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Welcome to BU8101

Accounting: A User Perspective

Lectures Financial
1 to 6
Accounting
Lectures
7 to 12

Managerial
Accounting

Mrs. Ho Yin Kheng


yklau@ntu.edu.sg
Mr. Rony Lim
rbtlim@ntu.edu.sg

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Course Objectives and


Requirements

Course Objectives

Course Schedule

1.5-hour lecture per week commencing on 11 August 2015.


1.5-hour seminar per week commencing from the week
beginning 17 August 2015.

Prescribed Text

To expose students to the environment of accounting and the


role of accounting in business organizations for useful
decision making

Williams, J.R., Haka S.F. and Bettner M.S. (WHB) Financial


and Managerial Accounting: The Basis For Business
Decisions, 17th Edition, McGraw-Hill (2015)

Further Information

Course Outline in Edventure

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Course Objectives and


Requirements
Online e-learning

McGraw Hills Connect system (compulsory)

Course Assessment

Continuous Assessment

Online Assignments (compulsory)


Presentation
Participation
Online Quiz (closed book)

10%
10%
10%
20%

50%

Final Examination (closed book)


50%
Total Assessment
100%
Online quiz to be held in the week commencing 5 October
2015 during seminar sessions at IT labs
Final Examination on Wednesday, 24 November 2015 at
5.00pm

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BU8101
Accounting: A User Perspective

Lecture 1
Introduction to Accounting

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Suggested Readings
Compulsory

Lecture notes
Chapters 1 (learning objectives 1 to 7) & 2 of Financial and
Managerial Accounting: The Basis For Business Decisions
17th edition by Williams, J.R., Hakka,S.F. and Bettner,
M.S. (2015).

Reference

Chapter 1 of Accounting Principles 11th edition by Jerry J.


Weygandt, Paul D. Kimmel, Donald E Kieso (2014).
http://www.acra.gov.sg/
http://www.asc.gov.sg
SingPost Annual Report 2014

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Learning Objectives
1. Describe business and the goals of business
2. Explain the importance of accounting

3. Discuss the accounting environment and the


importance of ethics
4. Explain elements of the financial statements and
basic accounting principles
5. Analyze business transactions using the
accounting equation

6. Show how financial statements are linked

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LO 1

Learning Objective 1

Describe business
and the goals of
business

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LO 1

Overview of Business
A business is an economic unit that aims to sell
goods and services to customers at prices that will
provide an adequate return to its owners.
Business Goals
Profitabilityearning a sufficient return to maintain owner
interest
Liquidityhaving enough cash to pay debts as they
come due
Some well-known businesses are:

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LO 1

Business - The Big Picture


This diagram gives you a big picture of how business operates:

Financing Activities

Profits are used to


repay owners
and creditors

Financial resources from


owners and other creditors
Profits generated
are also reinvested

Operating Activities

Used to acquire
operating assets

Investing Activities

Operating assets are used to


produce and sell goods and services

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LO 1

Financing Activities

Financing activities occur when owners or creditors provide


resources to a company or when a company transfers resources to
owners or creditors.

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LO 1

Investing Activities

Investing activities involve the acquisition or disposal of


long-term resources used by a business.

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LO 1

Operating Activities
Purchase of Goods for Sale

Selling Goods to Customers

Operating activities are those activities necessary to


acquire and sell goods and services.

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LO 2

Learning Objective 2

Explain the importance


of accounting

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LO 2

The Accounting Process

Accounting:
the language of
business

is a
system that

Identifies Business
Activities
Records Business
Activities

Qualitative
Characteristics
Relevance
Faithful
representation
Comparability
Verifiability
Timeliness
Understandability

information
that is

Communicates
Business Activities

Decision-makers
use reports to make
Cost Constraint better decisions.

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LO 2

Users of Accounting Information


Financial
Accounting
External Decision
Makers

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LO 2

Users of Accounting Information


Managerial Accounting
Internal Decision Makers

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LO 2

Who Uses Accounting?


The Accounting Umbrella
Governmental
Accounting

Non-Profit
Organizations

Sole
Proprietorship

For-Profit
Organizations

Partnership

Private

Corporation

Publicly Traded

LO 2

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Forms of For-Profit
Organizations

Sole
Proprietorship

Partnership

Corporation

For more information on the above, refer to ACRA website


http://www.acra.gov.sg/
Copyright 2012 The McGraw-Hill Companies, Inc.

LO 2

Reporting Ownership Equity in the


Statement of Financial Position

Sole
Proprietorships

Partnerships

Corporations

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Ow ner's equity:
Jill Jones, capital

8,000

Partners' equity
Jill Jones, capital $ 4,000
Bill Jones, capital
4,000
Total partners' equity
$ 8,000

Owners' equity
Share capital
$ 7,000
Retained earnings
1,000
Total shareholders' equity

$ 8,000

Copyright 2012 The McGraw-Hill Companies, Inc.

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Review Questions

Liquidity means having enough funds on hand to


pay debts when they fall due. TRUE
True/False

Which of the following is not an external user of a


businesss financial information?
A. Tax authorities
C. Shareholders
B. Customers
D. Managers
D
Which type of business organization is owned by
one owner?
A. Corporation
C. Sole proprietorship
B. Partnership
D. Items a and b
C

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LO 3

Learning Objective 3

Discuss the accounting


environment and the
importance of ethics

LO 3

The Accounting Environment for


Financial Statements Reporting

Financial
Statements
Reporting

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Accounting Standards and


Principles (*SFRS)
Singapore
Companies Act &
Other statutory reqts.
Code of Corporate
Governance (pages 40-60#)

Independent Auditors
Report (pages 82#)
Accounting
Professionals
#See Singpost Annual Report 2014
* Singapore Financial Reporting Standards

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LO 3

Importance of Ethics

Effective financial reporting depends on sound ethical


behavior.
Recent unethical financial reporting include:
In US Enron, Worldcom,
In Singapore China Aviation Oil and others.

Ethics
Beliefs that
distinguish right
from wrong

Accepted
standards of good
and bad behavior

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LO 3

Guidelines for Ethical


Decisions

Identify ethical
Analyze the
situations and
elements in the
ethical issues
situation involved

Use personal
ethics to identify
ethical situations
and issues

Identify stakeholders
persons who may be
harmed or benefited.
What are the
responsibilities and
obligations of parties
involved?

Identify options
and weigh the effect
of each option

Choose best option


after weighing all
consequences.

Video clip

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LO 3

Ethical Decision

Andrew, a final year engineering student at NTU, received two office


interview invitations from the Hong Kong offices of two large firms.
Both firms offered to cover his out-of-pocket expenses (travel, hotel,
and meals). He scheduled the interviews for both firms on the same
day, one in the morning and one in the afternoon. At the conclusion
of each interview, he submitted to both firms his total out-of-pocket
expenses for the trip to Hong Kong for a total of $710. He believes
this approach is appropriate. If he had made two trips, his cost would
have been two times $710. He is certain that neither firm knew he
had visited the other on that same trip. Within 10 days, Andrew
received two cheques in the mail, each in the amount of $710.

Identify ethical
situations and
ethical issues

Analyze the
stakeholders in the
situation involved

Identify options

and weigh the effect


of each option

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Review Questions

One purpose of accounting standards and


principles is to make accounting information
prepared by different companies more comparable.
TRUE
True/False

An audit guarantees that the financial statements


are free of all misstatements. FALSE
True/False
Ethics are the standards of conduct by which one's
actions are judged as:
A. right or wrong
C. honest or dishonest
B. fair or not fair
D. all of the options
D

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LO 4

Learning Objective 4

Explain elements of
the financial
statements and basic
accounting principles

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LO 4

Basic Accounting Principles


Assumptions
Accounting entity: Activities of the business are separate
from activities of owners.
Going concern: The entity will not go out of business in the
near future.
Unit-of-measure: Accounting measurements will be in the
national monetary unit (i.e., S$ in the Singapore).

Principles
Historical cost: (or cost principle) dictates that companies
record assets at their cost.

Objectivity: Accounting information is supported by


independent unbiased evidence.

LO 4

Financial Statements

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Financial Statements
Statement of Financial Position (usually called Balance Sheet)
Statement of Comprehensive Income ( which consist of 2 parts:
the Income Statement plus Other Comprehensive Income)
Statement of Cash Flows
Statement of Changes in Equity
Notes to the financial statements
Green Lawn Care Service
Balance Sheet
May 31, 2014
Assets
Liabilities
Cash
$
26,200 Notes payable
$
Accounts receivable
500 Accounts payable
Equipment
2,500
Owners' Equity
Truck
15,000 Capital stock
Retained earnings
Total shareholders' equity
Total assets
$
44,200 Total liabilities & equity
$

13,000
2,500
28,000
700
28,700
44,200

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LO 4

The Basic Accounting Equation


Assets = Liabilities + Owners Equity

Provides the underlying framework for recording and


summarizing economic events.

Assets are economic resources that are owned by the


entity and are expected to provide positive future cash
flows. Examples: cash, supplies, plant and equipment.

Liabilities are debts that represent negative future cash


flows for the entity. Examples: accounts payable, notes
payable.

Owners equity represents the owners claims to the


assets of the business. Examples: Owner's capital,
revenue, expenses and dividends.

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LO 4

Expanded Accounting Equation


Uses of funds

Owners
capital

Sources of funds

Revenues

Expenses

_ Dividends

Net Income
Retained Earnings
Retained Earnings represents the total net income of the firm
over the entire lifetime of the business, less dividends
distributed to the shareholders.

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LO 4

Owners Equity
Increases in Owners Equity are caused by:
Owners capital - the assets the owner puts into the
business.
Revenues - result from business activities entered into
for the purpose of earning income. Examples: sales,
fees, services, commissions.
Decreases in Owners Equity are caused by:
Dividends - Drawings by owner or distribution of
profits to owner.
Expenses - the cost of assets consumed or services
used in the process of earning revenue. Examples:
salaries expense, rent expense, utilities expense, etc.

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Review Questions

For accounting purposes, a business entity is


regarded as separate from the personal activities
of its owners. Ans:
True
True/False
Using the expanded accounting equation, solve for
the missing amount: $40,000
Assets
Liabilities
Owners' capital
Revenue
Expenses
Dividend

$100,000
$40,000
?
$60,000
$30,000
$10,000

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LO 5

Learning Objective 5

Analyze business
transactions using
the accounting
equation

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LO 5

Lets analyze some


transactions for Green
Lawn Care Service and
see how they affect the
operation of the
accounting equation.
Transactions are a businesss economic events.
May be external or internal.
Not all activities represent transactions.
Each transaction has a dual effect on the
accounting equation.

LO 5

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Cash
5/1 $ 28,000
5/8
(2,000)
5/11
5/29
250
5/31
(50)
Bals $ 26,200

Assets
Accts.
+ Rec. + Equip. +

$2,500
500
$ 500

$ 2,500

Liabilities
+
Owners' Equity
Notes
Accts.
Capital
Retained
Truck = Payable + Pay. + Stock + Earnings
$ 28,000
$ 15,000
$ 13,000
$ 2,500
$750
(50)
$ 15,000
$ 13,000
$ 2,500
$ 28,000
$700

Transactions of Green Lawn Care Service in May 2014


5/1 The owners invested $28,000.

5/8 Truck costing $15,000 was purchased for $2,000 cash and signing a
note payable for $13,000.
5/11 Purchase lawn mower for $2,500 on account.
5/29 The company provided services for $750, of which $500 was on
account and the balance of $250 was received in cash.
5/31 Gasoline for the lawn mower and the truck of $50 was paid in cash.

LO 5

Cash
1/5 $28,000
8/5 (2,000)
11/5
29/5
250
31/5
(50)
Bals $26,200

Lets prepare the Balance Sheet for Green1-37


Lawn Care Service for May 31, 2014.
Assets
Accts
+ . Rec. + Equip. +

$2,500

$500

$ 2,500

Liabilities
+
Owners' Equity
Notes
Accts.
Capital
Retained
Truck = Payable + Pay. + Stock + Earnings
$ 28,000
These
will
$ 15,000 balances
$ 13,000
$ 2,500
appear on the Balance
750
Sheet
(50)
$ 15,000
$ 13,000
$ 2,500
$ 28,000
$700

Green Lawn Care Service


Balance Sheet
May 31, 2014
Assets
Liabilities
Cash
$
26,200 Notes payable
$
Accounts receivable
500 Accounts payable
Equipment
2,500
Owners' Equity
Truck
15,000 Capital stock
Retained earnings
Total shareholders' equity
Total assets
$
44,200 Total liabilities & equity
$

13,000
2,500
28,000
700
28,700
44,200

LO 5

Statement of Financial Position


(Balance Sheet)

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Reports the assets, liabilities, and owners equity


at a specific date.
Total assets must equal total liabilities and
owners equity.
Is a snapshot of the companys financial condition
at a specific moment in time (usually the monthend or year-end).

LO 5

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Lets prepare the Income Statement and


Statement of Cash Flows for Green Lawn Care
Service for the month ending May 31, 2014.
Assets

Liabilities
+ Owners' Equity
Accts
Notes
Accts. Capital Retained
Cash + . Rec. + Equip. + Truck = Payable + Pay. + Stock + Earnings
Statement of changes in equity
1/5 $8,000
$ 8,000
8/5 (2,000)
$ 15,000 $ 13,000
11/5
2,500
$ 2,500
29/5 250
500
750
Income
Statement of cash flows
31/5 (50)
(50)
statement
Bals $6,200 $500 $ 2,500 $ 15,000 $ 13,000 $ 2,500 $ 8,000
$700

LO 5

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Income Statement
The income statement shows the profit for the period of
time under consideration.
Green Lawn Care Service
Income Statement
For the Month Ended May 31, 2014
Service Revenue
Operating Expense:
Gasoline Expense
Net Income

750

50
700

Revenue > Expenses = Net


Income/Profit
Expenses > Revenue = Net Loss

Owners and other


decision makers
can use the
statement to
evaluate how well
a company has
performed.

LO 5

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Statement of Changes In Equity


The statement of changes in equity shows the changes in
equity for the period of time under consideration.
Green Lawn Care Service
Statement of Changes in Equity
For the Month Ended May 31, 2014
Beginning equity
Issuance of shares
Net income
less: Dividend
Ending equity

28,000
700
28,700

LO 5

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Depicts the way cash has changed during a period of time.


Green Lawn Care Service
Statement of Cash Flows
For the Month Ended May 31, 2014
Cash flows from operating activities:
Cash received from revenue transactions $
250
Cash paid for expenses
(50)
Net cash provided by operating activities
$
200
Cash flows from investing activities:
Purchase of truck
(2,000)
Net cash used by investing activities
(2,000)
Cash flows from financing activities:
Investment by owners
28,000
Increase in cash for month
$ 26,200
Cash balance, May 1, 2014
Cash balance, May 31, 2014
$ 26,200

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Review Questions
Deerpark Corporation recently borrowed $70,000 cash

from its bank. Which of the following was unaffected by this


transaction?
A. Assets.
B. Liabilities.
C. Owners' equity.
C
D. Cash.
Which of the following is correct when a corporation uses
cash to pay for an expense?
A. Total assets will decrease.
B. Retained earnings will increase.
C. Owners' equity will increase.
A
D. Liabilities will increase.

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LO 6

Learning Objective 6

Show how financial


statements are
linked

LO 6

Relationships Among Financial


Statements

Date at beginning
of period

Time
Income Statement

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Date at end of
period

Revenue
- Expenses
Net Income

Balance
Sheet
A = L + OE

Statement of Changes in Equity


Beginning equity
issuance of shares
Net income
less: Dividend
Ending equity

Statement of Cash Flows


Cash Provided (Used) by:
Operating Activities
Investing Activities
Financining Activities
+ Beginning Cash Balance
Ending Cash Balance

Balance
Sheet
A = L + OE

Green Lawn Care Service


Statement of Cash Flows
LO 6
For the Month Ended May 31, 2014
Cash flows from operating activities:
Cash received from revenue transactions $
250
Cash paid for expenses
(50)
Net cash provided by operating activities
$
Cash flows from investing activities:
Purchase of truck
(2,000)
Net cash used by investing activities
Cash flows from financing activities:
Investment by owners
Increase in cash for month
$
Cash balance, May 1, 2011
Cash balance, May 31, 2012
$

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Green Lawn Care Service
Income Statement
For the Month Ended May 31, 2014

200

Service Revenue
Operating Expense:
Gasoline Expense
Net Income

750

50
700

(2,000)

Green Lawn Care Service


Statement of Changes in Equity
For the Month Ended May 31, 2014

28,000
26,200
26,200

Beginning equity
Issuance of shares
Net income
less: Dividend
Ending equity

Green Lawn Care Service


Balance Sheet
May 31, 2014
Assets
Liabilities
Cash
$ 26,200 Notes payable
$
Accounts receivable
500 Accounts payable
Equipment
2,500
Owners' Equity
Truck
15,000 Capital stock
Retained earnings
Total shareholders' equity
Total assets
$ 44,200 Total liabilities & equity
$

13,000
2,500
28,000
700
28,700
44,200

28,000
700
28,700

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Review Questions
A transaction that causes an increase in an asset

may also cause an increase in another asset, a


decrease in a liability, or a decrease in owners'
equity. Ans:
False
True/False
A companys owners equity is one-third of its total
assets. Its liabilities total $200,000. What is the
amount of its total assets?
A. $200,000
B. $300,000
C. $350,000
D. $400,000
B

Learning Outcomes
Do You Know?
1.
2.
3.
4.
5.
6.
7.

What are the goals of a business?


Why is accounting important?
What are the factors that safeguard the reliability of
accounting information?
Why is ethics important in financial statements reporting?
What are the six basic accounting principles you have
learnt?
How do business transactions affect the accounting
equation?
How are financial statements linked?

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End of Lecture 1