Chap 1 : Introduction to Accounting

I- Accounting process
-   Accounting consists of 3 basic activities – it
+ identifies: select economic events(transaction_giao dịch)
+ recording : record, classify,and summarize
+ communicates: prepare accounting reports
( the accounting process includes the bookkeeping function)(analyze and interpret giải
thích for users)
The economic events of an organization to interested users.
-   Who uses accounting data:
+ Internal users(người dùng nội bộ) : Marketing , management, finance, human
resources, may be employees.
+ External users (người dùng bên ngoài): investors( is general electric earning
satisfactory), creditors (chủ nợ), ngoai ra government and agency 

EXAMPLE 1: Indicate whether the following statements are true or false.

The three steps in the accounting process are identification, recording,
and communication. True
Bookkeeping encompasses all steps in the accounting process.
Bookkeeping is part of accounting record False
Accountants prepare, but do not interpret, financial reports. False
Thuộc analyze finacial report
The two most common types of external users are investors and company
officers. False
company officers is internal users
Managerial accounting activities focus on reports for internal users
True

II- The regulations of accounting (quy định về kế toán)

1. Ethics in financial reporting
- Recent financial scandals include: Enron, Worldcom, HealthSouth, AIG, and other
companies.
- Regulators and lawmakers concerned that the economy would suffer if investors lost
confidence in corporate accounting. In response,
+ congress passed Sarbanes-Oxley Act (SOX)
- Effective financial reporting depends on sound ethical behavior.
2.Generally accepted accounting principles:

Various users Financial Statements

need financial  Balance Sheet
 Income Statement
 Statement of Owner's Equity
 Statement of Cash Flows
   Note Disclosure

The accounting profession Generally Accepted

has developed standards that Accounting
are generally accepted and Principles (GAAP)
universally practiced.

a) Measurement principles.
-   Historical cost principle giá gốc(or cost principle) dictates that companies record
assets at their cost.
-   Fair value principle : states that assets and liabilities should be reported at
fair value gt phù hợp ( the price received to sell an asset or settle a liability)
Selection of which principle to follow generally relates to trade-offs between
relevance and faithful representation
b) Assumptions.(giả định)
-   Monetary unit assumption (giả định tiền tệ): requires that companies include in the
accounting records only transaction data that can be expressed in terms of money.
-   Economic entity assumption (giả định thực thể kinh doanh): requires that activities
of the entity be kept separate (tách) and distinct (riêng biệt) from the activities
of its owner and all other economic entities.
 Forms of business ownership
-   Soler trader:
+ owned by one person
+ owner is often manager/operator
+ owner receives any profits, suffers, any losses, and is personally liable for
debts
-   Partnership:(qh đối tác)
+ owned by two or more persons
+ often retail(bán lẻ) and service-type businesses
+ generally unlimited personal liability
+ partnership agreement
-   Company:
+ ownership divided into shares of stock(cổ phiéu)
+ separate legal entity organized under state corporation law
+ limited liability
III-   Accounting equation
  Assets = Liabilities + Owner’s Equity
Basic accounting equation:
-   Provides the underlying framework for recording and summarizing economic events.
-   Assets are claimed(bồi thường) by either creditor(chủ nợ)or owners
-   If a business is liquidated(thanh lí), claimed of crediors must be paid before
ownership claim
a) Assets (tài sản)
-Resources a business owns.
- provide future services or benefits
- cash, supplies, equipment,…
b)Liabilities
- claims against assets (debts nợ and obligations nghĩa vụ)
- creditors ( party to whom money is owned)
- accounts Payable (tk phải trả), Notes Payable, Salaries and Wages Payable,…
c) Owner's Equity (vốn chủ sở hữu)
- ownership claim on total assets
- referred to as residual equity
- investment by owners and revenues(+)
- drawings and expenses(-)

 Increases in owner's equity : Profit tăng => revenue tăng => owner’s equity tăng
-   Investments by owner: are the assets the owner puts into the business
-   Revenues: result from business activities entered into for the purpose of earning
income:
+ common sources if revenues are: sales, fees, services, commissions, interest,
interest, dividends, royalties, and rent.
 Decrease in owner’s equity:
- Drawings (rút):An owner may with draw cash or other assets for personal use.
- Expenses(phí) are the cost of assets consumed or services used in the process of
earning revenue.
+ Common expenses are: salaries expense, rent expense, utilities expense, tax
expense, etc.
IV- The main financial statement (báo cáo tài chính)
Companies prepare four financial statements:
  + statement of profit and loss (báo cáo kq kinh doanh: thể hiện về doanh thu, chi
phí lợi nhuận)
  + statement of change in equity (thể hiện về vốn: có ai góp vốn, rút vốn,)
  + statement of financial position (báo cáo cân đối kế toán)
  + statement of cash flows(báo cáo dòg tiền)
1. Statement of financial position
a) Assets
-   Current asset (tài sản ngắn hạn): are expected to be converted into cash within
one year
+ Cash
+ Items owned by the business with the intention of turning them into cash in a
short time: Inventory (hàng tồn kho)
o Trade and other receivables
o Short-term investments
o Prepayments ( prepaid expenses)chi phí trả trước
-   Non-current asset: are acquired for long-term use within the business
+ property(tài sản), plant and equipment(thiết bị) ( tangible assets tài sản hữu
hình– PPF)
+ intangible non-current assets(ko có hình thái vật chất)
+ long-term investments

b) Capital – equity (vốn- vốn chủ sở hữu)

Capital ( sole trader):
 £ £
Capital at the beginning of the reporting period

(ie capital brought forward) X

Add additional capital introduced during the period X
X
Add profit earned during the period (or less losses incurred in the X
period)
Less drawing (X)
Retained profit for the period X
Capital as at the end of the reporting period (ie capital carried X
forward)

Closing captital (at the end) = opening capital + additional + profit – less drawing
Equity (company)
c) Liabilities (nợ phải trả)
- Current liabilities: are debts which are payable within one year
+ Loans (khoản vay): repayable within one year, including element of a long term
loan that is repayable within one year
+ Bank overdraft (repayable on demand)
+ Trade payable (accout table xuất hiện khi mua chịu…)
+ Taxation payable
+ Accruals, other payables,…
- Non-current liabilities (nợ dài hạn): are debts which are payable after one year
+ loans: not repayable for more one year, ie. Bank loan, loan from individual or
business.
+ Loans stock or debentures (limited company)
NET assets: Assets less liabilities
2. Statement of profit and loss
a) Income/Expense
- Revenue
- Cost of sales: the purchase or production cost of the goods sold
- Gross profit = Revenue – Cost of Sales
- Profit for the year = Gross profit – expense + non-trading income
Gross profit XXXX
Plus any other income from source other than the sale of goods X
Minus other business expense not included in the cost of good sold (XX)
XXX
Income from other source:
- Profit on disposals (xử lí) of non-
current assets (bán 1 tài sản dài
hạn)
- Divideds or interest receive from
investments
- Rental income from property owned but
not otherwise used by the business
- Amounts due in respect of insurance
claim
Business expense, other than COS:
- Distribution costs/selling espense:
Salaries, wages, commision of employees;
marketing costs, depreciation
- Administrative (hành chính) costs/expense:
Management& office staff salaries, rent,
insurance, telephone and postage…
- Finance costs/financial expense: interest on
loans, bank overdraft interest

Question1:
Which one of the following can the accounting equation can be rewritten as?
a) Assets + profit – drawings – liabilities = closing capital
b) Assets – liabilities – drawings = opening capital + profit
c) Assets – liabilities – opening capital + drawings = profit
d) Assets – profit – drawings = closing capital – liabilities
Question 2:
The profit earned by a business in 20X7 was $72,500. The proprietor injected new
capital(additional) of $8,000 during the year and withdrew goods for his private use
which had cost (drawing) $2,200. If net assets at the beginning (opening capital) of
20X7 were $101,700, what were the closing net assets (closing capital)?
a) $35,000
b) $39,400
c) $168,400
d) $180,000
net asset = total assets
Closing captital (at the end) = opening capital + additional + profit – less drawing
72500+8000-2200+101700=180000
Question 3:
A sole trade borows $10,000 from a bank. Which elements of the accounting equation
will change due to this transaction?
a) Assets and liabilities
b) Assets and capital
c) Capital and liabilities
d) Assets only
vay tien trong ngan hang se xuat hien : liability
Do di vay nen co them 10000 tien . Tien cua mk thuoc loai Asset vi tien tang

2 The capital of a sole trader would change as a result of:

A. a credit customer paying by bank transfer
(hinh thanh khoan trade receivable thuoc Asset. Hinh thanh tu ki truoc =>
trade receivable giam xuong chi anh huong de 1 tai san tang len va 1 taii san
giam xuong)
B. raw materials being purchased on credit
(nguyen vat lieu thuoc inventory_hang_ton_kho ma inventory thuoc asset, mmua ma
chua tra tien thi hinh thanh khoan phai tra laf trade payable, maf trade payable
laf khoan liability. Anh huong den thu khac ko a/h capital)
C. non-current assets being purchased on credit
D. personal petrol being paid for out of the business's petty cash
(anh chu so huu di lai và đổ xăng, anh ta dùng tiền công ty => xuất hiện drawing và
ảnh hưởng đén capital khiên capital giảm đi)