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THE FINAL GRADE IS COMPUTED AS FOLLOWS:

On-going assessment:
PRINCIPLES OF ACCOUNTING - Attendance: 10%
- Assignment: 20%
- Mid-term test: 20%
- Final Exam: 60%

DR. HALINH NGUYEN

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SYLLABUS SYLLABUS

✓ Chapter 1: Accounting in Business ✓ Chapter 6: Inventory

✓ Chapter 7: Plant Assets, Natural resources,
✓ Chapter 2: Analyzing & Recording Transactions
Intangible Assets
✓ Chapter 3: Adjusting Entries
✓ Chapter 8: Accounts Receivable
✓ Chapter 4: Completing the Accounting Cycle ✓ Chapter 9: Current liabilities
✓ Chapter 5: Accounting for Merchandising & Payroll accounting
✓ Chapter 10: Long-term Liabilities
✓ Chapter 11: Corporations

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WHAT IS ACCOUNTING?

WHAT IS ACCOUNTING?
FUNDAMENTAL CONCEPTS
Accounting is a process of three activities:
1 Identifying
2 Recording
3 Communicating

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Management
THE ACCOUNTING PROCESS Continue sell the products?
Banks
The amount of credit to
Communication extend to Coca-Cola

Accounting
Identification Recording Reports

Prepare accounting Suppliers

reports Financial analysts
offer credit for Coca-Cola’s
Recommend the purchase
Select economic events Input (Record),
SOFTBYTE purchases of supplies & raw
(transactions) measure
Annual Report

materials of Coca-Cola’s stock

& classify

State & federal governments

a basis for assessing
Analyze and interpret
for users taxes on Coca-Cola
Importance of Accounting

User of accounts Decisions to be made Factors to be taken into account

Owners Buy or sell or keep shares

Profits
Cash flow

Customers Buy goods or services Will the company continue?

Managers/ All decisions about managing a Profitability, production
Directors business Quality, market share.
Should I recall my loan? Security (Assets, cash flow,
Finance providers
Should I lend some more? forecast profits)
Do I sell more? How much credit How good are they at paying?
ACCOUNTING SYSTEM Suppliers should I allow? Security?
Should I recommend buy, sell or Same as owners (Profits
Investment analysts
hold Cash flow)
Are these jobs safe in the future?
Community What skills are needed in the
Long term future
representatives future?
Other companies?

MANAGEMENT ACCOUNTING FINANCIAL ACCOUNTING

Government
What tax can be raised? Overall economic situation
What infrastructure is needed? Political viewpoint
Shall I look for another job? Level of unemployment?
Financial accounting provides Employees
Managerial accounting provides Can we negotiate better pay? Job security Other opportunities?
information needs for internal external users with financial Competitors Do we compete? Competitive situation
statements. Do we enter or leave a market? including cost structure
decision makers.

Conflicts of interest between stakeholders/users ACCOUNTING & BOOK-KEEPING

Owners and employees Owners may want short term profit
Employees may want long term job
security
Owners and employees Owners may want long term profit Dis-organised Organised
Employees may want short term Information Record → Sort → Summarize information
pay rise (transactions) (financial
Customers and managers Customers may wish for very large Statements)
stocks to be held
Manager may minimise stock
Community representatives Owners may be more focused on
and owners profits ACCOUNTING goes beyond BOOK-KEEPING:
Community may be more worried
about environment + Analysing & interpretion of financial data
Owners and lenders Owners are interested in profit + Setting up book-keeping system
Lenders are interested in security
+ Emphasizes analysis, while Book-keeping emphasizes recording

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Opportunities in Accounting ETHICS – A KEY CONCEPT

Ethics

FINANCIAL MANGERIAL TAXATION ACCOUNTING - RELATED Accepted standards of good

Beliefs that distinguish right
and bad behavior
Financial Managerial Taxation •Lenders •FBI investigators from wrong
•Preparation •General accounting •Preparation •Consultants •Market researchers
•Analysis •Cost accounting •Planning •Analysts •Systems designers
•Auditing •Budgeting •Regulatory •Traders •Merger services  Identify ethical  Analyze options  Make ethical decision
•Regulatory •Internal auditing •Investigations •Directors •Business valuation concerns
•Consulting •Consulting •Consulting •Underwriters •Human services
•Planning •Controller •Enforcement •Planners •Litigation support
•Criminal •Treasurer •Legal services •Appraisers •Entrepreneurs
investigation •Strategy •Estate plans
Use personal ethics Choose best option
to recognize ethical Consider all good and bad after weighing all
concern. consequences. consequences.

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Sarbanes-Oxley (SOX) Generally Accepted Accounting Principles

Congress passed the Sarbanes-Oxley Act to help curb financial abuses at companies that Financial accounting practice is governed by concepts and
issue their stock to the public. Management must issue a report stating that internal rules known as generally accepted accounting principles
control are effective. Auditors must verify the effectiveness of internal controls.
(GAAP).

Company Alleged Accounting Abuses

Enron Inflating income, hid debt, and bribed officials
Relevant Information Affects the decision of its users.
WorldCom Understated expenses to inflate income and hid debt
Fannie Mae Inflated income
Adelphia Communications Understated expenses to inflate income and hid debt Reliable Information Is trusted by users.
AOL Time Warner Inflated revenues and income
Xerox Inflated income
Bristol-Myers Squibb Inflated revenues and income Is helpful in contrasting
Nortel Networds Understated expenses to inflate income Comparable Information
organizations.

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Principles and Assumptions of Accounting Principles and Assumptions of Accounting

Time Period Assumption

Presumes that the life of a company can
be divided into time periods, such as
months and years and that useful reports
can be prepared for those period
Business Entity Assumption Going-Concern .
A business is accounted for Assumption
separately from other business Reflects assumption that the
entities, including its owner business will continue operating
instead of being closed or sold.

Monetary Unit Assumption

Express transactions and events in
Now Future monetary, or money, units

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Principles and Assumptions of Accounting Principles and Assumptions of Accounting

Cost Principle Matching Principle

Accounting A company must record its
information is based expenses incurred to generate the
on actual cost. revenue reported
Actual cost is
considered objective.

Revenue Recognition
Principle
1. Recognize revenue when it is earned.
2. Proceeds need not be in cash. Full Disclosure Principle
3. Measure revenue by cash received A company is required to report the
plus cash value of items received. details behind financial statements that
would impact users’ decisions

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WHY YOU NEED ACCOUNTANTS?

TO KEEP TRACK OF YOUR MONEY???

ACCOUNTING EQUATION &

TRANSACTION ANALYSIS

Pouring money into business Forming Assets

WHERE DOES YOUR MONEY GO?

WHERE’S YOUR MONEY COME FROM?

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OBJECTIVES OF ACCOUTING OBJECTIVES OF ACCOUNTING

(Accounting FOCUS ON what?) B SUPPORTING RESOURCES

ASSETS
U
S
I
N
CASH ON HAND BUILDING E Banks
Current Assets S
S
Suppliers
A
CASH AT BANK MACHINE C
T Labors
V
I
INVENTORY
T
CAR…………. I
E Owner’s
S Equity
Non-current Assets
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BASIC ACCOUNTING EQUATION Subdivisions of Owner’s Equity:

1 Capital
2 Drawing
ASSETS = LIABILITY + Owner’s EQUITY
3 Revenues
4 Expenses
Assets are Liabilities Owner’s Equity
resources owned are claims against assets represents the Investments Withdrawals
or controlled by a (debts & obligations) ownership claim on by Owner by Owner
company total assets. Owner’s
Equity
Revenues Expenses
EQUITY DEBTS

ASSETS
INCREASE DECREASE
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Expanded Accounting Equation CLASSIFICATION

Owner
Investments
Accounts Notes
Receivable
Assets = Liabilities + Owner’s Equity Notes
Payable
Payable Vehicles
Buildings Land
Wages
Payable
Owner _ Owner _
Capital Withdrawals + Revenues Expenses
Cash

Accounts
Owner's Equity Receivable Office
Equipment Taxes Supplies
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Payable

Current Assets Non-current Assets TRANSACTION ANALYSIS

Transactions are the economic events of the enterprise.

1 External transactions
The equation always stays in 2 Internal transactions
balance

The accounting equation MUST remain in balance

after each transaction.

Liability Owner’s Equity

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TRANSACTIONS

CORE Purchased RAW MATERIAL,

paid by CASH 1,000

CORE?

TRANSACTION ANALYSIS ASSETS = LIABILITIES + EQUITY

Motor Trade
Cash Van Inventory Borrowings payables Capital

1. 1st March, Jerry Company starts a business: depositing (1) 20,000 14,000 + 6,000
₤ 20,000 in a bank account (capital was raised partly from the
owner ₤ 6,000 and from borrowing ₤ 14,000) (2) (5,000) 5,000
2. 2nd March, bought a motor van for ₤ 5,000, paying by cheque
(3) 3,000 3,000
3. 3rd March, bought inventories (goods to be sold) on one
month’s credit for ₤ 3,000
(4) (2,000) (2,000)
4. 4th March, repaid ₤ 2,000 of the amount borrowed to the (5) 4,000 4,000
lender, by cheque

5. 6th March, owner introduced another ₤ 4,000 into the business 25,000 = 25,000
bank account

TRANSACTION ANALYSIS TRANSACTION ANALYSIS

1. Chuck Taylor invests $30,000 cash to start a consulting business. 2. Purchased supplies paying $2,500 cash.
The accounts involved are: The accounts involved are:
(1) Cash (asset) (1) Cash (asset)
(2) Owner Capital (equity) (2) Supplies (asset)
Assets = Liabilities + Equity Assets = Liabilities + Equity
Accounts Accounts
Cash Supplies Equipment Payable Notes Payable C. Taylor Capital Cash Supplies Equipment Payable Notes Payable C. Taylor Capital
(1) $ 30,000 $ 30,000 (1) $ 30,000 $ 30,000
(2) (2,500) $ 2,500

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

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TRANSACTION ANALYSIS TRANSACTION ANALYSIS

3. Purchased equipment for $26,000 cash. 4. Purchased Supplies of $7,100 and on account.
The accounts involved are: The accounts involved are:
(1) Cash (asset) (1) Supplies (asset)
(2) Equipment (asset) (2) Accounts Payable (liability)

Assets = Liabilities + Equity Assets = Liabilities + Equity

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

$ 1,500 $ 2,500 $ 26,000 $ - $ - $ 30,000 $ 1,500 $ 9,600 $ 26,000 $ 7,100 $ - $ 30,000

$30,000 = $30,000 $ 37,100 = $ 37,100

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TRANSACTION ANALYSIS TRANSACTION ANALYSIS

5. Provided consulting services receiving $4,200 cash. 6,7. Payment for rent $1,000 of cash, biweekly salary $ 700
The accounts involved are: The accounts involved are:
(1) Cash (asset) (1) Cash (asset)
(2) Revenues (equity) (2) Expense (equity)
Assets = Liabilities + Equity Assets = Liabilities + Equity
Equipmen Accounts Notes C. Taylor Accounts Notes C. Taylor
Cash Supplies t Payable Payable Capital Revenue Cash Supplies Equipt Payable Payable Capital Revenue Expense
(1) $ 30,000 $ 30,000 5,700 9,600 26,000 7,100 - 30,000 4,200
(2) (2,500) $ 2,500
(6) (1,000) (1,000)
(3) (26,000) $ 26,000
4,700 9,600 26,000 7,100 30,000 4,200 (1,000)
(4) 7,100 $ 7,100 (7) (700) (700)
(5) 4,200 $ 4,200 4,000 9,600 26,000 7,100 30,000 4,200 (1,700)
$ 5,700 $ 9,600 $ 26,000 $ 7,100 $ - $ 30,000 $ 4,200
39,600 = 39,600

$ 41,300 = $ 41,300

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TRANSACTION ANALYSIS TRANSACTION ANALYSIS

8. Provide services $ 1,600 and facilities $ 300 for credit 9. Receive cash from Account receivable $ 1,900
The accounts involved are: The accounts involved are:
(1) Account Receivable (asset) (1) Cash (asset)
(2) Revenues (equity) (2) Account Receivable (asset)
Assets = Liabilities + Equity Assets = Liabilities + Equity
Accounts Notes C. Taylor
Accounts Notes C. Taylor
Cash Supplies Equipt Acc Rev Payable Payable Capital Revenue Expense
Cash Supplies Equipt Acc Rev Payable Payable Capital Revenue Expense
5,700 9,600 26,000 7,100 - 30,000 4,200
5,700 9,600 26,000 7,100 - 30,000 4,200
(6) (1,000) (1,000)
(6) (1,000) (1,000)
(7) (700) (700)
(7) (700) (700)
(8) 1,600 1,600
(8) 1,900 1,900
(8) 300 300
(9) 1,900 (1,900)
4,000 9,600 26,000 1,900 7,100 30,000 6,100 (1,700)
5,900 9,600 26,000 7,100 30,000 6,100 (1,700)
41,500 = 41,500
41,500 = 41,500

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TRANSACTION ANALYSIS TRANSACTION ANALYSIS

11. Withdrawal by owner of $ 200 cash
10. Partial payment for Acc Payable $ 900
The accounts involved are:
The accounts involved are:
(1) Cash (asset)
(1) Cash (asset)
(2) Owner’s Equity
(2) Account Payable (liability)
Assets = Liabilities + Equity Assets = Liabilities + Equity
Acc Accounts Notes C. Taylor
Acc Accounts Notes C. Taylor Cash Supplies Equipt Rev Payable Payable Capital Revenue Expense
Cash Supplies Equipt Rev Payable Payable Capital Revenue Expense
5,700 9,600 26,000 7,100 - 30,000 4,200
5,700 9,600 26,000 7,100 - 30,000 4,200
(6) (1,000) (1,000)
(6) (1,000) (1,000)
(7) (700) (700)
(7) (700) (700)
(8) 1,900 1,900
(8) 1,900 1,900
(9) 1,900 (1,900)
(9) 1,900 (1,900)
(10) (900) (900)
(10) (900) (900)
(11) (200) (200)
5,000 9,600 26,000 6,200 30,000 6,100 (1,700)
40,600 = 40,600 4,800 9,600 26,000 6,200 29,800 6,100 (1,700)
40,400 = 40,400
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FINANCIAL STATEMENTS

Let’s prepare the Financial Statements reflecting

the transactions we have recorded.

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

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FINANCIAL STATEMENTS TRANSACTION ANALYSIS

Summarizing what business has done in a period

EXAMPLE
Our approach Assets = Liabilities + Equity

- Be given several transactions and events Acc Accounts Notes C. Taylor

Cash Supplies Equipt Rev Payable Payable Capital Revenue Expense
- Process them one at a time
5,700 9,600 26,000 7,100 - 30,000 4,200
- Carrying them all the way to the financial statements.
(6) (1,000) (1,000)
(7) (700) (700)
(8) 1,900 1,900
(9) 1,900 (1,900)
(10) (900) (900)

(11) (200) (200)

4,800 9,600 26,000 6,200 28,000 6,100 (1,700)

40,400 = 40,400

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INCOME STATEMENT STATEMENT OF OWNER’S EQUITY

FastForward
Net income is the difference between Revenues and Expenses. Income Statement
For Month Ended December 31, 2009
FastForward The net income of $4,400 increases
Revenues:
Income Statement Consulting revenue $ 5,800 Owner's Equity by $4,400.
For Month Ended December 31, 2009 Rental revenue 300
Total revenues $ 6,100
FastForward
Revenues: Expenses:
Rent expense 1,000 Statement of Owner's Equity
Consulting revenue $ 5,800 For Month Ended December 31, 2009
Salaries expense 700
Rental revenue 300 Total expenses 1,700 C, Taylor, Capital December 1, 2009 $ -
Total revenues $ 6,100 Net income $ 4,400 Plus: Investment by ower $ 30,000
Expenses: Net income 4,400
Rent expense 1,000 34,400
Salaries expense 700 Less: Withdrawals by owner 200
Total expenses 1,700 C. Taylor, Capital, December 31, 2009 $ 34,200
Net income $ 4,400

The income statement describes a company’s revenues and expenses along with the STATEMENT OF explains changes in equity from net income (or loss) and from
OWNER’S EQUITY any owner investments and withdrawals over a period of time.
resulting net income or loss over a period of time due to earnings activities.

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STATEMENT OF CASH FLOWS

BALANCE SHEET identifies cash inflows (receipts) and cash outflows (payments) over a period of time.

FastForward
The Balance Sheet describes a company’s Statement of Cash Flows
financial position at a point in time. For Month Ended December 31, 2009

FastForward Cash flows from operating activities:

Cash received from clients $ 6,100
Balance Sheet
Cash paid for supplies (3,400)
December 31, 2009
Cash paid for rent (1,000)
Cash paid to employees (700)
Assets Liabilities & Equity Net cash provided by operating activities $ 1,000
Cash $ 4,800 Accounts payable $ 6,200 Cash flows from investing activities:
Supplies 9,600 Total liabilities 6,200 Purchase of equipment (26,000)
Equipment 26,000 Equity Net cash used in investing activities (26,000)
C. Taylor, Capital 34,200 Cash flows from financing activities:
Total liabilities and equity Investment by owner 30,000
Total assets $ 40,400 $ 40,400
Withdrawal by owner (200)
Net cash provided by financing activities 29,800
Net increase in cash $ 4,800
Cash balance, December 1, 2009 -
Cash balance, December 31, 2009 $ 4,800
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1A - RETURN AND RISK ANALYSIS 1B - Business Activities and the Accounting Equation

Return on assets (ROA) is stated in

ratio form as income divided by
assets invested.

Return on Assets
30 Year Bonds
Risk is the uncertainty
about the return we will
High-risk corporate 7.80% earn.
There are three major types of activities in any organization:
Medium-risk corporate 6.90% 1. Financing Activities – Provide the means organizations use to pay for resources such as land,
buildings, and equipment to carry out plans.
Low-risk corporate 5.80%
2. Investing Activities - Are the acquiring and disposing of resources (assets) that an

U.S. Treasury 5.10% organization uses to acquire and sell its products or services.
3. Operating Activities – Involve using resources to research, develop, and purchase, produce,
0.00% 2.00% 4.00% 6.00% 8.00%
distribute, and market products and services.
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THE END

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