Professional Documents
Culture Documents
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Content
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Part 1: English for
Financial Accounting
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1.1 DEFINITION AND ROLE OF ACCOUNTING
1.1.1 What is accounting
1.1.2 Role of accounting
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1.1.1. DEFINITION
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1.1 DEFINITION AND ROLE OF ACCOUNTING
1.1.1What is Accounting?
Three Activities
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1.1.2 The role of accounting
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1.1 DEFINITION AND ROLE OF ACCOUNTING
1.1.2 The role of accounting
Internal Users
Management SEC
Human Investors
Resources There are two broad
groups of users of Labor
financial information: Unions
Finance
internal users and
external users.
Creditors
Marketing
Supplier
Customers External
Users
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1.1.2 The role of accounting
Internal
Users
Illustration 1-1
Questions that internal
users ask
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1.1.2 The role of accounting
External
Users
Illustration 1-2
Questions that external
users ask
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1.2 CONCEPTUAL FRAMEWORK FOR
FINANCIAL REPORTING
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ILLUSTRATION 2-7
Conceptual Framework for
Financial Reporting
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1.2 CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING
1.2.1 Objective of Financial Accounting
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1.2 CONCEPTUAL FRAMEWORK
1.2.2. Elements of Financial Statements
Assets
Probable future economic benefits obtained or
controlled by a particular entity as result of past
transactions or events
LO 2 Conceptual Framework.
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1.2 CONCEPTUAL FRAMEWORK
1.2.2. Elements of Financial Statements
Liabilities
Probable future sacrifices of economic benefits
arising from present obligations of a particular
entity to transfer assets or provide services to
other entities in the future as a result of past
transactions or events
LO 2 Conceptual Framework.
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1.2 CONCEPTUAL FRAMEWORK
1.2.2. Elements of Financial Statements
Equity
Residual interest in the assets of an entity that
remains after deducting its liabilities.
LO 2 Conceptual Framework.
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1.2 CONCEPTUAL FRAMEWORK
1.2.2. Elements of Financial Statements
Investments by owners
LO 2 Conceptual Framework.
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1.2 CONCEPTUAL FRAMEWORK
1.2.2. Elements of Financial Statements
Distributions to owners
A distribution to owners is a
payment of the retained earnings of a
business to its owners
LO 2 Conceptual Framework.
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1.2 CONCEPTUAL FRAMEWORK
1.2.2. Elements of Financial Statements
Comprehensive Income
LO 2 Conceptual Framework.
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1.2 CONCEPTUAL FRAMEWORK
1.2.2. Elements of Financial Statements
Revenues
LO 2 Conceptual Framework.
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1.2 CONCEPTUAL FRAMEWORK
1.2.2. Elements of Financial Statements
Expenses
Outflows or other using up of assets or
incurrences of liabilities during a period from
delivering or producing goods.
LO 2 Conceptual Framework.
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1.2 CONCEPTUAL FRAMEWORK
1.2.3. Qualitative characteristics of accounting information
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1.2 CONCEPTUAL FRAMEWORK
1.2.3. Qualitative characteristics of accounting information
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1.2.3. Qualitative characteristics of accounting information
Fundamental Quality—Relevance
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1.2.3. Qualitative characteristics of accounting information
Fundamental Quality—Relevance
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1.2.3. Qualitative characteristics of accounting information
Fundamental Quality—Faithful Representation
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1.2.3. Qualitative characteristics of accounting information
Enhancing Qualities
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1.2 CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING
1.2.4 Recognition, measurement and disclosure concepts
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1.2 CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING
1.2.4 Recognition, measurement and disclosure concepts
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1.2 CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING
1.2.4 Recognition, measurement and disclosure concepts
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1.2 CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING
1.2.4 Recognition, measurement and disclosure concepts
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1.2 CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING
1.2.4 Recognition, measurement and disclosure concepts
Revenue Recognition
Requires that companies recognize
revenue in the accounting period in
which the performance obligation is
satisfied.
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Revenue
Recognition
Principle
Illustration: Assume
the Boeing
Corporation signs a
contract to sell airplanes
to Delta Air Lines for
$100 million. To
determine when to
recognize revenue,
use the five steps for
revenue recognition
shown at right.
ILLUSTRATION 2-5
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1.2 CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING
1.2.4 Recognition, measurement and disclosure concepts
Expense Recognition
“Let the expense follow the revenues.”
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1.2 CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING
1.2.4 Recognition, measurement and disclosure concepts
Full disclosure
Requires that
companies disclose
all circumstances
and events that
would make a
difference to
financial statement
users.
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1.2 CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING
1.2.4 Recognition, measurement and disclosure concepts
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1.2 CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING
1.2.4 Recognition, measurement and disclosure concepts
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1.3 Accounting Equation, the account and recording
process
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1.3 Accounting Equation, the account and recording process
1.3.1 Accounting equation
Owner’s
Assets = Liabilities + Equity
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1.3 Accounting Equation, the account and recording process
1.3.1 Accounting equation
Assets
Resources a business owns.
Provide future services or benefits.
Cash, Supplies, Equipment, etc.
Owner’s
Assets = Liabilities + Equity
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1.3 Accounting Equation, the account and recording process
1.3.1 Accounting equation
Liabilities
Claims against assets (debts and obligations).
Creditors - party to whom money is owed.
Accounts payable, Notes payable, etc.
Owner’s
Assets = Liabilities + Equity
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1.3 Accounting Equation, the account and recording process
1.3.1 Accounting equation
Owner’s Equity
Ownership claim on total assets.
Referred to as residual equity.
Investment by owners and revenues (+)
Drawings and expenses (-).
Owner’s
Assets = Liabilities + Equity
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1.3 Accounting Equation, the account and recording process
1.3.1 Accounting equation
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1.3 Accounting Equation, the account and recording process
1.3.1 Accounting equation
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1.3 Accounting Equation, the account and recording process
1.3.2 The account
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1.3 Accounting Equation, the account and recording process
1.3.2 The account
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1.3 Accounting Equation, the account and recording process
1.3.2 The account
Account Name
Debit / Dr. Credit / Cr.
Balance $15,000
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1.3 Accounting Equation, the account and recording process
1.3.2 The account
Account Name
Debit / Dr. Credit / Cr.
Balance $1,000
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1.3 Accounting Equation, the account and recording process
1.3.2 The account
Normal Balance
Chapter
3-24
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1.3 Accounting Equation, the account and recording process
1.3.2 The account
Chapter Chapter
3-25 3-23
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1.3 Accounting Equation, the account and recording process
1.3.2 The account
Normal Balance
Chapter
3-27
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1.3 Accounting Equation, the account and recording process
1.3.2 The recording process
Illustration 3-17
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1.3 Accounting equation, the account and the recording process
1.3.3 The recording process
General Journal
Date Account Title Ref. Debit Credit
Oct. 1 Cash 10,000
Common stock 10,000
1-55 LO 5 Explain what a journal is and how it helps in the recording process.
1.3 Accounting equation, the account and the recording process
1.3.3 The recording process
General Journal
Date Account Title Ref. Debit Credit
Oct. 1 Cash 5,000
Notes payable 5,000
1-56 LO 5 Explain what a journal is and how it helps in the recording process.
1.3 Accounting equation, the account and the recording process
1.3.3 The recording process
General Journal
Date Account Title Ref. Debit Credit
Oct. 2 Equipment 5,000
Cash 5,000
1-57 LO 5 Explain what a journal is and how it helps in the recording process.
1.3 Accounting equation, the account and the recording process
1.3.3 The recording process
The Ledger
General Ledger contains the entire group of accounts
maintained by a company.
General Journal J1
Date Account Title Ref. Debit Credit
Oct. 1 Cash 101 10,000
Common stock 10,000
General Ledger
Cash Acct. No. 101
Date Explanation Ref. Debit Credit Balance
Oct. 1 Stock issued J1 10,000 10,000
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1.4 Accounting Cycle
Illustration 4-33
1. Analyze business transactions Required steps in the
accounting cycle
Trial Balance –
Each account is
analyzed to
determine whether
it is complete and
up-to-date.
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1.4 Accounting Cycle
1.4.1 Trial Balance
1. Prepare a Trial Balance on the Worksheet
Adjusted Income
Trial Balance Adjustments Trial Balance Statement Balance Sheet
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 15,200
Supplies 2,500
Prepaid Insurance 600
Equipment 5,000
Notes Payable 5,000
Accounts Payable 2,500
Unearned Service Revenue 1,200
Common Stock 10,000
Dividends 500
Service Revenue 10,000
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1.4 Accounting Cycle
1.4.2 Adjusting entries
2. Enter the Adjustments in the Adjustments Columns
Adjusted Income
Trial Balance Adjustments Trial Balance Statement Balance Sheet
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 15,200
Supplies 2,500 (a) 1,500
Prepaid Insurance 600 (b) 50
Equipment 5,000
Adjustments Key:
Notes Payable 5,000 (a) Supplies Used.
Accounts Payable 2,500
Unearned Service Revenue 1,200 (d) 400 (b) Insurance Expired.
Common Stock 10,000
(c) Depreciation Expensed.
Dividends 500
Service Revenue 10,000 (d) 400 (d) Service Revenue Earned.
(e) 200
Salaries & Wages Exp. 4,000 (g) 1,200
(e) Service Revenue Accrued.
Rent Expense 900 (f) Interest Accrued.
Totals 28,700 28,700
Supplies Expense (a) 1,500 (g) Salaries Accrued.
Insurance Expense (b) 50
Accumulated Depreciation (c) 40
Depreciation Expense (c) 40
(e)
Accounts Receivable 200 Enter adjustment amounts, total
(f)
Interest Expense 50
Interest Payable (f) 50 adjustments columns,
(g)
Salaries and Wages Payable 1,200 and check for equality.
Totals 3,440 3,440
Supplies Adjustment
Sierra purchased supplies costing Dr Supplies Expense:
$2,500. This account shows a
balance of $2,500 in the October 31 1,500
trial balance.
Cr Supplies: 1,500
An inventory count at the close of
business on October 31 reveals
that $1,000 of supplies are still on
hand. Thus, the cost of supplies
used is $1,500 ($2,500 − $1,000).
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Adjusting entries
Unearned
Prepaid
Depreciation Service
Insurance
Revenue
Dr Insurance Dr Depreciation Expense: 40 Dr Unearned Service
Expense: 50 Revenue: 400
Cr Accumulated Depreciation: 40
Cr Prepaid Cr Service Revenue: 400
Insurance: 50
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Ajusting entries
Dr Interest Expense: 50
Interest Cr Interest payable: 50
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1.4 Accounting Cycle
1.4.2 Adjusting entries
3. Complete the Adjusted Trial Balance Columns
Adjusted Income
Trial Balance Adjustments Trial Balance Statement Balance Sheet
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 15,200 15,200
Supplies 2,500 (a) 1,500 1,000
Prepaid Insurance 600 (b) 50 550
Equipment 5,000 5,000
Notes Payable 5,000 5,000
Accounts Payable 2,500 2,500
Unearned Service Revenue 1,200 (d) 400 800
Common Stock 10,000 10,000
Dividends 500 500
Service Revenue 10,000 (d) 400 10,600
(e) 200
Salaries & Wages Exp. 4,000 (g) 1,200 5,200
Rent Expense 900 900
Totals 28,700 28,700
Supplies Expense (a) 1,500 1,500
Insurance Expense (b) 50 50
Accumulated Depreciation (c) 40 40
Depreciation Expense (c) 40 40
(e)
Accounts Receivable 200 200
(f)
Interest Expense 50 50
Interest Payable (f) 50 50
(g)
Salaries and Wages Payable 1,200 1,200
Totals 3,440 3,440 30,190 30,190
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TYPES OF FINANCIAL INFORMATION
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1.5 FINANCIAL STATEMENTS
Owner’s
Statement
Income Equity Balance
of Cash
Statement Statement Sheet
Flows
(Retained
earning
Stm)
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1.5 FINANCIAL STATEMENTS
1.5.1 Income statement
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1.5 FINANCIAL STATEMENTS
1.5.1 Income statement
Income
Statement
Presentation
of Sales
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1.5 FINANCIAL STATEMENTS
1.5.1 Income statement
Operating
Expenses
Key Items:
Net sales
Gross profit
Operating
expenses
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1.5 FINANCIAL
STATEMENTS
1.5.1 Income
statement
Key Items:
Net sales
Gross profit
Operating
expenses
Non-
operating
activities
Net income
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1.5 FINANCIAL
STATEMENTS
1.5.1 Income
statement
Key Items:
Net sales
Gross profit
Operating
expenses
Non-
operating
activities
Net income
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1.5 FINANCIAL STATEMENTS
1.5.1 Income statement
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1.5 FINANCIAL STATEMENTS
1.5.1 Income statement
Helpful Hint The financial statement heading identifies the company, the type of
statement, and the time period covered. Sometimes, another line indicates the unit of
1-80 measure, e.g., “in thousands” or “in millions.” LO 4
1.5 FINANCIAL STATEMENTS Net income is needed to determine
1.5.2 Statement of Owner’s equity the ending balance in owner’s
equity.
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1.5 FINANCIAL STATEMENTS
1.5.2 Retained Earnings Statement
Retained Earnings
Income Statement Statement
Illustration 1-4 Illustration 1-5
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1.5 FINANCIAL STATEMENTS
1.5.2 Retained Earnings Statement
Retained Earnings
Statement shows amounts and
Statement
Illustration 1-5
causes of changes in retained
earnings during the period.
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1.5 FINANCIAL STATEMENTS
1.5.3 Balance Sheet
Balance Sheet Retained Earnings
Illustration 1-7 Statement
Illustration 1-5
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1.5 FINANCIAL STATEMENTS
1.5.3 Balance Sheet
Balance Sheet Reports assets and claims
Illustration 1-7
to assets at a specific
point in time.
Assets = Liabilities +
Stockholders’ Equity.
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1.5 FINANCIAL STATEMENTS
1.5.4 Statement of Cashflow
Balance Sheet Statement of Cash Flows
Illustration 1-7 Illustration 1-8
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1.5 FINANCIAL STATEMENTS
1.5.4 Statement of Cashflow
Helpful Hint The heading identifies the company, the type of statement, and the time
1-87 period covered by the statement. Negative numbers are shown in parentheses.
1.5 FINANCIAL STATEMENTS
1.5.5 Notes to the Financial Statements
Accounting Policies
Companies should present a statement identifying the
accounting policies adopted and followed.
► first note or
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1.5 FINANCIAL STATEMENTS
1.5.5 Notes to the Financial Statements
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