Chapter 1: ACCOUNTING IN BUSINESS I. FUNDAMENTAL CONCEPTS 1. Whats accounting? Accounting is a process of three activites Step 1 Identifying: select economic events (transactions) Step 2 Recording: input (record), measure & classify Step 3 Communicating: prepare accounting reports => analyze and interpret for users.(present all the finacial record) 2. Who use accounting data? Internal users(trong doanh nghigp): Management, Marketing, Finance, Human Resources, ete External users(ngoai doanh nghiép): Investors, Creditors, Investors, Suppliers, Finacial analysis 3. Accounting system Finacial accounting ~ ké ton tai chinh (public, moi ngudi déu cé thé tao ra finacial accounting giéng nhau theo huéng dan, khuén mau) Financial accounting provides external users with financial statements. Management accounting — ké toan quan tri (not public all, ndi bd, phan tich hung kinh doanh) Managerial accounting provides information needs for internal decision makers. 4. Accounting & book keepin; Dis-organised Organised Information |f>} Record > Sort > Summarize |} information (transactions) (financial Statements) ACCOUNTING goes beyond BOOK-KEEPING: + Analysing & interpretion of financial data + Setting up book-keeping system + Emphasizes analysis, while Book-keeping emphasizes recording 5. Ethics —a key concept Ethi > Beliefs that distinguish right from wrong > Accepted standards of good and bad behaviorStep 1: Identify ethical concerns: Use personal ethics to recognize ethical concern, Step 2: Analyze options: Consider all good and bad consequences. Step 3: Make ethical decision: Choose best option after weighing all consequences. Il. ACCOUNTING EQUATION & TRANSACTION ANALYSIS 1. Objective of accounting Asst © Current Assets: cash on hand, cash at bank,...(mitc d@ thanh khoan cao) © Non-current Assets: car, building,....(mite 46 thanh khoan thap) © Supporting resources: Banks, Suppliers, Labor, Owner's Equit 2. Basic accounting equation © The equation always stays in balance Assets (tai sin) > Resources a business owns. > — Provide future services or benefits. > — Cash, Supplies, Equipment, etc Liabilities (ng phai tra) > — Claims against assets (debts and obligations). > — Creditors (party to whom money is owed). > Accounts Payable, Notes Payable, Salaries and Wages Payable, etc. (payable: phai tra) Owner's Equity (vén chit sé hitu) > — Ownership claim on total assets. > — Referred to as residual equity. > Investment by owners and revenues (+) > Drawings and expenses (-). + [Ream] - 3. Transaction analysis Transactions are the economic events of the enterprise. Owner Owner Capital__| — | Withdrawals > External transactions ‘> Internal transactions> Not all activities represent transactions.(chi léy nhiing thong tin chinh) hire, order, contract, promise agrument, etc are not finacial transactions. > Each transaction has a dual effect on the accounting equation. Notes: 1. Each transaction is analyzed in terms of its effect on: (a) The three components of the basic accounting equation. (b) Specific items within each component. 2. The two sides of the equation must always be equal, Financial Statements Summarizing what business has done in a period Balance sheet and income statement are needed to prepare statement of cash flows. Income Statement Reports the revenues and expenses for a specific period of time. Lists revenues first, followed by expenses. Shows net income (or net loss). Does not include investment and withdrawal transactions between the owner and the business in measuring net income Owner’s Equity Statement Reports the changes in owner's equity for a specific period of time. ‘The time period is the same as that covered by the income statement. Balance Sheet Reports the assets, liabilities, and owner's equity at a specific date. Lists assets at the top, followed by liabilities and owner’s equity. Total assets must equal total liabilities and owner's equity. Is a snapshot of the company’s financial condition at a specific moment in time (usually the month-end or year-end). Statement of Cash Flows Information on the cash receipts and payments for a specific period of time.Answers the following: Where did cash come from? What was cash used for? What was the change in the cash balance?