ACC101- PRINCIPLE OF ACCOUNTING

ACCOUNTING IN BUSINESS

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AGENDA

Part 1: Introduction to the course

Part 2: Chapter 1 - Accounting in Business

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Part 1: Introduction to the course
Instructor
MSc. Que Anh Nguyen
anhntq36@fe.edu.vn

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1. OBJECTIVES OF THE COURSE

▪ Accounting is the language of business since it communicate financial health of a business to

stakeholders.
▪ Upon completion of this course, students should:
✓ Have a clear understanding of ideas, principles, and techniques of accounting
✓ Have the knowledge and tools to better understand business performance issues, and the
decisions and problems;
✓ Understand the important role of accounting and finance in all organizations, in all jobs, and
its link with the development of increasingly sophisticated IT systems.

Unit content is based on the assumption that you have no prior knowledge of accounting

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2. ASSESSMENT REQUIREMENTS

Type Assessment % contribution Coverage Due time

Class participation 10% On-going

Quiz Quiz 1 5% Chap 1, 2 S4
Quiz 2 5% Chap 3,4 S8
Mid-term Test 15% Chapter 1-5 S10
Individual Assignment 10% Chap. 6, 8, 9, 10 S16
Group Presentation S19-S20
15%
Assignment Report S18
Chapter
Essay Test 10% S17
6,8,9,10,11,14
Final Exam 30%

Completion Criteria: Final Result >=5 & Final Exam Score >=4

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4. OVERVIEW OF SEMESTER WORK

Introduction Financial Statement Merchandising

• Accounting concepts • Adjustment • Inventories
• Record transactions • Accounting Cycle • Cash
in trial balance • Closing process • Current assets
• Fixed assets
• Liabilities (current, non-current)
• Capital for corporation

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 Part 2:

Chapter 1 -

Accounting in Business

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 OBJECTIVES
IMPORTANCE OF ACCOUNTING
C1 Explain the purpose and importance of accounting.
C2 Identify users and uses of, and opportunities in, accounting.
FUNDAMENTALS OF ACCOUNTING
C3 Explain why ethics are crucial to accounting.
C4 Explain generally accepted accounting principles and define and apply several accounting principles.
TRANSACTION ANALYSIS
A1 Define and interpret the accounting equation and each of its components
P1 Analyze business transactions using the accounting equation
FINANCIAL STATEMENTS
P2 Identify and prepare basic financial statements and explain how they interrelate
A2 Compute and interpret return on assets

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C1
1. Importance of Accounting
1.1. Accounting Functions

Identifying
Select transactions and events

Recording
Input, measure and classify

Communicating
Prepare, analyze and interpret

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C2 1. Importance of Accounting

1.2. Users of Accounting Information

External Users Internal Users

•Lenders •Consumer Groups •Managers •Sales Staff

•Shareholders •External Auditors •Officers/Directors •Budget Officers
•Governments •Customers •Internal Auditors •Controllers
•Nonexecutive employees &
labor unions
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C2 1. Importance of Accounting

1.2. Users of Accounting Information

External Users Internal Users

Financial accounting provides Managerial accounting provides

external users with general purpose information needs for internal
financial statements. decision makers.
E1-7

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C3 1. Importance of Accounting
1.3. Opportunities in Accounting
Financial Managerial Taxation
•Preparation •General accounting •Preparation
•Analysis •Cost accounting •Planning
•Auditing •Budgeting •Regulatory
•Regulatory •Internal auditing •Investigations
•Consulting •Consulting •Consulting
•Planning •Controller •Enforcement
•Criminal •Treasurer •Legal services
investigation •Strategy •Estate plans

Accounting-related
•Lenders •FBI investigators
•Consultants •Market researchers
•Analysts •Systems designers
•Traders •Merger services
•Directors •Business valuation
•Underwriters •Human services
•Planners •Litigation support
•Appraisers •Entrepreneurs 13
C3 1. Importance of Accounting
1.3. Opportunities in Accounting
ACCOUNTING JOBS BY AREA

Private
Public accounting
accounting 60%
25%

Government,
not-for-profit,
& education
15%
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C4 2. Fundamentals of Accountings
2.1. Ethics - A Key Concept

Ethics

Beliefs that Accepted standards

distinguish right of good and bad
from wrong behavior

The Enron Scandal - An Animated Overview (2mins) https://www.youtube.com/watch?v=vMj0t2Vsyvs

The Business Deception That Cost $60 Billion: https://www.youtube.com/watch?v=gGBf2XYlXF8
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C4
2. Fundamentals of Accountings
2.1. Ethics - A Key Concept
1. Identify ethical 2. Analyze 3. Make ethical
concerns options decision

Use personal Consider all good Choose best

ethics to and bad option after
recognize ethical consequences. weighing all
concern. consequences.

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C5 2. Fundamentals of Accountings
2.2. Generally Accepted Accounting Principles

Financial accounting practice is governed by concepts

and rules known as generally accepted accounting
principles (GAAP).

Relevant Information Affects the decision of its users.

Reliable Information Is trusted by users.

Comparable Is helpful in contrasting

Information organizations.
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C5 2. Fundamentals of Accountings
2.2. Generally Accepted Accounting Principles
SETTING ACCOUNTING PRINCIPLES
Financial Accounting Standards Board (FASB) is the private
group that sets both broad and specific principles (U.S. GAAP).

The Securities and Exchange Commission (SEC) is the government group

that establishes reporting requirements for companies that issue stock to
the public & oversees the use of GAAP by public companies.

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.

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2. Fundamental of Accountings
2.2. Generally Accepted Accounting Principles
SETTING ACCOUNTING PRINCIPLES
Financial Accounting International Accounting
Standards Board (FASB) Standards Board (IASB)

U.S. GAAP IFRS

- U.S. SEC registrants - Non-US registrants

- Non-US registrants

How about
VAS?
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C5 2. Fundamentals of Accountings
2.2. Generally Accepted Accounting Principles

Revenue Recognition Principle

1. Recognize revenue when it is earned. Cost (Measurement) Principle
2. Proceeds need not be in cash. Accounting information is based on
3. Measure revenue by cash received actual cost incurred. Actual cost is
plus cash value of items received. considered objective.

Matching (Expense) Principle Full Disclosure Principle

A company must record its expenses A company is required to report the details
incurred to generate the revenue behind financial statements that would E1-7
reported. impact users’ decisions.

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C5 2. Fundamentals of Accountings
2.2. Generally Accepted Accounting Principles

Now Future
Going-Concern Assumption Monetary Unit Assumption
Reflects assumption that the
Express transactions and events in
business will continue operating
monetary, or money, units.
instead of being closed or sold.

Business Entity Assumption Time Period Assumption

A business is accounted for Presumes that the life of a company can
separately from other business be divided into time periods, such as
entities, including its owner. months and years.
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2. Fundamentals of Accountings
2.2. Generally Accepted Accounting Principles

Bussiness Entity Assumption- Forms of Entity

Sole
Partnership Corporation
Proprietorship

QS1-5 22
2. Fundamentals of Accountings
2.2. Generally Accepted Accounting Principles

Business Entity Assumption- Characteristics of Entities

Attribute Present Proprietorship Partnership Corporation
Business entity yes yes yes
Legal entity no no yes
Limited liability no * no * yes
Unlimited life no no yes
Business taxed no no yes
One owner allowed yes no yes

* Proprietorships and partnerships that are set up as LLCs provide limited liability.

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2. Fundamentals of Accountings
2.2. Generally Accepted Accounting Principles
Corporation Organisation Structure

Source: CFI 2022

✓ Owners of a corporation are called shareholders (or stockholders).

✓ Shareholders are not personally liable for corporate acts. When a corporation issues only
one class of stock, we call it common stock (or capital stock).
✓ Disadvantages of corporation: double taxation (corporate income tax & personal
income tax on dividend received) on shareholders.
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 2. Fundamentals of Accountings
2.2. Generally Accepted Accounting Principles

Constraints In Financial Accounting

Large corp. net profit
Materiality $40,000,000
Only information that would influence the
decisions of a reasonable person need be
disclosed (importance & size of an amount). Destroyed building
$30,000
Small store. net profit
$40,000
Benefit > Cost
Only information with benefits of disclosure
greater than the costs of providing it need be $20,000 historical
disclosed. financial recording $150,000 worker
error hours to pinpoint

Source: Concepts Statement No. 2, FASB 1980; Special Report, FASB 1998; McGraw-Hill 2015
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2. Fundamentals of Accountings
2.2. Generally Accepted Accounting Principles
SARBANES-OXLEY ACT (SOX) 2002
- Congress passed the Sarbanes-Oxley Act to help curb financial abuses at publicly listed
companies.
- Management must issue a report stating that internal control are effective.
- Auditors must verify the effectiveness of internal controls.
Company Alleged Accounting Abuses
Enron Inflating income, hid debt, and bribed officials
WorldCom Understated expenses to inflate income and hid debt
Fannie Mae Inflated income
Adelphia Communications Understated expenses to inflate income and hid debt
AOL Time Warner Inflated revenues and income
Xerox Inflated income
Bristol-Myers Squibb Inflated revenues and income
Nortel Networds Understated expenses to inflate income
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2. Fundamentals of Accountings
2.2. Generally Accepted Accounting Principles
DODD-FRANK WALL STREET REFROM AND CONSUMER PROTECTION ACT 2009
Congress passed the Dodd-Frank Act to further
- Promote accountability and transparency in financial system
- Put an end to the notion of “too big to fail”
- Protect tax payer, ending bailout.
- Protect consumers from abusive financial services

Exemption Independence Whistleblower

- Exempt small public
entities from the burden of
Section 404(b) of SOX
Source: Congress 2008
- Independence of compensation When sanction > $1mil ->
committee pay whistleblowers 10%-
- Policies for claw back of excessive 30%
compensation in the case of
accounting restatement
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A1 3. Transaction Analysis & The Accounting Equation

3.1. Elements of Accounting Equation

Accounting Equation

Assets = Liabilities + Equity

- Liability comes before equity due to….

E1-8 28
A1 3. Transaction Analysis & The Accounting Equation

3.1. Elements of Accounting Equation

ASSETS
Cash
Accounts Notes
Receivable (*) Receivable

- Resources owned or
controlled by a company
Vehicles Land
- Expected to use future
benefits

Store
Supplies Buildings
Equipment

(*) Receivable refers to an asset promising future income

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A1 3. Transaction Analysis & The Accounting Equation

3.1. Elements of Accounting Equation

LIABILITIES
Accounts Notes
Payable Payable

- Creditors’ claims on assets

- Obligation to provide assets,
services to others.

Taxes Wages
Payable Payable

(*) Payable refers to an asset promising future income 30

A1 3. Transaction Analysis & The Accounting Equation

3.1. Elements of Accounting Equation

EQUITY

Owner’s
Claims on
Assets

- Equal to Assets Minus Liabilities (Net Assets)

- Equity increases from owners’ contribution
and revenue (profit)

QS1-14 31
A1
3. Transaction Analysis & The Accounting Equation

3.1. Elements of Accounting Equation

Expanded Accounting Equation

Assets
Assets = Liabilities
Liabilities + Equity
Equity

Owner Capital _ Owner

+ Revenues
_ Expenses
Withdrawals

Owner's Equity
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A2 3. Transaction Analysis & The Accounting Equation

3.1. Elements of Accounting Equation

REMEMBER: The accounting equation MUST

remain in balance after each transaction.

Assets = Liabilities + Equity

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A2 2. Transactions via Accounting Equation

Transaction 1: Investment by owner

Chuck Taylor invests $30,000 cash to start a consulting business, Fast Forward. Taylor owns
and manages the business.

Assets = Liabilities + Equity

Assets = Liabilities + Equity
Accounts C. Taylor
Cash Supplies Equipment Payable Notes Payable Capital
(1) + $30,000 + $30,000

$ 30,000 $ - $ - $ - $ - $ 30,000

$ 30,000 = $ 30,000

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A2 2. Transactions via Accounting Equation

Transaction 2: Purchase Supplies in Cash

Chuck Taylor purchased supplies paying $2,500 cash.

Assets = Liabilities + Equity

Assets = Liabilities + Equity

Accounts C. Taylor
Cash Supplies Equipment Payable Notes Payable Capital
(1) $ 30,000 $ 30,000
(2) ($2,500) +$2,500

$ 27,500 $ 2,500 $ - $ - $ - $ 30,000

$ 30,000 = $ 30,000
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A2 2. Transactions via Accounting Equation

Transaction 3: Purchase Equipment for Cash

Chuck Taylor purchased equipment for $26,000 cash.

Assets = Liabilities + Equity

Assets = Liabilities + Equity

Accounts Notes C. Taylor
Cash Supplies Equipment Payable Payable Capital
(1) $30,000 $30,000
(2) ($2,500) $2,500
(3) ($26,000) $26,000

$1,500 $2,500 $26,000 $ - $ - $30,000

$30,000 = $30,000
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A2 2. Transactions via Accounting Equation
Transaction 4: Purchase Supplies on Credit
Chuck Taylor purchased supplies of $7,100 and on credit.

Assets = Liabilities + Equity

Assets = Liabilities + Equity

Accounts C. Taylor
Cash Supplies Equipment Payable Notes Payable Capital
(1) $30,000 $30,000
(2) ($2,500) $2,500
(3) ($26,000) $26,000
(4) +$7,100 +$7,100

$1,500 $ 9,600 $ 26,000 $7,100 $ - $30,000

$ 37,100 = $ 37,100
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A2 2. Transactions via Accounting Equation

Transaction 5: Provide Service for Cash

Chuck Taylor provided consulting services receiving $4,200 cash.

Assets = Liabilities + Equity

Assets = Liabilities + Equity

Equipmen Accounts Notes C. Taylor
Cash Supplies t Payable Payable Capital Revenue
(1) $30,000 $ 30,000
(2) ($2,500) $2,500
(3) ($26,000) $26,000
(4) $7,100 $7,100

(5) +$4,200 + $4,200

$5,700 $9,600 $26,000 $7,100 $- $30,000 $4,200

$ 41,300 = $ 41,300
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P2 3. Prepare Financial Statement

Let’s prepare the Financial Statements reflecting

the transactions we have recorded.

1. Income Statement
2. Statement of Owner’s Equity
3. Balance Sheet
4. Statement of Cash Flows

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P2 3. Prepare Financial Statement

INCOME STATEMENT
FastForward
Income Statement
For Month Ended December 31, 2009
Revenues: Net income is the
Consulting revenue $ 5,800
Rental revenue 300
difference between
Total revenues $ 6,100 Revenues and Expenses.
Expenses:
Rent expense 1,000
Salaries expense 700
Total expenses 1,700
Net income $ 4,400

The 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.
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P2 3. Prepare Financial Statement
STATEMENT OF OWNER’S EQUITY
FastForward
Income Statement
For Month Ended December 31, 2009
Revenues:
- SOEs explains changes in equity
Consulting revenue $ 5,800 from net income (or loss) and from any
Rental revenue 300
Total revenues $ 6,100 owner investments and withdrawals
Expenses: over a period of time.
Rent expense 1,000
Salaries expense 700
Total expenses 1,700
Net income $ 4,400 FastForward
Statement of Owner's Equity
For Month Ended December 31, 2009
C, Taylor, Capital December 1, 2009 $ -
-The net income of $4,400 Plus: Investment by ower $ 30,000
increases Owner's Equity Net income 4,400
34,400
by $4,400. Less: Withdrawals by owner 200
C. Taylor, Capital, December 31, 2009 $ 34,200
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P1 3. Prepare Financial Statement

BALANCE SHEET
The Balance Sheet describes a company’s financial position
at a point of time.

FastForward
Balance Sheet
December 31, 2009

Assets Liabilities & Equity

Cash $ 4,800 Accounts payable $ 6,200
Supplies 9,600 Total liabilities 6,200
Equipment 26,000 Equity
C. Taylor, Capital 34,200
Total assets $ 40,400 Total liabilities and equity $ 40,400

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P1 3. Prepare Financial Statement
FastForward
Statement of Cash Flows
For Month Ended December 31, 2009

Cash flows from operating activities:

STATEMENT Cash received from clients $ 6,100
Cash paid for supplies (3,400)
OF CASH Cash paid for rent (1,000)
FLOWS Cash paid to employees
Net cash provided by operating activities
(700)
$ 1,000
Cash flows from investing activities:
Purchase of equipment (26,000)
Net cash used in investing activities (26,000)
Cash flows from financing activities:
Investment by owner 30,000
Withdrawal by owner (200)
Net cash provided by financing activities 29,800
Net increase in cash $ 4,800
Cash balance, December 1, 2009 -
QS1-12 Cash balance, December 31, 2009 $ 4,800
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C6 4. Business Activities & Accounting Equation

Investing Activities Financing Activities – Provide

- Acquiring and disposing of the means organizations use to
resources (assets) that an pay for resources such as land,
organization uses to acquire and buildings, and equipment to
sell its products or services. carry out plans.

Operating Activities – Involve using

resources to research, develop, and
purchase, produce, distribute, and market
products and services.
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A3

A4 5. Return And Risk Analysis

Return On Assets (ROA) is stated in ratio form as income
divided by assets invested.

Risk is the uncertainty about the return we will earn.

Return on Assets
𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 30 Year Bonds
𝑅𝑂𝐴 =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑖𝑛𝑣𝑒𝑠𝑡𝑒𝑑 𝑎𝑠𝑠𝑒𝑡𝑠 High-risk corporate 7.80%

Medium-risk corporate 6.90%

Low-risk corporate 5.80%

U.S. Treasury 5.10%

0.00% 2.00% 4.00% 6.00% 8.00%10.00%

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Homework

HOMEWORK:
E1-8; E1-12; QS1-12; QS1-11; QS1-14
QS1-6; QS1-10; E1-3; E1-6; E1-9; E1-11; E1-14
P1-2A; P1-8A (Wild 22nd ed)

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