Ho Ch Minn C TABLE OF CONTENT CHAPTER 1: INTRODUCTION TO FINANCIAL ACCOUNTING... LEARNING OUTCOMES. 1 OVERVIEW. |. FINANCIAL ACCOUNTING...... II, FINANCIAL STATEMENTS Ill, TYPES OF BUSINESS. 4 IV, GOVERNANCE CHAPTER SUMMARY... PRACTICE. CHAPTER 2: THE REGULATORY FRAMEWORK. LEARNING OUTCOMES..... OVERVIEW... |. INTRODUCTION OF THE REGULATORY SYSTEM. I, STRUCTURE OF INTERNATIONAL REGULATORY SYSTEM Ill, THE INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) ....-..- CHAPTER SUMMARY. PRACTICE. CHAPTER 3: THE QUALITATIVE CHARACTERISTICS OF FINANCIAL INFORMATION ................ 29 LEARNING OUTCOMES..... OVERVIEW. |. THE IASB’S CONCEPTUAL FRAMEWORK... Il, QUALITATIVE CHARACTERISTICS OF FINANCIAL INFORMATION... Il, OTHER ACCOUNTING CONCEPT. CHAPTER SUMMARY... PRACTICIan Dong, Ho Ch Minn C CHAPTER 4: SOURCES, RECORDS AND BOOKS OF PRIME ENTRY LEARNING OUTCOMES. OVERVIEW... |. BUSINESS TRANSACTIONS & SOURCES OF INFORMATION ... HIEBOOK OF BRINE ENTRY stunceiettteraaretatecacacastatetanctcantaaesertiantata CHAPTER SUMMARY... PRACTICE soso CHAPTER 5: LEDGER ACCOUNTS AND DOUBLE ENTRY LEARNING OUTCOMES..... OVERVIEW... |. LEDGERS AND LEDGER ACCOUNTS. I, DOUBLE ENTRY BOOKKEEPING. Ill, RECEIVABLES LEDGER AND PAYABLES LEDGER, CHAPTER SUMMARY. 65 PRACTICE... CHAPTER 6: SALES TAX LEARNING OUTCOMES... OVERVIEW... |. NATURE OF SALES TAX I, ACCOUNTING FOR SALES TAX. H, DISCOUNTS....sstcssssntsnentneinnnnneinininnsninnnnanenennaninnennasinannennnnenees TD CHAPTER SUMMARY. PRACTICE... CHAPTER 7: INVENTORY I FARNING OUTCOMES. a OVERVIEW. 84 |. DEFINITIONS. Il, MEASUREMENT .... Ill, RECOGNITIONan Dong, Ho Ch Minn C IV, DISCLOSURES 103 CHAPTER SUMMARY... PRACTICE... CHAPTER 8: TANGIBALE NON-CURRENT ASSETS.. LEARNING OUTCOMES caiemiiiuuaietaeuau auc atAU laure are eS: OVERVIEW... I NON-CURRENT ASSETS .. II. IAS 16 — PROPERTY, PLANT AND EQUIPMENT: Ill, DEPRECIATION... IV, REVALUATION OF NON-CURRENT ASSETS .... V. NON-CURRENT ASSET DISPOSA\ VI. THE ASSET REGISTER. CHAPTER SUMMARY... PRACTICE 131. CHAPTER 9: INTANGIBALE NON-CURRENT ASSETS... LEARNING OUTCOMES. OVERVIEW... I. IAS 38 - INTANGIBLE NON-CURRENT ASSETS... Il, RESEARCH AND DEVELOPMENT COST... Il, COMPARISON WITH TANGIBLE NON-CURRENT ASSETS... CHAPTER SUMMARY ..ssotsscnssssennnitintannnseinnnnainnnnnntinnennseinannnenaninesssesnes 143, PRACTICE... CHAPTER 10: ACCRUALS AND PREPAYMENTS... LEARNING OUTCOMES. OVERVIEW | INTRODUCTION 147 Il, ACCOUNTING FOR ACCRUALS AND PREPAYMENTS...... 148 Ill, DEFFERED INCOME AND ACCRUED INCOME... 151fon Dong, Bac T Ho Ch Minn C CHAPTER SUMMARY... PRACTICE... CHAPTER 11: IRRECOVERABLE DEBTS & ALLOWANCE. LEARNING OUTCOMES. OVERVIEW. sscstssntsene |. CREDIT SALES, I, CREDIT CONTROL... Ill, IRRECOVERABLE DEBTS. IV, ALLOWANCE FOR RECEIVABLES... \V. PRESENTATION .. CHAPTER SUMMARY. PRACTICI CHAPTER 12: PROVISIONS AND CONTINGENCIES LEARNING OUTCOMES. 471. OVERVIEW... |. PROVISION... Hl, CONTINGENCIES.. CHAPTER SUMMARY... PRACTICI CHAPTER 13: IFRS 15 - REVENUE FROM CONTRACTS WITH CUSTOMERS. 185 LEARNING OUTCOMES....s.scsssssnnnsientnnnnsninnnnaientnnntinnennueinannnennnnenesenes 185 OVERVIEW... 185 |. OVERVIEW... 186 Il REVENUE RECOGNITION — FIVE STEPS MODEL.. 187 UL PISCLOSuRE 1999 CHAPTER SUMMARY. 193 PRACTICE soo 194Pham Van Dong, Ho Ch Minn C CHAPTER 14: FROM TRIAL BALANCE TO FINANCIAL STATEMENTS LEARNING OUTCOMES. OVERVIEW... |. THE TRIAL BALANCE ... II, PREPARING STATEMENT OF COMPREHENSIVE INCOME ...ssssssststaestcnentstintenesenes 201 Ill, STATEMENT OF FINANCIAL POSITION CHAPTER SUMMARY. PRACTICE... CHAPTER 15: CONTROL ACCOUNT. LEARNING OUTCOMES... OVERVIEW... |. CONTROL ACCOUNT. I, OPERATION OF CONTROL ACCOUNT. Il, CONTROL ACCOUNT RECONCILIATION 223 CHAPTER SUMMARY. PRACTICE... CHAPTER 16: BANK RECONCILIATIONS. LEARNING OUTCOMES... OVERVIEW, |. THE BANK RECONCILIATION Il, DIFFERENCES BETWEEN THE BANK STATEMENT AND THE CASH BOOK ....cusstsscseseuee 235, Ill, WORKED EXAMPLES... CHAPTER SUMMARY. PRACTICE... CHAPTER 17: CORRFCTION OF FRRORS. ceceeneeeeee cece eevee 20. LEARNING OUTCOMES. 244 OVERVIEW... |. TYPES OF ERROR...... I, CORRECTION OF ERRORSan Dong, Ho Ch Minn C lll, ADJUSTMENT TO PROFIT 256 CHAPTER SUMMARY... PRACTICE... CHAPTER 18: INCOMPLETE RECORDS. LEARNING OUTCOMES caiemtiucuuaieaaeucueMcaataU laa ueme ane 260: OVERVIEW... |. INCOMPLETE RECORDS. I THE ACCOUNTING & BUSINESS EQUATION METHOD .. Il, THE LEDGER ACCOUNT/BALANCING FIGURE APPROACH .. Ill, CASH/BANKING DATA... IV, PROFIT RATIOS - MARKUP & MARGIN... CHAPTER SUMMARY... PRACTICE... CHAPTER 19: PREPARATION OF FINANCIAL STATEMENTS FOR SOLE TRADERS ........... LEARNING OUTCOMES. OVERVIEW... |. FINANCIAL STATEMENTS OF A SOLE TRADER... Il, PREPARE FINANCIAL STATEMENTS FOR SOLE TRADERS..... CHAPTER SUMMARY. PRACTICE... CHAPTER 20: INTRODUCTION TO COMPANY ACCOUNTING.... LEARNING OUTCOMES..... OVERVIEW... |. LIMITED LIABILITY COMPANY .. WL CAPITAL OF LIMITER I IABIL ITY COMPANY 295, Ill, BONUS AND RIGHTS ISSUES. 308 CHAPTER SUMMARY... 341 PRACTICE tM ee nL Ma a 312Ho Ch Minn C CHAPTER 21: EVENTS AFTER REPORTING DATE (IAS 10). LEARNING OUTCOMES. OVERVIEW... |. DEFINITION... I, TYPE OF EVENTS....... Il, DISCLOSURE CHAPTER SUMMARY. PRACTICE... CHAPTER 22: STATEMENT OF CASH FLOWS (IAS 7) LEARNING OUTCOMES. OVERVIEW... |. THE NEED OF STATEMENT OF CASH FLOW II, DEFINITION... Ill, CLASSIFICATION OF ACTIVITIES IN STATEMENT OF CASH FLOWS. 326 IV, PREPARING A STATEMENT OF CASH FLOW... \V. ADVANTAGE AND DISADVANTAGES OF CASH FLOWS... CHAPTER SUMMARY... PRACTICE... CHAPTER 23: INTRODUCTION TO CONSOLIDATED FINANCIAL STATEMENTS LEARNING OUTCOMES. OVERVIEW. oscssssntcienintnnennentinnsnnsnt |. INTRODUCTION TO GROUPS...... Il, CONSOLIDATED FINANCIAL STATEMENTS... CHAPTER SUMMARY... PRACTICE 360 CHAPTER 24: THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION. LEARNING OUTCOMES..... 362 OVERVIEW... 363 I. THE MECHANICS OF CONSOLIDATION..... 364an Dong, Ho Ch Minn C ll, EFFECT OF INTRA-GROUP TRADING AND MID-YEAR ACQUISITION TO CONSOLIDATED FINANCIAL STATEMENT... 373 CHAPTER SUMMARY... 381 PRACTICE. 382 CHAPTER 25: THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME «...ssssssseeses 385, LEARNING OUTCOMES. 385, OVERVIEW... 385 . 386 I, EFFECT OF MID-YEAR ACQUISITION 10 CONSOLIDATED SIAIEMEN| OF COMPREHENSIVE INCOME... 391 |. THE MECHANICS OF CONSOLIDATION, CHAPTER SUMMARY... PRACTICE sasscsessntnientntnnnntntintnnsnentannnnnntcsesest CHAPTER 26: INTERPRETATION OF FINANCIAL STATEMENTS... LEARNING OUTCOMES. OVERVIEW... |. IMPORTANCE AND PURPOSE OF ANALYSIS OF FINANCIAL STATEMENTS... Il, ANALYSIS OF FINANCIAL STATEMENTS USING RATIO ANALYSIS... CHAPTER SUMMARY. PRACTICE...Ho Ch Minn C CHAPTER 1: INTRODUCTION TO FINANCIAL ACCOUNTING LEARNING OUTCOMES Define financial reporting recording, analysing, and summarising financial data Identify and define types of business entity ~ sole trader, partnership, limited lial company Recognise the legal differences between a sole trader, partnership, and a limited liability company Identify the advantages and disadvantages of operating as a limited liability company, sole trader, or partnership Understand the nature, principles, and scope of financial reporting Identify the users of financial statements and state and differentiate between their information needs Understand and identify the purpose of each of the main financial statements Define and identify assets, liabilities, equity, revenue, and expenses Explain what is meant by governance specifically in the context of the preparation of financial statements Describe the duties and responsibilities of directors and other parties covering the preparation of the financial statements litySAPP Academy Tot 0466 709 888 Floor, Nam A Bank bulling, 58 Le Thank Nghi, Hai Ba Trung dst, He No! Sepp.edu.vn 2A* Foor, Green Str Tower No. 26% Phare Van Dang, Bac Tu Liem sire, Mano Helin 0889 6 22 76 (HN) 4 wees 531 Flor, No, 2A Luong Hus Khanh, Distt 1, Ho Ch Minh Cty (889 66 2267 (HEM) OVERVIEW y Financial statements { SS eee Those charged with governance (Prepare F.S) Main elements of Users of financial financial statements information261 Phar ‘khanh, Distt, Ho Cn inh Cs |. FINANCIAL ACCOUNTING 1. Definition Financial accounting is a specific branch of accounting involving the Record to Report Process (R2R) of recording financial data. Financial reporting is a way of recording, analysing, and summarising financial data. Financial data is the name given to the actual transactions carried out by a business (e.g. sales of goods, purchases of goods, payment of expenses) Record to Report Process (R2R) is as follow: R Actual transactions are recorded in books of prime entry 2. Financial accounting and Management accounting Financial accounting (FA) is a specific branch of accounting Management accounting (MA) is a management system that analyses Definition involved in a process of recording, data to provide information as a analyzing, summarizing financial aad basis for managerial action. ataFor NATTA Bonk bung, 54 Le Thent Nahi Hai Be Tuna dtc, He Nol Soppeduvn 24" Hor, Green Star ower No, 201 Phan van bong. acu emaine, ano He 36 22 76 (HN) ‘For No, 28 Luong us Khanh, Ds, Ho Om Ch {28968 22 7 (eM To report the financial performance | To help managers control the Purpose and financial position of a business | resources of the business and plan by providing historical information. | them for the future. Requirement | Mandatory Optional Primary users of information External users (e.g. investors, regulators, tax authorities, ..) and Internal users (e.g. manager, ...) Internal users (e.g. manager, ...) Regulations GAAP, IFRS, IAS. None Frequency Quarterly, annual, or per period As needed and ongoing External review Auditors, regulators None Scope Company-wide Narrow per segment, product, etc. as needed. Il. FINANCIAL STATEMENTS: 1. Main elements of financial statements 1.1 Statements of financial position The statement of financial position is simply a list of all the assets owned and all the liabilities ‘owed by a business at a pa lar date. ‘The form of a statement of financial position is as follow:STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 20X3 $ Asset ‘Non-current assets Property, plant, and equipment Current assets Inventory 12,000 Trade receivables 11,200 Total assets Equity and lial Equity Equity shares capital @ $1 shares Share premium Revaluation surplus Retained earnings Total equity Non-current liabilities 6% bank loan (20X3) Current liabilities Trade payables 5,000 Bank overdraft, 4,150 Income tax liability 600 Interest accrual 300 Total liability Total equity and li $ 87,500 23,200 110,700 40,000 2,000 5,000 43,650 90,650 10,000 10,050 110,700261 Phar Ho Ch Minn C The statement of financial position includes 3 components: ASSETS: ‘An asset is a present economic resource controlled by the entity as 2 result of past events. An economic resource is a right that has the potential to produce economic benefits.” There are 2 types of assets: ‘© Non-current assets: Assets are held and used in operations for along time. Examples: © Properties, (PPE) © Machinery plant, and equipment © Current assets: Assets are held for only a short time. Examples: © Cash & cash equivalent © Inventories CAPITAL OR EQUITY: “Equity is the residual interest in the assets ot the entity after deducting all its Capital is a special kind of liability. Example: ‘© Share capital/premium © Retained Earnings (RE) = Reserves LIABILITIES: “Aliability is a present obligation of the entity to transfer an economic resource as a result of past events. There are 2 types of liabilities: Non-current liabilities: obligations listed on the balance sheet not due for more thana year. Examples: © Long-term loans ‘© Current liabilities: the company's short- term financial obligations due within one year or anormal operating cycle. Examples: © Accounts payable ©. Short-term debt ° Dividends \ Conceptual Framework for Financial Reporting 2018, para. 4.3 and 4.4 2 Conceptual Framework for Financial Reporting 2018, para. 4.63,an Dong, Ho Ch Minn C 1.2 Statement of Comprehensive income Astatement of Comprehensive Income (SOCI), known as Statement of Profit or Loss and other comprehensive income (SOPLOCI), is a record of income generated and expenditure incurred over a given period. STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 20X3 $ Sales revenue 150,000 Less: Cost of sales (Cost of goods sold) (75,000) Gross profit 75,000 Distribution costs (10,700) Administrative and selling expense (15,560) Operating profit 48,740 Finance costs (740) Profit before tax 48,000 Income tax (600) Profit for the year 47,400 Other comprehensive income Revaluation surplus 2,000 Total comprehensive income for the year 49,400 There are 2 components included in SOC! Income is the increases in assets or decreases in liabilities that result in increases in equity, other than those relating to contributions from income: holders of equity claims. (Conceptual Framework for Financial Reporting 2018, para. 4.68) Expenses are decreases in assets or increases in liabilities that result in decreases in equity, other than those relating to distributions to Expenses holders of equity claims. (Conceptual Framework for Financial Reporting 2018, para. 4.68)Ho Ch Minn C 1.3 Statement of Cash Flows (SOCF) Statement of cash flows is a financial statement that concentrates on the changes of cash and cash equivalent during the period. STATEMENT OF CASH FLOWS AS AT 31 DECEMBER 20X3 (INDIRECT METHOD) $m $m Cash flows from operating acti Net profit before taxation 3,390 Adjustments for: Depreciation 450 Investment income (500) Interest expense 400 Operating profit before working capital cranges 3,740 Increase in trade and other receivables (500) Decrease in inventories 1,050 Decrease in trade payables (1,740) Cash generated from operations 2,550 Interest paid (270) Income taxes paid (720) Net cash from operating activities 1,560 Cash flows from investing activities Purchase of property, plant and equipment (900) Proceeds from sale of equipment 20 Interest received 200 Dividends received 200 Net cash used in investing activities (480)n Dong 8 sit Han Ho Ch Minn C Cash flows from financing activities Proceeds from issuance of share capital 250 Proceeds from long-term borrowings 250 Dividends paid* (1,290) Net cash used in financing activities (790) Net increase in cash and cash equivalents 290 Cash and cash equivalents at beginning of period (Note) 120 Cash and cash equivalents at end of period (Note) 410 Cash flows must be classified as operating, investing, and financing activities: The main revenue-producing activities of the entity and other erating activiti 7 . h Operating activities | activities that are not investing or financing activities The acquisition and disposal of long-term assets and other Investing activities i in i investments not included in cash equivalents, in of Activities that result in changes in the size and composi Financing activities | ntributed equity capital and borrowings of the entity. Notes: More information about SOCF will be mentioned in Chapter 22 - Statement of Cash flows (IAS 7). 1.4 Statement of Changes in Equity (SOCIE) ‘Statement of changes in equity is a reconciliation of the beginning and ending balances in a company’s equity during a reporting period.STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 20X3 share premium Balance at 1.1.X2 Changes in accounting policy Restated balance Changes in equity for 20x2 Dividends Total comprehensive income for the year Issue of share capital Balance at 31.12.X2 share capital x x a ae 10 Revaluation surplus x Retained earnings x Oo x (x) 2267 (HEM) Total x Ci (x)8 Flor, NamA Bank building, 5 Le Thank Noh, Hal Be Tung district, He No 2x° Poor, Green Str Tower No. 26% Pha Van Dong, Bae Tu Liam cine, Mano “Fleer No. 28 Luong Hus Khanh, Dstt 3, Ho Chi Minh Cs Movement in shareholders’ equity over an accounting period comprises the follo g elements: ‘* Net profit or loss during the accounting period attributable to shareholders; * Increase or decrease in share capital reserves: ‘* Dividend payments to shareholders; ‘* Others will be gone through in chapter 19. Notes: More information about SUCIE will b2 mentioned in Chapter 19 — introduction to company accounting. 2. The need of financial statements The objective of financial statements is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions (IAS 1, para. 9). 3. Users of financial statements & financial information Need information for investment decisions with the aims: * To access their investments performance * To evaluate the company’s ability to pay dividends through plans and prospects * To determine whether they should increase, hold or sell their investments Shareholders: Need information for planning and decision making with the aims: ‘To formulate plans based on related information © To compare actual results against plan © To improve ahead performance through feedback on results of previous decisions * Need the most information to make planning and control decision Managers Need information relating to their benefits: * To access the company’s ability in providing remuneration, employment opportunities, job security, etc. In the long term Employees 1‘khanh, Distt, Ho Cn inh Cs 261 Phar External stakeholders Lenders/ Creditors Interested in the security of their loan: To access the company's liability to meet interest payments and eventually repay the amount advanced Trade contacts Suppliers (provide goods/services on credit): To evaluate the company’s long term health and liquidity position Customers: To secure the sources of supply for themselves Financial © Interested in profil performance and estimates of future analysts and operations to identify investment opportunities and advisers prospects ‘* Need information for the collection of taxes and duties Tax authority through assessing the profit on which the company’s tax liability is to be computed Government | Allocation of resources and activities of enterprises and thei ‘© Collecting statistical information to reveal trends within agencies the economy ‘Members of the public in a variety of ways: contribution The public to the local economy The environment: regards pollution Exam focus: Users and stakeholders’ need Example 1: Which one of the following user groups is likely to require the most detailed financial information? ‘A. The management B. Investors and potential investors C. Government agencies D. Employees R8 Flor, NamA Bank building, 5 Le Thank Noh, Hal Be Tung district, He No 2x° Poor, Green Str Tower No. 26% Pha Van Dong, Bae Tu Liam cine, Mano “Fleer No. 28 Luong Hus Khanh, Dstt 3, Ho Chi Minh Cs ‘Answer: A Management requires very detailed information to make informed decisions with regard to operations (c.g. whether to shut down a particular product linc or source new supplicrs). Other parties need far less detail ‘* Investors are interested in profitability and the security of their investment, © The government is interested in profits (for tax purposes) and sales performance (to assess how the economy is performing). Lenders are interested in whether a business is solvent and able to repay its debt. 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St q “S1apjoyaseys Uaamyag uawua9d.se xajdiod Aq siseq jeusioy & Uo pawisoy aq 0} sey ‘a10ja/a4L “sdiysiauped pue Jape ajos UeYY paye!|dwoD z10W S| AUed.UOD AIIIGeN| PaYLUI Y pasiosul ae 9 ‘a 1 sNdUI pue siasse UMO Led pue AyNUD [ea] areLedas e S| AUed.uOD AIIIGeN| PANU Y vuemsuy tac aq ues a1 “ssauzsed Joy Alejes BulAed Joy uondesues ou si} azayy os ‘ssauisng Aria: paywiun ue si diysiauyed jemespyyim leudeo jo wuoy e pasapysuc aq ued Japeny ajos e 404 reyes BurAed uompesuen pads jeudeo aveys aonpar 03 ynoyp € me] Aq payeinfas aue sanssi aieys squawiasinbas Bununosoe pue je8a] YIM Adw0> ©} aney suawayeys jeoueUly « “squswaause disused = dn Sumas UUM paresosse sysoo are aay, | “sfluines jeuossad syeupiano uo aoueyay ©2x" Poo Cron Sr Tower te 261 Phan van Dong. Sue Tulemcite. anol 276) “Fleer, No. 2A Luong Huu Khanh, Distt 1, Ho Chi Ninh i (880 66 22 67 (HEM) IV. GOVERNANCE Corporate governance is the system by which companies and other entities are directed and controlled. The board of directors of a company are usually the top management and are those who are charged with the governance of that company. Oversight, set objective, strategy | Prepare , Oversee Financial * statements 16261 Phar ‘khanh, Distt, Ho Cn inh Cs * Main aim: To create wealth for the |» Be responsible for the preparation of the shareholders. financial statements © Duty of care to show reasonable | To ensure that the entity complies with competence the relevant laws and regulations. * To be ina fiduciary position. * To explain their responsibility for © Must act honestly in best interests of | preparing accounts. company. * To present a balanced and understandable assessment of _ the company’s position and prospects ‘© Strategy for delivering the company's longer-term objectives. Exam focus: Responsibilities of governance Example 3: Which of the following best describes corporate governance? ‘A. Corporate governance is the system of rules and regulations surrounding financial reporting, B. Corporate governance i ies are directed and controlled, the system by which companies and other enti \. Corporate governance 1s carried out by the finance department in preparing the financial statements D. Corporate governance is the system by which an entity monitors environment. impact on the natural Answer: B Corporate governance is the system by wI controlled. companies and other entities are directed and 7Br swuawsieis ‘Ang u seBUe4D smog ‘awooul anisuayeiduio) —_—_uonsog jeoueu4 JeUeUL OF SION lyse yoquawiarers joqwauryers sowauerers squawareys jernueuly > squauiayas erueuy josiasp) —— “eep jenueuy Surrvewuns (uewsey> “uyeAyeue ‘Buypsoses fa pon) Wor aie ! spinoud on exep Buisheuy 4o ssanoud e Ul BUINJOAU] $4032241p ‘aannzax3 2a n291G-UON pajjonuo: pue paisouip ave sennus soyi0 ue sauedwoo yaiyw hq warshs ay ASVINIAINS YALdWHDan Dong, Ho Ch Minn C PRACTICE Questions Question 1: (Basic) Which one of the following statements best defines a liability? ‘A. Alliability is an obligation arising from a past transaction or event. B. A liability is a legally binding amount owed to a third party. C. A liability is an obligation arising from a past transaction or event which is expected to be settled by an outflow of economic benefits. D. Aliability is anything which results in an outflow of economic benefits from an entity. Question 2: (Intermediate) Which of the following are advantages of trading as a limited liability company? 1. Operating as a limited liability company makes raising finance easier because additional shares can be issued to raise additional cash. 2. Operating as a limited liability company is riskier than operating as a sole trader because the shareholders of a business are liable for all the debts of the business whereas the sole trader is only liable for the debts up to the amount he has invested. A. Lonly B.2only C. Both 1 and 2 D. None 19Oo sapp 22cm merersrann 2 em 8 Luang Hus Khanh, Distt, Ho Ch Minh Ca Answers Question 1: (Apply theory in Section II.1.1. Statement of financial position). Question 2: Limited liability makes raising finance easier and there is no limit on the number of shareholders. So, statement 1 is correct. Shareholders are only liable for the debts of the business up to the amount they have invested in shares, whereas sole traders are liable for all of the debts of the business. So, statement 2 is incorrect. 204,54 Le Thanh Nahi, Ha B ‘Star Tover, No. 261 Phar: Van Dong Loong Hus khan, Dstt, Ho Gh Min CHAPTER 2: THE REGULATORY FRAMEWORK LEARNING OUTCOMES ‘* Understand the role of the regulatory system, including the roles of the IFRS Foundation (IFRSF), the International Accounting Standards Board (IASB), the IFRS Advisory Council (IFRS AC) and the IFRS Interpretations Committee (IFRS IC) * Understand the role of the International Financial Reporting Standards OVERVIEW give International Financial Reporting, Standards (IFRSs) aan Dong, Ho Ch Minn C |, INTRODUCTION OF THE REGULATORY SYSTEM Accou, _, naib oy, % 5% 2 omen tMbeneationa, a we oe caddy ne siete The following factors that have shaped financial accounting can be identified: : ae The form and content of the accounts are regulated primarily National/local legislation by national legislation. This can lead to subjectivity. Accounting standards were developed to try to address this subjectivity. In an attempt to deal with some of the subjectivity, and to Accounting standards achieve comparability between different organizations. Accounting concepts and individual judgment GAAP signifies all the rules from govern accounting: * Ihe Companies Act 20U6 Generally accepted * UK and international accounting and financial reporting accounting principles standards. (Gaap) * Statutory requirements in other countries (particularly the us) Stock exchange listing requirements. True and fair view/ fair Financial information must be relevant and faithfully presentation represent what it supports to represent to be useful. Other international There is an agreement between 2 or more countries. So, influences these countries have to follow this agreement. 22x" loo Croc Sr Towa te 261 Phan van Dong. Sac Tullem Gt. ano re O859 662276 (+) 1 Flor, No. 2A Luong Huu Khanh, Distt 1, Ho Chi Minh Cit (0889 66 22 67 (HCW) Il, STRUCTURE OF INTERNATIONAL REGULATORY SYSTEM fa => = oy = oy Develop, Interprets mmm) Appoint issues Key | > Report 7 ¥ > advise IFRS Standards 1. IFRS Foundation (the Foundation) The IFRS Foundation (formally called the International Accounting Standards Committee Foundation or IASCF) is a not for profit, private sector body that oversees the IASB. The objectives of the IFRS Foundation®: * Develop a single set of high quality, understandable, enforceable and globally accepted IFRSs through its standard-setting body, the IASB; ‘* Promote the use and rigorous application of those standards; * Take account of the financial reporting needs of emerging economies and small and medium-sized entities (SMEs); and ‘* Bring about convergence of national accounting standards and IFRSs to high-quality solutions. 3 (IFRS Foundation Constitution, 2013, para. 2) 2BHo Ch Minn C 2. International Accounting Standards Board (the Board) (IASB) The International Accounting Standards Board (IASB) is an independent, privately funded body that develops and approves IFRSs. The main objectives of the IFRS Foundation are to raise the standard of financial reporting and eventually bring about global harmonisation of accounting standards. 3. The IFRS Advisory Council (The Council) The IFRS Advisory Council is essentially a forum used by the IASB to consult with the outside world. It consults with national standard-setters, academics, user groups, and a host of other interested parties to advise the IASB on a range of issues, from the IASB's work program for developing new IFRSs to giving practical advice on the implementation of particular standards. 4. The IFRS Interpretations Committee (IFRIC®) The IFRS Interpretations Committee (formerly called the International Financial Reporting Interpretations Committee or IFRIC) has two main responsibilities: * To review, on a timely basis, newly identified financial reporting issues not specifically addressed in IFRSs. + To clarify issues where unsatisfactory or conflicting interpretations have developed, or seem likely to develop in the absence of authoritative guidance, to reach a consensus on the appropriate treatment. Exam focus: Structure of the international regulatory system Example 1: What is the role of the IFRS Interpretations Committee? A. To create a set of global accounting standards B. To issue guidance on the application of International Financial Reporting Standards C. Formulate International financial reporting standards D. To give advice to the IASB on agenda decisions Answer: B The role of the IFRS Interpretations Committee is to issue guidance on the application of International Financial Reporting Standards. Creating a set of global accounting standards is the role of IFRS Foundation. Formulating IFRSs is the role of IASB. IFRS Advisory Council takes responsibility for giving advice to the IASB on agenda decisions. 24No 261 Phar Van Dong, Bac loer No. 28 Luang Hus Khan, Distt 7, Ho Ch Min C (880 66 22 67 (HEM) Ill, THE INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) 1. The use and application of IFRS IFRSs have helped to both improve and harmonize financial reporting around the world. The standards are used in the following ways. + Asnational requirements {As the basis for all or some national requirements ‘As an international benchmark for those countries which develop their own requirements By regulatory authorities for domestic and foreign companies By companies themselves 2. Scope of IFRS IFRSs are not intended to be applied to immaterial items, nor are they retrospective. Each individual standard lays out its scope at the beginning of the standard. 3, Standard-setting process The procedure for the development of an IFRS Standard is as follows: STEP 1 Establish an Advisory Committee to advise on issues arising in the project. Consultation with the Advisory Committee and the IFRS Advisory Council throughout the project.9 ou sw) OU B18 Syst reusyeuu t srqowey pub sc 29 9 ssapoud 3unes-puepuers + (Guat) spuepuersBunsodasyepuery jeuoneusayyy > Lvonesiade pue asp, “tuawipuewe Joujw saui0 dojarap pue ‘sui Jo wone>yelde aun uo suoneraidionus anss, suequiau pt sanhols pue epuade wo asippy SuEquiow Op Ajgjewneidy soajsng aasiano pue anoiddyPRACTICE Questions Question 1: (Basic) Which ONE of the following is NOT an objective of the IFRS Foundation? ry D. Through the IASB, develop a single set of globally accepted International Financial Reporting Standards (IFRSs) Promote the use and rigorous application of International Financial Reporting Standards (IFRSs) Ensure International Financial Reporting Standards (IFRSs) focus primarily on the needs of global, multi-national organisations Bring about the convergence of national accounting standards and IFRSS Question 2: (Basic) Which ONE of the following statements correctly describes how International Financial Reporting Standards (IFRSs) should be used? A ie D. To provide examples of best financial reporting practice for national bodies who develop their own requirements To ensure high ethical standards are maintained by financial reporting professionals internationally To facilitate the enforcement of a single set of global financial reporting standards To prevent national bodies from developing their own financial reporting standards Question 3: (Basic) Which of the following items is the IFRS Advisory Council is responsible for? 1) 2) 3) To give advice to the IASB or to the trustees To give advice to the IASB on agenda decisions To create a set of global accounting standards Land 2 only 8B. 1and3only C. 3only D. only a2, 54 Le Thank Noh, Hal Be Tung district, He No No. 26 Van Dong fae Tu Liam cistnet, Hane A Lvang Hus Khan, Distt, Ho Ch Min C Answers Question 1: € Through IFRS Foundation, IASB develop IFRS. Therefore, A is incorrect. Bis one of the responsibilities of IASB. Therefore, B is incorrect. The IFRS Foundation does not focus primarily on the needs of global, multi-national organisations. One ot the objectives of the touncation is to take account of the tinancial reporting needs of emerging economies and small and medium-sized entities (SMEs). Question One of the ways IFRSs are used is as an international benchmark for those countries which develop their own requirements. Question 3: A (Apply the theory in Section 11.3) 28SAPP Academy Tot 0466 709 888 8° Flor NamA Benk building, 54 Le Than Noh Hal Be Trung dst, He Nol Sepp.edu.vn 2A* Foor, Green Str Tower No. 26% Phare Van Dang, Bac Tu Liem sire, Mano Helin 0889 6 22 76 (HN) ‘Floor No. 28 Luong Huu Khanh, Distt 1, Ho Ch tinh Cy (889 66 2267 (HEM) CHAPTER 3: THE QUALITATIVE CHARACTERISTICS OF FINANCIAL INFORMATION LEARNING OUTCOMES © Define, understand and apply qualitative characteristics * Define, understand and apply accounting concepts OVERVIEW Fundamental characteristics Enhancing qualitative characteristicsZ 2x" Poo Cor Sr Tow te 261 Phan van Dany. Soe Tullem cites Nano 362276 6) “Fleer No. 28 Luong Hus Khanh, Dstt 3, Ho Chi Minh Cs (880 66 22 67 (HEM) |, THE IASB’S CONCEPTUAL FRAMEWORK ‘The IASB's Conceptual Framework is the basis on which IFRSs are formulated. IASB’s Conceptual Framework for Financial Reporting a conceptual framework on which all IFRSS are based and hence determines how financial statements are prepared and the information they contain. It is not a standard itself, although it is used as a reference document when standards are developed. 1. Going concern assumption Going concern concept is an important assumption for financial statements. (*) Break-up value: The amount they would sell for if they were sold off piecemeal and the business were broken up. If the going concern assumption is not followed, that fact must be disclosed, together with the following information. * The other basis on which the financial statements have been prepared ‘+ The reasons why the entity is not considered to be a going concern Example 1: Going concern assumption A retailer commences business on 1 January and buys inventory of 20 washing machines, each costing $100. During the year they sell 17 machines at $150 each. How should the remaining machines be valued at 31 December in the following circumstances? 1) They are forced ta clase dawn their business at the end of the year and the remaining machines will realise only $60 each in a forced sale. 2) They intend to continue their business into the next year. Answer: 1) If the business is to be closed down, the remaining three machines must be valued at the amount they will realise realized in a forced sale, i.e. 3 x $60 = $180 302k" Pec Gren St Tot No 26t Phan Van Dong Gaels ano Het 276) “Fleer, No. 2A Luong Huu Khanh, Distt 1, Ho Chi Ninh i (880 66 22 67 (HEM) 2) If the business is regarded as a going concern, the inventory unsold at 31 December will be carried forward into the following year, when the cost of the three machines will be matched against the eventual sale proceeds in computing that year's profits. The three machines will therefore be valued at cost, 3 x $100 = $300. 2. Accrual basis Example 2: Accrual basis Emma is a T-shirt retailer. At the beginning of the period, he purchases 20 T-shirts at a cost $5 each. Then she can sell them for $10 each. In case Emma sells all of 20 T-shirts, the revenue $200 (20 x $10) and the cost $100 (20 x $5) match with each other. And the profit is $100. Purchasing Selling 20 T-shirts and 20T shirts collecting fully payment Start of the Recording profit of $100 period (s200-$100) Emma sells all of the 20 T-shirts. Although the customer pays immediately just for 15 T-shirts, she has to record the revenue for 20 T-shirts sold. Purchasing Selling 20 T-shirts and collecting Collecting payment of 20T shirts payment of 15 T-shirts remaining 5 T-shirts Start of the Recording profit of $100 period (s200-$100) 31PP 2a Ho Ch Minn C Il, QUALITATIVE CHARACTERISTICS OF FINANCIAL INFORMATION The Conceptual Framework states that qualitative characteristics are the attributes that make the Information provided In financial statements useful to users. 1. Fundamental qualitative characteristics The two fundamental qualitative characteristics are relevance and faithful representation. Fundamental characteristics Relevance Relevant financial information is capable of making a difference in the decisions made by users. Relevant information has: * predictive value * confirmatory value © orboth The relevance of information is affected by: © its nature and ‘+ Materiality. Faithful representation Financial reports represent economic phenomena in words and numbers. Financial must not only represent relevant phenomena. But must faithfully represent the substance of the phenomena that it purports to represent. Financial information would possess the following characteristics: * Complete © Neutral © Free from error © Substance over form 32 Predictable Based on past performance to predict the future, Unusual items are disclosed separately. Confirmatory By comparing predictions with actual results, validity of predictions is confirmed. Materiality Professional judgement. Affects decision making process Complete All necessary information for users to understand the phenomenon is depicted. Neutral Free from bias in both content and presentation. No manipulation for misteading purpose, Free from error No errors or omission in description. No errors in producing financial information Substance over form Economic reality of transactions rather than its legal form.Example 3: Fundamental characteristics Materiality: According to 1AS10 — Events after the Reporting Period, non-adjusting events should be disclosed if they are materiality. It means that they are such important that non- disclosure would affect the ability of users to make proper evaluations and decisions. It means non-adjusting events is Faithful representation: With inventory account, accountant should: * Completeness: Fully record the number of goods purchased and sold in the period * Neutrality: if the manager request to record goods reserving his personal purpose, accountant should do not recognize these goods. * Free-from-error: Record correctly the value of good purchased or sold with the right double-entries. * Substance over form: A firm withdrawing inventory for internal use, accountant should record to a separate account, not on sale account. Because the sale account reflects only actual sales in substance. 2. Enhancing qualitative characteristics 1B qualitative character understandabili sare comparability, verifiability, timeliness, and 33261 Ph ‘anh, Distt 1 Ho Ch Nin Ci Example 4: Enhancing qui ive characteristics Comparability: The profit of the company must be compared with the previous years to see that there Is an increase or decrease In It. Verifiability: The profit of the company is considered to be verifiable when there are specific proofs for the revenue and expense. For example, the company completely has invoices and contracts for 200 goods sold. Timeliness: The information of the company’s profit should be given to users in time. Understandability: When the accountant presents the information of the company’s profit, she should not use a lot of jargon and difficult phrasing. Exam focus: Qualitative characteristics of financial information Example 5: According to the IASB’s Conceptual Framework for Financial Reporting, which TWO of the following are part of faithful representation? 1. Itis neutral 2. Itis presented fairly 3. Its relevant 4. Its free from material error A. dand2 B. 2and3 Cc land4 D. 3and4 Answer Information has the quality of faithful representation when it is complete, neutral, free from material error and substance over form (Apply the theory in Section 11.1) 3426% Pha ignanh, Distt, Ho Ch hin Ci OTHER ACCOUNTING CONCEPT There are other accounting concepts which are useful in the preparation of financial statements. Concept Explanations A fair presentation or present fairly in all material respects: © Compliance with IFkSs © Allrelevant IFRSs must be followed * Use of appropriate accounting policies Fair presentation The concept is to prevent the business from being over-optimistic about future profits: Prudence ‘© Anticipated profit: Do not be recorded until actually realized ‘+ Anticipated loss: A provision is created : Revenue earned should be matched against the expenditure incurred Matching in earning it Historical cost Transactions are recorded in the accounts with their original costs A business should be consistent in the accounting treatment of similar Consistency items within each accounting period and between the accounting period to the next * For accounting purpose, the business unit from its owners ©The business exists in its own rights The business entity is separate and distinct concept Exam focus: Accounting concepts Example 6: Which of the following accounting concepts means that similar items should receive a similar accounting treatment? A. Materiality concept B. Business entity concept C. Accruals concept D. Consistency concept Answer: D ‘According to Consistency concept, a business should be consistent in the accounting {treatment of similar Items within each accounting perlod and between the accounting period to the next. (Apply theory in Section Ill) 35SAPP Academy Tot 0466 709 888 8 Flor, NamA Bank bung, 54 Le Thank Noh Hal Be Trung dst, Ha Noi Sepp.edu.vn 2A* Foor, Green Str Tower No. 26% Phare Van Dang, Bac Tu Liem sire, Mano Helin 0889 6 22 76 (HN) ‘Floor No. 28 Luong Huu Khanh, Distt 1, Ho Ch tinh Cy (889 66 2267 (HEM) CHAPTER SUMMARY ‘The IASB's Conceptual Framework is the basis on which IFRSs are formulated. + Is an underlined assumption. + The business will continue + The transactions and events are recognized Fair presentation when they occur (not as Prudence ‘to: operate: iin the (same cash or its equivalent is Matching manner forthe : " received or paid). Historical cost foreseeable future (at + Profit revenue earned Consistency be shane ae must be matched against The business entity + The assets should NOT be the expenditure incurred concept ir "break-up" in earning it Fundamental characteristics Enhancing qualitative characteristics Relevance: Faithful representation: + Predictable + Complete + Comparability + Confirmatory + Neutral + Verifiability: + Materiality + Free from error * Timeless + Substance over + Understandabilty form 36PRACTICE Questions Question 1: (Basic) Listed below are some characteristics of financial information. 1. Relevance 2. Consistency 3. Faithful representation 4, Accuracy Which TWO of these are qualitative characteristics of financial information according to the JASB’s Conceptual Framework for Financial Reporting? A. Land2 8. 2and4 c 3and4 D. Land3 Question 2: (Basic) Which ONE of the following statements describes faithful representation, a qualitative characteristic of faithful representation? ‘A. Revenue earned must be matched against the expenditure incurred in earning it. B. Having information available to decision-makers in time to be capable of influencing their decisions. C._ The presentation and classification of items in the financial statements should stay the same from one period to the next. D. Financial information should be complete, neutral and free from error. Question 3: (Basic) Which of the following statements about accounting concepts and the characteristics of financial information are correct? 1. The concept of accruals requires transactions to be reflected in the financial statements once the cash or its equivalent is received or paid. 2. Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements. 3. Based on faithful representation, it may sometimes be necessary to exclude material information from financial statements due to difficulties establishing an accurate figure. A. Lonly 8. Land 2only C. 2only D. 2and 3 only 372, 54 Le Thank Noh, Hal Be Tung district, He No Star Tower, No. 261 Phar Van Dong, Bac Tu L Luong Hau Khanh, Distt, Ho Cn inh Cs Answers Question 1: D (Apply theory in Section II.1) Question 2: D Financial information should be complete, neutral and free from error. A describes accruals. B describes timeliness. C describes comparability Question 2 Statement (2) only is correct. Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements. Statement (1) describes the opposite of the accruals concept. Statement (3) is also incorrect, faithful representation does not prevent estimates being made. 382267 (HEM) CHAPTER 4: SOURCES, RECORDS AND BOOKS OF PRIME ENTRY LEARNING OUTCOMES ‘* Identify and explain the function of the main data sources in an accounting system ‘* Outline the contents and purpose of different types of business documentation ‘* Identify the main types of business transactions '* Identify the main types of ledger accounts and books of prime entry, and understand their nature and function © Understand and record sales and purchase returns ‘* Understand the need for a record of petty cash transactions OVERVIEW The sales The purchase The sales returns peels daybook daybook Doe The purchase The petty cash The journal returns daybook book 39SAPP Acadeny Tol 0486 709 888 8 Flor, NamA Bank bung, 54 Le Thank Noh Hal Be Trung dst, Ha Noi po.edu.vn 2A* Foor, Green Str Tower No. 26% Phare Van Dang, Bac Tu Liem sire, Mano Helin 0889 6 22 76 (HN) 4 mreremeines 53 Fgoe No, 2A Luong Had Khanh, Distt 3, Ho Ch inh Cy (0880.65 2267 (HEM) |, BUSINESS TRANSACTIONS & SOURCES OF INFORMATION 1. Business transaction In every business, several transactions and events will take place every day. ‘The main transactions: Others include: * Sales # Rental costs © Purchases © Raising finance ‘© Payroll related transactions ‘Repayment of finance 2. Sources of information 40No. 26 an Da Floer No. 28 Luang Hus Khanh, Distt, Ho Ch Min Main types of business’s documentation and sources of data for an accounting system can be shown in the below table: 1. Quotation Quantity Description Details of goods required. To establish price from various suppliers Cross refer to purchase requisition. 2. Sales order Quantity Description Details of goods required and price. Cross checked with the order placed by customer Sent to the stores/ warehouse department for processing of the order. Details of supplier, e.g. name quantity, price, value, sales tax, terms of credit, 3. Goods ce Provided by supplier. dispatched note |, “Quantity and description of Checked with goods received and (GDN) goods purchase order. ‘© Issued by supplier of goods as a © Name and address of request for payment. supplier and customer; For the supplier selling the 4, Invoice * Details of goods, e. goods/services this will be treated asa sales invoice. For the customer this will be treated as a purchase invoice. 5. Credit note Details of supplier, eg. name and address Details of goods returned, e.g. quantity, price, value, sales tax, terms of credit. Issued by the supplier. Checked with documents regarding goods returned. Issued by the selling company Invoice numbers and values Payments made, refunds, amount owing. 6. Receipt + Details of payment received. | ingicating the payment received. © Details of supplier, e.g. name and address. + Issued by the supplier + Details of date * Checked with other documents to 7. Statement ensure that the amount owing is correct. a19, 54 Le Thank Noi No. 26 Van Do Ho on Min 8. Purchase order ‘* Details of supplier, e.g. name and address. Quantity Description * Details of goods required and price. © Terms and conditions of delivery, payment, etc. Sent to supplier as request for supply To check the quotation and delivery note. 9. Goods received note (GRN) * Quantity and description of goods. Produced by company receiving the goods as proof of receipt. Matched with delivery note and purchase order. 10. Debit note ‘* Details of the supplier ‘© Details of goods returned, e.g. quantity, price, value, sales tax, terms of credit, ... Issued by the company receiving the goods. Cross referred to the credit note issued by the supplier. 11. Remittance advice © Method of payrent © Invoice number ‘* Account number, date, .. Sent to supplier with, or as notification of, payment. Exam focus: Sources of information Example 1: Which one of the following statements best describes the purpose of a goods dispatched note (delivery note)? A. Itis issued by a customer returning faulty goods to their supplier. B. [tis issued by a customer to their supplier and specifies the quantity and type of goods they require to be dispatched. C._ Itisissued by a supplier to their customer and specifies the quantity and type of goods delivered to that customer. D. tis issued by a supplier to their customer and specifies what goods will be provided to them at a specified future date. Answer: C Goods dispatched note is produced by supplier > A, B is incorrect Goods dispatched note includes details of supplier (e.g. name and address), quantity and description of goods > Cis correct and Dis incorrect. a2No. 26 an Dong, Bac Tu L loer No. 28 Luang Hus Khan, Distt 7, Ho Ch Min C ll, BOOK OF PRIME ENTRY Books of prime entry are books in which we first record transactions. Several books of prime entry exist, each recording a different type of transaction: Sales day book Credit sales Purchases day book Credit purchases Sales returns day book Returns of goods sold on credit Purchases returns day book Returns of goods bought on credit Cash book All bank transactions Cash sales Cash purchase Petty cash book All small cash transactions The journal All transactions not recorded elsewhere 1. The sales day book The sales day book is the book of prime entry for credit sales. Invoices sent out to customers and credit notes are recorded In day book. ‘An extract from a sales day book might look like this: SALES DAY BOOK Dote invoice Customer Te te invoiced $ Jan 10 20x0 247 Jones & Co 105.00 248 Smith Co 86.40 249 Alex & Co 31.80 250 Enor College 1,264.60 1,487.80 43No 261 Phar Van Dong, Bac loer No. 28 Luang Hus Khan, Distt 7, Ho Ch Min C 2. The sales returns day book The sales returns day book is the book of prime entry for eredit notes raised. A credit note is raised when customers return goods for some reason. An extract from the sales returns day book follows. SALES RETURNS DAY BOOK Date Credit note Customer and goods Amount $ 14 Jan 20X0 CROOS: Jones & Co Three pairs ‘Texas’ boots 105.00 3. The purchase day book The purchase day book is the book of prime entry for credit purchases. The purchase day book records other people's invoices. ‘An extract from a purchase day book might look like this: PURCHASE DAY BOOK Internal inv Supplier i a Flectricity Dote Supplier amount Purchases No. Inv. No. invoiced Etc $ $ $ Mar 15 654 YH000939 Cook & Co 315.00 315.00 20x0 655, 00167 ‘W Butter 29.40 29.40 656 1267 EEB 116.80 116.80 ‘Show Fair 657 seiv7es 100.00 _100.00 561.20 444.40 116.80 44SAPP Acadeny To! 0466 709 888 8 Flor, NamA Bank bung, 54 Le Thank Noh Hal Be Trung dst, Ha Noi Sepp.edu.vn 2A* Foor, Green Str Tower No. 26% Phare Van Dang, Bac Tu Liem sire, Mano Helin 0889 6 22 76 (HN) jot, No. 28 Luong Huu Khanh, Dist 1, Ho Chi tinh Cy (889 66 2267 (HEM) 4, The purchase returns daybook The purchase returns day book is the book of prime entry for credit notes received from suppliers. ‘An extract from the purchase returns day book follows: PURCHASE RETURNS DAY BOOK Date Supplier cnd goods Amount $ 18 Mar 20X0 W Butter 300 cardboard boxes 29.40 5. The cash book The cash book is the book of prime entry for cash receipts and payments.Dsnrp ESPs hk ea 4 memes 8 gor No. 28 Luong Huss Khanh, Distt 9, Ho Chi Mins Ca The cash book might look as follows: Wan ‘CASH BOOK (RECEIPTS) E Date Norrative ea a Other receivable sales $ $ $ $ 1Sep Balance b/d 900 20X7 Cash sale 80 80 Accounts receivable: Hay 380 380 Accounts receivable: Been 720 720 Account receivable: Seed 140 140 Loan: Len Dinger 1,800 1800 Cash sale 150 150 Sale of non- current asset 200 200 4320 2,000 ‘CASH BOOK (PAYMENTS) Date Narrative rota “COUS PHY Wages other payable cash $ $ $ $ $ 1Sep Accounts payable: Kew 120 120 20X7 Accounts payable: Hare 310 310 Telephone 400 400 Gas bill 280 280 Petty cash 100 100 Machinery purchase 1,500 1,500 Balance c/d 1.660 464 Fleer No. 28 Luang Hus Khan, Dist! 3, Ho Chi Minh Cty 6. Petty cash 6.1 The petty cash book A typical layout follows: Te! 0466 709 888 Hotline: 0889 68 22 76 (HN) (889 66 2267 (HEM) Receipts Date Narrative s 250 1Sep Bal b/d 20X7 Milk bill Postage stamps Taxi fare Flowers for sick staff Bal c/d 250 PETTY CASH BOOK Total k bs Milk s 25 Postage Travel s s 5 10 fa Er, Other = 15 k, 6.2 Imprest system system is the petty cash system. The imprest system is a form of the financial accounting system. The most common imprest a74 Fleer No. 28 Luang Hus Khan, Dist! 3, Ho Chi Minh Cty (889 66 2267 (HEM) Example 2: Petty cash and Imprest system DDTQ operates an imprest system for petty cash. During February 20X9, the following petty cash transactions took place. 2.2.X9 Stamps $12.00 3.29 Milk $25.00 8.2.X9 Texi fare $15.00 17.2.x9 Stamps $5.00 18.2.X9 Received from staff for photocopying $8.00 28.2.x9 Stationery $7.50 ‘The amount remaining in petty cash at the end of the month was $93.50. What is the imprest amount? Answer: Total expenditure = $12 + $25 + $15 + $5 + $7.50 = $64.50 Opening balance (Imprest amount) $150.00 (Balancing figure) ‘Add amount received from staff $8.00 $158.00 Less expenditure ($64.50) Closing balance $93.50 43SAPP Academy Te! 0466 709 888 8 Flor, NammA Bank bulng, 54 Le Thank Nahi Hl Be Trung dsr He Nol Sepp.edu.vn 2A* Foor, Green Str Tower No. 26% Phare Van Dang, Bac Tu Liem sire, Mano Helin 0889 6 22 76 (HN) “Fleer No. 28 Luong Hus Khanh, Dstt 3, Ho Chi Minh Cs (880 66 22 67 (HEM) 7. Bank statements Weekly or monthly, a business will receive a bank statement. Bank statements should be used to check that the amount shown as a balance in the cash book agrees with the amount on the bank statement. Cena Reconciliation ery Prag 8. The journal The journal is a book of prime entry, which records transactions which are: ¢ Not routine ‘+ Not recorded in any other book of prime entry There are some examples for transactions, which can be recorded in the journal: Year-end adjustments: © Depreciation charge for the year © Irrecoverable debt write-off © Record the movement in the allowance for receivables © Accruals and prepayments © Closing inventory ‘+ Acquisitions and disposals of non-current assets, © Opening balances for statement of financial position items * Correction of errors Whatever type of transaction is recorded, the format of a journal entry is: Date Or cr $ $ Account to be debited x Account to be credited x (Narrative to explain the transaction) 49Sipe 22sec genngsnanne SE a rome "loer No. 28 Luang Hus Khanh, Distt, Ho Ch Minn Ca [Not * Indue course, the ledger accounts will be written up to include the transactions listed in the journal. + __Anarrative explanation must accompany each journal entry. Exam focus: Books of prime entry Example 3: Which of the following would be recorded in the sales day book? A. Cash received B. Sales invoices C. Credit notes received D. Trade discounts Answe Cash received is recorded in the cash book. > Ais incorrect Sales invoices is recorded in sales day book (Apply theory in Section II.1). > B is correct Credit notes received are to do with returned purchases (not sales). ~> Cis incorrect Trade discounts are not recorded, as they are deducted on the sales invoices and only net sale is recorded > Dis i 501s uns paaide ue ye 1603 51 yseo warshs 300g yseo squowerers sapiosajes = fared aun ‘waists souduyy yy ul aauejeq 4a ¥99u9 OL yueg quawiares soidws aug spun ao10nul + panjavas nou rdieoay + 7 poop + ajou uorey2u0294 ajourgea + pauriedsip J sep10 poop + asewing + ——ayouypai « : owioysno woneion + us jog yseo susguiled jo0q wo uayiddns wos uyswuowfed yews OU pue sidianas es 10} y00q yseves, — AHOG UL seo piosaso, «HS? SUL jooghe| -sayjddns wos, room's? sznjonuisaéoad —_0ghep paniovassejou SUN Jeino) saseyaind —_asey>und D is correct. The amount paid in to replenish petty cash at the beginning of each period should be the amount of petty cash spending in the previous period ~> A is incorrect. ‘The amount of petty cash at any time is the maximum petty cash balance minus the value of the petty cash vouchers for the period. -> B is incorrect. The amount of petty cash is the total of expenditures shown by petty cash vouchers for the Previous period. > C is incorrect. 53Soy ower No 201 Phan Van bony, Baty Lom cet Ha 8 Luang Hus Khanh, Distt, Ho Ch Minh Ca CHAPTER 5: LEDGER ACCOUNTS AND DOUBLE ENTRY LEARNING OUTCOMES ‘* Understand and apply the concept of double entry accounting and the duality concept © Understand and apply the accounting equation ‘© Understand how the accounting system contributes to providing useful accounting information and complies with organisational policies and deadlines * Identify the main types of ledger accounts and books of prime entry, and understand their nature and function ‘© Understand and illustrate the uses of journals and the posting of journal entries into ledger accounts Identify correct journals from given narrative Record sale and purchase transactions in ledger accounts Understand and record sales and purchase returns Record cash transactions in ledger accounts Explain and identify examples of receivables and payables OVERVIEW Business | Uansacti Double entry bookkeeping , ——Academy saps of, Nam A Bonk blldng, 5¢ Le Thank Nahi, Ha Bi * Flac. NO, far Tower, No. 261 Phar Van Dong. Bac [Loong Hus Khan, Distt 3, Ho Ch inh C 1, LEDGERS AND LEDGER ACCOUNTS Reconciliation 55 strict He Nol Liem caine, Han Hotine- 0889 66SAPP Academy To! 0406 709 888 4° Fler Nam A Bank bulding, 54 Le Thanh Nghi, Hai Ba Trung dtc, Ha No Sapp.edu.vn 2k" Por, Green Star Tower, No, 261 Pham Van Bong, Bac Tu Lem dt, Hane Holine: 0889 68:22 76 (HN) 4 meme 81 Fogr, No. 2A Luong Huu Khanh, Disc 1, Ho Chi Mev Cty (0880 68 22 67 (HCW) 1. Ledgers and the division ledgers Reconcile Reconcile Assets Liabilities Equipment Bank loan ‘An account for each Machinery Fomsbies Combed ‘An account for each credit customer: Receivable (control account*) credit supplier: * ae HUGS : account*) Owner's capital summer Co 7 FIC Co x a Jelly Co x Berry x Jessi x Burton x Income Expenses ‘Adams x Sales Purchases for sales s Total x Interest earned Rent Total x Cash book Petty cash book Sales day book/ Sale returns day sane ay Purchases day book} Purchase book aH return day book (*) Control account keeps a total record of several individual items. It is an impersonal account (part of the double-entry system). 562, Ledger account There are two sides to a ledger account, and an account heading on top, and so they are often referred to as T-accounts. ‘* On top of the account is its name. * There is a left-hand side, or debit side. © There is a right-hand side, or credit side. NAME OF ACCOUNT DEBIT SIDE $ CREDIT SIDE $ Date Corresponding Date Corresponding ‘Accounts/Narratives Accounts/Narratives Example 1: Ledger account ADVERTISING EXPENSES Date Narrative Ref. $ | Date Narrative Ref. $ 35 JFK Agency forthe PL April 2,500 4 noxe Warterto31 March 348 Il. DOUBLE ENTRY BOOKKEEPING 1. Dual effect (Duality concept) Each transaction that a business enters into affects the financial statements in two ways, the dual effect. Example 2: Dual effect A business buys a vehicle for cash. The two effects on the business are: (1) It has increased the vehicle assets (2) There is a decrease in cash available to the business. 372k" Pec Gren St Tot No 26t Phan Van Dong Gaels ano Het 276) “Fleer, No. 2A Luong Huu Khanh, Distt 1, Ho Chi Ninh i (880 66 22 67 (HEM) Ledger accounts, with their debit and credit sides, are kept in a way that allows the two-sided nature of every transaction to be recorded. This is known as the “double entry” system of bookkeeping because every transaction is recorded twice in the accounts. 2. The rules of double entry bookkeeping Double entry Debit Credit 4 FSs Account type ASSETS Except (adversely recorded): * Accumulated depreciation/Provision for depreciation * Provision for slow-moving stocks * Provision for doubtful debts/irrecoverable sorp | _ debts LIABILITIES CAPITAL Except (adversely recorded): t t 1 t t «Drawings cos/coGs SOPL | Except (adversely recorded): © Return outwards EXPENSES, | = [>| => |p 58No. 26 an Dong, Bac Tu L loer No. 28 Luang Hus Khan, Distt 7, Ho Ch Min C Exam focus: Double entry bookkeeping Example 3: Jones Co has the following transactions: 1) Payment of $400 to J Bloggs for a cash purchase 2) Payment of $250 to J Doe in respect of an invoice for goods purchased last month What are the correct ledger entries to record these transactions? A. Debit Cash $650 8, Debit Purchases $650 Credit Purchases $650 Credit Cash $650 C. Debit Purchases «$400 D. Debit Cash $650 Debit Trade Payables $250 Credit Trade Payables $250 Credit Cash $650 Credit Purchases $400 Guidance: Step 1: Determine accounts to record these transactions ‘Step 2: Determine account types for these accounts Step 3: Determine there is an increase or decrease in these account types ‘Step 4: Determine double entries for these transactions (Note: Total debit = Total credit) Answer: C Step 1: Determine accounts to record these transactions 1) Payment of $400 to J Bloggs for a cash purchase There are 2 accounts used here’ ‘© Cash account for the amount of cash paid. ‘* Purchases account for the value of goods bought. 2) Payment of $250 to J Doe in respect of an invoice for goods purchased last month. ‘There are 2 accounts used here: * Cash account for the amount of cash paid * Trade Payables account for the value of goods purchased last month. Step 2: Determine account types for these accounts 1) Cash account > Assets 2) Cash account > Assets Purchases account > Assets Trade payables account ~ Liabilities 59No 26 an Dong, Bac Tu L loer No. 28 Luang Hus Khan, Distt 7, Ho Ch Min C Step 3: Determine there is an increase or decrease in these account types 1) Decrease $400 in Cash account >| 2) Decrease $250 in Cash account > Assets go down Assets go down Increase $400 in purchases account > Decrease $250 in Trade payables Assets go up account > Liabilities go down Step 4: Letermine double entries for these transactions 1) _ Debit Purchases account $400 2) Debit Trade payables account $250 Credit Cash account $400 Credit Cash account $250 ‘We combine 2 double entries: Debit Purchases $400 Debit Trade payables account $250 Credit Cash account $650 > The correct answer is C Ill, RECEIVABLES LEDGER AND PAYABLES LEDGER 1. Impersonal account and personal account The accounts in the nominal ledger (ledger accounts) relating to types of income, expense, asset, liability can be called impersonal account. Personal account is an account that shows more detail about the money paid to a specific supplier or the money received from a customer. 60SAPP Academy Tot 0466 709 888 ico: Naa Bank bldg, $4 Le Tart Nob He Be Tura dst. He Noid 2x" loo Croc Sr Towa te 261 Phan van Dong. Sac Tullem Gt. ano re O859 662276 (+) ‘Foo: Nov A Leong Kan it, Ho Rin Cay tbo 662267 (ue) 2. The receivables ledger The receivables ledger is a ledger for customers’ personal accounts. Debit Receivables Debit Sales return Credit Sales Debit Output sales tax Credit Output Sales tax Credit Receivables z 5 25 Pas ao gs BE ag = sé g Debit personal Credit personal a account account Summarize is that reference which Each customer account is given a reference o- code number, and i appears in the sales day book. The amounts are posted from the sales day book to the receivables ledger. 61fon Dong, Bac T Ho Ch Minn C Example 4: The receivables ledger Assume that you are the supplier of ENOR Co. On 2 May 20X2, you sold some truck parts of $20,000 to ENOR Co on credit. But there were some parts of $1,000 not meet the quality. ENOR. returned them on 4 May 20X2. Sales tax rate assumed is 10%. ¥ y Debit Receivables $22,000 Debit Sales return $1,000 Credit Sales $20,000 Debit Output sales tax $100 Credit Output sales tax $2,000 Credit Receivables $1,100 a 28 5 ei 8 Debit Receivables Credit Receivables 38 3 > — (ENOR Co): $22,000 ({ENOR Co): $1,100 9 «——_! & | ieee Total debit bulunce of ALL customers 3, The payables ledger The payables ledger is a ledger for suppliers' personal accounts. 6225 Le Thon Noi Hl Be Trane dst, He No No. 261 Phan Van bong Bae Tul Van Ms Khanh nt, Ho cu Mh + Y Debit Payables Debit Purchases Credit Input sales tax Debit Input sales tax Credit Purchase returns Credit Payables zg = Re a? 3° Debit personal Credit personal 3 8 nl > account account + il Summarize After entries are made in the purchase day book, cash book, or purchase returns day book, they are also made in the relevant supplier account in the payables ledger. Example 5: The payables ledger ‘Assume that you are the customer of ENO Co. On 2 May 20X2, you buy some truck parts of $20,000 from ENOR Co on credit. But there were some parts of $1,000 not meet the quality. You returned them on 4 May 20X2. Sales tax rate assumed is 10% 63SAPP Academy Tot 0466 709 888 8° Flor NamA Benk building, 54 Le Than Noh Hal Be Trung dst, He Nol Sepp.edu.vn 2A* Foor, Green Str Tower No. 26% Phare Van Dang, Bac Tu Liem sire, Mano Helin 0889 6 22 76 (HN) ‘Floor No. 28 Luong Huu Khanh, Distt 1, Ho Ch tinh Cy (889 66 2267 (HEM) ’ Debit Payables $1,100 Debit Purchases $20,000 Credit Input sales tax $100 Debit Input sales tax $2,000 Credit Purchase returns $1,000 Credit Payables $22,000 3 s e8 as ae ne 32 88 g& Debit Payables Credit Payables ee Ss ————* _ (ENOR Co) $1,100 (ENOR Co) $22,000 <———' B Total credit balance of ALL suppliersPP 22 Tol 0496 709 888 PP Flor, Nam A Sank building, $4 Le Thanh Nahi Hei Ba Trung cst. Ha No} Sapp.edu.vn 2k Floor Green Star Tower, No. 261 Pham Van Dang, Bae 7 Liem distil, Hano Hotline. 0889 68 22 76 (HN) A SAP “Foor, No. 24 Luong Hu Khanh, Dist , Ho Chi hen Cy (0380 65 22 67 (HCW) CHAPTER SUMMARY Statement of financial position Double entry bookkeeping + Statement of comprehensi abilities & Equity, Sales/income ~ mate SH Usa ledger fr customers personal accounts Isa ledger fo suppl personal accounts Sellsgoods on credit: Goods retumed by Contains all control accounts ora summary ofall uy goods enced: Goods returned to ‘customer cortrol accounts necessary to produce the tral GrPayebles(Personal__ supplier: Dr Receivables. Cr Receivables. balance and financial statements. account) Dr Payables (Personal (Personal acount) (Personal accourt cco) 65PRACTICE Questions Question 1: (Basic) How is the total of the purchases day book posted to the nominal ledger? ‘A. Debit purchases, Credit cash 8. Debit payables control, Credit purchases CC. Debit cash, Credit purchases D. Debit purchases, Credit payables control Question 2: (intermediate) Identify, by indicating the relevant box in the table below, whether each of the following statements is true or false. A debit records an increase in liabilities. True False A debit records a decrease in assets. True False A credit records an increase in liabilities. True False A credit records a decrease in capital. True False Question 3: (intermediate) Drink Co has some transactions as follow: 1) Paid annual rent for warehouse of $1,750 in cash. 2) A business sells $200 worth of goods to a customer, the customer pays $70 in cash immediately and will pay Ue remaining $130 in 60 days' Lime. Which TWO of the following entries are correct? A. Debit Rental expenses $1,750 B. Debit Cash $70 Credit Cash $1,750 Debit receivables $130 Credit sales $200 C. Debit Rental expenses $1,750 D. Debit Cash $70 Credit Payables $1,750 Credit Sales $70 66) 1 Br Grea Str Tower fe 261 Phan van Bong, Sue Tu Liem Ste, Han [Loong Hus Khan, Distt 3, Ho Ch inh C ‘Answers Question 1: D The double entry for posting the total of purchases day book to the nominal ledger is: Debit purchases Credit payables control Question 2: (Apply theory in Section 1.2) A debit records an increase in liabilities. False A debit records a decrease in assets. False Accredit records an increase in liabilities. True A credit records a decrease in capital. False Question 3: A&B Step 1: Determine accounts to record these transat 1) Paid annual rent for warehouse in cash There are 2 accounts used here: * Cash account for the amount of cash paid. © Rent account for the amount of renting warehouse paid. 2) Sold goods, but the customer did not pay immediately all amount of money. | Notes: There is no information for the cost of goods sold. So, we do not have to make double entry for Cost of goods sold. There are 3 accounts used here: ‘© Sales account for the value of all goods sold. = Cash account for the amount of cash which has paid immediately by the customer. © Receivables account for the amount of remaining amount of cash paid in the future. 67sap mone igacom onan aremeesraiee RE a, = loer No. 28 Luang Hus Khan, Distt 7, Ho Ch Min C Step 2: Determine account types for these accounts 1) Cash account > Assets 2) Sales account > Revenue Rent account ~ Liabilities Cash account > Assets Receivables account > Assets Step 3: Determine there is an increase or decrease in these account types 1) Decrease $1,750 in Cash account >|2) Increase $200 in Sales account > Assets go down Revenue goes up Decrease $1,750 in Rent account > Increase $70 in Cash account > Liabilities go down Assets go up Increase $130 in Receivables account > Assets go up Step 4: Determine double entries for these transactions 1) Debit Rent account $1,750 2) Debit Cash account $70 Credit Cash account $1,750 Debit Receivables account $130 Credit Sales account $200 The correct answers are A and B. 68SAPP Academy Tot 0466 709 888 Floor, Nam A Bank bulling, 58 Le Thank Nghi, Hai Ba Trung dst, He No! Sepp.edu.vn 2A* Foor, Green Str Tower No. 26% Phare Van Dang, Bac Tu Liem sire, Mano Helin 0889 6 22 76 (HN) momen 31 Fleer, No. 2A.Luong Hus Khanh, Distt 1, Ho Ch Ninh Cy (889 66 2267 (HEM) CHAPTER 6: SALES TAX LEARNING OUTCOMES + Understand the general principles of the operation of a sales tax * Calculate sales tax on transactions and record the consequent accounting entries. * Account for discounts allowed Account for discounts received OVERVIEW Recoverable Irrecoverable = Trade Settlement See a tax tax discount discount rocune) 7 ented Input tax Ouput tax2x Poo Cac Sr Tow te 261 Phan van Don. Sef Liem Set Hana va) “Fleer, No. 2A Luong Huu Khanh, Distt 1, Ho Chi Ninh i (0880 6622 67 (H |, NATURE OF SALES TAX. 1. Definition Sales tax is an indirect tax levied on the sale of goods and services. It is usually administered by the local tax authorities. Sales tax i a cumulative tax, collected at various stages during the life of goods or se 2. Input and output sales tax Registered businesses charge output sales tax on sales and suffer input sales tax on purchases Input tax Output tax Output tax > Input tax Orissa ae Business pays the difference in tax to Tax authorities will refund the ‘the authorities difference to business. Example 1: Input and output sales tax ‘A manufacturer buys materials to manufacture a computer > Then sells the computer to a wholesaler > Then the wholesaler sells it to a retailer > Retailer sells it to a customer. It is assumed that the rate for sales tax is 10%. Ine sale tax can be calculated as follow: 70No 261 Phar Van Dong, Bac loer No. 28 Luang Hus Khan, Distt 7, Ho Ch Min C $ $ ‘Assupplier of raw materials The lier hands tote ipa 100 10 (Output tax) 110 authorities ‘A manufacturer Purchases raw materials 100 10 (Input tax) 110 Sells the completed television aa pana man to a wholesaler ‘The manufacturer hands over 10 to tax autho (Output tax ~ Input tax= 20-10) Awholesaler Purchases the computer 200 20 (input tax) 220 Sells the computer to retailer 300 30 (Output tax) 330 Wholesaler hands over to tax nee authorities Retailer Purchases the computer 300 30 (Input tax) 330 Sells the computer to customer 550 '55 (Output tax) 605 Retailer hands over to tax ee authorities Customer Purchases the computer 550 55 605 Total sales tax is: s Supplier of materials and components 10 Manufacturer 10 Wholesaler 10 Retailer 28 Total sales tax paid 55 The total tax of $55 is borne by the ultimate consumer but is collected on behalf of the tax authorities at the different stages in the product's life. a26% Pha ignanh, Distt, Ho Ch hin Ci 3. Irrecoverable sales tax Irrecoverable sales tax is sales tax paid on inputs cannot be reclaimed (e.g. where a trader is not registered for sales tax or where inputs are not related to taxable business activities) Where sales tax is irrecoverable: * It must be regarded as part of the cost of the items purchased; and ‘+ Included in the statement of profit or loss charge or in the statement of financial position as appropriate. Example 2: Irrecoverable sales tax ‘* A business pays $500 for entertaining expenses and suffers irrecoverable input sales tax of $75 on this amount. ‘* The total of $575 should be charged to the statement of profit or loss (SOPL) as an expense. 4. Amount inclusive and exclusive of tax In business, you are likely to come across sales and purchases figures quoted as gross or net of sales tax ‘©The gross amount of a sale or purchase is the amount inclusive of sales tax. * The net amount of a sale or purchase is the amount exclusive of sales tax. Gross amount Net amount = 1+ Tax rate Example 3: Amount inclusive and exclusive of tax If the net amount of a purchase is $100, and the rate of sales tax is 15%, the amounts are as follows. Net amount exclusive of sales tax = $100 Sales tax =$100x15% = $15 Gross amount inclusive of sales tax =$100+$15 =$115 2fon Dong, Bac T Ho Ch Minn C Il, ACCOUNTING FOR SALES TAX 1. Double entry The purchases account does not include sales tax because it is not an Debit Purchases ‘expense — it will be recovered. Sales tax paid on | ost cles tax The payables account does include purchases (input tax) sales tax, as the supplier must be Credit Payables/cash paid the full amount due the full amount due must be paid to supplier. ‘+The sales account does not include sales tax because it is not income it Sales tax charged on | Credit Sales will be paid to the tax authority. sales (output tax) —_| Credit Sales tax * The receivables account does include sales tax, as the customer must pay the full amount due. Debit Receivables/cash Payment of output nepit sales tax tax on sales to the tax ‘* Output sales tax > input sales tax ae eaa Credit Cash Receipt of ut tax = ii mt Debit Cash received * Output sales tax < input sales tax on purchases from Credit Sales tax the tax authority 2. Sales tax in day books 2.1 Sales day book When a business makes a credit sale the total amount invoiced, including sales tax, will be recorded in the sales day book. The analysis columns will then separate the sales tax from the sales income of the business as. follows. SALES DAY BOOK Date Invoice Customer Total Salesincome _ Sales tax $ $ $ 10 Jan 20X21 247 ADetter and Sons 230 200 30 B2.2 Purchases day book When a business is invoiced by a supplier the total amount payable, including sales tax, will be recorded in the purchase day book. The analysis columns will then separate the recoverable input sales tax from the net purchase cost to the business as follows. PURCHASES DAY BOOK Date Supplier Total Purchase Sales tax $ $ $ 45 mar 20x1 A Splier (Merchants) 184 160 24 2.3 Cash book When receivables pay what they owe, or payables are paid, there is no need to show the sales tax in an analysis column of the cash book. Sales tax charged on cash sales or sales tax paid on cash purchases will be analyzed in a separate column of the cash book. CASH BOOK (RECEIPTS) Output sales Date Narrative Total Sales ledger Cash sales tax on cash sales 20x1 $ $ $ $ 3Dec ADalee and Sons 440 440 3Dec Ohee 770 70 5Dec Cash sales 330 300 30 1,540 1,210 300 30 74an Dong, Ho Ch Minn C ‘CASH BOOK (PAYMENTS) Cash purchase Input sales tax Purch Date Narrative Total PUENSSe and sundry on cash ledger items purchases 20x1 $ $ $ $ 3Nov A Spid (Merchants) 187 187 7Nov_ Telephone bill paid 143 130 13 snoy Cash purchase of 55 50 5 stationery 9 Nov Sales tax paid to tax 1,500 1,500 authorizes 1,885 187 1,680 18 Exam focus: Accounting for sales tax Example 4: Alana is not registered for sales tax aurposes. She has recently received an invoice for goods for resale which cost $500 before sales tax, which is levied at 15%. The total value was therefore $575. What is the correct entry to be made in Alana's general ledger in respect of the invoice? A. DEBIT Purchases $500, DEBIT Sales tax $75, CREDIT Payables $575 B. DEBIT Purchases $575, CREDIT Sales tax $75, CREDIT Payables $500 C. DEBIT Purchases $500, CREDIT Payables $500 D. DEBIT Purchases $575, CREDIT Payables $575 Answer: D Alana is not registered for sales tax purposes and therefore cannot reclaim the input sales tax of $75. 758 Flor, NamA Bank building, 5 Le Thank Noh, Hal Be Tung district, He No Sepp.edu.vn 2° Poor, Green Star Tower No, 26% Phar Van Dong Bae Tu Lem cisnet Mano He 38 22 76 (HN) “Fleer No. 28 Luong Hus Khanh, Dstt 3, Ho Chi Minh Cs (880 66 22 67 (HEM) Example 5: The following information relates to Eva Co's sales tax for the month of March 20X3: $ Sales (including sales tax) 109,250, Purchases (net of sales tax) 64,000 Sales taxis charged at a flat rate of 15%. Eva Co's sales tax account showed an opening credit balance of $4,540 at the beginning of the month and a closing debit balance of $2,720 at the end of the month. What was the total sales tax paid to regulatory authorities during the month of March 20X3? $ Answer: $11,910 SALES TAX CONTROL ACCOUNT $ $ b/d 4,540 Purchases ($64,000 fi 15%) 9,600 | Sales 14,250 (109,250 x 15%/115%) /d 2.720 Cash 11,910 21,510 21,510 764 NAA ak tang, 5 Tn Noh Tana iti Ho P Floer No. 28 Luang Hus Khan, Distt 7, Ho Ch Minh C Il, DISCOUNTS 1. Types of discounts Discounts Trade discount Cash discount/ Settlement discount + Areduction in the list price of goods + Given by a wholesaler or . Areduction in the amount payable manufacturer to a retailer. + tis often given in return for payment + tis often given in return for bulk in cash, or within an agreed period. purchase orders. Example f Sf xample ‘Acustomer is quoted a price of $1 per unit pamee . A supplier charges $1,000 for goods, but for a particular item, but a lower price of offers a discount of 5% if the goods are $0.95 per unit if the item is bought in Beene id within 2 w quantities of more than 100 units ata oe time. 2. Accounting for discounts 2.1 Trade discount Trade discount Trade discount received Trade discount allowed (given by suppliers to the business) (given by the business to customers) Discount is deducted from Discount is deducted from ‘gross cost of purchases gross sales price 7