Financial accounting

Prepare financial statements for company

1. Balance sheet (USA) – Bảng cân đối kế toán
The statement of financial position (UK, Europe…) – Báo cáo tình hình tài
chính
Content: Assets = Capital = Liabilities + Stockholders’ Equity (basic
accounting equation)
Assets: Current assets and Non-current assets
Liabilities: Current liabilities and Non-current liabilities
Equity: Share capital (Vốn góp của csh) and Retained earnings (lợi nhuận
chưa phân phối)
Retained earnings: is accumulated income from the beginning of operation
Earnings/Income = Revenues – Expenses
Retained earnings: (1) to pay dividend or (2) re-invest to the company
2. Income statement (USA)
The statement of profit or loss (UK, Europe….) –> P/L statement
Báo cáo kết quả kinh doanh
Content: Revenues – Expenses = Profit/Loss
3. The statement of cash flows – Báo cáo lưu chuyển tiền tệ
Content: Cash inflows and Cash outflows
3 activities: Operating activities, Investing activities, and Financing activities
4. Notes to financial statement – Thuyết minh BCTC

Debit/Credit rules
Basic accounting equation: Assets = Liabilities + Equity
Formula: Opening balance + Increase – Decrease = Closing balance
Dr/Cr rules for Assets
Dr Assets account Cr
Open
balance
Increase Decrease
Close
balance

Example 1: Company withdrawals $100 bill from the bank account

Analyze: Petty cash (tiền mặt) +$100 and Cash (at bank checking account) - $100
Journal entry:
Dr Petty cash 100
Cr Cash 100
Example 2: Company uses cash to buy materials for $1,000
Analyze: Cash - $1,000 and Materials (Nguyên vật liệu) +$1,000
Journal entry
Dr Material 1,000
Cr Cash 1,000
Dr/Cr rules for Liabilities + Equity
Dr L + E account Cr
Open balance
Decrease Increase
Close balance

Example 1: Owner invest $10,000 cash into the company in exchange for share
capital
Analyze: Cash +10,000 and Share capital +10,000
Journal entry:
Dr Cash 10,000
Cr Share capital 10,000
Example 2: Company borrows from the bank $500 to pay off the amount due to
suppliers
Analyze: Note payable (bank borrowing) +500 and Account payable (to suppliers)
-500
Journal entry:
Dr Account payable 500
Cr Note payable 500

Expanded accounting equation: Assets = Liabilities + Equity

Assets = Liabilities + Share capital + Retained earnings
Assets = Liabilities + Share capital + Revenues – Expense – Dividend

Revenue/expense/dividend has ZERO balance

Dr/Cr rules for Revenue
Dr Revenue Cr
Decrease Increase
Total for the
period
Dr/Cr rules for Expense/Dividend

Dr Expense/Dividend Cr
Increase Decrease
Total for the
period

Example 1: Company sells goods for $2,000 cash.

Analyze: Sales revenue +2,000 and Cash +2,000
Journal entry:
Dr Cash 2,000
Cr Sales revenue 2,000

The cost of goods sold is $1,200

Analyze: COGS +1,200 and Goods - 1,200
Journal entry:
Dr COGS 1,200
Cr Goods 1,200

Accounting components
1. Assets
Petty cash ($ bill)
Cash (at checking account at bank)
Note receivable (cash at saving account)
Inventory (Raw materials, Work in process, Finished goods, Goods)
Account receivable (phải thu khác hàng) (company sells goods/service on
account/credit)
PPE (Property, Plant, Equipment) = Fixed assets = Tangible assets = Tài sản
cố định hữu hình includes: Land, Building, Equipment, Machinery, Vehicles
Intangible assets = Tài sản cố định vô hình includes: Patent, Copyright,
Licensing and Franchise, Computer software
Long-term investment: invest in other company’s stock and bond; invest in
property (not use in normal operation, hold for sale at higher price, rental)

*Manufacturing company (sản xuất):

Raw materials + Labor + Machine = Finished goods + Work in process
 Merchandising company (thương mại): buy and sell goods (without any
production)
2. Liabilities
Note payable (bank borrowing)
Account payable (company buys goods/service on account/credit)
Salaries and wages payable (phải trả người lao động)
Tax payable
Interest payable
Unearned revenue (doanh thu chưa thực hiện) (company receives cash in
advance to provide goods/service in the future)

Accounting principles and assumptions

1. Historical cost principles (nguyên tắc giá gốc): assets are recorded at cost.
Costs include all expenditure necessary to acquire the assets and make it
ready for intended use.
Example: company buys a car for $20,000. Other costs of purchase
includes: testing and installment is $200, Registration fee is $2,000, painting
and lettering the company logo $100.
Cost of car = Purchase price $20,000 + Other costs of purchase $200 +
$2,000 +$100 = $22,300
Journal entry:
Dr 22,300
Cr 22,300
 Apply at the date of purchase
2. Fair value principle (nguyên tắc giá trị hợp lý)
Example: In 2022, company buys a Land for $ 1million
Dr Land (PPE) 1 million
Cr Cash 1 million
(IFRS) Company can choose to apply either historical cost or fair value
In 2027, the market value (fair value) of the land is $1.5 million
If company applies historical cost: -> want to provide information that is
faithful (trung thực) because it depicts what really happened
In 2027, keep Land at cost $1 million
If company applies Fair value: -> information is relevant (thích hợp) because
it will affect the external users’ decision
In 2027, increase Land to be $1.5 million
 Fact: most companies choose to apply historical cost

*External users of financial statements: Investors and Creditors, Tax

Authority
Internal users: Joint stock company (cty cổ phần)
3 levels of directors
Highest: Conference of shareholders (đại hội đồng cổ đông – meeting about
4 times /years) -> external
Appoints: Board of Directors (BOD) (Hội đồng quản trị - from 5-11
members) -> Internal
Lowest: Board of Management (BOM) (Ban giám đốc) -> internal

* IAS: International Accounting Standard

IFRS: International Financial Reporting Standard (new)
-> both are issued by the IASB (International Accounting Standard Board –
London)
* US GAAP: US Generally accepted accounting principles
-> issued by FASB (Financial Accounting Standard Board – USA)
* VAS: Vietnamese accounting standards
-> Issued by Ministry of Finance

3. Accrual basis accounting (nguyên tắc cơ sở dồn tích): record the

transaction when occur rather than when the cash is exchange
(ghi nhận nghiệp vụ khi phát sinh, ko căn cứ thời điểm thu tiền hoặc chi
tiền)
Meaning:
Record Revenue when the performance obligation is satisfied rather than
when receive cash. The performance obligation is satisfied when company
finished providing service or transferred goods to customer.

Record Expense when incur rather than when pay cash.

Example 1: Company A receives cash in advance from customer B for

$1,000 on Jan 1, 2021. On Feb 15, 2021, Company A provides service to
customer B and send an invoice for $3,000. On March 2, 2021, customer B
pays the remaining amount due to company A by cash.
 Journal entry for company A

Jan 1: Cash +1,000 and Unearned revenue +1,000

Dr Cash 1,000
Cr Unearned revenue 1,000

Feb 15: Service revenue +3,000 and Unearned revenue – 1,000 and Account
receivable +2,000

Dr Account receivable 2,000

Dr Unearned revenue 1,000
Cr Service revenue 3,000

March 2: Cash +2,000 and Account receivable -2,000

Dr Cash 2,000
Cr Account receivable 2,000

Example 2: At the end of month June, accountant prepares salary table and
calculate the salaries and wages for employees is $9,000. On July 10, the
company pays employees by cash.

June 30: SW expense + 9,000 and SW payable +9,000

Dr SW expense 9,000
Cr SW payable 9,000

July 10: SW payable – 9,000 and Cash – 9,000

Dr SW payable 9,000
Cr Cash 9,000

4. Cash basis accounting (cơ sở tiền mặt) – Not compliance with GAAP
5. Matching principle (nguyên tắc phù hợp) = Expense recognition principle
6. Consistency principle (nguyên tắc nhất quán)
7. Conservatism principles = Prudence principle (nguyên tắc thận trọng)
8. Materiality (nguyên tắc trọng yếu)
9. Going concern assumption (giả định hoạt động liên tục)
10.Time period assumption (kỳ kế toán)
11.Monetary unit assumption
12. Economic entity assumption (thực thể kinh doanh/đơn vị kế toán)