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

Chapter 1Accounting in BusinessMcGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. 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 behaviorEthics - 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 4The Securities and Exchange Commission is the government agency that establishes reporting requirements for companies that issue stock or shares to the public.Setting Accounting PrinciplesFinancial Accounting Standards Board is the private group that sets both broad and specific principles. The International Accounting Standards Board (IASB) issues International Financial Reporting Standards that identify preferred accounting practices to create harmony among accounting practices of different countries. 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 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. 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 4* Proprietorships and partnerships that are set up as LLCs provide limited liability. Characteristics of Businesses**C 4Owners of a corporation 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 share capital).CorporationC 4Transaction Analysis and the Accounting EquationAssets=Liabilities+EquityAccounting EquationA 1LandEquipmentBuildingsCashVehiclesStore SuppliesNotes ReceivableAccounts ReceivableAssetsA 1Resources owned or controlled by a companyTaxes PayableWages PayableNotes PayableAccounts PayableLiabilitiesCreditors’ claims on assetsA 1EquityOwner’s Claims on AssetsA 1Transaction Analysis Equation 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.P 1Transaction 2: PurchaseSupplies for CashThe accounts involved are: (1) Cash (asset) (2) Supplies (asset) Chas Taylor’s company, 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) The company 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) The company pays $1,000 rent and $700 in salary to the company’s only employee.P 1Summary of TransactionsOther transactions were executed during December and the summary of all transactions is shown below:P 1Financial StatementsLet’s prepare the financial statements reflecting the transactions we have recorded.P 2Income statement (Statement of comprehensive income)Statement of changes in equityBalance sheet (Statement of financial position)Statement of cash flowsThe income statement describes a company’s revenues and expenses along with the resulting net income or loss over a period of time due to earnings activities.Income StatementP 2 STATEMENT OF CHANGES IN EQUITYP 2The Balance Sheet describes a company’s financial position at a point in time.Balance SheetP 2Statement of Cash FlowsP 2Decision AnalysisReturn on assets (ROA) is stated in ratio form as income divided by assets invested.Net incomeAverage 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 51C - IASB’s Conceptual Framework for Financial ReportingC 6END OF CHAPTER 1