English For Accounting Financial Accounting Department

ENGLISH FOR ACCOUNTING
Financial Accounting Department
1-1
Content
 English for Financial accounting

 English for Managerial accounting
 English for Auditing
1-2
Part 1: English for
Financial Accounting
1-3
1.1 DEFINITION AND ROLE OF
ACCOUNTING
1.1.1 What is accounting
1.1.2 Role of accounting
1-4
1.1 DEFINITION AND ROLE OF ACCOUNTING
1.1.1 What is Accounting?
1. identify, record, and communicate the economic

events of an
2. organization to
3. interested users.
1-5
1.1.1What is Accounting?
Three Activities
The accounting process includes

the bookkeeping function.
1-6
1.1.1. DEFINITION
Identification means selecting transactions and events

relevant to an organization.
Recording means keeping a chronological log of

transactions and events measured in money and
classified and summarized in a useful format.
Communication means preparing accounting reports

such as financial statements, and analyzing and
interpreting these reports.
1-7
1.1.1. DEFINITION
According to Wikipedia:
Accounting or accountancy is the measurement,
processing, and communication of financial information
about economic entities such
as businesses and corporations.
1-8
1.1.1. DEFINITION
According to Investopedia
What is 'Accounting‘:
Accounting is the systematic and comprehensive
recording of financial transactions pertaining to a
business.
Accounting also refers to the process of summarizing,
analyzing and reporting these transactions to oversight
agencies, regulators and tax collection entities.
1-9
1.1.1. THE DEFINITION OF ACCOUNTING
The modern accounting was established by

the Italian mathematician Luca Pacioli in 1494.
Accounting, which has been called the
"language of business", measures the results of
an organization's economic activities and
conveys this information to a variety of users,
including investors, creditors, management,
and regulators
1-10
1.1.2 The role of accounting
The purpose of accounting is to provide

financial information to the stakeholders of
the business
1-11
Internal Users
Management SEC
Human Investors
Resources
There are two broad
groups of users of Labor
financial information: Unions
Finance
internal users and
external users.
Creditors
Marketing
Supplier
Customers External
Users
1-12
Internal
Users
Illustration 1-1
Questions that internal
users ask
1-13 LO 2
1.1.2. ROLE OF ACCOUNTING
Internal Users—are those directly involved in

managing and operating an organization
Marketing Managers:
Use reports about sales and costs to target
consumers, set prices, and monitor consumer
needs, tastes, and price concerns.
Human Resource Managers
Need information about employees’ payroll,
benefits, performance, and compensation.
1-14
Managerial Accounting—area of accounting

that serves the needs of internal users
1-15
External
Users
Illustration 1-2
Questions that external
users ask
1-16 LO 2
External Users—are NOT directly involved in

running the organization.
External users have limited access to an organization’s
information
Lenders (creditors)
Loan money or other resources to an organization.
They look for information to help them assess whether
an organization is likely to repay its loans with interest.
1-17
Shareholders(investors):
Owners of a corporation.
Use accounting reports in deciding whether to buy, hold, or sell
stock
Suppliers
Use accounting information to judge the soundness of a
customer before making sales on credit
Government agencies are concerned with the financial activities of
business organizations for purposes of taxation and regulation.
1-18
Financial Accounting is concerned with providing useful

information to those parties OUTSIDE of the business
1-19
1.2 CONCEPTUAL FRAMEWORK FOR
FINANCIAL REPORTING
1.2.1 Objective of Financial Accounting
1.2.2 Elements of Financial Statements
1.2.3 Qualitative characteristics of accounting

information
1.2.4 Recognition, measurement and disclosure

concepts
1-20
ILLUSTRATION 2-7
Conceptual Framework for
Financial Reporting
1-21 LO 1
1.2 CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING
1.2.1 Objective of Financial Accounting
To provide financial information about the

reporting entity that is useful to present and
potential equity investors, lenders, and other
creditors in making decisions about providing
resources to the entity
1-22 LO 7
1.2 CONCEPTUAL FRAMEWORK
1.2.2. Elements of Financial Statements
Assets
Probable future economic benefits obtained or

controlled by a particular entity as result of past
transactions or events
LO 2 Conceptual Framework.
1-23
Liabilities
Probable future sacrifices of economic benefits

arising from present obligations of a particular
entity to transfer assets or provide services to other
entities in the future as a result of past transactions
or events
1-24
Equity
Residual interest in the assets of an entity that

remains after deducting its liabilities. In a business
enterprise, the equity is the ownership interest
1-25
Investments by owners
Owner investment, also called owner's

investment or contributed capital, is the
amount of assets that the owner puts into
the company. In other words, this is the
amount of money or other assets that
the owner contributes to the business
either to start it or to keep it running
1-26
Distributions to owners
A distribution to owners is a
payment of the retained earnings of a
business to its owners
1-27
Comprehensive Income
Comprehensive income includes net income

and unrealized income.
Unrealized gains or losses on

hedge/derivative financial instruments and
foreign currency transaction gains or losses
1-28
Revenues
Revenue is the income generated from normal

business operations and includes discounts
and deductions for returned merchandise
1-29
Expenses
Outflows or other using up of assets or incurrences

of liabilities during a period from delivering or
producing goods.
An expense is the cost of operations that a

company incurs to generate revenue.
1-30
Gains
Increases in equity from peripheral or incidental

transactions of an entity and from all other
transactions and other events and circumstances
affecting the entity during a period except those
that result from revenues or investments by
owners.
1-31
Losses
Decrease in equity (net assets) from peripheral or

incidental transactions of an entity and from all
other transactions and other events and
circumstances affecting the entity during a period
except those that result from expenses or
distributions to owners
Unrealized gains and losses are also

commonly known as "paper" profits or losses
1-32
1.2.3. Qualitative characteristics of accounting information
The qualitative characteristics of accounting

information is identified by distinguishing
better (more useful) information from inferior
(less useful) information for decision-making
purposes
1-33
1-34
Fundamental Quality—Relevance
The qualitative characteristics of accounting

information is identified by distinguishing
better (more useful) information from inferior
(less useful) information for decision-making
purposes
To have relevance, accounting information must be capable of

making a difference in a decision.
1-35
Fundamental Quality—Relevance
Financial information has predictive value if it has

value as an input to predictive processes used by
investors to form their own expectations about the
future.
Relevant information also helps users confirm or
correct prior expectations.
Information is material if omitting it or misstating it
could influence decisions that users make on the
basis of the reported financial information.
1-36
Fundamental Quality—Faithful Representation
Faithful representation means that the numbers and

descriptions match what really existed or happened.
1-37
Fundamental Quality—Faithful Representation
Completeness means that all the information that

is necessary for faithful representation is
provided.
Neutrality means that a company cannot select
information to favor one set of interested parties
over another.
An information item that is free from error will be
a more accurate (faithful) representation of a
financial item.
1-38
Enhancing Qualities
Comparability: Information that is measured and

reported in a similar manner for different
companies is considered comparable.
Verifiability occurs when independent measurers,
using the same methods, obtain similar results.
Timeliness means having information available to

decision-makers before it loses its capacity to
influence decisions.
Understandability is the quality of information that
lets reasonably informed users see its significance.
1-39
1.2.4 Recognition, measurement and disclosure concepts
Assumptions in Financial Reporting
Monetary Unit Economic Entity

Requires that only those things
States that every economic
that can be expressed in
entity can be separately
money are included in the
identified and accounted for.
accounting records.
1-40
1.2 CONCEPTUAL FRAMEWORK FOR FINANCIAL
REPORTING
Assumptions in Financial Reporting
Periodicity Going Concern

States that the life of a The business will remain in
business can be divided into operation for the
artificial time periods. foreseeable future.
1-41
Illustration: Identify which basic assumption of accounting is best

described in each item below.
(a) The economic activities of KC Corporation are

divided into 12-month periods for the purpose of Periodicity
issuing annual reports.
(b) Solectron Corporation, Inc. does not adjust
Monetary
amounts in its financial statements for the effects
of inflation. Unit
(c) Walgreen Co. reports current and noncurrent

classifications in its balance sheet. Going Concern
(d) The economic activities of General Electric and
its subsidiaries are merged for accounting and Economic
reporting purposes. Entity
1-42 LO 5
REPORTING
Principles in Financial Reporting
Measurement Principles
Historical Cost Fair Value

Or cost principle, Indicates that
dictates that assets and
companies record liabilities should be
assets at their reported at fair
cost. value (the price
received to sell an
asset or settle
a liability).
1-43
REPORTING
Revenue Recognition Principle
Revenue Recognition
Requires that companies recognize
revenue in the accounting period in
which the performance obligation is
satisfied.
1-44
Revenue
Recognition
Principle
Illustration: Assume
the Boeing
Corporation signs a
contract to sell airplanes
to Delta Air Lines for
$100 million. To
determine when to
recognize revenue,
use the five steps for
revenue recognition
shown at right.
ILLUSTRATION 2-5
1-45
REPORTING
Expense Recognition Principle
Expense Recognition
“Let the expense follow the revenues.”
1-46
REPORTING
Full disclosure Principle
Full disclosure
Requires that
companies disclose
all circumstances
and events that
would make a
difference to
financial statement
users.
1-47
Illustration: Identify which basic principle of accounting is best described

in each item below.
(a) KC Corporation reports revenue in its income Revenue

statement when it is earned instead of when the cash is Recognition
collected.
(b) Yahoo, Inc. recognizes depreciation expense for a
Expense
machine over the 2-year period during which that machine
Recognition
helps the company earn revenue.
(c) Oracle Corporation reports information about pending Full
lawsuits in the notes to its financial statements. Disclosure
(d) Eastman Kodak Company reports land on its balance
sheet at the amount paid to acquire it, even though the Measurement
estimated fair market value is greater.
1-48
Cost Constraint – cost of providing information must be

weighed against the benefits that can be derived from using it.
Illustration: The following two situations represent applications

of the cost constraint.
(a) Rafael Corporation discloses fair value information on its

loans because it already gathers this information internally.
(b) Willis Company does not disclose any information in the notes
to the financial statements unless the value of the information
to users exceeds the expense of gathering it.
1-49
1.3 Accounting Equation, the account and recording
process
1.3.1 Accounting equation
1.3.2 The account
1.3.3 Recording process
1-50
1.3 Accounting Equation, the account and recording process
Owner’s
Assets = Liabilities + Equity
Provides the underlying framework for recording and

summarizing economic events.
Assets are claimed by either creditors or owners.
Claims of creditors must be paid before ownership claims.
1-51
Assets
 Resources a business owns.
 Provide future services or benefits.
 Cash, Supplies, Equipment, etc.
Owner’s
1-52
Liabilities
 Claims against assets (debts and obligations).
 Creditors - party to whom money is owed.
 Accounts payable, Notes payable, etc.
Owner’s
1-53
Owner’s Equity
 Ownership claim on total assets.
 Referred to as residual equity.
 Investment by owners and revenues (+)
 Drawings and expenses (-).
Owner’s
1-54
Revenues result from business activities entered into for the

purpose of earning income.
Common sources of revenue are: sales, fees, services,
commissions, interest, dividends, royalties, and rent.
1-55
Expenses are the cost of assets consumed or services used in

the process of earning revenue.
Common expenses are: salaries expense, rent expense,
utilities expense, tax expense, etc.
1-56
1.3.2 The account
 Record of increases and decreases

Account in a specific asset, liability, equity,
revenue, or expense item.
 Debit = “Left”
 Credit = “Right”
An Account can Account Name

be illustrated in a Debit / Dr. Credit / Cr.
T-Account form.
1-57
process
1.3.2 The account
Debit and Credit Procedures

Double-entry system
► Each transaction must affect two or more accounts to
keep the basic accounting equation in balance.
► Recording done by debiting at least one account and
crediting another.
► DEBITS must equal CREDITS.
1-58
process
1.3.2 The account
If Debits are greater than Credits, the account will have

a debit balance.
Account Name
Debit / Dr. Credit / Cr.
Transaction #1 $10,000 $3,000 Transaction #2

Transaction #3 8,000
Balance $15,000
1-59
process
1.3.2 The account
If Debits are less than Credits, the account will have a

credit balance.
Account Name
Transaction #1 $10,000 $3,000 Transaction #2

8,000 Transaction #3
Balance $1,000
1-60
process
1.3.2 The account
Assets  Assets - Debits should exceed

credits.
 Liabilities – Credits should
Normal Balance
exceed debits.
Chapter
3-23
 Normal balance is on the

Liabilities
increase side.
Normal Balance
Chapter
3-24
1-61
process
1.3.2 The account
Owner’
Owner’s Equity  Owner’s investments and
revenues increase owner’s equity
(credit).
Normal Balance
 Owner’s drawings and expenses
Chapter
3-25
decrease owner’s equity (debit).
Owner’s Capital Owner’

Owner’s Drawing
Debit / Dr. Credit / Cr. Debit / Dr. Credit / Cr.
Normal Balance Normal Balance
Chapter Chapter
3-25 3-23
1-62
1.3.2 The account
Revenue  Purpose of earning revenues is to

benefit the owner(s).
 Effect of debits and credits on
Normal Balance
revenue accounts is the same as
Chapter
3-26
their effect on Owner’s Capital.
 Expenses have the opposite effect:
Expense
Debit / Dr. Credit / Cr. expenses decrease owner’s
equity.
Normal Balance
Chapter
3-27
1-63
1.3.2 The recording process
Illustration 3-17
Transfer journal information to

Analyze each transaction Enter transaction in a journal ledger accounts
Source documents, such as a sales slip, a check, a bill, or a

cash register tape, provide evidence of the transaction.
1-64 LO 4 Identify the basic steps in the recording process.

1.3 Accounting equation, the account and the recording process
The General Journal
 Book of original entry.

 Transactions recorded in chronological order.
 Contributions to the recording process:
1. Discloses the complete effects of a transaction.
2. Provides a chronological record of transactions.
3. Helps to prevent or locate errors because the debit and

credit amounts can be easily compared.
1-65
Oct. 1 Sierra issued common stock in exchange for

$10,000 cash.
General Journal
Date Account Title Ref. Debit Credit
Oct. 1 Cash 10,000
Common stock 10,000
1-66 LO 5 Explain what a journal is and how it helps in the recording process.
Oct. 1 Sierra borrowed $5,000 by signing a note.
General Journal
Oct. 1 Cash 5,000
Notes payable 5,000
Oct. 2 Sierra purchased equipment for $5,000.
General Journal
Oct. 2 Equipment 5,000
Cash 5,000
The Ledger
 General Ledger contains the entire group of accounts
maintained by a company.
Posting – process of transferring amounts from the journal to the

1-69 ledger accounts.
Posting – the process of transferring journal entry

amounts to ledger accounts.
General Journal J1
Oct. 1 Cash 101 10,000
Common stock 10,000
General Ledger
Cash Acct. No. 101
Date Explanation Ref. Debit Credit Balance
Oct. 1 Stock issued J1 10,000 10,000
1-70 LO 7
1.4 Accounting Cycle
Illustration 4-33
1. Analyze business transactions Required steps in the
accounting cycle
9. Prepare a post-closing trial

2. Journalize the transactions
balance
8. Journalize and post closing

3. Post to ledger accounts
entries
7. Prepare financial statements 4. Prepare a trial balance
6. Prepare an adjusted trial 5. Journalize and post adjusting

balance entries:
Deferrals/Accruals
1-71 LO 8 Describe the required steps in the accounting cycle.

1.4.1 Trial Balance
Trial Balance –
Each account is
analyzed to
determine whether
it is complete and
up-to-date.
1-72
1.4.1 Trial Balance
1. Prepare a Trial Balance on the Worksheet
Adjusted Income
Trial Balance Adjustments Trial Balance Statement Balance Sheet
Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 15,200
Supplies 2,500
Prepaid Insurance 600
Equipment 5,000
Notes Payable 5,000
Accounts Payable 2,500
Unearned Service Revenue 1,200
Common Stock 10,000
Dividends 500
Service Revenue 10,000
Salaries & Wages Exp. 4,000

Rent Expense 900
Totals 28,700 28,700
1-73 LO 10 Describe the purpose and the basic form of a worksheet.

1.4.1 Trial Balance
1. Prepare a Trial Balance on the Worksheet
Adjusted Income
Cash 15,200
Supplies 2,500
Equipment 5,000
Notes Payable 5,000
Unearned Service Revenue 1,200
Common Stock 10,000
Dividends 500
Service Revenue 10,000
Salaries & Wages Exp. 4,000

Rent Expense 900
Totals 28,700 28,700
Trial balance amounts come

directly from ledger accounts.
Include all accounts
with balances.
1-74 LO 10 Describe the purpose and the basic form of a worksheet.

1.4.2 Adjusting entries
2. Enter the Adjustments in the Adjustments Columns
Adjusted Income
Cash 15,200
Supplies 2,500 (a) 1,500
Prepaid Insurance 600 (b) 50
Equipment 5,000 Adjustments Key:
Notes Payable 5,000
(a) Supplies Used.
Unearned Service Revenue 1,200 (d) 400 (b) Insurance Expired.
Common Stock 10,000
Dividends 500 (c) Depreciation Expensed.
Service Revenue 10,000 (d) 400 (d) Service Revenue Earned.
(e) 200
Salaries & Wages Exp. 4,000 (g) 1,200 (e) Service Revenue Accrued.
Rent Expense 900 (f) Interest Accrued.
Totals 28,700 28,700
Supplies Expense (a) 1,500 (g) Salaries Accrued.
Insurance Expense (b) 50
Accumulated Depreciation (c) 40
Depreciation Expense (c) 40
Accounts Receivable (e) 200
Interest Expense (f)
50
Enter adjustment amounts, total
Interest Payable (f) 50 adjustments columns,
(g) 1,200
Salaries and Wages Payable and check for equality.
Totals 3,440 3,440
Add additional accounts as needed. LO 10 Describe the purpose and the basic
1-75 form of a worksheet.
Adjustments
Adjustments key Debit Credit

(a) Supplies Expense 1 500
Supplies 1 500
(b) Insurance Expense 50

(c) Depreciation Expense 40

Accumulated Depreciation 40
(d) Unearned service Revenue 400

Service Revenue 400
1-76
Adjustments
Adjustments key Debit Credit

(e) Accounts Receivable 200
Service Revenue 200
(f) Interest Expense 50

Interest Payable 50
(g) Salaries Wages Expense 1 200

Salaries Wages Payable 1 200
1-77
1.4.2 Adjusting entries
3. Complete the Adjusted Trial Balance Columns
Adjusted Income
Cash 15,200 15,200
Supplies 2,500 (a) 1,500 1,000
Prepaid Insurance 600 (b) 50 550
Equipment 5,000 5,000
Notes Payable 5,000 5,000
Accounts Payable 2,500 2,500
Unearned Service Revenue 1,200 (d) 400 800
Common Stock 10,000 10,000
Dividends 500 500
Service Revenue 10,000 (d) 400 10,600
(e) 200
Salaries & Wages Exp. 4,000 (g) 1,200 5,200
Rent Expense 900 900
Totals 28,700 28,700
Supplies Expense (a) 1,500 1,500
Insurance Expense (b) 50 50
Accumulated Depreciation (c) 40 40
Depreciation Expense (c) 40 40
Accounts Receivable (e) 200 200
(f)
Interest Expense 50 50
Interest Payable (f) 50 50
Salaries and Wages Payable (g) 1,200 1,200
Totals 3,440 3,440 30,190 30,190
Total the adjusted trial balance columns

and check for equality. LO 10 Describe the purpose and the basic
1-78 form of a worksheet.
1.4.3 Closing the books
3. Extend Amounts to Financial Statement Columns
Adjusted Income
Cash 15,200 15,200
Supplies 2,500 (a) 1,500 1,000
Prepaid Insurance 600 (b) 50 550
Equipment 5,000 5,000
Notes Payable 5,000 5,000
Accounts Payable 2,500 2,500
Unearned Service Revenue 1,200 (d) 400 800
Common Stock 10,000 10,000
Dividends 500 500
Service Revenue 10,000 (d) 400 10,600 10,600
(e) 200
Salaries & Wages Exp. 4,000 (g) 1,200 5,200 5,200
Rent Expense 900 900 900
Totals 28,700 28,700
Supplies Expense (a) 1,500 1,500 1,500
Insurance Expense (b) 50 50 50
Accumulated Depreciation (c) 40 40
Depreciation Expense (c) 40 40 40
Accounts Receivable (e) 200 200
(f)
Interest Expense 50 50 50
Interest Payable (f) 50 50
Salaries and Wages Payable (g) 1,200 1,200
Totals 3,440 3,440 30,190 30,190 7,740 10,600
Extend all revenue and expense account balances to

the income statement columns.
1-79 LO 10
1.4.3 Closing the books
3. Total Columns, Compute Net Income (Loss)
Adjusted Income
Cash 15,200 15,200 15,200
Supplies 2,500 (a) 1,500 1,000 1,000
Prepaid Insurance 600 (b) 50 550 550
Equipment 5,000 5,000 5,000
Notes Payable 5,000 5,000 5,000
Accounts Payable 2,500 2,500 2,500
Unearned Service Revenue 1,200 (d) 400 800 800
Common Stock 10,000 10,000 10,000
Dividends 500 500 500
Service Revenue 10,000 (d) 400 10,600 10,600
(e) 200
Salaries & Wages Exp. 4,000 (g) 1,200 5,200 5,200
Rent Expense 900 900 900
Totals 28,700 28,700
Supplies Expense (a) 1,500 1,500 1,500
Insurance Expense (b) 50 50 50
Accumulated Depreciation (c) 40 40 40
Depreciation Expense (c) 40 40 40
Accounts Receivable (e) 200 200 200
(f)
Interest Expense 50 50 50
Interest Payable (f) 50 50 50
Salaries and Wages Payable (g) 1,200 1,200 1,200
Totals 3,440 3,440 30,190 30,190 7,740 10,600 22,450 19,590
Net Income 2,860 2,860
Totals 10,600 10,600 22,450 22,450
Compute Net Income or Net Loss.
1-80 LO 10
1.5 FINANCIAL STATEMENTS
1.5.1 Income Statement
1.5.2 Statement of Owner’s equity
1.5.3 Balance sheet
1.5.4 Statement of Cashflow
1.5.5 Note to Financial Statement
1-81
TYPES OF FINANCIAL INFORMATION
24-82
Companies prepare four financial statements :
Owner’s
Statement
Income Equity Balance
of Cash
Statement Statement Sheet
Flows
(Retained
earning
Stm)
1-83
1.5.1 Income statement
Multiple-Step Income Statement

 Shows several steps in determining net income.
 Two steps relate to principal operating activities.
 Distinguishes between operating and non-operating

activities.
1-84
Income
Statement
Presentation
of Sales
1-85
Operating
Expenses
Key Items:
 Net sales
 Gross profit
 Operating
expenses
1-86
1.5 FINANCIAL
STATEMENTS
1.5.1 Income
statement
Key Items:
 Net sales
 Gross profit
 Operating
expenses
 Non-
operating
activities
 Net income
1-87
1.5 FINANCIAL
STATEMENTS
1.5.1 Income
statement
Key Items:
 Net sales
 Gross profit
 Operating
expenses
 Non-
operating
activities
 Net income
1-88
Single-Step Income Statement

 Subtract total expenses from total revenues
 Two reasons for using the single-step format:
1. Company does not realize any profit until total

revenues exceed total expenses.
2. Format is simpler and easier to read.
1-89
 Reports revenues and

Income Statement
Illustration 1-4
expenses for a specific
period of time.
 Net income – revenues

exceed expenses.
 Net loss – expenses

exceed revenues.
 Past net income provides

information for predicting
future net income.
Helpful Hint The financial statement heading identifies the company, the type of
statement, and the time period covered. Sometimes, another line indicates the unit of
1-90 measure, e.g., “in thousands” or “in millions.” LO 4
1.5 FINANCIAL STATEMENTS Net income is needed to determine
1.5.2 Statement of Owner’s equity the ending balance in owner’s
equity.
1-91
1.5.2 Retained Earnings Statement
Retained Earnings
Income Statement Statement
Illustration 1-4 Illustration 1-5
Net income is needed to determine

the ending balance in retained
earnings.
1-92
1.5.2 Retained Earnings Statement
Retained Earnings
Statement
 Statement shows amounts and Illustration 1-5
causes of changes in retained
earnings during the period.
 Time period is the same as that

covered by the income
statement.
 Users can evaluate dividend

payment practices.
Helpful Hint The heading of this
statement identifies the company, the
type of statement, and the time period
covered by the statement.
1-93
1.5.3 Balance Sheet
Balance Sheet Retained Earnings
Illustration 1-7 Statement
Illustration 1-5
Ending balance in retained

earnings is needed in preparing
the balance sheet.
1-94
1.5.3 Balance Sheet
Balance Sheet  Reports assets and claims
Illustration 1-7
to assets at a specific
point in time.
 Assets = Liabilities +
Stockholders’ Equity.
 Lists assets first, followed

by liabilities and
stockholders’ equity.
Helpful Hint The heading of a

balance sheet must identify the
company, the statement, and the date.
1-95
Balance Sheet Statement of Cash Flows
Illustration 1-7 Illustration 1-8
1-96
Statement of Cash Flows

Illustration 1-8 Answers:
 Where did cash come
from during the
period?
 How was cash used
during the period?
 What was the change
in the cash balance
during the period?
Helpful Hint The heading identifies the company, the type of statement, and the time
1-97 period covered by the statement. Negative numbers are shown in parentheses.
1.5.5 Notes to the Financial Statements
Notes are the means of amplifying or explaining the items

presented in the main body of the statements.
Accounting Policies
 Companies should present a statement identifying the
accounting policies adopted and followed.
 Should present the disclosure as
► first note or
► separate Summary of Significant Accounting Policies section

preceding the notes to the financial statements.
24-98
1.5.5 Notes to the Financial Statements
Common Notes MAJOR

DISCLOSURES
 Inventory
 Property, Plant, and Equipment
 Creditor Claims
 Equityholders’ Claims
 Contingencies and Commitments
 Fair Values
 Deferred Taxes, Pensions, and Leases
 Changes in Accounting Principles
24-99
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English For Accounting Financial Accounting Department

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English For Accounting Financial Accounting Department

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ENGLISH FOR ACCOUNTING

Financial Accounting Department

 English for Financial accounting

1. identify, record, and communicate the economic

The accounting process includes

Identification means selecting transactions and events

Recording means keeping a chronological log of

Communication means preparing accounting reports

The modern accounting was established by

The purpose of accounting is to provide

Internal Users—are those directly involved in

Managerial Accounting—area of accounting

External Users—are NOT directly involved in

Financial Accounting is concerned with providing useful

1.2.1 Objective of Financial Accounting

1.2.2 Elements of Financial Statements

1.2.3 Qualitative characteristics of accounting

1.2.4 Recognition, measurement and disclosure

To provide financial information about the

Probable future economic benefits obtained or

Probable future sacrifices of economic benefits

Residual interest in the assets of an entity that

Owner investment, also called owner's

Comprehensive income includes net income

Unrealized gains or losses on

Revenue is the income generated from normal

Outflows or other using up of assets or incurrences

An expense is the cost of operations that a

Increases in equity from peripheral or incidental

Decrease in equity (net assets) from peripheral or

Unrealized gains and losses are also

The qualitative characteristics of accounting

The qualitative characteristics of accounting

To have relevance, accounting information must be capable of

Financial information has predictive value if it has

Faithful representation means that the numbers and

Completeness means that all the information that

Comparability: Information that is measured and

Timeliness means having information available to

Assumptions in Financial Reporting

Monetary Unit Economic Entity

Periodicity Going Concern

Illustration: Identify which basic assumption of accounting is best

(a) The economic activities of KC Corporation are

(c) Walgreen Co. reports current and noncurrent

Historical Cost Fair Value

Illustration: Identify which basic principle of accounting is best described

(a) KC Corporation reports revenue in its income Revenue

Cost Constraint – cost of providing information must be

Illustration: The following two situations represent applications

(a) Rafael Corporation discloses fair value information on its

1.3.1 Accounting equation

1.3.2 The account

1.3.3 Recording process

Provides the underlying framework for recording and

Assets are claimed by either creditors or owners.

Claims of creditors must be paid before ownership claims.

Revenues result from business activities entered into for the

Expenses are the cost of assets consumed or services used in

 Record of increases and decreases

An Account can Account Name

Debit and Credit Procedures