• Please scan the QR code.

© 2019 Singapore University of Social

Sciences. All rights reserved.
 Study Unit 1
The Principles of Accounting

© 2020 Singapore University of Social Sciences. All rights reserved.

 Introduction
Dr. Grace Il Joo Kang
gracekangij@suss.edu.sg
EDUCATION
Ph.D. in Accounting, Korea University Business School
Master of Science in Accounting, Korea University Business School
B.A. in Economics (Double major in English Literature), Ewha Womans University
Exchange Student in Martin Luther University Halle-Wittenberg, Germany

WORK EXPERIENCE
Lecturer, Singapore University of Social Sciences
Equity Analyst, Shinyoung Securities Research Center, Seoul
Instructor, Sejong University Graduate School of Business (MBA), Seoul
Internship in Halle Institute for Economic Research (IWH), Germany

PROFESSIONAL QUALIFICATIONS
U.S. CPA (MAINE) candidate
American Accounting Association Membership, U.S.A.
Certified Securities Investment Consultant

RESEARCH INTERESTS
Empirical research in financial accounting and reporting issues, Sell-side analysts’
information, International Financial Reporting Standards (IFRS)
 • Assessment Description (Check the Cut-Off date and time in Canvas)

© 2019 Singapore University of Social Sciences. All rights reserved.

 • 1. Canvas announcement-assessment due date
• 2. GBA grouping-4 students

– Tool for checking

a) All assignments and coursework by students have to be
submitted to Turnitin for plagiarism detection. No
hardcopy submission will be accepted. Tutors will not
mark your work if it is not submit via “Turnitin”
b) Referencing – acknowledgement of works or ideas taken
from internet, textbooks, articles, or any sources. Please
use the referencing appropriately.
–Please refer to the Student Handbook for further detail.

© 2019 Singapore University of Social

Sciences. All rights reserved.
 • How to prepare seminar:
– Mini lecture / TurningPoint
– Discussion & Presentation (Activity Qs)
• 1) Before the seminar-ppt file, video, activity, exercise. (T
group-Modules)
• 2) Class Participation (marked Individually)
– Answer the questions/ comments/ share opinion/ Q&A
(30%)
– Presentation (30%)
– TurningPoint (30%)
– Attendance (10%)

© 2019 Singapore University of Social

Sciences. All rights reserved.
 Course Outline
Session Topic
1 ANALYSING TANSACTIONS
 Principles of Accounting
 Ratios Analysis

2 INVENTORY, CASH AND RECEIVABLES

(Online)  Inventory (Perpetual system), Cash and Receivables
 Ratio analysis

3 LONG-TERM ASSET, LIABILITIES AND EQUITY

(Online)  Tangible Asset (Property, Plant and Equipment), Intangible Assets
 Liabilities, Equity transactions for Corporations
 Ratio analysis

4 STATEMENT OF CASH FLOW AND FINANCIAL STATEMENT ANALYSIS

 Cash Flow Reporting (Indirect Method)
 Horizontal, Vertical, and Ratio analysis

5 MANAGERIAL ACCOUNTING BASICS AND COST ALLOCATION

 Reporting Manufacturing Activities
 Cost Allocation (ABC)
 Allocating Costs for Performance Evaluation

6 COST VOLUME PROFIT ANALYSIS AND MASTER BUDGETS

 Cost Behaviour, Cost Volume Profit Analysis
 Budget Process (Master Budget Process)

© 2017 Singapore University of Social Sciences. All rights reserved.

 What is accounting?

• A system in which we measure and

record financial events, and process
that into information about an
organization to be communicated to
support decision making by
stakeholders.

Accounting Financial Managerial

Accounting Accounting

Users External Internal

(Estimate future earnings) (Budget)
Audited Yes No
Reporting
Time Past Future
Type of Financial, Financial,
information Nonfinancial Nonfinancial
This work is by The Pathways Commission and
is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.

© 2018 Singapore University of Social Sciences. All rights reserved.

 Why do we use accounting information?

• To estimate the firm value and make decision using the useful accounting information
– Lender (Banks, financial institutions): monitor the ability to repay the loan(principal) and interest
• Credit ratings agencies such Moody’s
– Owner(Shareholder): make a decision whether to buy the stocks in the market
• External Auditors-to protect the shareholders
– Regulatory body such as IRAS: Tax
– Managers (CEO, CFO, COO etc.) to make plan and budget

• Corporate governance mechanism

• Monitoring
– Insiders
• Compensation (stock option)
• Internal control system
– Audit committee, internal auditors, BOD, risk Mng.
– Outsiders
• Banks, Shareholders (Institutional or individual investors)
• Auditors, Analysts, Credit rating agencies

SH.

Monitoring
Mng.

© 2019 Singapore University of Social

Sciences. All rights reserved.
 Accounting equation

Asset = Liabilities + Equity

Resources (yield future benefits) owned by the business e.g.

Assets cash, accounts receivables, inventories, equipment, patent
etc
Obligations owed by the business e.g. accounts payables,
Liabilities notes payable, long term loan
Owners’ claim on the business’s assets. It could result from
Equity contributions/withdrawals from the owners or from the
profit made (i.e. revenue – expenses)

A Co.
Asset Liabilities (Non-owner: What it owes)
Long term borrowings

Equity (Owner's claim on assets)

Share Capital (the total amount of cash and other assets the corporation receives from its
shareholders in exchange for its shares. )

Retained Earnings (the cumulative net profit (and loss) not distributed as dividends to its
shareholders.
Profit=Rev.(sales of products to customers)-Exp(cost necessary to earn rev.))
10
 Accounting Equation

• Revenue – Expense = Net Income

• Assets = Liabilities + Equity

• Assets = Liabilities + Share Capital + Retained Earnings

• Assets = Liabilities + Share Capital + Beg. Retained Earnings +

(Revenue – Expense) - Dividend

© 2019 Singapore University of Social

Sciences. All rights reserved.
Rules of Debit and Credit
.

Journal entry
Dr Cash $24,000
Cr Share Capital $24,000
Journal Entry
Accounts and Explanation Debit Credit
Cash 24,000
Share capital 24,000
Issued ordinary shares
Posting to the Ledger
Cash
Share capital
24,000 24,000
Accounting is the information system that identifies,
records, and communicates the economic events of an
organisation to interested users

Accounting - The Language of Business

* Balance sheet – Statement of financial position
 Financial statements
A complete set of financial statements consists of the following:
• Statement of profit or loss and other comprehensive income
• Statement of financial position
• Statement of cash flows
• Statement of changes in equity
• Notes - the significant accounting policies used, and
other explanatory information that are required but not presented on the
financial statements

© 2018 Singapore University of Social

Sciences. All rights reserved.
16
Financial statements

FASTFOWARD FASTFOWARD
Income Statement Statement of Changes in Equity
For Month Ended December 31, 2015 For Month Ended December 31, 2015
Revenues C. Taylor, Capital, December 1, 2015 $0
Consulting revenue ($4,200 + $1,600) $5,800 Investments by owner 30,000
Rental revenue 300 Net profit 4,400 34,400
Total revenues $6,100 34,400
Expenses Withdrawals by owner (200)
Rent expense (1,000) C. Taylor, Capital, December 31, 2015 $34,200
Salaries expense (700)
Total expenses (1,700)
Net profit $4,400
FASTFOWARD
FASTFOWARD Statement of Cash Flows
Statement of Financial Position For Month Ended December 31, 2015
December 31, 2015 Cash flows from operating activities
Assets Cash received from clients ($4,200 + $1,900) $6,100
Cash $4,800 Cash paid for supplies ($2,500 + $900) (3,400)
Supllies 9,600 Cash paid for rent (1,000)
Equipment 26,000 Cash paid to employee (700)
Total assets $40,400 Net cash from operating activities $1,000
Cash flows from investing activities
Liabilities Purchase of equipment (26,000)
Accounts payable $6,200 Net cash from investing activities (26,000)
Equity Cash flows from financing activities
C. Taylor, Capital 34,200 Investment by owner 30,000
Total liabilities and equity $40,400 Withdrawal by owner (200)
Net cash from financing activities 29,800
Net increase in cash $4,800
Cash balance, December 1, 2015 0
Cash balance, December 31, 2015 $4,800
 Activity Question 1

© 2019 Singapore University of Social

Sciences. All rights reserved.
1) 1st April Received cash and issued shares
2) 3rd April Bought worth of office supplies on account
3) 5th April Received cash from customers for service
revenue earned
4) 6th April Performed services for customers on account,
5) 11th April Paid on the accounts payable created in
Transaction (2)
6) 23rd April Received from customer on account
7) 28th April Paid salary expense of
Required:
1. Prepare the journal entry for all the transactions with explanation.
2. Post it to the ledger using the accounting equation.
3. Prepare the income statement and balance sheet.
(1) 1st April Dr Cash $25,000
Cr Share capital $25,000
To record issuance of shares

(2) 3rd AprilDr Office supplies $400

Cr Accounts payable $400
To record purchase of office supplies on account
(3) 5th April Dr Cash $5,000
Cr Service revenue $5,000
To record performed service for cash

(4) 6th April Dr Accounts receivable $1,000

Cr Service revenue $1,000
To record performed service on account

(5) 11th April Dr Accounts payable $200

Cr Cash $200
To record payment of cash on account
(6) 23th April Dr Cash $1,000
Cr Accounts receivable $1000
To record collection of cash on account

(7) 28th April Dr Salary expense $2,000

Cr Cash $2,000
To record paid salary expense
Preparing Financial Statements

Note : Assets = Liabilities + Stockholders’ equity

 Activity Qs

© 2019 Singapore University of Social

Sciences. All rights reserved.
 Activity Qs

• Study Unit 1 Chapter 2 – Accrual Accounting

© 2019 Singapore University of Social

Sciences. All rights reserved.
 Records impact of  Records transactions only
transactions when they if cash is involved
occur
• Cash receipts
 Required by FRS1 –
Presentation of Financial • Cash payments
Statements  Ignores underlying
 Records: economic activities
• Revenue when earned  Used by very small
• Expenses when operations
incurred (matching
principle)
 Use by virtually all
businesses
 Example

 Your computer installation business finishes a job in October 20X8,

and doesn't get paid until three months (next year January).
 Under the , you would record the receipt in
January 20X9. Revenue in 20X8 understated.
 Under the , you would record the revenue in
your books in October 20X8 together with an account
receivables. (Accounts Receivable/Revenue)

• The accrual method gives you a picture of your

financial situation than the cash method

© 2019 Singapore University of Social

Sciences. All rights reserved.
 Adjusting Accounts

Adjusting entries are journal entries that bring the accounts up to date at
the end of the month/year (i.e. on accrual basis)

Framework for Adjustments

Adjustments

Paid (or received) cash for Expense (or revenue) incurred

expense (or revenue) relating to but still not paid (or received) at
the following period the end of the current period

Prepaid Unearned Accrued Accrued

(Deferred) (Deferred) expense revenues
expenses revenues
• Business has paid or received cash in advance

(i) Prepaid expense (ii)Unearned revenue

• Recorded as an • Recorded as a
asset when liability when
purchased payment is received
• Expensed when • Recorded as
used or expired revenue when
earned
 • Recorded as assets when purchased

JOURNAL
Date Accounts and explanation Debit Credit
Jun 1 Prepaid rent 3,000
Cash 3,000
Paid three months’ rent in advance

Jun 30 Rent expense 1,000

Prepaid rent 1,000
To record rent expense
 Prepaid rent Rent expense
Jun 1 $3,000 $1,000 Jun 30 Jun 30 $1,000

$2,000

Amount
Amount expired
remaining

Statement of
Statement of
Comprehensive
Financial
Income
Position
Statement
 Some businesses collected cash (eg. $300) from
customers before delivering the service. This creates a
liability called .

Initial journal entries

Dr Cash $300
Cr Unearned revenue $300
Received cash for service in advance

Adjusting journal entries when service is performed

Dr Unearned revenue $300
Cr Revenue $300
To recognise revenue when service is performed
 allocates the cost of an item of Property,
Plant and Equipment (PPE) over the asset’s useful life

JOURNAL
Date Accounts and explanation Debit Credit
Jun 1 Equipment 24,000
Cash 24,000

Jun 30 Depreciation expense* 400

Accumulated depreciation** 400

* Assuming useful life of 5 years with no residual value. Monthly

depreciation expense = $24,000/(5 x12) = $4000

Statement of Financial Position

December 31, 20X1
Equipment $24,000
Less: Accumulated Depreciation (400)
Net Book value (NBV) $23,600
 Equipment Depreciation Expense
Jun 1 $24,000 Jun 30 $400

Statement of
Financial
Position
Accumulated Depreciation
$400 Jun 30 Statement of
Comprehensive
Income
 (i) Accrued expenses (ii) Accrued revenues

• Record expense • Record revenue

before paying cash before collecting cash
• Salaries, interest, and • Earned and will collect
income taxes next period
 on December 31, 20X8 you owed your employees
one week of salaries that would be paid on 2nd
January, 20X9. The gross salaries for that week
were $6,000. You should make the following
general journal entry:

31 Dec Dr Salaries expense $6,000

Cr Salaries payable $6,000
To record salaries payable
Suppose that service was performed but customer
has yet to pay. The invoice was $4,000.
Journal entries
Dr Accounts receivable $4,000
Cr Service revenue $4,000
To record service revenue
 Activity

© 2019 Singapore University of Social

Sciences. All rights reserved.
 Ratios Analysis

• Profitability (SU1) • Solvency (SU3)

– Return on total assets – Times interest earned
– Return on ordinary shareholders' equity – Debt-to-equity
– Gross margin ratio – Equity ratio
– Profit margin ratio
• Shareholder return (SU3)
• Liquidity/efficiency (SU1,2) – Basic earnings per share
– Current ratio – Price-earnings ratio
– Acid test (or quick ratio) – Dividend yield
– Total asset turnover
– Book value per ordinary share
– Inventory turnover (Days' sales in inventory)
– Accounts receivable turnover (Days' sales uncollected)
– Accounts payable turnover (Days’ purchases in accounts
payable )

41
Ratio Analysis Formula will be given in the
examination together with the exam
question paper.
 • BTN 1-2 Key comparative figures for both Adidas and Puma are
as follows:

• What is the return on assets for (a) Adidas and (b) Puma? Adidas’
beginning assets equal EUR 11,651 million and Puma’s beginning
assets equal EUR 2,530 million.
• Is return on assets satisfactory for (a) Adidas and (b) Puma?
(Assume competitors average a 5% return.)

© 2018 Singapore University of Social

Sciences. All rights reserved.
 • BTN 3-2 Key figures for the recent two years of
both Adidas and Puma are as follows:

• Compute profit margins for (a) Adidas and (b) Puma for the two
years of data shown.
• Which company is more successful on the basis of profit margin?
Explain.

© 2018 Singapore University of Social

Sciences. All rights reserved.
 • BTN 4-2 Key figures for the recent two years of
both Adidas and Puma are as follows

• Compute the current ratio for both years for the two companies.
Round to one decimal place.
• Which company has the better ability to pay short-term obligations
according to the current ratio?
• Analyze and comment on each company’s current ratios for the two
years.

© 2018 Singapore University of Social

Sciences. All rights reserved.
 • BTN 2-2 Key comparative figures (in EUR millions) for
both Adidas and Puma are as follows:

• What is the debt ratio for Adidas in the current year and for the prior
year?
• What is the debt ratio for Puma in the current year and for the prior
year?
• Which of the two companies has the higher degree of financial
leverage? What does this imply?

© 2018 Singapore University of Social

Sciences. All rights reserved.
 Next Seminar

*Seminar 2: Online Course

– Accrual Accounting
– Internal Controls and Cash (Bank reconciliation)
• Required readings:
– Study Unit 2 and its chunked lectures*
– HHTS: Chapters 3 and 5
* Available in iSG

gracekangij@suss.edu.sg

© 2019 Singapore University of Social Sciences. All rights reserved.