Chap 1:

Introduction to
Financial
Accounting
MA. Vu The Binh
0565595569
[email protected]
Learning Objective
• Explain what accounting is about
• Describe the history of accounting
• Users of accounting information
• Describe the accounting equation
• Explain the meaning of the terms assets, capital, liabilities, account
receivable and account payable
• Describe how accounting transactions affect the items in the accounting
equation
1. What is accounting?

• Accounting can be defined as :

“ The process of recording, analyzing, summerizing and reporting
financial transactions of a business to users of accounting information for
decision making purpose “
2. The history of accounting
• Accounting began because people need to :
- record business transaction
- know how much they owned and how much they owed
• Have existed at least 10.000 years ago ( Evidence of accounting being
practiced in ancient times in Egypt, China, India, Greece and Rome) .
• In 1494, Luca Pacioli wrote the first book. This book had been translated
into many languages and is acknowledged as the chief reason why we
maintain accounts in the way we do today.
3. Type of accounting
• Financial accounting
• Managerial accounting
• Cost accounting
• Tax accounting
3. Type of accounting
• Financial accounting - Refers to the process used to generate interim
and annual financial statement.
• Managerial accounting - The results of all financial transactions that
occur during an accounting period are
• Cost accounting summarized in balance sheet , income
statement and cash flow statement.
• Tax accounting
3. Type of accounting
• Financial accounting - Use the same data as financial accounting but it
organizes and utilizes information in different
• Managerial accounting ways.
- An accountant generates monthly or quaterly
• Cost accounting reports that help manager make decisions.

• Tax accounting
3. Type of accounting
• Financial accounting - Help business managements make decisions
about costing.
• Managerial accounting - Cost accounting considers all the costs related
to producing a product.
• Cost accounting
• Tax accounting
3. Type of accounting
• Financial accounting - Tax accounting is the subsector of accounting
that deals with the preparations of tax returns
• Managerial accounting and tax payments.
- Tax accounting for an individual focuses on
• Cost accounting income, qualifying deductions, donations, and
any investment gains or losses.
• Tax accounting
4. The objectives of financial accounting
It has many objectives, including letting people and entities know
• If they are making profit or loss
• how much cash they have
• how wealthy they are
• how much they are owed
• how much they are owned
4. The objectives of financial accounting
• Financial statements should provide information about the financial
position, performance and changes in the finances of an entity.
• Financial statements should be useful to a wide range of users in making
economic decisions.
• Financial statements are prepared on the basis of established concepts
and must adhere to the rules and procedures set down in regulations,
called accounting standards.
5. Users of accounting information
• Managers
• Owners of the business
• Buyers ( customers)
• The bank
• Tax inspectors
• Suppliers
• Investors
• Creditors
6. Accounting process
• Source of document
• Books of original entry
• Ledger
• Trial balance
• Financial statement : Balance sheet, Income statement, Cash flow
statement, Statement of change in Equity.
7. Elements of Financial Statement
• Asset : Controlled by the entity, future economic benefit.
• Liability : current obligations from past events.
• Capital/equity : amount of capital invested or owned by the owner.
• Revenue : inflow of cash or receivables from normal business
operations.
• Expense : cost of operation to generate revenue.
7. Elements of Financial Statement
7. Elements of Financial Statement
8. Ethics
The IFAC Code states that a professional accountant must comply with the
following fundamental principles :
• Integrity
• Objectivity
• Professional competence and due care
• Confidentiality
• Professional behaviour
9.Qualiative characteristics of accounting information
10. The accounting equation
- If the owner of the business who has supplied all the resources
Resources supplied by the owner = Resources in the business
The amount of the resources supplied by the owner is called capital
The amount of resources that are in the bussiness is called asset

Assset = Capital
10. The accounting equation
- If not only the owner of the business, but also other people have suppled
some of the asset, the amount owing to these people for these asset is
called Liabilities. The accounting equation has now changed to

Assset = Capital + Liabilities

10. The accounting equation
10. The accounting equation
11. The statement of financial position ( balance
sheet ) and the effects of business transactions
On 1 May 2018, B.Blake stated in business and deposited $ 60,000 into a
bank account opened specially for the business.

B.Blake
Statement of financial position as at 1 May 2018
$
Assets : Cash at bank 60,000
Capital : 60,000
11. The statement of financial position ( balance
sheet ) and the effects of business transactions
On 3 May 2018, Blake buys a small shop for £32,000, paying by cheque

B.Blake
Statement of financial position as at 1 May 2018
$
Assets : Cash at bank 28,000
Shop 32,000
Capital : 60,000
11. The statement of financial position ( balance
sheet ) and the effects of business transactions
On 6 May 2018, Blake buys some goods for £7,000 from Smith and agrees
to pay for them some time within the next two weeks

B.Blake
Statement of financial position as at 1 May 2018
$
Assets : Cash at bank 28,000
Shop 32,000
Inventory 7,000
Liability: Account Payable 7,000
Capital : 60,000
11. The statement of financial position ( balance
sheet ) and the effects of business transactions
On 10 May 2018, goods which cost $600 were sold to J.Brown for the
same amount, the money to be paid later

B.Blake
Statement of financial position as at 1 May 2018
$
Assets : Cash at bank 28,000
Shop 32,000
Inventory 6,400
Account Receivable 600
Liability: Account Payable 7,000
Capital : 60,000
11. The statement of financial position ( balance
sheet ) and the effects of business transactions
On 13 May 2018, goods which cost £400 were sold to D. Daley for the
same amount. Daley paid for them immediately by cheque

B.Blake
Statement of financial position as at 1 May 2018
$
Assets : Cash at bank 28,400
Shop 32,000
Inventory 6,000
Account Receivable 600
Liability: Account Payable 7,000
Capital : 60,000
11. The statement of financial position ( balance
sheet ) and the effects of business transactions
On 15 May 2018, Blake pays a cheque for £3,000 to D. Smith in part
payment of the amount owing

B.Blake
Statement of financial position as at 1 May 2018
$
Assets : Cash at bank 25,400
Shop 32,000
Inventory 6,000
Account Receivable 600
Liability: Account Payable 4,000
Capital : 60,000
11. The statement of financial position ( balance
sheet ) and the effects of business transactions
J. Brown, who owed Blake £600, makes a part payment of £200 by cheque
on 31 May 2018

B.Blake
Statement of financial position as at 1 May 2018
$
Assets : Cash at bank 25,600
Shop 32,000
Inventory 6,000
Account Receivable 400
Liability: Account Payable 4,000
Capital : 60,000
12. Equilty of the accounting equation
12. Equality of the accounting equation
12. Equilty of the accounting equation
12. Equilty of the accounting equation
Excersice