
⚫ Accrued Revenue Dr
C
r
⚫ Depreciation Dr
C
r
Practice !!
A.A Consultant Company’s trial balance on December 31, 20x4 as follows:
A.A Consultant Company
Trial Balance
December 31, 20x4
Cash 12,786
Account Receivable 24,840
Office Supplies 991
Prepaid Rent 1,400
Office Equipment 6,700
Accumulated Depreciation – Equipment 1,600
Account Payable 1,820
Notes Payable 10,000
Unearned Service Revenue 2,860
A.A, Capital 29,387
A.A, Withdrawals 15,000
Service Revenue 58,500
Salaries Expense 33,000
Utilities Expense 1,750
Rent Expense 7,700
104,167 104,167
⚫ The following information:
-Ending inventory of office supplies is $86
-Prepaid rent expired, $700
-Depreciation of office equipment for the period, $600
-Interest accrued on the note payable, $600
-Salaries accrued at the end of the period, $200
-Service Revenue still unearned at the end of the period
$1,410
-Service Revenue earned but not billed, $600
Required:
a) Open T-accounts show all the balance of A.A
company
b)Prepare the adjusting entries and post directly to the
T-
accounts
c)Prepare an adjusted trial balance
Completing the
Accounting Cycle
Chapter 4:
Objectives
🞂 Prepare a work sheet
🞂 Financial statements
Work sheets
🞂 Collecting and summarising data (adjusting
entries and account balances)
🞂 Expenses
Statement of Owner’s Equity
🞂 Opening Balance of OE
🞂 Additional Investment (if any)
🞂 Net profit/(loss)
🞂 Withdrawals
🞂 Closing Balance of OE
Balance Sheet
🞂 Assets
🞂 Current Assets
🞂 Fixed Assets
🞂 Liabilities
🞂 Current Liabilities
🞂 Long-term Liabilities
🞂 Owner’s Equity
Closing Entries
🞂 Accounts in PL should have no balances
Accounting for
Trading Business
Objectives
⚫ Distinguish the activities of a service business from those of a
trading business
Manufacturing
Trading Operations
Nature of Trading Businesses
⚫ Why?
Net Profit X
COGS
Purchase
Goods Re-sale
Destination
Seller Pays
Transportation Costs
⚫ FOB Shiping point
⚫ Debit Transportation In
Buyer
⚫ Credit Cash/Bank/Payable
⚫ FOB Destination
⚫ Debit Transportation Out Seller
⚫ Credit Cash/Bank/Payable
Perpetual Inventory System
1. Purchase on Credit/Cash/Mixture
2. Purchase Returns and Allowances
3. Purchase Discounts
4. Sale on Credit/Cash/Mixture
5. Sale Returns and Allowances
6. Sale Discounts
Perpetual Inventory System
⚫ Updates inventory and cost of goods sold after
every purchase and sales transaction.
⚫ When merchandise is purchased: cost of each item
is recorded in the Inventory account.
⚫ When merchandise is sold: cost is transferred from
the Inventory account to the Cost of Goods Sold
account.
⚫ The amount of goods available for sale and the
amount sold are continuously (perpetually) shown in
the
inventory records.
Control
Environment
⚫ Normally by supervisor.
Retention of records
⚫ Maintaining documentation to substantiate transactions.
Supervision or monitoring of
operations
⚫ Observation or review of ongoing operational activity.
Physical safeguards
⚫ Usage of cameras, locks, physical barriers, etc. to protect
property, such as merchandise inventory.
Internal Control for Cash
Purchase
Sale (FG, raw
material)
Cash
Debt
Bank
Collecting
Internal Control for Cash
1. Cash Receipts
2. Cash Payments
Internal Control for Cash
Receipts
⚫ Received from Cash Sales
Cash
Register
Internal Control for Cash
Receipts
⚫ Received in the Mail
Internal Control for Cash
Payment
⚫ Payment by cheques, petty cash or electronic funds
transfer
⚫ Supporting documents are needed
Bank Account
⚫ Business may have several bank accounts
Check Check
Payee
Bank
Drawer (Drawee)
Money
Bank Account
⚫ Bank statement
Bank Account
⚫ Bank account could be used as a Control Over Cash as
it provides a second record of cash transactions.
⚫ Payment should not be made out by cash!!!!
Chapter 7
⦿ Summarise and provide
examples of internal control
procedures that apply to
receivables
⦿ Describe the nature of and
the accounting for bad
debts and doubtful debts
⦿ Classification of Receivables
⦿ Internal Control of Receivables
⦿ Uncollectible Receivables
⦿ Allowance Method
⦿ Direct Write-off Method
Receivables = money owing to the business
by other entities
Account Receivable
Notes Receivable
Other Receivable
⦿ Account Receivable
◾ Result from selling goods or providing services on
credit
◾ Normally collected within a short period
such as 30 or 60 days
⦿ Notes Receivable
◾ Amounts that customers owe, for which a formal
written agreement has been issued
◾ Interest is required
Goods Collecting
or
Invoic
Service e
s
Sales Receip
t
Notes
Accounting
www.themegallery.com
Objectives
Compute the cost of inventory under the
periodic and perpetual inventory
system, using the FIFO,LIFO and
Weighted average cost methods
Compare and contrast the use of the
three inventory costing methods
Contents
Inventory cost flow assumptions
Periodic and perpetual inventory system
Inventory Costing Methods under
the periodic inventory system
Inventory Costing Methods under
the perpetual inventory system
Effect on PL and BS
Which costing method to choose from?
Inventory cost flow assumptions
Business may buy identical units of
goods at different unit costs cost flow
must be assumed.
Example:
Date Units Cost per Unit
1st Jan Beginning Bal 300 $10
Inventory Closing
Balance = $4,800
Inventory Costing Methods under
the periodic inventory system
LIFO
Example:
Date Units Cost per Unit
1st Jan Beginning Bal 300 $10
Inventory Closing
Balance = $4,200
Inventory Costing Methods under
the periodic inventory system
Weighted Average cost method
Example:
Date Units Cost per Unit
1st Jan Beginning Bal 300 $10
Ending Inventory?
Quantity = Units
Value = $
COGS = $
Inventory Costing Methods under
the perpetual inventory system
LIFO
Example
Date Units Cost per Unit
1st Jan Beginning Bal 300 $10
Ending Inventory?
Quantity = Units
Value = $
COGS = $
Inventory Costing Methods under
the perpetual inventory system
Weighted Average cost method
Example
Date Units Cost per Unit
1st Jan Beginning Bal 300 $10
Ending Inventory?
Quantity = Units
Value = $
COGS = $
Effect on PL and BS
Whatever the cost method apply, it will
affect both PL and BS results as it
affects:
COGS
Inventory ending balance
Which costing method to choose
from?
It depends on company’s policy
LIFO is not permitted in a number
of countries
This is an accounting policy, therefore,
it requires a consistency
Which costing method to choose
from?
During a period of inflation or rising price,
applying FIFO would give a higher gross
profit and higher ending inventory
balance as compared with other two
methods.
FIXED ASSET
Chapter 9
Objectives
▶ Fixed Assets
▶ Purchase of Fixed Assets
▶ Depreciation
▶ Accounting for Depreciation
▶ Disposal of Fixed Assets
▶ Financial Reporting for Fixed Assets
Fixed assets
▶ Main characteristics:
▶ Permanent
▶ Duration Used to
earn
Revenue
Purchase of PPE
Dr PPE
Cr Cash/Bank/Account payable
Purchase of PPE
▶ Depreciation:
▶ Decrease in usefulness
Recorded
as
expenses
Depreciation
Fixed
Residu Depreciatio
asset’s
al n Cost
cost
value
Accounting for Depreciation
Depreciation Cost
Annual
Depreciatio
n Expense
Estimated useful Life
Straight-line Depreciation
▶ Example:
▶ Assume that the cost of an asset is
$40,000, its estimated residual value is
$4,000, and its estimated life is
10 years.
▶ Depreciation amount:
▶ For the first year = cost of
asset X declining-balance rate
▶ After the first year =
the OPENING net book
value X declining-
balance rate
Declining-Balance Method
▶ Accounting treatment
for above situation?
Discarding Fixed Assets
Dr Accumulated
Depreciation Cr Fixed
Asset
Discarding Fixed Assets
▶ If the fixed asset is not
fully depreciated
▶ Remember:
▶ To calculate and include
depreciation for the period Dr Depreciation Expense
prior to removing date. Cr Accumulated
Depreciation
▶ The net book value would
be recorded as Loss on Dr Accumulated
Disposal of Fixed Assets Depreciation Dr Loss on
Disposal of FA
Cr Fixed Asset
Discarding Fixed Assets
▶ Example:
Assume that equipment costing $20,000
is depreciated at a straight-line rate of
10%. In addition, assume that
accumulated depreciated at the
beginning of 20X0 is
$5,000 and the asset is discarded on
30th June 20X0.
How would this transaction be
recorded on 30th June 20X0?
Selling Fixed Assets
$2,000
Cr Equipment $20,000
Selling Fixed Assets
$20,000
Selling Fixed Assets
$14,000
Exchanging Fixed Assets
Dr Accumulated $17,000
Depreciation
Dr New Equipment $14,000
Cr Old Equipment $20,000
Cr Cash (15,000 – 4,000) $11,000
Financial Reporting for
Fixed Assets
▶ PL:
▶ Depreciation expense
▶ Profit/Loss on Disposal of Fixed Assets
▶ BS:
▶ Fixed Assets Cost
▶ Accumulated Depreciation