Accounting Principles

Definition:
Accounting refers to the process of identifying, measuring and communicating
economic information to permit informed judgments and decisions by users of the
information”.

Functions:

To prepare financial statements, income statements, balance sheets,

owner’s equity statements, and cash flow statements.

5 Managerial functions

control of financial policy & formation of planning

preparation of budget

cost control

evaluation of employees’ performance

prevention of errors and frauds

5 Principles of Accounting

(1) Revenue recognition principle → revenue being recognized in the income

statement

Ex: On 30 April, a customer buys a shirt, but pays on 1 May → Revenue is

recorded for 30 April cash flow

(2) Historical cost principle

Ex: A bought a building for $100,000. But 6 months later the value of this
building increased to $200.000 ⇒
The building is kept being recorded at
$100.000 as the initial accounting record.

(3) Matching principle → expenses match with the revenues in the same
accounting period.

Ex: October: buy a shirt to resell it → Nov: resell the shirt ⇒ Record both the
revenue and the cost of this shirt for the Nov.

Accounting Principles 1
 (4) Full disclosure principle → Financial statements must disclose all the
relevant and reliable information which they purport to represent so that the
information may be useful for the users.

(5) Objectivity principle → Accounting data should be definite, verifiable, and

free from the personal bias of the accountant.

The Recording Process

Journal:

Is the first stage of the accounting process

Journal is a book wherein the transactions are recorded in chronological

order of dates after determining the debit account and credit account of
transactions with an explanation

Ledger:

an account to record, categorize and sort transactions, for maintaining the

balance of the company’s each asset, liabilities, owners’ equity, revenue, and
expenses accounts so that the balance sheet and income statement can be
properly prepared.

transactions are first recorded in the journal → transferred to the ledger

under respective heads of accounts

Trial balance: The statement which is prepared at a particular date with the
ledger account balances to test the arithmetical accuracy of the ledger accounts
and also to facilitate the preparation of financial statements

Accounting Principles 2
 Balance Sheet [Bảng cân đối kế toán]:

Is a summary of the financial balances of a sole proprietorship [quyền sở hữu], a

business partnership, a corporation, or another business organization.

Assets, liabilities, and ownership equity [vốn chủ sở hữu] are listed as of a
specific date, such as the end of its financial year.

📌 Assets = Current assets + Non-current assets (fixed assets)

Current assets= Cash and cash equivalents [include foreign currency] +

Accounts receivable [tài sản, nợ phải thu] + Prepaid expenses for future
service using [khoản trả trước cho người bán] + Deposits Paid [Các
khoản đem đi đặt cọc] + Allowance for Doubtful Accounts [Dự phòng nợ
khó đòi] + Short-term Investment [Đầu tư ngắn hạn] + Inventory [hàng tồn
kho].

Non-current assets = Property, plant and equipment [đất đai, nhà xưởng,
thiết bị máy móc] + Investment property, such as real estate held for
investment purposes [các tài sản đầu tư] + Intangible assets [tài sản vô
hình] + Financial assets [tài sản tài chính: không bao gồm tiền, các khoản
đầu tư ngắn hạn, nợ phải thu] + Investments accounted for using the
equity method [các khoản đầu tư vào công ty con] + Biological assets
[các tài sản sinh học: gia cầm, gia súc, cây cối, …]+ Accumulated
Depreciation [Khấu hao lũy kế; mang giá trị âm].

📌 Liabilities [nợ] = Current liabilities [=<1 year] + Long-term

Debts/Liabilities [> 1 year]

Current liabilities = Accounts payable [khoản phải trả người bán] +

Salaries Payable [Lương phải trả] + Interest payable [Lãi vay phải thanh
toán] + Tax payable [thuế phải nộp] + Security Deposit [Khoản kí quỹ =
khoản do cty khác đặt cọc] + Unearned revenue for services paid for by
customers but not yet provided [tiền đã nhận của người mua nhưng chưa
cung cấp dịch vụ=thanh toán trước]

Accounting Principles 3
 Long term debts = Note payable [các khoản nợ tài chính: trái phiếu, giấy
ghi nợ>1 year]

Equities [Vốn] = Owner capital/Common stock [cổ phiếu phổ thông] +

retained earnings [Lợi nhuận giữ lại]

📌 Total Liabilities + Equities = Total Assets.

Common financial ratios:

Debt Ratio = Total Liabilities / Total Assets [tỉ lệ nợ/tài sản]

Current Ratio = Current Assets / Current Liabilities [tỉ lệ tài sản lưu động/nợ ngắn
hạn]

Working Capital = Current Assets - Current Liabilities)[vốn lưu động] is a financial

metric that represents operating liquidity available to a business. [đo mức độ thanh
khoản]
Assets-to-Equity Ratio = Total Assets / Owner's Equity [tỉ lệ tài sản/vốn chủ sở
hữu]

Accounting Principles 4
 Debt-to-Equity Ratio = Total Liabilities / Owner's Equity[tỉ lệ nợ/vốn chủ sở hữu]

Accounting Principles 5