tcl folie: 0889 66 22 76 (HN) TABLE OF CONTENT CHAPTER 1: INTRODUCTION TO FINANCIAL ACCOUNTING. LEARNING OUTCOMES... OVERVIEW. 2 |. FINANCIAL ACCOUNTING. 3 I, FINANCIAL STATEMENTS ...ssessscstntinnntititiniettinianinineisinseassesenses Ill, TYPES OF BUSINESS... IV. GOVERNANCE wo. csscnente CHAPTER SUMMARY. PRACTICE. CHAPTER 2: THE REGULATORY FRAMEWORK LEARNING OUTCOMES.... OVERVIEW. |. INTRODUCTION OF THE REGULATORY SYSTEM... |, STRUCTURE OF INTERNATIONAL REGULATORY SYSTEM... Il, THE INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)... CHAPTER SUMMARY... PRACTICE sn. CHAPTER 3: THE QUALITATIVE CHARACTERISTICS OF FINANCIAL INFORMATION LEARNING OUTCOMES. OVERVIEW. |. THE IASB’S CONCEPTUAL FRAMEWORK Il, QUALITATIVE CHARACTERISTICS OF FINANCIAL INFORMATION. Il, OTHER ACCOUNTING CONCEPT... CHAP IEK SUMMARY... PRACTICE...folie: 0889 6622 76 (HN) Bans No CHAPTER 4: SOURCES, RECORDS AND BOOKS OF PRIME ENTRY LEARNING OUTCOMES... OVERVIEW. |, BUSINESS TRANSACTIONS & SOURCES OF INFORMATION I, BOOK OF PRIME ENTRY... CHAPTER SUMMARY... PRACTICE... CHAPTER 5: LEDGER ACCOUNTS AND DOUBLE ENTRY .. LEARNING OUTCOMES... OVERVIEW.. |, LEDGERS AND LEDGER ACCOUNTS Il, DOUBLE ENTRY BOOKKEEPING... Il RECEIVABLES LEDGER AND PAYABLES LEDGER .. CHAPTER SUMMARY... PRACTICE... CHAPTER 6: SALES TAX ..... ae ee) LEARNING OUTCOMES..ncsrotsstcstninninniniseinnnitininnnninnitnnninnnennanasenssse 8D OVERVIEW. rset 69 1, NATURE OF SALES TAX... I. ACCOUNTING FOR SALES TAX. 72 I, DISCOUNTS. CHAPTER SUMMARY.....c.re oo 81 PRACTICE. 82 CHAPTER 7: INVENTORY .. LEARNING OUTCOMES.... OVERVIEW...... 1, DEFINITIONS.....csncsnennnnnnteintninninninnnnnninnnnnnnnnnnanennennasseese 85 I. MFASURFMENT 9 Ill, RECOGNITION ...folie: 0889 6622 76 (HN) IV, DISCLOSURES, 103 CHAPTER SUMMARY... 104 PRACTICE. 105 CHAPTER 8: TANGIBALE NON-CURRENT ASSETS. 109 LEARNING OUTCOMES.... 109 OVERVIEW. 110 1, NON-CURRENT ASSETS ....., qu II, IAS 16 ~ PROPERTY, PLANT AND EQUIPMENT... 112 Ill, DEPRECIATION .. 116 IV, REVALUATION OF NON-CURRENT ASSETS. 119 \V. NON-CURRENT ASSET DISPOSAI 126 VI. THE ASSET REGISTER.. 129 CHAPTER SUMMARY... 131 PRACTICE. 132 CHAPTER 9: INTANGIBALE NON-CURRENT ASSETS, esses 134 LEARNING OUTCOMES... 134 OVERVIEW soscsicsneineinetnntnnieinsinnininninninnininainniiiinnennnennesnsees 13M 1. IAS 38 ~ INTANGIBLE NON-CURRENT ASSETS.....:csssssantuninnntinnntnstanasnneesese 135 I, RESEARCH AND DEVELOPMENT COST 140 Il, COMPARISON WITH TANGIBLE NON-CURRENT ASSETS. 143 CHAPTER SUMMARY. PRACTICE... 145 CHAPTER 10: ACCRUALS AND PREPAYMENTS. 147 LEARNING /QUTCOMES sessrceatacsststetssshachnaseceaetetfacetaestcaiacierattoeaartanaammutnccas 147] OVERVIEW... oo 7 1. INTRODUCTION... 148 Il, ACCOUNTING FOR ACCRUALS AND PREPAYMENTS ..c.cs:csssstssesseneeinnntnsentscnees 149 Il, DEFFERED INCOME AND ACCRUED INCOME. 155,tcl folie: 0889 66 22 76 (HN) CHAPTER SUMMARY. 157 PRACTICE. 158 CHAPTER 11: IRRECOVERABLE DEBTS & ALLOWANCE ..s... 160 LEARNING OUTCOMES... 160 OVERVIEW. 160 |. CREDIT SALES .. 161 M, CREDIT CONTROL .sssnsestse 161 Ill, IRRECOVERABLE DEBTS. 162 164 IV. ALLOWANCE FOR RECEIVABLES... V. PRESENTATION .. 169 CHAPTER SUMMARY. 172 PRACTICE. 173 CHAPTER 12: PROVISIONS AND CONTINGENCIES 176 LEARNING OUTCOMES.... 176 OVERVIEW. 176 |. PROVISION ... 177 Il. CONTINGENCIES... 183 CHAPTER SUMMARY. .. 187 PRACTICE... 188 CHAPTER 13: IFRS 15 - REVENUE FROM CONTRACTS WITH CUSTOMERS.. 190 LEARNING OUTCOMES. 190 OVERVIEW. 190 |. OVERVIEW. 191 I, REVENUE RECOGNITION ~ FIVE STEPS MODEL.....casevcssstnstntstntnsetneentnstnsenteneee 192 MI, DISCLOSURE... 197 CHAPTER SUMMARY... 198 PRACTICE nssnscsnesneinennntnntinntninsinninnninitnenannnninininennenesnseees 199folie: 0889 6622 76 (HN) : FROM TRIAL BALANCE TO FINANCIAL STATEMENTS 201 LEARNING OUTCOMES... 201 OVERVIEW. 201 1. THE TRIAL BALANCE ...rossess 202 I, PREPARING STATEMENT OF COMPREHENSIVE INCOME ... 206 Il, STATEMENT OF FINANCIAL POSITION 2a CHAPTER SUMMARY ...csesse 27 PRACTICE... 218 CHAPTER 15: CONTROL ACCOUNT... esses 220 LEARNING OUTCOMES. 220 OVERVIEW. 220 1. CONTROL ACCOUNT..... 221 I, OPERATION OF CONTROL ACCOUNT... Il, CONTROL ACCOUNT RECONCILIATION. CHAPTER SUMMARY... PRACTICE... CHAPTER 16: BANK RECONCILIATIONS. LEARNING OUTCOMES.... 238 OVERVIEW...... |. THE BANK RECONCILIATION 239 Il, DIFFERENCES BETWEEN THE BANK STATEMENT AND THE CASH BOOK.. Il, WORKED EXAMPLES... 242 CHAPTER SUMMARY. 245, RRA GCE ae seacscseoecet ac sacnac ee faeeactteert eer aeatr DAG CHAPTER 17: CORRECTION OF ERRORS ....sssessoes sessene 249 LEARNING OUTCOMES... OVERVIEW. | TYPFS OF FRROR Il, CORRECTION OF ERRORS...Il, ADJUSTMENT TO PROFIT ..sscnenisesteninsnneninnininnnnnnntnesnsnessie CHAPTER SUMMARY... PRACTICE. CHAPTER 18: INCOMPLETE RECORDS .. LEARNING OUTCOMES.... OVERVIEW. |. INCOMPLETE RECORDS... I THE ACCOUNTING & BUSINESS EQUATION METHOD... I, THE LEDGER ACCOUNT/BALANCING FIGURE APPROACH ..... Ill. CASH/BANKING DATA, IV. PROFIT RATIOS ~ MARKUP & MARGIN... CHAPTER SUMMARY... PRACTICE. CHAPTER 19: REPARATION OF FINANCIAL STATEMENTS FOR SOLE TRADERS .. LEARNING OUTCOMES... OVERVIEW. |. FINANCIAL STATEMENTS OF A SOLE TRADER ...secssesnsitnntntnntnntnnennennesenienses 284 I PREPARE FINANCIAL STATEMENTS FOR SOLE TRADERS. w.r.sssesstsntnentnnnnesentnnene 286 CHAPTER SUMMARY ...-c.e0 PRACTICE. CHAPTER 20: INTRODUCTION TO COMPANY ACCOUNTING LEARNING OUTCOMES... 298 OVERVIEW. 298 |. LIMITED LIABILITY COMPANY I, CAPITAL OF LIMITED LIABILITY COMPANY. ....:.s:seestnnensene Ill, BONUS AND RIGHTS ISSUES... CHAPTER SUMMARY. PRACTICE...Bank bulsng. 54 Le Th Ha Noi Sepp edu or, Groen Star Tone stil H folie: 0889 6622 76 (HN) : EVENTS AFTER REPORTING DATE (IAS 10). 319 LEARNING OUTCOMES.... 319 OVERVIEW. 319 |. DEFINITION... 320 I, TYPE OF EVENTS... 320 Ill, DISCLOSURE .. 323 CHAPTER SUMMARY ...csesse 324 PRACTICE... 325 CHAPTER 22: STATEMENT OF CASH FLOWS (IAS 7) . esses 327 LEARNING OUTCOMES. 327 OVERVIEW. 328 |. THE NEED OF STATEMENT OF CASH FLOW... 329 I, DEFINITION. 330 Il, CLASSIFICATION OF ACTIVITIES IN STATEMENT OF CASH FLOWS... 332 IV, PREPARING A STATEMENT OF CASH FLOW... 334 \V. ADVANTAGE AND DISADVANTAGES OF CASH FLOWS .. 351 CHAPTER SUMMARY .e.ccssessstcstcisnninnitsennninniennninnitninatnnniennennsnaseses 352 PRACTICE .snssssesnte 0 353, CHAPTER 23: INTRODUCTION TO CONSOLIDATED FINANCIAL STATEMENTS ....sssseseerseses 355 LEARNING OUTCOMES. 355 OVERVIEW. 355 |. INTRODUCTION TO GROUPS... 356 Il. CONSOLIDATED FINANCIAL STATEMENTS 361 (CHAPTER SUPAMA RY scccsonacicectsts sachet acetertntncrarattoeesertaaaceaetnaca BOM) PRACTICE. 365 CHAPTER 24: THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION .ssscessesseseeneeses 367 LEARNING OUTCOMES. . cscs 367 OVERVIFW. 368 1. THE MECHANICS OF CONSOLIDATION. 369tcl folie: 0889 66 22 76 (HN) |, EFFECT OF INTRA-GROUP TRADING AND MID-YEAR ACQUISITION TO CONSOLIDATED FINANCIAL STATEMENT ......-. 378 CHAPTER SUMMARY... 386 PRACTICE. 387 CHAPTER 25: THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 390 LEARNING OUTCOMES... 390 OVERVIEW. 390 |. THE MECHANICS OF CONSOLIDATION. 391 |, EFFECT OF MID-YEAR ACQUISITION TO CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME... 396 CHAPTER SUMMARY... 399 PRACTICE. 400 CHAPTER 26: INTERPRETATION OF FINANCIAL STATEMENTS. 404 LEARNING OUTCOMES.... OVERVIEW. |. IMPORTANCE AND PURPOSE OF ANALYSIS OF FINANCIAL STATEMENTS. urs seeo I ANALYSIS OF FINANCIAL STATEMENTS USING RATIO ANALYSIS.. CHAPTER SUMMARY. PRACTICE Mune tenant aStcl folie: 0889 66 22 76 (HN) CHAPTER 1: INTRODUCTION TO FINANCIAL ACCOUNTING LEARNING OUTCOMES Define financial reporting - recording, analysing, and summarising financial data ‘Identify and define types of business entity ~ sole trader. partnership. limited liability company ‘Recognise the legal differences between a sole trader, partnership, and a limited liability company ‘+ Identify the advantages and disadvantages of operating as a limited liability company, sole trader, or partnership ‘* Understand the nature, principles, and scope of financial reporting ‘Identify the users of financial statements and state and differentiate between their information needs ‘© Understand and identify the purpose of each of the main financial statements ‘* Define and identify assets, liabilities, equity, revenue, and expenses * Explain what is meant by governance specifically in the context of the preparation of financial statements © Describe the duties and responsibilities of directors and other parties covering the n of the financial statements‘SAPP Acadomy Tol 0466 709 888 8 Floor, Nam ABankbulsng, 54 Le Thar Nghl, Hai Ba Trung dct, Ha Nol —-Sepp.edusn Z 2A Foor, Green Slat Tomer, No. 261 Pharr Van Dong, ac Tu Liem dtl, Mano Hotine: B83 66-22 76 (HN) aremnaee “igor No. 2A Luong Hus) Khan, DI! , Ho Ch Han iy (0889 6 22 67 (HOM) OVERVIEW ’ Financial statements Se SS Main elements of Users of financial Those charged with i i i governance financial statements information (Prepare F.S)Bank bul ‘Green Sar Tow 1. FINANCIAL ACCOUNTING 1. Defini Alot, Ha No Seppe eTuLem atic. Hane Hotline: 0889 N) {R2R) of recording financial data. Financial accounting is a specific branch of accounting involving the Record to Report Process Financial reporting is a way of recording, analysing, and summarising financial data Financial data is the name given to the actual transactions carried out by a business (e.g. sales of goods, purchases of goods, payment of expenses). Record to Report Process (R2R) is as follow: R Actual transactions are recorded in books of prime entry 2. Financial accounting and Management accounting Financial accounting (FA) is a specific branch data involved in a process of recording, analyzing, summarizing financial Management accounting (MA) is a management system that analyses data to provide information as a basis for managerial action. of accountingsnr Floor Nom A Ban bulsng, 54 Le Thanh Nghl, Ha Bo Trung dtc, Ha Noi Spp.ecun Foor, Green Star Toner, No. 261 Pharr Van Dong, Gac Tu Liem dit, Haro Moline: 0889 06:22 76 (HN) To report the financial performance To help managers control the Purpose and financial position of a business | resources of the business and plan by providing historical information. | them for the future: Requirement | Mandatory Optional Primary users of External users (e.g. investors, regulators, tax authorities, ..) and Internal users (e.g. manager information Internal users (e.g. manager, Regulations —_| GAAP, IFRS, IAS None Frequency Quarterly, annual, or per period —_| As needed and ongoing External review Auditors, regulators None Scope Company-wide Narrow per segment, product, etc. as needed. IL FINANCIAL STATEMENTS 1. Main elements of financial statements 1.1 Statements of financial position The statement of financial position is simply alist ofall the assets owned and all the liabilities owed by a business at a particular date The form of a statement of financial position is as follow:tcl folie: 0889 66 22 76 (HN) ‘STATEMENT OF FINANCIAL POSITION FOR THE YEAR ENDED 31 DECEMBER 20X3 $ $ Asset Non-current assets Property, plant, and equipment 87,500 Current assets Inventory 12,000 Trade receivables 11,200 23,200 Total assets 110,700 Equity and liabilities Equity Equity shares capital @ $1 shares 40,000 Share premium 2,000 Revaluation surplus 5,000 Retained earnings 43,650 Total equity 90,650 Non-current Habilities 6% bank loan (20X3) 10,000 Current liabilities Trade payables 5,000 Bank overdraft 4,150 Income tax liability 600 Interest accrual 300 Total liability 10,050 Total equity and liabilities 110,700iste He ne: 0009 The statement of financial position includes 3 components: ASSETS: ‘An asset is a present economic resource controlled by the entity as a result of past events. An economic resource is a right that has the potential to produce economic benefits.”" There are 2 types of assets: ‘© Non-current assets: Assets are held and used in operations for a long time. Examples: © Properties, (PPE) © Machinery plant, and equipment ‘© Current assets: Assets are held for only a short time. Examples: © Cash & cash equivalent © Inventories CAPITAL OR EQUITY: “Equity is the residual interest in the assets of the entity after deducting all its liabilities.” Capital is a special kind of liability. Example: © Share capital/premium © Retained Earnings (RE) = Reserves LIABILITIE! ‘Aliability is a present obligation of the entity to transfer an economic resource as a result of past events. There are 2 types of liabilities: © Non-current liabilities: obligations listed on the balance sheet not due for more than a year. Fxamples: © Long-term loans ‘Current liabilities: the company’s short- term financial obligations due within one year or a normal operating cycle. Examples: © Accounts payable © Short-term debt © Dividends * Conceptual Framework for Financial Reporting 2018, para. 43and 4.4 ® Conceptual Framework for Financial Reporting 2018, para. 4.63cone: 0089 N) 1.2 Statement of Comprehensive income A statement of Comprehensive Income (SOC!), known as Statement of Profit or Loss and other comprehensive income (SUPLULI), Is a record of income generated and expenditure incurred over a given period. ‘STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 20X3 $ sales revenue 150,000 Less: Cost of sales (Cost of goods sold) (75,000) Gross profit 75,000 Distribution costs (10,700) Administrative and selling expense (15,560) Operating profit 48,740 Finance costs (740) Profit before tax 48,000 Income tax (600) Profit for the year 47,400 Other comprehensive income Revaluation surplus 2,000 Total comprehensive income for the year 49,400 ‘There are 2 components included in SOCI: Income is the increases in assets or decreases in liabilities that result in increases in equity, other than those relating to contributions from income! holders of equity claims. (Conceptual Framework for Financial Reporting 2018, para. 4.68) Expenses are decreases in assets or increases in liabilities that result in decreases in equity, other than those relating to distributions to Expenses holders of equity claims, (Conceptual Framework for Financial Reporting 2018, para. 4.68)Bank bulsng, 54 Le Thar N ae Ha No Sepp edu or, Groen Star Tone stil H folie: 0889 6622 76 (HN) 1.3 Statement of Cash Flows (SOCF) ‘Statement of cash flows is a financial statement that concentrates on the changes of cash and cash equivalent during the period. STATEMENT OF CASH FLOWS AS AT 31 DECFMRFR 70X3 (INDIRFCT MFTHOD) $m $m Cash flows from operating activities Net profit before taxation 3,390 Adjustments for: Depreciation 450 Investment income (500) Interest expense 400 Operating profit before working capital changes 3,740 Increase in trade and other receivables (500) Decrease in inventories 1,050 Decrease in trade payables (1,740) Cash generated from operations 2,550 Interest paid (270) Income taxes paid (720) ‘Net cash from operating activities 1,560 Cash flows from investing activities Purchase of property, plant and equipment (900) Proceeds from sale of equipment 20 Interest received 200 Dividends received 200 Net cash used in investing activities (480)‘Bank bulsng, 54 Le Thanh Nahi, Ha Bo Trung dtc, Ha Noi wr ‘Green Star Tower, No. 261 Phar Va Tuer istic Hare Holle: 0889 N) Cash flows from financing activities Proceeds from issuance of share capital 250 Proceeds from long-term borrowings 250 Dividends paid* (2,290) Net cash used in financing activities (790) Net increase in cash and cash equivalents 290 Cash and cash equivalents at beginning of period (Note) 120 Cash and cash equivalents at end of period (Note) 410 Cash flows must be classified as operating, investing, and financing activities: The main revenue-producing activities of the entity and other activities that are not investing or financing activities. Operating activities The acquisition and disposal of long-term assets and other Investing activities . investments not included in cash equivalents. Activities that result in changes in the size and composition of contributed equity capital and borrowings of the entity. Notes: More information about SOCF will be mentioned in Chapter 22 - Statement of Cash | {flows (IAS 7). 1.4 Statement of Changes in Equity (SOCIE) Statement of changes in equity is 2 reconciliation of the beginning and ending balances in a company’s equity during a reporting period.‘Bank bulsng, 54 Le Thanh Nahi, Ha Bo Trung dtc, Ha Noi fon Sar Tomer No (0889 66 22 76 (HN) STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 20X3 Share Share ‘Revaluation _Retained i i Total capital premium surplus earnings Balance at 1.1.X2 x x x x x Changes in accounting policy (x) i Restated balance x x x Changes in equity for 20X2 Dividends (x) (x) Total comprehensive income for x 7 x the year Issue of share capital x x Balance at 31.12.X2 x axa aner ake x 10{8 Flor, Nom A Bank buling, 4 Le Thanh Nahi, Ha Bo Trung dt, Ha Noi Sapp.edu.vn Foor, Green Star Toner, No. 201 Phar Va eTuLem atic Hane Hotline: 0889 6 22 76 (HN) Movement in shareholders’ equity over an accounting period comprises the following elements: * Net profit or loss during the accounting period attributable to shareholders; + Increase or decrease in share capital reserves; * Dividend payments to shareholders; * Others will be gone through in chapter 19. Notes: More information about SOCIE will be mentioned in Chapter 19 ~ introduction to | company accounting. 2. The need of financial statements 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 (IAS 1, para. 9). 3. Users of financial statements & financial information Need information for investment decisions with the aims: ‘* To access their investment’s performance Shareholders |* TO evaluate the company’s ability to pay dividends through plans and prospects ‘+ To determine whether they should increase, hold or sell their investments Need information for plai aims: ng and decision making with the ‘+ To formulate plans based on related information Managers | ° T° compare actual results against plan To improve ahead performance through feedback on results of previous decisions © Need the most information to make planning and control derision Need information relating to their benefits: Employees | * TO access the company’s ability in providing remuneration, employment opportunities, job security, etc. In the long term ncone: 0089 Interested in the security of their loan: Lenders/ eae ‘* To access the company’s liability to meet interest payments and eventually repay the amount advanced ‘* Suppliers (provide goods/services on credit): To evaluate the company's long term health and liquidity Trade contacts | position ‘© Customers: To secure the sources of supply for themselves Financial ‘+ Interested in protit pertormance and estimates of future External analysts and operations to identify investment opportunities and stakeholders | advisers prospects * Need information for the collection of taxes and duties Tax authority through assessing the profit on which the company’s tax liability is to be computed Government | ¢ allocation of resources and activites of enterprises and their © Collecting statistical information to reveal trends within agencies the economy © Members of the public In a varlety of ways: contribution The public to the local economy © The environment: regards pollution Exam focus: Users and stakeholders’ need Example 1: Which one of the following user groups is likely to require the most detailed financial information? A. The management B. Investors and potential investors . Government agencies D. Employees 2© Haline: 0889 N) Answer: A. Management requires very detailed information to make informed decisions with regard to operations (e.g. whether to shut down a particular product line or source new suppliers). Other parties need far less detail: * Investors are interested in profitability and the security of their investment. «The government is interested in profits (for tax purposes) and sales performance (to assess how the economy is performing). Lenders are intereste whether a business is solvent and able to repay its debt. Bvt “squawareys jefoueuy enuue ysiignd oy aneH « drive pawios aney Aaya ssajun (AGEN payuiun) siqap je 40} igen Ayeuosiad Anulof aie suouseg IGRIBUINA euosieg + jun) siqap We 404 ajqel| Aeuossad si auMQ + aq ew Aqadoud saBequenpesia JayyOUE 0} 1BUMO auo wioy saveys 4ajsueny oy Ase] « “usiN 4aumo ayy se jewde> aseaisap JO aseainu) ued sdiusiauyied « ssauisng ayy uo xey Auedwor ON SaySIN 1UMO aya vay gue se jenides aseainap Jo aseasu ued sispen ojos + “aumanais pinoys saluedwo> Ayyqen paywur ‘omy 3sea] Je aney ysnuu sdiysioursed “sjenpuyput soyares xey | pastes aq ue>exide> jevonippy «| Jo adAy siya Bulysiqersa ul 3509 se8equenpy au ueyp samo] aq Aew sajsed.os smers dni sey diusiaused | aiojos0yn pue wiomsaded pam + uo ayes xe :saBequenpe xe, «| ayy ssajun ‘yuowouInbs1 ypne -uawasinbas upne ou “ajgeyere Apygnd swunosxe | ou “ajgeyene Ajoygnd sunosse [epueuy ayew 03 uawaunbas oN | je;ueUy ayew! os 3UaWIENINbaLON + “FOUMO dtp JO S59 20u035ix0 29046 YOU Soop diysIoUNO “sone9| sumed 40 weap Jo qUAK ay2 U! ssoU'sNg uoissazang uy aduey — uoissa2ans jemadiag | Aue uaym panjossip aue sdlysiauneg jo Aynunuos jo sans) aq Aey Buneiado asja suoawios wujodde nulof siasse umo siautieg “stasse sumo Japesn ajos y sissy {ayy inq_siasse umo siapjoyeseys svaquioW sroquigu i a -aqesedas A\je33| 10U S| 49pes2 ajos Anua S| wou aresedas Aynua jeBa} esi | sil Jo apisino aouaysiKe ou seH aul aq ueD AEN) SIBqUIA Peau | Soyuuun si ssapen ajos ul Ager Aauger Peutulsg ue auice eae | Ayensn 9 eu) _siouea| eee ence teee eae uawadeueu a Rese een eee sieuyed suawaBeuew ayy usemaq uonesedas e aney quaweseuew, ul ayedionied ued sapest ajos e A\UO SSANISNG JO S3dAL “IIst “pani00u! 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PUe SJasse UMO Led pue AyNUA [28a] ayeIeCAS e S| AUEdLIOD AIIIGeN| PRL! wuamsuy “suapjoyaseys yssy ayy uaamyag yuawaalBe ajduis Aq siseq jeusoyUl Ue UO Pawo} aq Ue AuedutoD “aweU UMo si UI S@IRIIGeI] INDU YOWUeD AUEdWIOD ‘@UNeU UMO 331 UT Syasse azinbaIe JoULeD Aued OD AIGeN| Pari W “aweU UMO SY Ul Sat snout ue> Aued od Ay}!qeI] payLut| y ¢adua gAuedwod Arjiqen pauuul| e inoge any S| suaWarers BuImo}|oy au Jo YOUN :z afdutEKa ‘Aunua ssauysnq jo sadA1 :sn903 wexg -asuadxa ue se papiovay si sajuedwoo Ai pow Jopauip e 0} Aigjes & Suited diysiauysed pue sapen sajos 34!|UN Jeydeo se pajjes aq ued y) “siautsed Jemespyyw. 4oy Auejes Buided 404 uonpesuesy | jeder jo Woy e pasapisuos ous} aay os ‘ssautsng Ayjigen| | aq UeD sJapedt ajos e 104 Auejes BuIAec paywljun ue s) diysiauyed sy uonsesues lepads jeydeo aueys aonpar 02 NWP < me] Aq payeynfas aie sanss) areys « squawiauinbas squawaaise Sununosve pue jeHa| yrmmAiduios | diysiautsed §=— dn. Sunes sButnes jeuosiad 0} ancy syawiayers jeroueUly «| yim payewosse sso0 aie a1ay, «| pue syeupienO uo asuel|ay +‘Bank bulsng, 54 Le Thanh Nahi, Ha Bo Trung dtc, Ha Noi fn Sar Tomer, No. 261 Phar Vas IV. GOVERNANCE ong, Bae TuLlem dtc, Hane Hotline: 0689: 2276 (HN) controlled. Corporate governance is the system by which companies and other entities are directed and ‘The board of directors of a company are usually the top management and are those who are charged with the governance of that company. ‘Oversight, set objective, : strategy Prepare ¥ : Oversee Financial ! ats statements 16 Public toABank building, 54 Le Thar Nahi, Hai Ba Tung dsc, Ha Noi Seppe ‘Green Star Tower, No. 261 Phar Va eTuLem atic. Hane Hotline: 0889 N) The responsibilities and duties of directors as below: * Main aim: To create wealth for the |e Be responsible for the preparation of the shareholders. financial statements * Duty of care to show reasonable | To ensure that the entity complies with competence. the relevant laws and regulations. * Tobe ina fiduciary position. * To explain their responsibility for * Must act honestly in best interests of | preparing accounts. company. * To present a balanced and understandable assessment of the company's position and prospects ‘* Strategy for delivering the company's longer-term objectives. Exam focus: Responsibilities of governance Example 3: Which of the following best describes corporate governance? A. Corporate governance is the system of rules and regu reporting. ns surrounding financial B. Corporate governance is the system by which companies and other entities are directed and controlled. €. Curpurale governance is care statements ed oul by Une finance depar tin Lin prepal 1g Ue fina D. Corporate governance is the system by which an entity monitors its impact on the natural environment. Answer: B Corporate governance is the system by which companies and other entities are directed and controttea. wvsquawayeys ‘Ayn uy saBuey> lepueuorseioy jo ueweres ews pny (039ap>1) of 7 $4012841P /@Ann3axg-UON bent Br “my sowne xe1 ‘53283409 sold ‘woo ansuayaidioy ——_uoysog jepueuls apeuy :siapjoyayers [eusaKg + se) jo uawarers soquausnress soquawarers paho|duug WazeUEW ‘SIApIOYRIeYS suaployayers [eUoWU! + squawayeys jersueuly > squauiayeysjeioueuy 4o siasn, | “erep jenueuy Surreununs 404 sseq e se uoneULopu ‘BuyzAyeue ‘Buyprooa1 ‘epinoud 0} ep Burshreu 40 $s92010 © ut BUOY ppajo.quo> pue parreupaue sanynua 1040 Bue saluedusoo youym Aq warsks ay ‘Aueduso> Aygey pew) + sdiysiouyeg + s9pen jos + AMVINIANS 431d VHD (04) 29 zz 99 6900 TNA) 82 2299 6680 :ounon inns des 88 604 99F0 PLtone: 0889 6 22 76 (HN) PRACTICE Questions Question 1: (Basic) Which one of the following statements best defines a liability? A 8. c. D. A liability is an obligation arising from a past transaction or event. A liability isa legally binding amount owed to a third party. A liability is an obligation arising from a past transaction or event which is expected to be settled by an outflow of economic benefits. A liability is anything which results in an outflow of economic benefits from an entity. Question 2: (intermediate) Which of the following are advantages of trading as a limited liability company? 1 Operating as a limited liability company makes raising finance easier because additional shares can be issued to raise additional cash. Operating as a limited liability company is riskier than operating as a sole trader because the shareholders of a business are liable for all the debts of the business whereas the sale trader is only liable for the debts up to the amount he has invested. A. Lonly B. 2 only C. Both Land 2 D. None 19{8 Flor, Nom A Bank buling, 4 Le Thanh Nahi, Ha Bo Trung dt, Ha Noi Sapp.edu.vn Foor, Green Star Toner, No. 201 Phar Va neste, Hane Holle: 0889 06:22 70 (HN) Answers Question 1: (Apply theory in Section II.1.1. Statement of financial position). Question 2: A Limited liability makes raising finance easier and there is no limit on the number of sharcholders. So, statement 1 is correct. Shareholders are only liable for the debts of the business up to the amount they have invested in shares, whereas sole traders are liable for all of the debts of the business. So, statement 2 is incorrect. 2019 str, Ha No Spp.ecun Yan Dong. Bac Tu Liem dit, Hane Holle: 0889 06:22 76 (HN) er No CHAPTER 2: THE REGULATORY FRAMEWORK LEARNING OUTCOMES ‘© Understand the role of the regulatory system, including the roles of the IFRS Foundation {IFRSF), the International Accounting Standards Board (IASB), the IFRS Advisory Council (IFRS AC) and the IFRS Interpretations Committee (IFRS IC) ‘© Understand the role of the International Financial Reporting Standards OVERVIEW oe International Financial Reporting ‘Standards (IFRSs) 2met teseationg, folie: 0889 06 22 DLP we sagen The following factors that have shaped financial accounting can be identified National/local legislation The form and content of the accounts are regulated primarily by national legslation. Accounting concepts and individual judgment Accounting standards This can lead to subjectivity. ‘Accounting standards were developed to try to address this, | subjectivity In an attempt to deal with some of the subjectivity, and to achieve comparability between different organizations. Generally accepted accounting principles (Gaap) True and fai presentation iew/ fair GAAP signifies all the rules from govern accounting: ‘+ The Companies Act 2006 ‘* UK and international accounting and financial reporting standards. * Statutory requirements in other countries (particularly the US) Stock exchenge listing requirements. Financial information must be relevant and faithfully represent what it supports to represent to be useful. Other international influences There is an agreement between 2 or more countries. So, these countries have to follow this agreement. 2SAPP sce serous sang 54.0 Tx io van Tang devon, Eapecuan 1 kn, ron Sa ower Ho 201 Phar Van Dong Salem ano Hole: 869602270 (HN) I. STRUCTURE OF INTERNATIONAL REGULATORY SYSTEM nia tt ti +i “ES Ea +f beveop oo a ee Key) C=) keport i " ‘Advise IFRS Standards 1. IFRS Foundation (the Foundation) ‘The IFRS Foundation (formally called the International Accounting Standards Committee Foundation or IASCF) is a not for profit, private sector body that oversees the IASB. The objectives of the IFRS Foundation®: * Develop a single set of high quality, understandable, enforceable and globally accepted IFRSs throug! standard-setting body, the IASB; ‘© Promote the use and rigorous application of those standards; ‘* Take account of the financial reporting needs of emerging economies and small and hievlunesied enuties (SMES); atid * Bring about convergence of national accounting standards and IFRSs to high-quality solutions. 5 (IFRS Foundation Constitution, 2013, para. 2) 23tcl folie: 0889 66 22 76 (HN) 2. International Accounting Standards Board (the Board) (IASB) The International Accounting Standards Board (IASB) is an independent, privately funded body that develops and approves IFRSs. The main objectives of the IFRS Foundation are to raise the standard of financial reporting and eventually bring about global harmonisation of accounting standards. 3, The IFRS Advisory Council (The Council) ‘The IFRS Advisory Council is essentially a forum used by the IASB to consult with the outside world. It consults with national standard-setters, academics, user groups, and a host of other interested Parties to advise the IASB on a range of issues, from the IASB's work program for developing new IFRSs to giving practical advice on the implementation of particular standards. 4. The IFRS Interpretations Committee (IFRIC°) The IFRS Interpretations Committee (formerly called the International Financial Reporting Interpretations Committee or IFRIC) has two main responsibilities: * To review, on a timely basis, newly identified financial reporting issues not specifically addressed in IFRSs. + Toclarify issues where unsatisfactory or corflicting interpretations have developed, or seem likely to develop in the absence of authoritative guidance, to reach a consensus on the appropriate treatment. Exam focus: Structure of the international regulatory system Example 1: What is the role of the IFRS Interpretations Committee? A. To create a set of global accounting standards B. To issue guidance on the application of International Financial Reporting Standards C. Formulate International financial reporting standards D. To give advice to the IASB on agenda decisions Answer: B The role of the IFRS Interpretations Committee is to issue guidance on the application of International Financial Reporting Standards. Creating a set of global accounting standards is the role of IFRS Foundation. Formulating IFRSS is the role of IASB. IFRS Advisory Council takes responsibility for giving advice to the IASB on agenda decisions. 24tcl folie: 0889 66 22 76 (HN) IML, THE INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) 1, The use and application of IFRS IFRSs have helped to both improve and harmonize financial reporting around the world. The standards are used in the following ways. ‘© Asnational requirements = Asthe basis for all or some national requirements ‘* Asan international benchmark for those countries which develop their own requirements © By regulatory authorities for domestic and foreign companies ‘© By companies themselves 2. Scope of IFRS IFRSs are not intended to be applied to immaterial items, nor are they retrospective. Each individual standard lays out its scope at the beginning of the standard. 3, Standard-setting process The procedure for the development of an IFRS Standard is as follows: ‘STEP 1 Establish an Advisory Committee to advise on issues arising in the project. Consultation with the Advisory Committee and the IFRS Advisory Council throughout the project.9 t suoners dau) pue SyE:p “spuepuers anosdce “suueupuawe sou Jaino dojanap pue ydde o1a uo suoneraidiowu anss1 siaquow pT puny spe s2ssan0 uoddy sarod pu epuate wo ayo > ‘sana zz o siaquiaw op Ajaewrosddy of seatsna 29ssan0 pue anoiddytcl ioline: 0889 66 22 PRACTICE Questions Question 1: (Basic) Which ONE of the following is NOT an objective of the IFRS Foundation? A. Through the IASB, develop a single set of globally accepted International Financial Reporting Standards (IFRSs) B. Promote the use and rigorous application of International Financial Reporting Standards (IFRSs) C._ Ensure International Financial Reporting Standards (IFRSs) focus primarily on the needs of global, multi-national organisations D. Bring about the convergence of national accounting standards and IFRSs Question 2: (Basic) Which ONE of the following statements correctly describes how International Financial Reporting Standards (IFRSs) should be used? A. To provide examples of best financial reporting practice for national bodies who develop their own requirements B. To ensure high ethical standards are maintained by financial reporting professionals internationally C. To facilitate the enforcement of a single set of global financial reporting standards D. To prevent national bodies from developing their own financial reporting standards Question 3: (Basic) Which of the following items is the IFRS Advisory Council is responsible for? 1) To give advice to the IASB or to the trustees 2) To give advice to the IASB on agenda decisions 3) Tocreate a set of global accounting standards A. Land 2only 8. 1and3only Cc. 3only D. 1only a‘Thanh Nahi, Hal Ba Trung dtc, Ha Noi Sapp. Phan Ve eTuLem atic. Hane Hotline: 0889 N) Answers Question 1: ¢ Through IFRS Foundation, IASB develop IFRS. Therefore, A is incorrect. Bis one of the responsibilities of IASB. Therefore, B is incorrect. The IFRS Foundation does not focus primarily on the needs of global, multi-national organisations. One of the objectives of the founcation is to take account of the financial reporting needs of emerging economies and small and medium-sized entities (SMES). Question 2: A One of the ways IFRSs are used is as an international benchmark for those countries which develop their own requirements. Question 3: A (Apply the theory in Section 11.3) 28‘SAPP Acadomy Tol 0466 709 888 8 Floor, Nam ABankbulsng, 54 Le Thar Nghl, Hai Ba Trung dct, Ha Nol —-Sepp.edusn BLE 24° Foe: Greon Star Toner, No. 201 Phare Van Dong. Bac Tu Liem dit, Hane Hotine: 83 66 22 76 (HN) 4 Floor, No. 2A Luong Fuss Khanh, Dstt, Ho Cv Ann iy (0889 6 22 67 (HOM) CHAPTER 3: THE QUALITATIVE CHARACTERISTICS OF FINANCIAL INFORMATION LEARNING OUTCOMES + Define, understand and apply qualitative characteristics ‘* Define, understand and apply accounting concepts OVERVIEW Fundamental characteristics Enhancing qualitative characteristicsFloor Nom A Bank bulsing, 54 Alsi, Ha No Sapp.edu.vn Foor, Green Star Toner No neste, Hane Holle: 0889 06:22 70 (HN) |. THE IASB’S CONCEPTUAL FRAMEWORK ‘The IASB's Conceptual Framework is the basis on which IFRSs are formulated. 1ASB’s Conceptual Framework for Financial Reporting a conceptual framework on which all IFRSS are based and hence determines how financial statements are prepared and the information they contain. It is not a standard itself, although it is used as a reference document when standards are developed. 1. Going concern assumption Going concern concept is an important assumption for financial statements. (*) Break-up value: The amount they would sell for if they were sold off piecemeal and the business were broken up. If the going concern assumption is not followed, that fact must be disclosed, together with the following information. ‘©The other basis on which the financial statements have been prepared ‘* The reasons why the entity Is not considered to be a going concern Example 1: Going concern assumption retailer commences business on 1 January and buys inventory ot 20 washing machines, each costing $100. During the year they sell 17 machines at $150 each. How should the remaining machines be valued at 31 December in the following circumstances? 1) They are forced to close down their business at the end of the year and the remaining machines will realise only $60 each in a forced sale. 2) They intend to continue their business into the next year. Answer: 1) If the business is to be closed down, the remaining three machines must be valued at the amount they will realise realized in a forced sale, i.e. 3 x $60 = $180 30SAPP sce serous sang 54.0 Tx io van Tang devon, Eapecuan Crown Sar TowersHo tt Ph Van Dong. acs atc ano Hole: 69602270 (HN) 2) If the business is regarded as a going concern, the inventory unsold at 31 December will be carried forward into the following year, when the cost of the three machines will be matched against the eventual sale proceeds in computing that year's profits. The three machines will therefore be valued at cost, 3 x $100 = $300. 2. Accrual basis Example 2: Accrual basis Emma is a T-shirt retailer. At the beginning of the period, he purchases 20 T-shirts at a cost $5 each. Then she can sell them for $10 each. In case Emma sells all of 20 T-shirts, the revenue $200 (20 x $10) and the cost $100 (20 x $5) match with each other, And the profit is $100. Purchasing Selling 20 T-shirts and 20T shirts collecting fully payment Start of the Recording profit of $100 period ($200-$100) Emma sells all of the 20 T-shirts. Although the customer pays immediately just for 15 T-shirts, she has to record the revenue for 20 T-shirts sold. Purchasing Selling 20 T-shirts and collecting Collecting payment of 20T shirts. payment of 15 T-shirts ing 5 T-shirts jE Start of the Recording profit of $100 period ($200-$100) 31cone: 0089 N) IL. QUALITATIVE CHARACTERISTICS OF FINANCIAL INFORMATION The Conceptual Framework states that qualitative characteris the information provided in financial statements useful to users. 1, Fundamental qualitative characteristics are the attributes that make The two fundamental qualitative characteristics are relevance and faithful representation. Fundamental characteristics Relevance Relevant financial information is capable of making a difference in the decisions made by users. Relevant information has: ‘predictive value © confirmatory value © or both The relevance of information is affected by: ‘* its nature and ‘© Materiality. ful representation Financial reports represent economic phenomena in words and numbers. Financial must not only represent relevant phenomena But must faithfully represent the substance of the phenomena that it purports to represent. Financial information would possess the following characteristics: * Complete © Neutral © Free from error © Substance over form 32 Predictable Based on past performance to predict the future. Unusual items are disclosed separately. Confirmatory By comparing predictions with actual results, validity of predictions is confirmed. Materiality Professional judgement. Affects decision making process Complete All necessary information for users to understand the phenomenon is. depicted. Neutral Free from bias in both content and presentation. No manipulation for misleading. Purpose, Free from error No errors or oF in description. No errors in producing financial information. Substance over form Economic reality of transactions rather than its legal formtcl folie: 0889 66 22 76 (HN) Example 3: Fundamental characteristics Materiality: According to 1AS10 — Events after the Reporting Period, non-adjusting events should be disclosed if they are smateriafity. It means that they are such important that non isclosure would affect the ability of users to rake proper evaluations and decisions. It means non-adjusting events is Faithful representation: With inventory account, accountant should: + Completeness: Fully record the number of goods purchased and sold in the period + Neutrality: if the manager request to record goods reserving his personal purpose, accountant should do not recognize these goods. + Free-from-error: Record correctly the value of good purchased or sold with the right double-entries. ‘+ Substance over form: A firm withdrawing inventory for internal use, accountant should record to a separate account, not on sale account. Because the sale account reflects only actual sales in substance. 2. Enhancing qualitative characteristics Enhancing qualitative characteristics are comparability, verifiability, timeliness, and understandability. 33tcl folie: 0889 66 22 76 (HN) characteristics Comparability: The profit of the company must be compared with the previous years to see that there is an increase or decrease in it, Verifiability: The profit of the company is considered to be verifiable when there are specific proofs for the revenue and expense. For example, the company completely has invoices and contracts far 200 goods sold. Timeliness: The information of the company’s profit should be given to users in time. Understandability: When the accountant presents the information of the company’s profit, she should not use a lot of jargon and difficult phrasing Exam focus: Qualitative characteristics of financial information Example 5: According to the IASB's Conceptual Framework for Financial Reporting, which TWO of the following are part of faithful representation? 1 Itis neutral 2. It is presented fairly 3. tis relevant 4. Itis free from material error A. Land2 B. 2and3 c. Landa D. 3and4 Answer: C Information has the quality of faithful representation when it is complete, neutral, free from material error and substance over form (Apply the theory in Section II.1) 34‘Bank bulsng, 54 Le Thanh Nahi, Ha Bo Trung dtc, Ha Noi wr ‘Green Star Tower, No. 261 Phar Va Tuer istic Hare Holle: 0889 N) Il, OTHER ACCOUNTING CONCEPT There are other accounting concepts which are useful in the preparation of financial statements. Concept Explanations present: ‘Compliance with IFRSS All relevant IFRSs must be followed Use of appropriate accounting policies 0 or present fairly in all material respects: Fair presentation The concept is to prevent the business from being over-optimistic about future profits: Prudence Anticipated profit: Do not be recorded until actually realized © Anticipated loss: A provision is created Revenue earned should be matched against the expenditure incurred Matching in earning it Historical cost Transactions are recorded in the accounts with their original costs A business should be co rent in the accounting treatment of similar Consistency items within each accounting period and between the accounting period to the next ‘+ Tor accounting purpose, the business unit is separate and distinct from its owners ©The business exists in its own rights The business entity concept Exam focus: Accounting concepts Example 6: Which of the following accounting concepts means that similar items should receive a similar accounting treatment? A. Materiality concept B. Business entity concept C. Accruals concept D. Consistency concept Answer: D According to Consistency concept, a business should be consistent in the accounting treatment of similar items within each accounting perind and hetween the accounting periad to the next. (Apply theory in Section I) 352A Foor, Green Slat Tomer, No. 261 Pharr Van Dong, ac Tu Liem dtl, Mano Hotine: B83 66-22 76 (HN) ‘SAPP Acadomy Tol 0466 709 888 8 Floor, Nam ABankbulsng, 54 Le Thar Nghl, Hai Ba Trung dct, Ha Nol —-Sepp.edusn 4 Floor, No. 2A Luong Fuss Khanh, Dstt, Ho Cv Ann iy (0889 6 22 67 (HOM) CHAPTER SUMMARY ‘The IASB's Conceptual Framework Is the basis on which IFRSs are formulated. Tn underined i. the transactions. ond assumption. . events are recognized Fair presentation + The business will continue De sauminae cae when they occur (not as Prudence eae cash or its equivalent is Matching mame ne received or paid) Historical cost foreseeable future (at e ; leostthe oct 12 month, * Profit, revenue earned Consistency dessa al lap pcb must be matched against The business _—_ entity Terje seeate sould NOT Ds the expenditure incurred conces valued at their ‘break-up! ee pt value. Fundamental characteristics Enhancing qualitative characteristics Relevance: Faithful representation: + Predictable + Complete + Comparability + Confirmatory + Neutral + Verifiability + Materiality + Free from error + Timeless + Substance over + Understandabuiity form 36tcl folie: 0889 66 22 76 (HN) PRACTICE Questions Question 1: (Basic) Listed below are some characteristics of financial information. 1. Relevance 2. Consistency 3. Faithful represent: 4. Accuracy Which TWO of these are qualitative characteristics of financial information according to the 1ASB's Conceptual Framework for Financial Reporting? A. Land 2 8. 2and4 C. 3and4 D. Land 3 Question 2: (Basic) Which ONE of the following statements describes faithful representat characteristic of faithful representation? n, a qualitative ‘A. Revenue earned must be matched against the expenditure incurred in earning it, B. Having information available to decision-makers in time to be capable of influencing their decisions. C._ The presentation and classification of itemsin the financial statements should stay the same from one period to the next. D. Financial information should be complete, neutral and free from error. Question 3: (Basic) Which of the following statements about accounting concepts and the characteristics of financ 1. The concept of accruals requires transactions to be reflected in the financial statements once the cash or its equivalent is received or paid. 2. Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements. 3. Based on faithful representation, it may sometimes be necessary to exclude material information from financial statements due to difficulties establishing an accurate figure. A. Lonly 8. Land 2 only ©. 2only D. 2and 3 only 37Nem A Bank buling, 54 Le Thanh Nahi, Hal Ba Trung tc, Ha Nol Seppe ‘Green Star Tower, No. 261 Phar Va eTuLem atic. Hane Hotline: 0889 N) Answers Question 1: D (Apply theory in Section 11.1) Question 2: D Financial information should be complete, neutral and free from error. A describes accruals. B describes timeliness. C describes comparability Question 3: Statement (2) only is correct. Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements. Statement (1) describes the opposite of the accruals concept. Statement (3) is also incorrect, faithful representation does not prevent estimates being made. 38‘Bank bulsng, 54 Le Thanh Nahi, Ha Bo Trung dtc, Ha Noi wr fon Sar Tomer No Tu Lem dtc, Hana (0889 66 22 76 (HN) CHAPTER 4: SOURCES, RECORDS AND BOOKS OF PRIME ENTRY LEARNING OUTCOMES ‘Identify and explain the function of the main data sources in an accounting system ‘* Outline the contents and purpose of different types of business documentation + Identify the main types of business transactions + Identify the main types of ledger accounts and books of prime entry, and understand their nature and function + Understand and record sales and purchase returns * Understand the need for a record of petty cash transactions OVERVIEW The sales Thepurchase —Thesales returns. Ths 3.5 pagk daybook daybook daybook feces The purchase The petty cash returns daybook The joumal peer 39‘SAPP Acadomy {8 Flor, Nom A Ban buldng, 54 Le Thanh Nahi, Hai Bo Trung dit, Ha No BATT 24° Fer, Groen star Tower No. 261 Phan Van Dong, Bee Tu Lem dict, Hane 4 Floor, No. 2A Luong Huss Khan, Distt, Ho Civ Nan Cy |. BUSINESS TRANSACTIONS & SOURCES OF INFORMATION 1, Business transaction In every business, several transactions and events will take place every day. The main transactions: Others include: * Sales * Rental costs = Purchases ‘= Raising finance * Payroll related transactions ‘* Repayment of finance 2. Sources of information Tol 0466 709 888 Spp.ecun ole: 0889 66 22 76 (HN) (0889 6 22 67 (HM)Bank bul Alot, Ha No Seppe ‘Green Sar Tow Tuer istic Hare Holle: 0889 N) Main types of business's documentation and sources of data for an accounting system can be shown in the below table: ‘© Quantity ‘To establish price from various 1.Quotation | * Description suppliers + Details of goods required. _| « Cross refer to purchase requisition. Quantity © Cross checked with the order placed by customer * Description 2.salesorder |. petals of goods required and |* Sent to the stores/ warehouse me department for processing of the order. 3. Goods + Details of supplier, eg. name | | pide by supplier. and address. dispatched note |, Quantity and description of Checked with goods received and (GDN) goods purchase order. ‘Issued by supplier of goods as a ‘© Name and address of request for payment. supplier and customer; For the supplier selling the Invoice © Details of goods, e.g. goods/services this will be treated quantity, price, value, sales as a sales invoice. tax, terms of credit, . For the customer this will be treated as a purchase invoice. ‘© Details of supplier, e.g. name and address. * Issued by the supplier. 5.Creditnote | * Details of goods returned, | * Checked with documents regarding e.g. quantity, price, value, goods returned. sales tax, terms of credit. * Issued by the selling company 6. Receipt eee Cavett indicating the payment received. © Details of supplier, e.g. name and address. © Issued by the supplier. Details of date * Checked with other documents to 7 tener Invoice numbers and values ensure that the amount owing is ‘+ Payments made, refunds, correct. amount owing. a1Bank bul Alot, Ha No Seppe ‘Green Sar Tow Tuer istic Hare Holle: 0889 N) ‘* Details of supplier, e.g. name and address. Quantity «Sent to supplier as request for 8.Purchase | * Description supply order ‘© Details of goods required and | ¢ To check the quotation and price. delivery note. Terms and conditions of delivery, payment, etc. * Produced by company receiving 9. Goods ‘© Quantity and description of the goods as proof of receipt. neceiwed note: goods. * Matched with delivery note and (GRN) purchase order. ‘© Details of the supplier * Issued by the company receiving : ‘© Details of goods returned, the goods. a0: Ronit note. e.g. quantity, price, value, | ¢ Cross referred to the credit note sales tax, terms of credit. issued by the supplier. © Method of payment i 11, Remittance © Sent to supplier with, or as i pierce Suet notification of, payment. advice © Account number, date, sla Exam focus: Sources of information Example 1: Which one of the following statements best describes the purpose of a goods dispatched note (delivery note)? A. tis issued by a customer returning faulty goods to their supplier. B. tis issued by a customer to their supplier and specifies the quantity and type of goods they require to be dispatched. C. tis issued by a supplier to their customer and specifies the quantity and type of goods delivered to that customer. D. tis issued by a supplier to their customer and specifies what goods will be provided to Uhem at ¢ specified future date. Answer: C Goods dispatched note is produced by supplier > A, Bis incorrect Goods dispatched note includes details of supplier (e.g. name and address), quantity and description of goods > Cis correct and D is incorrect. 42‘Bank bulsng, 54 Le Thanh Nahi, Ha Bo Trung dtc, Ha Noi Spp.ecun fn Sar Tower, No 261 Phar Van Dong, Bac Tu Lem dtc. Hane Hotline: 0889 6 22 76 (HN) Il. BOOK OF PRIME ENTRY Books of prime entry are books in which we first record transactions. Several books of prime entry exist, each recording a different type of transaction: Sales day book Credit sales Purchases day book Credit purchases Sales returns day book Returns of goods sold on credit Purchases returns day book Returns of goods bought on credit Cash book All bank transactions Cash sales Cash purchase Petty cash book All small cash transactions The journal All transactions not recorded elsewhere 1. The sales day book The sales day book is the book of prime entry for credit sales. Invoices sent out to customers and credit notes are recorded in day book. ‘An extract from a sales day book might look like this: SALES DAY BOOK Date Invoice Customer eee invoiced $ Jon 10 20x0 247 Jones & Co 105.00 248 Smith Co 86.40 2a9 Alex & Co 31.80 250 Enor College 1,264.60 1,487.80 43,‘Bank bulsng, 54 Le Thanh Nahi, Ha Bo Trung dtc, Ha Noi fon Sar Tomer No (0889 66 22 76 (HN) 2. The sales returns day book The sales returns day book is the book of prime entry for credit notes raised. A credit note is raised when customers return goods for some reason ‘An extract from the sales returns day book follows. SALES RETURNS DAY BOOK Date Credit note Customer and goods Amount $ 14 Jan 20x0 Roos, Jones & Co Three pairs ‘Texas’ boots 105.00 3, The purchase day book The purchase day book is the book of prime entry for credit purchases. The purchase day book records other people's invoices. An extract from a purchase day book might look like this: PURCHASE DAY BOOK Internal inv Supplier a Electricity Date Supplier amount Purchases No. Inv. No. invoiced Ete $ $ $ Mar 15 654 YHOO0939 = Cook & Co 315.00 315.00 20x0 655 400167 WeButter 2040 29.40 656 1267 cee 116.80 116.80 Show Fair 657 GB17789 7 100.00 100.00 561,20 444.40 116.80‘SAPP Acadamy Tol 0466 709 888 {8 Flor, Nom K Bank buldng, 54 Le Thanh Nghl, Hai Bo Tung dict, Ha Noi ——«Seppeedusn Z PE 24Fhor, Groen Siar Toner No. 261 Pho Van Dong, Bac Tu Lem tic Hero Hotire: 0869 66 22 70 (HN) 4 Floor, No. 2A Luong Huss Khan, Distt, Ho Civ Nan Cy (0889 6 22 67 (HM) 4. The purchase returns daybook The purchase returns day book is the book of prime entry for credit notes received from suppliers. ‘An extract from the purchase returns day book follows: PURCHASE RETURNS DAY BOOK Date Supplier ond goods Amount $ 18 Mar 20X0 ‘W Butter 300 cardboard boxes 29.40 5. The cash book ‘The cash book is the book of prime entry for cash receipts and payments. ilThe cash book CASH BOOK (RECEIPTS) Date Narrative Total eee: mae Other receivable sales s $s $ s 1Sep Balance b/d 900 20X7_— Cash sale 80 80 Accounts receivable: Hay 380 380 Accounts receivable: Been 720 720 Account receivable: Seed 140 140 Loan: Len Dinger 1,800 1800 Cash sale 150 150 Sale of non- current asset, —200 —200 4870-4200 _230 2,000 CASH BOOK (PAYMENTS) Date Narrative Total decreed Wages Other payable cash $ $ $ $ $ 1Sep Accounts payable: Kew 120 120 20X7 Accounts payable: Hare 310 310 Telephone 400 400 Gas bill 280 280 Petty cash 100 100 Machinery purchase 1.500 1s Balance c/d _1,660 —4370 430 __100 2,180 46‘SAPP Acadamy Tol 0466 709 888 {8 Flor, Nom K Bank buldng, 54 Le Thanh Nghl, Hai Bo Tung dict, Ha Noi ——«Seppeedusn Z PE 24Fhor, Groen Siar Toner No. 261 Pho Van Dong, Bac Tu Lem tic Hero Hotire: 0869 66 22 70 (HN) 4 Floor No. 2A Luong Hus Khan, Dstt, Ho hv Nan Cy (0889 6 22 67 (HM) 6. Petty cash 6.1 The petty cash book Atypical layout follows: PETTY CASH BOOK Receipts Date Narrative Total Milk Postage Travel Other $ $ $ $ $ s 250 1Sep Bal b/d 20x7 milk bill 2 2s Postage stamps 5 5 Taxi fare 10 10 Flowers for sick staff 45 15 Bal c/d _195 250 = 6.2 Imprest system The imprest system is a form of the financial accounting system. The most commo: system Is the petty casn system, 47‘SAPP Acadamy Tol 0466 709 888 Floor, Nam A Bank bulng, 54 Le Thar Nahi, Hai Ba Trung dtc, Ha Nol p.ecusn BOAT 24° Fer, Groen star Tower No. 261 Phan Van Dong. Bac Tu Lem dit Hane Holine: 0889 66 22 70 (HN) Example 2: Petty cash and Imprest system DDTQ operates an imprest system for petty cash. During February 20X8, the following petty cash transactions took place. 2.2.X9 ‘Stamps $12.00 3.2X9 Milk $25.00 8.29 Taxi fare $15.00 17.2.X3 Stamps $5.00 18.2.9 Received from staff for photocopying $8.00 28.2.X9 Stationery $7.50 The amount remaining in petty cash at the end of the month was $93.50. What is the imprest amount? Answer: Total expenditure = $12 + $25 + $15 + $5 + $7.50 = $64.50 Opening balance (Imprest amount) $150.00 (Balancing figure) ‘Add amount received from staff $8.00 $158.00 Less expenditure ($64.50) Closing balance $93.50SAPP seer ou ying 54.0 Tr i Ba Tan i, a coped BATT 20°F croon Sr Yaor fs 2% Pan Van bong, Sae Totem de, Hone 0059662270) 7, Bank statements Weekly or monthly, a business will receive a bank statement. Bank statements should be used to check that the amount shown as a balance in the cash book agrees with the amount on the bank statement. Ooty Reconciliation Area crrtg 8. The journal The journal is a book of prime entry, which records transactions which are: * Not routine ‘© Not recorded in any other book of prime entry There are some examples for transactions, which can be recorded in the journal: © Year-end adjustments: Depreciation charge for the year Irrecoverable debt write-off Record the movement in the allowance for receivables Accruals and prepayments Closing inventory ‘© Acquisitions and disposals of non-current assets © Opening balances for statement of financial posi * Correction of errors 2000 iteiny Whatever type of transa recorded, the format of a journal entry is: Date Dr Cr $ $ Account to be debited x Account to be credited x (Narrative to explain the transaction) 49Hai Bo Trung die, Ha Noi Sapp. istic Haro Holle: 0689 N) ‘Indu course, the ledger accounts will be written up to include the transactions listed in the journal. | *__Anarrative explanation must accompany each journal entry. Exam focus: Books of prime entry Example 3: Which of the following would be recorded in the sales day book? A. Cash received B. Sales invoices €. Credit notes received ©. Trade discounts Answer: B Cash received is recorded in the cash book. > Ais incorrect Sales invoices is recorded in sales day book (Apply theory in Section Il.1). > B is correct Credit notes received are to do with returned purchases (not sales). > Cis incorrect Trade discounts are not recorded, as they arc deducted on the sales invoices and only net sale is recorded > D is incorrect 501s ‘wns paaide ue ye yday si yseo warshs ‘yooq yse> squawayers: saps sajes + Anjad ayy ‘waysés qsasdwiy ‘243 ul aouejeq ayy 42949 OL yueg quawareys ysauduu 243 4apun) 210Au panjanay ajou adianay 7 poos jou uuoneypu03ay ajouugag paunedsip . sapio poop - aseyound ao wpas ae a uawoysn uoneionp « uses yoog yseo swathed 400q wo4y uuayjddns woas uy quawiAed jjews: eed pue sydiaoay 440} Jooq ysed e s} ed ou seo pioras o, Use SUL jooghe, ‘uayddns wosy cenn (saajoau s,ajdoad yooghep panjaoas sajou armel 1410) Saseyaund aseyound ‘ypos9 poses 0 mal 1upa19 p0301 01 auL (pau1m215P008——yoogtep Petes fe ae, pur seion) sas "O08KEP suonzesuen parejaijjosmeg + sajes YL 2pas2 p10r2d OL laden saseyaind + sajes + suompesuen uleW “Anua ‘aiid yo yooq Ja430 Aue Ul pap409a4 Jou pue auNANOs yOu jewinof ay. ‘Bue y>Iym suoRresueN spu0zas OL ASVINIAINS Y3Ld VHDtcl jolie: 0883 66 22 76 (HN) PRACTICE Questions Question 1: (Basic) Which of the following are books of prime entry? 1. Sales day book 2. Cash book 3. Journal 4. Purchase ledger 1,2and3 1,2and4 3and4 All of them. Question 2: (Basic) ‘Which of the following documents should accompany a return of goods to a supplier? A. Debit note B, Remittance advice . Purchase invoice D. Invuice Question 3: (Intermediate) Which one of the following statements about an imprest system of petty cash is correct? ‘A. Animprest system for petty cash controls small cash expenditures because a fixed amount is paid into petty cash at the beginning of each period B. The imprest system provides a control over petty cash spending because the amount of, cash held in petty cash at any time must be equal to the value of the petty cash vouchers for the period. ‘An imprest system for petty cash can operate without the need for petty cash vouchers or receipts for spending, D. An imprest system for petty cash helps with management of small cash expenditures and reduces the risk of fraud. 52Floor Nom K Bank bulls Alot, Ha No Seppe Foor, Green Star Tone Tuer istic Hare Holle: 0889 N) Answers Question (Apply theory in Section I!) Question 2: A (Apply theory in Section 1.2) ‘A debit note is sent to a supplier with a return of goods. A debit note is in effect a request for a credit note. Question 3: D ‘An imprest system for petty cash helps with management of small cash expenditures and reduces the risk of fraud. > D is correct. The amount paid in to replenish petty cash at the beginning of each period should be the amount of petty cash spending in the previous period > A is incorrect. The amount of petty cash at any time is the maximum petty cash balance minus the value of the petty cash vouchers for the period. > Bis incorrect. The amount of petty cash is the total of expenditures shown by petty cash vouchers for the previous period. > Cis incorrect. 53© Holne: 0889 6622 76 (HN) CHAPTER 5: LEDGER ACCOUNTS AND DOUBLE ENTRY LEARNING OUTCOMES * Understand and apply the concept of double entry accounting and the duality concept * Understand and apply the accounting equation * Understand how the accounting system contributes to providing useful accounting information and complies with organisational policies and deadlines * Identify the main types of ledger accounts and books of prime entry, and understand their nature and function * Understand and illustrate the uses of journals and the posting of journal entries into ledger accounts # Identify correct journals from given narrative * Record sale and purchase transactions in ledger accounts * Understand and record sales and purchase returns * Record cash transactions in ledger accounts Explain and identify examples of receivables and payables OVERVIEW | Business 1 Sources of Books of prime ! | transactions information ' entry : Double entry bookkeeping | Reconcile, Reconcile > 54Nem A Bank bulsing, 54 Le Than Nahi, Hal Ba Trung dsc, Ha Nol Groen Siar Tower, No. 261 Phan Van Dong, Bac Tu Liem dtl, Haro 16622 70 (HN) |, LEDGERS AND LEDGER ACCOUNTS Reconciliation 55.9s “(wia3shs Anua-ajqnop ayy jo y1ed) yunoa2e jeuossadw Ue st 3) “swa3! enpInIpul [e1aRas Jo p10994 [e403 e Sdaey JuNO2e [013409 (4) jewsnor yjoog Aep winyas yooq aseypun, ‘ep saseypin, ‘ep suinyaa ajes /400q Aep saye: sypang 4009 hep saseyoing TREES 09 use P suantod ales /100q Aep sales x rer, quay pauses ysasau] x mat ‘sales soy saseypung sales x sasus woo) x ve 7 rodeg x Aug . oe x ood x oonr x 09 sawuuns Jeudes s,saumo (,aunosse (,aunoose Jouqu09) aiqeniazay sg@wioysn9 Upasd saayjddns ype eae Jonuo9} sajqedeg ‘AauiyreW pea Joj uno22e Uy ypee 40y unode Uy ueo} yueg quawdinb3 semqen siessy a}2u008y (Wot) 19 2 99 6960 NH) 9422 96 6990 nou ‘urbe des 990602 9940 A aypu03eytcl folie: 0889 66 22 76 (HN) 2. Ledger account There are two sides to a ledger account, and an account heading on top, and so they are often referred to as T-accounts. ‘© On top of the account is its name. © There isa left-hand side, or debit side. ‘© There isa right-hand side, or credit side. NAME OF ACCOUNT DEBIT SIDE $ CREDIT SIDE $ Date Corresponding Date Corresponding Accounts/Narratives Accounts/Narratives Example 1: Ledger account ADVERTISING EXPENSES Date Narrative Ref. $ | Date Narrative Ref. $ 15 April 20x6 JFK Agency forthe PL quarter to 31 March 348, 7°00 Il, DOUBLE ENTRY BOOKKEEPING 1. Dual effect (Duality concept) Each transaction that a business enters into affects the financial statements in two ways, the dual effect. Example 2: Dual effect A business buys a vehicle for cash. The two effects on the business are: (1) It has increased the vehicle assets (2) There is a decrease in cash available to the business. 37SAPP sce serous sang 54.0 Tx io van Tang devon, Eapecuan 1 kn, ron Sa ower Ho 201 Phar Van Dong Salem ano Hole: 869602270 (HN) Ledger accounts, with their debit and credit sides, are kept in a way that allows the two-sided nature of every transaction to be recorded. This is known as the “double entry” system of bookkeeping because every transaction is recorded twice in the accounts. 2. The rules of double entry bookkeeping Double entry FSs Account type Debit Credit ASSETS Except (adversely recorded): * Accumulated depreciation/Provision for depreciation * Provision for slow-moving stocks * Provision for doubtful debts/irrecoverable § SOFP debts CAPITAL Except (adversely recorded): © Drawings SALES/INCOME cos/coGs SOPL | Except (adversely recorded): © Return outwards EXPENSES wp | a> | um] em |e) am =| <= |p| => |p 58‘Bank bulsng, 54 Le Thanh Nahi, Ha Bo Trung dtc, Ha Noi wr ‘Green Star Tower, No. 261 Phar Va Tuer istic Hare Holle: 0889 N) Exam focus: Double entry bookkeeping Example 3: Jones Co has the following transactions: 1) Payment of $400 to J Bloggs for a cash purchase 2) Payment of $250 to J Doe in respect of an invoice for goods purchased last month What are the correct ledger entries to record these transactions? A. Debit Cash $650 8. Debit Purchases $650 Credit Purchases $650 Credit Cash $650 C. Debit Purchases $400 D. Debit Cash $650 Debit Trade Payables $250 Credit Trade Payables $250 Credit Cash $650 Credit Purchases $400 Guidance: Step 1: Determine accounts to record these transactions Step 2: Determine account types for these accounts Step 3: Determine there is an increase or decrease in these account types Step 4: Determine double entries for these transactions (Note: Total debit = Total credit) Answer: C Step 1: Determine accounts to record these transactions 1) Payment of $400 to J Bloggs for a cash purchase There are 2 accounts used here: * Cash account for the amount of cash paid. * Purchases account for the value of goods bought. 2) Payment of $250 to J Doe in respect of an invoice for goods purchased last month. There are 2 accounts used here: * Cash account for the amount of cash paid «Trade Payables account for the value of goods purchased last month. Step 2: Determine account types for these accounts 1) Cash account > Assets 2) Cash account > Assets Purchases account > Assets Trade payables account > Liabilities 59cone: 0089 N) Step 3: Determine there is an increase or decrease in these account types 1) Decrease $400 in Cash account > |2) Decrease $250 in Cash account > ‘Assets go down ‘Assets go down Increase $400 in purchases account > Decrease $250 in Trade payables Assets go up account > Liabilities go down Step 4: Determine double entries for these transactions 1) Debit Purchases account $400 2) Debit Trade payables account $250 Credit Cash account $400 Credit Cash account $250 We combine 2 double entries: Debit Purchases $400 Debit Trade payables account $250 Credit Cash account $650 > The correct answer is C RECEIVABLES LEDGER AND PAYABLES LEDGER 1. Impersonal account and personal account The accounts in the nominal ledger (ledger accounts) relating to types of income, expense, asset, liability can be called impersonal account. Personal account is an account that shows more detail about the money paid to a specific supplier or the money received from a customer. 602A Foor, Green Slat Tomer, No. 261 Pharr Van Dong, ac Tu Liem dtl, Mano Hotine: B83 66-22 76 (HN) ‘SAPP Acadomy Tol 0466 709 888 8 Floor, Nam ABankbulsng, 54 Le Thar Nghl, Hai Ba Trung dct, Ha Nol —-Sepp.edusn aremnaee “igor No. 2A Luong Hus) Khan, DI! , Ho Ch Han iy (0889 6 22 67 (HOM) 2. The receivables ledger The receivables ledger is a ledger for customers’ personal accounts. Debit Receivables Debit Sales return Credit Sales Debit Output sales tax Credit Output Sales tax Credit Receivables uonpesuen leuosiad jo anjen Debit personal Credit personal account account Value of personal transaction Each customer account is given a reference or code number, and it is that reference which appears in the sales day book. ‘The amounts are posted from the sales day book to the receivables ledger. 61Bank bulsing, 54 on Sar Tome, No 2270 (HN) Example 4: The receivables ledger Assume that you are the supplier of ENOR Co. On 2 May 20X2, you sold some truck parts of $20,000 to ENOR Co on credit. But there were some parts of $1,000 not meet the quality. ENOR returned them on 4 May 20X2. Sales tax rate assumed is 10%. a Debit Receivables $22,000 Debit Sales return $1,000 Credit Sales $20,000 Debit Output sales tax $100 Credit Output sales tax $2,000 Credit Receivables $1,100 Value of personal transaction ucnaesuen, euosied yo anyen Debit Receivables Credit Receivables > (ENOR Co): $22,000 (ENOR Co): $1,100 « J ERSEREE Sarr | Totel debit balance of ‘lL customers 3. The payables ledger ‘The payables ledger is a ledger for suppliers’ personal accounts. 2© Hole: 0883 N) Debit Payables Debit Purchases Credit input sales tax Debit Input sales tax Credit Purchase returns Credit Payables vonpesuest Jeuosiad yo anjen Debit personal Credit personal account account <—_ Value of personal transaction a | After entries are made in the purchase day book, cash book, or purchase returns day book, they are also made in the relevant supplier account in the payables ledger. Example 5: The payables ledger Assume that you are the customer of ENOR Co. On 2 May 20X2, you buy some truck parts of $20,000 from ENOR Co on credit, But there were some parts of $1,000 not meet the quality. You returned them on 4 May 20X2. Sales tax rate assumed is 10% 63‘SAPP Acadomy {8 Floor, Nam ABankbulsng, 54 Le Thanh Nghl, Hai Ba Trung dsc, Ha No! 2 Foor, Groen Star Toner, No. 261 Phar Van Dong. Gac Tu Liem dt! Hane avers “igor, No. 2A Ong Huss Khan, DI! 1, HOC Han iy “Tol 0466 709 888 Sspp.eduvn Hotline: 0889 66 22 76 (HN) (0889 6 22 67 (HOM) a . Debit Payables $1,100 Debit Purchases $20,000 Credit Input sales tax $100 Debit Input sales tax $2,000 Credit Purchase returns $1,000 Credit Payables $22,000 3 s § gs ue ies 32 £3 gs Debit Payables Credit Payables g2 Ss ————* (ENR Co) $1,100 {ENOR Co) $22,000 <——_ & ‘Total credit balance of ALL suppliersso (qunoaze jevosiog) (unoa2e reuosiag sargens040 reucsing) sageheg 9 ‘0 pouunaes ‘p21 uo spood ng alper> wo spoo8 ss “sjunoace [euosiad yes 1} 188} 5) “sunense euossad s1ouoysno 10} 19899} 5) tls oft See ee ae tt sosueda, awoouy/so0s ‘Aamnba gsonmngen, od ‘2wo2u! anjsuayaiduio> jo queues §— <—— ‘Buydaai}00q Anus ajgnog Uvonisod jersueul Jo 1uousnners . AYVINIAINS Y3Ld VHD (wor 29 INH 4 2Floor Nom K Bank bulls ‘Thanh Nahi, Hal Ba Trung dtc, Ha Noi wr Foor, Green Star Tower, No. 261 Phar Vs Tuer istic Hare Holle: 0889 N) PRACTICE Questions Question : (Basic) How is the total of the purchases day book posted to the nominal ledger? ‘A. Debit purchases, Credit cash B. Debit payables control, Credit purchases C. Debit cash, Credit purchases D. Debit purchases, Credit payables control Question 2: (intermediate) Identify, by indicating the relevant box in the table below, whether each of the following statements is true or false. A debit records an increase in liabilities. True False A debit records a decrease in assets. True False Accredit records an increase in liabilities. True False Acredit records a decrease in capital. True False Question : (Intermediate) Drink Co has some transactions as follow: 1) Paid annual rent for warehouse of $1,750 in cash. 2) A business sells $200 worth of goods to a customer, the customer pays $70 in cash immediately and will pay the remaining $130 in 60 days' time. Which TWO of the following entries are correct? A. Debit Rental expenses $1,750 B. Debit Cash $70 Credit Cash $1,750 Debit receivables $130 Credit sales $200 C. Debit Rental expenses $1,750 D. Debit Cash $70 Creult Payables $1,750 creult Sales $70 66Floor Nom K Bank bulls Alot, Ha No Seppe Foor, Green Star Tone Tuer istic Hare Holle: 0889 N) Answers Question 1: D The double entry for posting the total of purchases day book to the nominal ledger is: Debit purchases Credit payables control ‘Question 2: (Apply theory in Section 1.2) A debit records an increase in liabilities. False A debit records a decrease in assets. False A credit records an increase in liabilities. True Acredit records a decrease in capital. False Question 3: A&B Step 1: Determine accounts to record these transactions 1) Paid annual rent for warehouse in cash There are 2 accounts used here: ‘* Cash account for the amount of cash paid. ‘© Rent account for the amount of renting warehouse paid. 2) Sold goods, but the customer did not pay immediately all amount of money. Notes: There is no information for the cost of goods sold. So, we do not have to make double _entry for Cost of goods sold. There are 3 accounts used here: ‘* Sales account for the value of all goods soid. * Cash account for the amount of cash which has paid immediately by the customer. ‘+ Receivables account for the amount of remaining amount of cash paid in the future. 67Floor Nom A Ban bulsng, 54 Le Thanh Nghl, Ha Bo Trung dtc, Ha Noi wr Foor, Green Star Tower, No. 261 Phar Vs Tuer istic Hare Holle: 0889 N) Step 2: Determine account types for these accounts 1) Cash account > Assets 2) Sales account > Revenue Rent account ~> Liabilities Cash account > Assets Receivables account > Assets Step 2: Determine there is an increase or decrease in these account types 1) Decrease $1,750 in Cash account >| 2) Increase $200 in Sales account > Assets go down Revenue goes up Decrease $1,750 In Rent account > Increase $70 In Cash account > Liabilities go down Assets go up Increase $130 in Receivables account > Assets go up Step 4: Determine double entries for these transactions 1) Debit Rent account $1,750 2) Debit Cash account $70 Credit Cash account $1,750 Debit Receivables account $130 Credit Sales account $200 The correct answers are A and B. 68‘SAPP Acadomy Tol 0466 709 888 8 Floor, Nam ABankbulsng, 54 Le Thar Nghl, Hai Ba Trung dct, Ha Nol —-Sepp.edusn 2A Foor, Green Slat Tomer, No. 261 Pharr Van Dong, ac Tu Liem dtl, Mano Hotine: B83 66-22 76 (HN) 4 Floor, No. 2A Luong Fuss Khanh, Dstt, Ho Cv Ann iy (0889 6 22 67 (HOM) CHAPTER 6: SALES TAX LEARNING OUTCOMES Understand the general principles of the operation of a sales tax Calculate sales tax on transactions and record the consequent accounting entries. ‘Account for discounts allowed ‘Account for discounts received OVERVIEW iain gs Accounting for Recoverable irrecoverable Trade tax tax discount discount ren Cheol Input tax Ouput tax@* Flor, Nam Bank bulking, St Le Thank Nhl Hal Ba Tang dt, Ha Noi_——Seppeduan Pes: Se ror) Pann Borg Bao coms, Nw Ho 03602270) 1. NATURE OF SALES TAX 1, Definition Sales tax is an indirect tax levied on the sale of goods and services. It is usually administered by the local tax authorities. Sales tax is @ cumulative tax, collected at various stages during the life of goods or services. 2. Input and output sales tax Registered businesses charge output sales tex cn sales and suffer input sales tax on purchases. Input tax Output tax Output tax > Input tax omar ea aca Business pays the difference in tax to Tax authorities will refund the the authorities difference to business. Example 1: Input and output sales tax ‘A manufacturer buys materials to manufacture a computer > Then sells the computer to a wholesaler > Then the wholesaler sells it to a retailer > Retailer sells it to a customer. It is assumed that the rate for sales tax is 10%. The cale tax can be calculated as follow: 70ABank building, 54 Le Thar Nahi, Hai Ba Tung dsc, Ha Noi Seppe ‘Green Star Tower, No. 261 Phar Va eTuLem atic. Hane Hotline: 0889 N) A supplier of raw materials The supplier hands over to tax jay aaa tio authorities A manufacturer Purchases raw materials 100 10 (Input tax) 110 Sells the completed television ae panera si toa wholesaler The manufacturer hands over 10 to tax authorities (Output tax - Input tax= 20-10) A wholesaler Purchases the computer 200 20 (Input tax) 220 Sells the computer to retailer 300 30 (Output tax) 330 Wholesaler hands over to tax Pee authorities Retailer Purchases the computer 302 30 (Input tax) 330 Sells the computer to customer 550 55 (Output tax) 605 Retailer hands over to tax ay authorities ‘Customer Purchases the computer 550 55. 605 Total sales tax is: $ Supplier of materials and components 10 Manufacturer 10 Wholesaler 10 Retailer 25 Total sales tan paid 35 The total tax of $55 is borne by the ultimate consumer but is collected on behalf of the tax authorities at the different stages in the product's life. n3. Irrecoverable sales tax Irrecoverable sales tax is sales tax paid on inputs cannot be reclaimed (e.g. where a trader is not registered for sales tax or where inputs are not related to taxable business activities). Where sales tax is irrecoverable: ‘* It must be regarded as part of the cost of the items purchased; and © Included in the statement of profit or loss charge or in the statement of financial position as appropriate. Example 2: Irrecoverable sales tax ‘+ A business pays $500 for entertaining expenses and suffers irrecoverable input sales tax of $75 on this amount. ‘© The total of $575 should be charged to the statement of profit or loss (SOPL) as an expense. 4, Amount inclusive and exclusive of tax In business, you are likely to come across sales and purchases figures quoted as gross or net of sales tax. ‘©The gross amount of a sale or purchase is the amount inclusive of sales tax. ‘* The net amount of a sale or purchase is the amount exclusive of sales tax. Gross amount Net amount = 1+ Tax rate Example 3: Amount inclusive and exclusive ot tax If the net amount of a purchase is $100, and the rate of sales tax is 15%, the amounts are as follows. Nel amount exclusive of sales lax = $100. Sales tax =$100x 15% =$15 Gross amount inclusive of salestax = $100+$15 = $115 Il, ACCOUNTING FOR SALES TAX 1, Double entry RBank bul Alot, Ha No Seppe ‘Green Sar Tow Tuer istic Hare Holle: 0889 N) * The purchases account does not include sales tax because itis not an Debit Purchases expense — it will be recovered. Sales tax paid On otc ioc tax ‘© The payables account does include purchases (input tax) sales tax, as the supplier must be Credit Payables/cash poid the full amount duc the full amount due must be paid to supplier. ‘* The sales account does not include sales tax because it is not income - it Sales tax charged on | Credit Sales will be paid to the tax authority. sales (output tax) —_| Credit Sales tax © The receivables account does include sales tax, as the customer ‘must pay the full amount due. Debit Recelvables/cash Payment of output | pepit sales tax tax on sales to the tax ‘* Output sales tax > input sales tax authority Credit cash Receipt of input tax on purchases from the tax authority Debit Cash received © Output sales tax < input sales tax Credit Sales tax 2. Sales tax day books 2.1 Sales day book When a business makes a credit sale the total amount invoiced, including sales tax, will be recorded in the sales day book. The analysis columns will then separate the sales tax from the sales income of the business as follows. SALES DAY BOOK Date Invoice ‘Customer Total Sales income _ Sales tax $ $ $ 10 Jan 20x12 247 A Detter and Sons 230 200 30 BYan Dong. Ba Tu Lem dt! cone: 0089 N) 2.2 Purchases day book When a business is invoiced by a supplier the total amount payable, including sales tax, will be recorded in the purchase day book. The analysis columns will then separate the recoverable input sales tax from the net purchase cost to the business as follows. PURCHASES DAY BOOK Date Supplier Total Purchase Sales tax $ $ $ 15 Mar 20x1_ A Splier (Merchants) 184 160 24 2.3 Cash book When receivables pay what they owe, or payables are paid, there is no need to show the sales tax in an analysis column of the cash book Sales tax charged on cash sales or sales tax paid on cash purchases will be analyzed in a separate column of the cash book. CASH BOOK (RECEIPTS) Output sales Date Narrative Total Sales ledger Cash sales ‘tax on cash sales 20x1 $ $ $ $ 3Dec A Dalee and Sons 440 440 3Dec Ohee 770 770 5Dec Cash sales 330 300 30 1.540 1.210 300 30 74Bank bul fon Sar Tomer No (0889 66 22 76 (HN) CASH BOOK (PAYMENTS) Purchase C28! Purchase Input sales tax Date Narrative Total and sundry on cash ledger : items purchases 20x1 $ $ $ $ 3Nov A Spid (Merchants) 187 187 7Nov Telephone bill paid 143 130 3B Boy C28h purchase of 55 50 5 stationery 9 Nov Sales tax paid to tax 1,500 1,500 authorizes 1,885 187 1,680 18 Exam focus: Accounting for sales tax Example 4: Alana is not registered for sales tax purposes. She has recently received an invoice for goods for resale which cost $500 before sales tax, which is levied at 15%. The total value was therefore $575, What is the correct entry to be made in Alana's general ledger in respect of the inv A. DEBIT Purchases $500, DEBIT Sales tax $75, CREDIT Payables $575 8. DEBIT Purchases $575, CREDIT Sales tax $75, CREDIT Payables $500 C. DEBIT Purchases $500, CREDIT Payables $500 D. DEBIT Purchases $575, CREDIT Payables $575 Answer: D Alana is not registered for sales tax purposes and therefore cannot reclaim the input sales tax of $75. 5Example 5: The following information relates to Eva Co's sales tax for the month of March 20X3: $ Sales (including sales tax) 109,250 Purchases (net of sales tax) 64,000 Sales tax is charged ata flat rate of 15%. Eva Co's sales tax account showed an opening credit, balance of $4,540 at the beginning of the month and a closing debit balance of $2,720 at the end of the month, What was the total sales tax paid to regulatory authorities during the month of March 20x3? Answer: $11,910 ‘SALES TAX CONTROL ACCOUNT $ $ b/d 4,540 Purchases ($64,000 @ 15%) 9,600 | Sales 14,250 (109,250 x 1594/115%) cid 2.720 Cash 11,910 21,510 21,510 76tcl folie: 0889 66 22 76 (HN) Ml. DISCOUNTS 1. Types of discounts Discounts: Trade discount Cash discount/ Settlement discount + Areduction in the list price of goods * Given by a wholesaler or i A reduction in the amount payable manufacturer to a retailer. + Itis often given in return for payment + Its often given in return for bulk in cash, or within an agreed period. purchase orders. Example Acustomer is quoted a price of $1 per unit for a particular item, but a lower price of $0.95 per unit if the item is bought in quantities of more than 100 units at a time. Example Asupplier charges $1,000 for goods, but offers a discount of 5% if the goods are paid within 1 week. 2. Accounting for discounts 2.1 Trade discount ‘Trade discount Trade discount received Trade discount allowed (given by suppliers to the business) (given by the business to customers) Discount is deducted from Discount is deducted from gross cost of purchases gross sales price 7