9/13/2023

VAN LANG UNIVERSITY

FACULTY OF ACCOUNTING & AUDITING

PRINCIPLES OF ACCOUNTING

MAc.Phan Minh Nguyet – VLU 2023

CONTENT

1 2 3 4 5
Accounting in Analyzing and Adjusting Completing Accounting for
Business Recording Accounts and the Accounting Merchandising
Transactions Prepairing Cycle Operations
Financial
Statements

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CHAPTER 1

Accounting in Business

MAc. Phan Minh Nguyet

Learning Objectives

• Explain the purpose and importance of accounting.

• Identify users and uses of, and opportunities in, accounting.
• Explain why ethics are crucial to accounting.
• Explain generally accepted accounting principles and define and apply several
accounting principles.
• Define and interpret the accounting equation and each of its components.
• Analyze business transactions using the accounting equation.
• Identify and prepare basic financial statements and explain how they interrelate.
• Compute and interpret return on assets.

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Learning Objective 1

Explain the purpose and importance of

accounting.
.

Accounting is an information and measurement

Importance of system that identifies, records, and
Accounting communicates an organization’s business
activities.

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Learning Objective 2

Identify users and uses of, and

opportunities in, accounting.
.

Accounting is called the language of business.

EXTERNAL USERS INTERNAL USERS

Users of • Lenders • Research and
development managers
• External auditors
Financial • Shareholders
• Purchasing managers
• Human resource
• Board of directors
Information • Regulators
managers
• Marketing managers
• Customers • Production managers
• Distribution managers

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Users of Financial
Information

Learning Objective 3

Explain why ethics

are crucial to accounting.

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Ethics – A Key Concept

The goal of accounting is

to provide useful
information for decisions.
For information to be
useful, it must be trusted.
This demands ethics in
accounting. Ethics are
beliefs that distinguish
right from wrong. They are
accepted standards of good
and bad behavior.

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Learning Objective 4

Explain generally accepted

accounting principles and
define and apply several
accounting principles.

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Financial accounting is governed by concepts and

rules known as generally accepted accounting
principles (GAAP). GAAP aims to make
Generally information relevant, reliable, and comparable.

Accepted
Accounting Relevant information Comparable information
Principles affects decisions is helpful in contrasting
organizations.
of users.
(GAAP)

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International Standards
International Accounting
Standards Board (IASB)

Issues International Financial International Financial Reporting

Reporting Standards (IFRS) Standards (IFRS)

Identifies preferred
accounting practices

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Conceptual Framework

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Accounting Principles

Revenue Recognition Principle

Measurement Principle
(Cost Principle)
Accounting information is based
on actual cost. Actual cost is
considered objective.
1. recognize revenue when goods or
services are provided to customers
and
2. at an amount expected to be
received from the customer.

Full Disclosure Principle

Expense Recognition Principle
A company reports the details behind
(Matching Principle)
financial statements that would impact
A company records its expenses
users’ decisions in the notes to the
incurred to generate the revenue
financial statements.
reported

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Accounting Assumption

Going-Concern Assumption Monetary Unit Assumption

The business is presumed to Transactions and events are
Measurement Principle
continue operating instead of expressed in monetary, or money,
(Cost Principle)
being closed or sold. units.
Accounting information is based
on actual cost. Actual cost is
considered objective.
Business Entity Assumption
Time Period Assumption
A business is accounted for
The life of a company
separately from other business
can be divided into time periods,
entities, including its owner.
such as months and years

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Proprietorship, Partnership, Corporation, and Limited Liability Company

Proprietorship Partnership Corporation

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Proprietorship, Partnership, Corporation, and Limited Liability

Company

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Accounting Constraint

Cost-benefit
Only information with benefits of disclosure greater
than their cost need to be disclosed.

Materiality
Only information that would influence the decisions
of a reasonable person need to be disclosed.

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Learning Objective 5

Define and interpret the

accounting equation and each
of its components.

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Business Transaction and Accounting

The Accounting Equation

Assets = Liabilities + Equity

Expanded Accounting Equation:

Net Income

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Learning Objective 6

Define and interpret the

accounting equation and each
of its components.

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Transaction 1:
Investment by Owner

Chas Taylor invests $30,000 cash to

start a business named FastFoward.

The accounts involved are:

(1) Cash (asset)
(2) C. Taylor, Capital (equity)

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Transaction 2:
Purchase Supplies for Cash

Company purchased supplies by

paying $2,500 cash.

The accounts involved are:

(1) Cash (asset)
(2) Supplies (asset)

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Transaction 3:
Purchase Equipment for Cash

Purchased equipment for $26,000 cash.

The accounts involved are:

(1) Cash (asset)
(2) Equipment (asset)

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Transaction 4:
Purchase Supplies on Credit

Purchased supplies of $7,100 on credit.

The accounts involved are:

(1) Supplies (asset)
(2) Accounts Payable (liability)

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Transaction 5:
Provided services and received cash

Provided consulting services to a customer

and received $4,200 cash right away.

The accounts involved are:

(1) Cash (asset)
(2) Revenues (equity)

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Transactions 6 and 7:
Payment of Expenses in Cash

Paid rent of $1,000 and

salaries of $700 to employees.

The accounts involved are:

(1) Cash (asset)
(2) Rent expense (equity)
(3) Salaries expense (equity)

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Transaction 8:
Provide Services and Facilities for Credit

Provided consulting services of $1,600 and rents

facilities for $300 to a customer for credit.

The accounts involved are:

(1) Accounts receivable (asset)
(2) Consulting Revenues (equity)
(3) Rental Revenue (equity)

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Transaction 9:
Receipt of Cash from Accounts Receivable

Client in transaction 8 pays $1,900 for

consulting services.

The accounts involved are:

(1) Cash (asset)
(2) Accounts receivable (asset)

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Transaction 10:
Payment of Accounts Payable

FastForward pays $900 as partial payment for

supplies purchased in transaction 4.

The accounts involved are:

(1) Cash (asset)
(2) Accounts payable (liability)

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Transaction 11:
Withdrawal of Cash by Owner

The owner of FastForward withdraws $200 cash for

personal use.

The accounts involved are:

(1) Cash (asset)
(2) C. Taylor, Withdrawals (equity)

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Summary of Transactions

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Learning Objective 7

Identify and prepare basic

financial statements and
explain how they interrelate.

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• The four financial statements and their

purposes are:
Financial • Income statement — describes a
company’s revenues and expenses and
Statements computes net income or loss over a period
of time.
• Statement of owner’s equity— explains
changes in equity from owner investments
and net income (or loss) and from any
withdrawals over a period of time.
• Balance sheet — describes a company’s
financial position (types and amounts of
assets, liabilities, and equity) at a point in
time.
• Statement of cash flows — identifies
cash inflows (receipts) and cash outflows
(payments) over a period of time.

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Financial
Statements

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Financial
Statements

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Financial
Statements

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Learning Objective 8

Compute and interpret return

on assets

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Return on assets (ROA) is stated in ratio

form as net income divided by the average
total assets invested.

Return on Assets Net income

Return on assets =
Average total assets

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End of Chapter 1

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