Professional Documents
Culture Documents
Lecture 01 - Introduction To Accounting
Lecture 01 - Introduction To Accounting
School of Business
FINANCIAL ACCOUNTING
Sem 1 (2019-2020)
Lecturer: Mr. Vu Tuan Anh, CMA, MSA
Email: anhtv@hcmiu.edu.vn (preferred)
Tutor: TBA
COURSE REGULATIONS
1-3
LECTURE
1 Accounting in Action
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1 Explain what accounting is.
2 Identify the users and uses of accounting.
3 Understand why ethics is a fundamental business concept.
4 Explain accounting standards and measurement principles.
5 Explain the monetary unit assumption and the economic entity
assumption.
6 State the accounting equation, and define its components.
7 Analyze the effects of business transactions on the accounting equation.
8 Understand the five financial statements and how they are prepared.
1-4
What is Accounting?
Learning
Accounting consists of three basic Objective 1
Explain what
activities—it accounting is.
identifies,
records, and
communicates
1-5 LO 1
Three Activities
Illustration 1-1
The activities of the accounting process
1-6 LO 1
Who Uses Accounting Data?
INTERNAL
USERS
Illustration 1-2
Questions that internal
users ask
1-7 LO 1
Who Uses Accounting Data?
Learning
Objective 2
EXTERNAL Identify the
USERS users and uses
of accounting.
Illustration 1-3
Questions that external users ask
1-8 LO 2
The Building Blocks of Accounting
Learning
Ethics in Financial Reporting Objective 3
Understand why
ethics is a
Standards of conduct by which one’s actions fundamental
are judged as right or wrong, honest or business
concept.
dishonest, fair or not fair, are ethics.
1-9 LO 3
Accounting Standards
Learning
Objective 4
International Accounting Standards Board Explain accounting
standards and the
(IASB) http://www.iasb.org/ measurement
principles.
International Financial
Reporting Standards
1-10 LO 4
Measurement Principles
1-11 LO 4
Assumptions
Learning
MONETARY UNIT ASSUMPTION Objective 5
Explain the
requires that companies include in the monetary unit
assumption and
accounting records only transaction data that the economic
entity assumption.
can be expressed in terms of money.
1-13 LO 5
The Basic Accounting Equation
Learning
Basic Accounting Equation Objective 6
State the
accounting
Provides the underlying framework for equation, and
define its
recording and summarizing economic components.
events.
1-14 LO 6
Basic Accounting Equation
Assets
Resources a business owns.
1-15 LO 6
Basic Accounting Equation
Liabilities
Claims against assets (debts and obligations).
1-16 LO 6
Basic Accounting Equation
Equity
Ownership claim on total assets.
1-17 LO 6
Equity Illustration 1-7
Increases and
decreases in equity
1-18 LO 6
Stockholders’ Equity Illustration 1-7
Increases and
decreases in equity
1-19 LO 6
Stockholders’ Equity Illustration 1-7
Increases and
decreases in equity
1-20 LO 6
Stockholders’ Equity Illustration 1-7
Increases and
decreases in equity
1-21 LO 6
The Basic Accounting Equation
Learning
Transactions are a business’s economic Objective 7
Analyze the
events recorded by accountants. effects of
business
May be external or internal. transactions on
the accounting
equation.
Not all activities represent transactions.
1-22 LO 7
Transaction Analysis
Record/
Don’t Record
Illustration 1-8
Transaction-identification
process
1-23 LO 7
Transaction Analysis
Illustration 1-9
Expanded accounting equation
1-24 LO 7
Transaction Analysis
TRANSACTION 1. INVESTMENT BY STOCKHOLDERS Ray and Barbara
Neal decide to start a smartphone app development company that they
incorporate as Softbyte SA. On September 1, 2017, they invest €15,000
cash in the business in exchange for €15,000 of ordinary shares. The
ordinary shares indicates the ownership interest that the Neals have in
Softbyte SA. This transaction results in an equal increase in both assets
and equity.
Illustration 1-10
1. +15,000 +15,000
1-25 LO 7
TRANSACTION 2. PURCHASE OF EQUIPMENT FOR CASH Softbyte SA
purchases computer equipment for €7,000 cash.
Illustration 1-10
1. +15,000 +15,000
2. -7,000 +7,000
3. +1,600 +1,600
4. +1,200 +1,200
5. +250 -250
6. +1,500 +2,000 +3,500
7. -1,700 -600
-900
-200
8. -250 -250
9. +600 -600
10. -1,300 -1,300
$8,050 + $1,400 + $1,600 + $7,000 = $1,600 + $15,000 + $4,700 - $1,950 - $1,300
1-26 LO 7
TRANSACTION 3. PURCHASE OF SUPPLIES ON CREDIT Softbyte SA
purchases for €1,600 headsets and other accessories expected to last
several months. The supplier allows Softbyte to pay this bill in October.
Illustration 1-10 Assets = Liabilities + Equity
Trans- Accounts Accounts Share Retained Earnings
Cash + + Supplies + Equipment = + +
action Receivable Payable Capital Rev. – Exp. – Div.
1. +15,000 +15,000
2. -7,000 +7,000
3. +1,600 +1,600
4. +1,200 +1,200
5. +250 -250
6. +1,500 +2,000 +3,500
7. -1,700 -600
-900
-200
8. -250 -250
9. +600 -600
10. -1,300 -1,300
$8,050 + $1,400 + $1,600 + $7,000 = $1,600 + $15,000 + $4,700 - $1,950 - $1,300
1-27 LO 7
TRANSACTION 4. SERVICES PERFORMED FOR CASH Softbyte SA
receives €1,200 cash from customers for app development services it has
performed. Illustration 1-10
1. +15,000 +15,000
2. -7,000 +7,000
3. +1,600 +1,600
4. +1,200 +1,200
5. +250 -250
6. +1,500 +2,000 +3,500
7. -1,700 -600
-900
-200
8. -250 -250
9. +600 -600
10. -1,300 -1,300
$8,050 + $1,400 + $1,600 + $7,000 = $1,600 + $15,000 + $4,700 - $1,950 - $1,300
1-28 LO 7
TRANSACTION 5. PURCHASE OF ADVERTISING ON CREDIT Softbyte
SA receives a bill for €250 from the Programming News for advertising on
its website but postpones payment until a later date. Illustration 1-10
1. +15,000 +15,000
2. -7,000 +7,000
3. +1,600 +1,600
4. +1,200 +1,200
5. +250 -250
6. +1,500 +2,000 +3,500
7. -1,700 -600
-900
-200
8. -250 -250
9. +600 -600
10. -1,300 -1,300
$8,050 + $1,400 + $1,600 + $7,000 = $1,600 + $15,000 + $4,700 - $1,950 - $1,300
1-29 LO 7
TRANSACTION 6. SERVICES PROVIDED FOR CASH AND CREDIT.
Softbyte provides €3,500 of services. The company receives cash of
€1,500 from customers, and it bills the balance of €2,000 on account.
Illustration 1-10 Assets = Liabilities + Equity
Trans- Accounts Accounts Share Retained Earnings
Cash + + Supplies + Equipment = + +
action Receivable Payable Capital Rev. – Exp. – Div.
1. +15,000 +15,000
2. -7,000 +7,000
3. +1,600 +1,600
4. +1,200 +1,200
5. +250 -250
6. +1,500 +2,000 +3,500
7. -1,700 -600
-900
-200
8. -250 -250
9. +600 -600
10. -1,300 -1,300
$8,050 + $1,400 + $1,600 + $7,000 = $1,600 + $15,000 + $4,700 - $1,950 - $1,300
1-30 LO 7
TRANSACTION 7. PAYMENT OF EXPENSES Softbyte SA pays the
following expenses in cash for September: office rent €600, salaries and
wages of employees €900, and utilities €200. Illustration 1-10
1. +15,000 +15,000
2. -7,000 +7,000
3. +1,600 +1,600
4. +1,200 +1,200
5. +250 -250
6. +1,500 +2,000 +3,500
7. -1,700 -600
-900
-200
8. -250 -250
9. +600 -600
10. -1,300 -1,300
$8,050 + $1,400 + $1,600 + $7,000 = $1,600 + $15,000 + $4,700 - $1,950 - $1,300
1-31 LO 7
TRANSACTION 8. PAYMENT OF ACCOUNTS PAYABLE Softbyte SA
pays its €250 Programming News bill in cash. The company previously (in
Transaction 5) recorded the bill as an increase in Accounts Payable.
Illustration 1-10 Assets = Liabilities + Equity
Trans- Accounts Accounts Share Retained Earnings
Cash + + Supplies + Equipment = + +
action Receivable Payable Capital Rev. – Exp. – Div.
1. +15,000 +15,000
2. -7,000 +7,000
3. +1,600 +1,600
4. +1,200 +1,200
5. +250 -250
6. +1,500 +2,000 +3,500
7. -1,700 -600
-900
-200
8. -250 -250
9. +600 -600
10. -1,300 -1,300
$8,050 + $1,400 + $1,600 + $7,000 = $1,600 + $15,000 + $4,700 - $1,950 - $1,300
1-32 LO 7
TRANSACTION 9. RECEIPT OF CASH ON ACCOUNT Softbyte SA
receives €600 in cash from customers who had been billed for services
(in Transaction 6). Illustration 1-10
1. +15,000 +15,000
2. -7,000 +7,000
3. +1,600 +1,600
4. +1,200 +1,200
5. +250 -250
6. +1,500 +2,000 +3,500
7. -1,700 -600
-900
-200
8. -250 -250
9. +600 -600
10. -1,300 -1,300
$8,050 + $1,400 + $1,600 + $7,000 = $1,600 + $15,000 + $4,700 - $1,950 - $1,300
1-33 LO 7
TRANSACTION 10. DIVIDENDS The corporation pays a dividend of
€1,300 in cash to Ray and Barbara Neal, the shareholders of Softbyte SA.
Illustration 1-10
Assets = Liabilities + Equity
Trans- Accounts Accounts Share Retained Earnings
Cash + + Supplies + Equipment = + +
action Receivable Payable Capital Rev. – Exp. – Div.
1. +15,000 +15,000
2. -7,000 +7,000
3. +1,600 +1,600
4. +1,200 +1,200
5. +250 -250
6. +1,500 +2,000 +3,500
7. -1,700 -600
-900
-200
8. -250 -250
9. +600 -600
10. -1,300 -1,300
€8,050 + €1,400 + €1,600 + €7,000 = €1,600 + €15,000 + €4,700 - €1,950 - €1,300
1-35 LO 7
The Basic Accounting Equation
Learning
Companies prepare five financial Objective 8
Understand
statements : the five
financial
statements
and how they
Retained Statement are prepared.
Income
Earnings of Financial
Statement
Statement Position
Statement Comprehensive
of Cash Income
Flows Statement
1-36 LO 8
Illustration 1-10
Financial statements and
their interrelationships
Illustration 1-11
1-37
Financial statements and their interrelationships
LO 8
1-38 LO 8
Illustration 1-11
Balance sheet and
income statement
are needed to
prepare statement of
cash flows.
Illustration 1-11
Financial statements
and their
interrelationships
1-39
LO 8
Income Statement
1-40 LO 8
Retained Earnings Statement
1-41 LO 8
Statement of Financial Position
1-42 LO 8
Statement of Cash Flows
cash balance?
1-43 LO 8
Comprehensive Income Statement
1-44 LO 8
APPENDIX 1A Accounting Career Opportunities
Learning
Public Accounting Objective 9
Explain the career
Careers in auditing, taxation, and
opportunities in
management consulting serving accounting.
the general public.
Private Accounting
Governmental Accounting Careers in industry working in
Careers with the tax authorities, cost accounting, budgeting,
law enforcement agencies, and accounting information systems,
corporate regulators. and taxation.
Forensic Accounting
Uses accounting, auditing, and investigative skills to conduct
investigations into theft and fraud.
1-45 LO 9