Accounting CFAB

Chapter 1, 2, 3, 4, 5
Summary and notes by
contents (part 1)
truongthihanhdung@uel.edu.vn
Restructure the contents, to get better advantages

CONTENTS BY CONTENTS,
NOT CHAPTERS BY CHAPTERS
GENERAL BACKGROUND
Introduction
Exam strategy
 1.5 hours (90 minutes)
 25 questions:
- 1 CASE STUDY chapter 12 (set of SCI, SCE, SFP) or chapter 13 (SCF): 40 marks ( 36
minutes only)
- 24 multiple choice questions worth 2.5 marks each ( 54 minutes total, nearly 2 minutes
each question)
Quiz questions chapter 1
1. What is accounting? What is the purpose of accounting information?
2. How many branches of accounting?
3. What is the result of financial accounting?
4. How many types of businesses commonly?
 In term of Accounting, what are the main differences of those types of businesses?
 In term of obligations (paying debts), what are the main differences of those businesses?
5. List some fields of businesses?
6. List some users of financial statements (FSs)? What do they use FSs for?
7. Who and which documents govern the Accounting activities in Vietnam? Internationally?
8. In brief, what are the bases, assumptions, qualitative characteristics and basic requirements
underlying the financial reporting? (or Conceptual Framework & IAS 01 requirements for doing
Accounting nowadays)
Technical references
Vietnamese system

Source: Thuong, T. T. (2018). The Development Path

of Vietnamese Accounting System. International Journ
al of Economics and Finance, 154-164.
International system
— International Financial Reporting Standards Foundation
(IFRSF)
— International Accounting Standards Board (IASB)
— International Financial Reporting Standards Advisory
Council (IFRSAC)
— International Financial Reporting Standards
Interpretations Committee (IFRSIC)

Besides, somes countries still

have their own GAAP:
US GAAP, V-GAAP Considering both:
- National/Local law
- Accounting standards
- Stock exchanges regulations
- National GAAP
- Accounting concepts and Judgements

International standards world-widely used

Conceptual framework for preparing
general purpose FSs (in brief)
 2 bases: Accrual basis vs Cash basis to
prepare FSs
 4 assumptions: Going concern; Business
entities, Monetary units; Accrual accounting
to prepare FSs.
 2 fundamental + 4 enhancing qualitative
characteristics of Financial Statements
Conceptual framework for preparing
general purpose FSs (in brief)

Claim: a demand or request for something considered one's due: nghĩa vụ, yêu cầu thực hiện.
Basic requirement for financial reporting
Code of ethics for professionals
(self-read)
IFAC (International Federation of Accountants) co ICEAW code
de
− Integrity: straightforward and honest − Guidance applies to ICAEW members,
− Objectivity: not allow bias, conflict of interest or students, affiliates, employees and memb
undue influence of others er firms and member firms themselves.
− Professional competence and due care: − The Code may not apply not only for the
continuing duty to maintain professional paid activities of the professional account
knowledge and skills ant but also to the life of the professional
− Confidentiality: respect the confidentially of accountant.
information acquired − ICAEW Code of ethics based on
− Professional behavior: comply relevant laws principles based system.
and regulations.

 Principles based system: you want to be good (compliance to law) from the inside.
 Rules-based system: You are told to be good. Have to this. Must to do that.
What would you do after school?
(career path)
 Explore some jobs in current market:
https://www.accounting-degree.org/top-paying-accounting-jobs/
https://www.michaelpage.com.vn/jobs/finance-accounting?page-index=1
PROFESSIONAL KNOWLEDGE
NOTE: SIMPLIFY THE ACCOUNTING CYCLE IN THIS COURSE TO GET
BETTER EXAM STRATEGY
Transactions;
Source documents OUTPUTS

Accounts;
General Journal

 Ledgers (used in practice) You are required to:

 T-accounts (in theory) - Prepare FSs for sole traders, partnerships and corporations
 Manually computed (recommended for - Prepare FS for businesses in different fields: services,
CFAB exam) manufacturing, merchandising…
SOURCE DOCUMENTS VS
SUPPORTING DOCUMENTS
SOURCE DOCUMENTS/VOUCHERS
 What is source documents? evidences to recognize accounting transactions.

Credit sales cycle

• Sales order (supporting)
• Delivery note/Goods despatch notes (supporting)
• Invoice (source/official/main)
• Credit notes (source)

Credit purchases cycle

• Purchase order (supporting)
• Goods received notes (supporting)
• Invoice (source/official/main)
• Debit notes (notification/supporting)
• Cheques (source)
Sales vs Purchases procedures
SALES SYSTEM

Customer order Dispatch goods Raise invoice Receive payment

PURCHASES SYSTEM

Purchase order Receive goods Receive invoice Make payment

Invoice
Invoice
Seller
Main Source, Inc. Invoice Invoice date
  Purchaser
614 Tech Avenue Date Number
Nashville, TN 37651 5/4/07 358-BI
Order number
S
o
Name: Barbee, Inc.
 Credit terms
l
Freight terms

d Attn: Tom Bell

T
Address: One Willow Plaza
Cookeville, Tennessee
Goods
o 38501 Invoice amount
P.O. 167
Item
Sales: 25
Description 
Terms 2/10,n/30 Ship: FedEx Prepaid
Quanity Price
 Amount
AC417 250 Backup System 500 $ 54.00 $ 27,000


Sub Total 27,000
We appreciate your business! Ship Chg. -


Tax -
Total $ 27,000
Credit Notes (Memos/ Memorandum)

Invoices and debit/credit notes are always side by side!

Credit Notes (Memos/ Memorandum)
• Who issue Credit notes?
 SELLER/SUPPLIER
• Reasons for issuing Credit notes:
‐ Seller wants to acknowledge the receipt of the returned goods;
‐ A customer a has been overcharged; or is given an allowance for damaged goods
• What are the relevant entry?
– Dr TR/ Cr Sales (Dr COSG/Cr Inv) (issue Invoice)
– Dr Sales Discounts and Returns/ Cr TR (issue Credit notes)

• Note: In this course, sometimes textbook recognise: Dr Sales/Cr TR.

However, this way is not good for controlling information.
Debit Notes (Memos/ Memorandum)

Invoices and debit/credit notes are always side by side!

Debit Notes (Memos/ Memorandum)

• Who issue Debit notes?  BUYER/PURCHASER

• Reasons for issuing Debit notes:
‐ Buyer wants a return of goods;
‐ has been overcharged by the supplier; or
‐ want a settlement for damaged goods sent by the supplier
• What will buyer do after issue Debit notes?  wait for the acceptance
from the Seller. If the seller accepts the Debit notes, seller issues Credit
notes and inform the Buyer. The buyer then: Dr TP /Cr Purchases
 Debit or credit note is the source documents?

- Credit notes is the negative invoice (reduce Trade Receivables) and is officially the
source document.

- Debit notes is just the notification that formally requesting for the credit notes ( I just
want and inform you but I don’t know whether you agree to reduce my payment for any
reasons or not)
 Writing Checks (through bank services)
Written order signed by depositor directing bank to pay a specified sum of
money to a designated recipient.

Maker

Payee

Payer

26 LO 6
 Remittance Advice

Clarifications attached to any checks amounts

TB chap 3 (2 mins each)
TB chap 3 (2 mins each)
1/ CHART OF ACCOUNTS
(SOME ACCOUNTS USED FOR THIS COURSE)
2/ DEBIT VS CREDIT RULES
3/ ACCOUNTING EQUATION & BASIC ENTRIES
Basic international chart of accounts
Your duty:
─ Know the name.
─ Understand Debit – Credit rule for each account.
─ Use accounts for journalizing entries.
 CHART OF ACCOUNTS
(IN BRIEF – MUST KNOW FOR
THE COURSE)
Bank overdraft accounts are very special
under IFRS system

 Bank overdrafts are Current liabilities on SFP (THE MOST SOLVENCY ACCOUNT)
 Bank overdrafts are Cash Equivalents under CASH FLOW STATEMENT
 NOTE: THIS SLIDE WILL BE CONNECTED TO CHAPTER 13 – PREPARING THE CASH
FLOW STATEMENT

HD - Non for profit, education only 33

 CHART OF ACCOUNTS
(IN BRIEF – MUST KNOW FOR
THE COURSE)
 Debit/credit rules & account balances
ASSET ACCOUNTS LIABILITY ACCOUNTS EQUITY ACCOUNTS
Opening b/l Opening b/l Opening b/l

Debit + Credit - Debit - Credit + Debit - Credit +

Ending b/l Ending b/l Ending b/l

Finding balances to prepare SCI (P&L) by transferring

Ending balances become Opening balances balances to Income summary account [in this course,
of the next accounting period Income Summary = Profit and loss ledger account]
Zero balances for the opening of next accounting period

Contra – accounts: Opposite to normal accounts

ACCOUNTING EQUATION

APPLICATION
WHEN BOOKING THE ENTRIES KEEP IN MIND:
TOTAL DEBITS = TOTAL CREDITS MAKES THE ACCOUNTING EQUATION
BALANCED
ACCOUNTING EQUATION VS ENTRIES
1. A sole trader invest cash £10,000 into the business.
2. A sole trader is £5,000 overdrawn at her bank and receives £1,000 from a credit customer in respect of its
account.
3. A sole trader purchases £5,000 goods on credit
4. A sole trader borrows £10,000 from a bank
5. A sole trader sells goods for cash for £500 which had cost £300.
6. A sole trader increases the business's number of motor vehicles by adding his own car to the business's
fleet.
TB chap 2
TB chap 4
FROM TRIAL BALANCE TO
FINANCIAL STATEMENTS
TRIAL BALANCE
 List of accounts and all its balances.
What if the trial balance fails to balance?

There are errors:

 Omission errors (sai bo sot): a transaction is completely omitted.
 Commission errors (sai tai khoan): debit/credit in correct side, but to wrong
accounts. Ex: Wages paid: Dr Rent a/c instead of Wages a/c.
 Compensating errors (sai bu tru): one error is exactly cancelled by another
error elsewhere.
 Errors of principles (sai nguyen tac hach toan): such as cash from receivables
being debited to trade receivables and credited to cash at bank instead of the
other way round.
 Transposition error (sai hoan vi): for ex, instead of writing $4,386, you
transposed into $4,836
 WE TRY TO CORRECT ERRORS IN CHAPTER 6
From Trial balance to FSs?
Basic financial statements regulated by IAS 01
[IAS 01.09-10]
1. SCI (Statement of P&L/Income Statement) – statement of comprehensive income
2. SCE - Statement of changes in Equity
3. SFP – Statement of financial position
4. CFS – Cash flow statement
5. Notes to FSs

―Financial statements are a structured representation of the financial position (SFP) and
financial performance (SCI, SCE) of an entity. 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. Financial statements
also show the results of the management’s stewardship of the resources entrusted to it‖
[IAS 01.09].
Financial statements and their links? Many owners = Corporations
1 owner = sole traders
Financial statements and their differences?

Services company

Merchandising company;
Manufacturing company
COS (cost of sales) = COGS (Cost of goods sold)
How to compute COS on the SCI?
Inventory
MI COS
COGS
A

PURCHASES C X X
DELIVERY INWARDS D

A+C+D–X=B
 COS = Opening Inv + Purchases + Delivery inwards – Ending Inv
Sole traders vs Corporation equity different:
 CORPORATION ENTRY:
─ Shareholders invest cash (buy common stock at par value) in Business (corporation): Dr Cash/Cr Share
capital
─ Business pay dividends for shareholders:
 At declaration date: Dr Retained earnings/Cr Dividends payable
 At payment: Dr Dividends payable/Cr Cash
Note: Under corporation, shareholders cannot directly withdraw cash back by withdrawal/drawings account
like Sole trader or Partnerships.
 SOLE TRADER ENTRY:
 Lucy invests cash in her own business: Dr Cash/Cr Lucy’s Capital
 Lucy withdraws business cash for private usage:
Dr Lucy’s Withdrawals (Drawings)/Cr Cash
BASIC EXAMPLE FOR SOLE TRADER
AND CORPORATION?
Worked example – sole trader
A business is established with capital of £2,000 paid by the owner into a business bank account,
which has an overdraft facility. During the first year's trading, the following transactions occurred:

Requirement:
Prepare nominal ledger accounts/T accounts, a SPL for the year and a SFP as at the end of the
year
Note: they mark the results, do not mark the process, so do not care T accounts, focus on
Presentation of FSs instead. Present SPL, SCE, SFP at the same time!
Expanded Work example – for Corporation

 The same data like the previous example, but instead of writing ―A business is established
with capital of £2,000 paid by the owner into a business bank account, which has an
overdraft facility. During the first year's trading, the following transactions occurred:‖, they
write: ―Shareholders invest £2,000 paid by cash into the corporation business bank account,
which has an overdraft facility. During the first year's trading, the following transactions
occurred‖. Which statements would be changed?
Sample SCE for Corporation
Present accounts horizontally

SC SP RE Other reserves
Present Opening
movements
vertically Movements:
- Addings
- Substracting
(Dividends)
Ending X X X X

Take Ending balances to SFP in Equity section

MORE EXAMPLE FOR SOLE TRADER
AND CORPORATION?
Data: 31.3.X7, a sole trader not registered VAT with following nominal ledger
balances: Total Debit = Total Credit = 72,420 (TRIAL BALANCE)

Items Balances (£)

Bank loan 12,000

Cash at bank 11,700

Capital 13,000
Rent 1,880
Trade payables 11,200
Purchases 12,400
Sales 34,600
Other payables 1,620
Trade receivables 12,000
Bank loan interest (expenses) 1,400
Other expenses 11,020
Non-current assets 22,020
• On 31.3.X7, the company made the following transactions after the balances
listed above had been calculated:
1/Bought materials for £1,000, half for cash and half on credit.
2/ Made sales of £1,040; £800 of which were on credit (omit the COGS)
3/ Paid wages to shop assisstants of £260 in cash.
• Draw up a trial balance showing the balances at at the end of 31.3.X7.
Prepare the financial statements for the companies?

55
Items Balances (£) Final balance after adjustments

Bank loan 12,000 12,000

Cash at bank 11,700 + 240 – 500 - 260 11,180

Capital 13,000 13,000

Rent 1,880 1,880
Trade payables 11,200 11,700
+500
Purchases 12,400 +1,000 13,400
Sales 34,600+1,040 35,640
Other payables 1,620 1,620
Trade receivables 12,000+800 12,800
Bank loan interest (expenses) 1,400 1,400

Other expenses 11,020 + 260 11,280

Non-current assets 22,020 22,020
 One more example

• Data the same, but for corporation.

Requirements are the same?
TB chap 5 (2 mins each)
TB chap 5 (2 mins each)
 Profit and loss ledger account (911, Income Summary),
Capital and Drawings accounts reflected on T-accounts

(TEMPORARY ACCOUNT) (PERMANENT ACCOUNT) (TEMPORARY ACCOUNT)

Drawings Capital account PROFIT AND LOSS LEDGER ACCOUNTS
£ £ £ £
Close to Capital 1,500 Drawings 1,500 Cash at bank 7,000 Purchases 5,000 Sales 12,500
Drawings 1,500 (Dr Capital/Cr Drawings) Rent Ex 3,500 Discount received 50
(Dr Drawings/Cr Cash) Discount allowed 20
Bank loan interest 100
Other expenses 1,900
10.520 12.550
Profit for the year =2,030 2.030
1.500 1.500 1.500 9.030
7.530 12.550 12.550

SFP
SELF-READ AT HOME!
Example 2

Prepare Polly's ledger accounts (T-form), and draw up a SPL,

SCE and SFP in respect of her first year of
trading.
Some jargons: international vs UK practice
ALL THE BEST, THANK YOU!
WEEK 2 –
ACCOUNTING FOR CHAPTER ISSUES