FINANCIAL ACCOUNTING

Contents:
• Part 1: Overview of financial accounting
• Part 2: Balance sheet
• Part 3: Income statement and Cash flow
statement.

1
 Learning materials
• “Financial Accounting”, 2013.
• Vietnamese Law on Accounting
• Vietnamese Accounting Standards
• Vietnamese Accounting System
(according to the Circular 200/2014 by
Ministry of Finance and others relating
regulations)

2
Mandatory Course Requirements

1. Attend 8 out of 10 lectures

2. Take the mid – term exam

3
 Part 1
Overview of financial accounting

4
 List
List of
of contents
contents
1. Overview about accounting.
2. Basic accounting concepts and principles.
3. Financial statements’ elements, transactions
and events.
4. Double entry and accounting cycle.
5. Introduction to current Vietnamese accounting
system.

5
 1.
1. Overview
Overview about
about accounting
accounting

• Role of accounting in business

• Definition of accounting
• Financial vs. management accounting
• Requirements for accounting information

6
 Types of Businesses
Manufacturing
Manufacturing Business
Business

Product
Product
General
General Motors
Motors Cars,
Cars, trucks,
trucks, vans
vans
Intel
Intel Computer
Computer chips
chips
Boeing
Boeing Jet
Jet aircraft
aircraft
Nike
Nike Athletic
Athletic shoes
shoes and
and apparel
apparel
Coca-Cola
Coca-Cola Beverages
Beverages
Sony
Sony Stereos
Stereos and
and television
television
7
 Types of Businesses
Merchandising
Merchandising Business
Business

Product
Product
Cash
Cash && Carry
Carry General
General merchandise
merchandise
Toys
Toys “R”
“R” Us
Us Toys
Toys
Pico
Pico Plaza
Plaza Consumer
Consumer electronics
electronics
Amazon.com
Amazon.com Internet
Internet books,
books, music,
music, video
video
retailer
retailer

8
 Types of Businesses
Service
Service Business
Business

Product
Product
Disney
Disney Entertainment
Entertainment
Vietnam
Vietnam Airlines
Airlines Transportation
Transportation
Metropoles
Metropoles Hotel
Hotel Hospitality
Hospitality and
and lodging
lodging
SSI
SSI Financial
Financial advice
advice
Viettel
Viettel Telecommunication
Telecommunication

9
 What is Accounting?

• Accounting is concerned with the collection,

analysis and communication of economic
information.

• Accounting information is useful to those who

need to make judgments, decisions and plans
about businesses, and for those who control
those businesses.

10
 Definition
Definition of
of Accounting
Accounting
Accounting
Accounting means
means the the work
work of of collating,
collating,
processing,
processing, checking,
checking, analyzing
analyzing and and
providing
providing economic
economic andand financial
financial information
information
in
in forms
forms of
of value,
value, in
in kind,
kind, and
and labour
labour duration
duration
(Vietnamese
(Vietnamese Law
Law onon accounting)
accounting)

11
 Who Uses Accounting
Information?
Think of a business you know and identify 3
parties who might use accounting information
about that business.

12
Accounting Information User Groups

Owners Customers Competitors

Employees
Managers and their

representatives
Business

Lenders Government

Investment Community
Suppliers
13
analysts representatives
 How different users use accounting
information
User group Use
Customers To assess the ability of the business to continue in business
and to supply the needs of the customers.
Suppliers To assess the ability of the business to pay for the goods and
services supplied.
Government To assess how much tax the business should pay, whether it
complies with agreed pricing policies, or with environmental
legislation, etc.
Owners To assess how effectively the managers are running the
business and to determine likely levels of risk and return in
the future.
Lenders To assess the ability of the business to meet its obligations
and to pay interest and to repay the principal.
14
 How different users use accounting
information (cont’d)
User group Use
Employees (non- To assess the ability of the business to continue to provide
management) employment and to reward employees for their labour.

Investment To assess the likely risks and returns of the business in order to
analysts determine its investment potential and to advise clients
accordingly.
Community To assess the ability to continue to provide employment, to use
representatives community resources, to help fund environmental improvements,
etc.
Managers To help make decisions and plans for the business and to help
exercise control to try to ensure that plans come to fruition.
Competitors To stay abreast of what and how well other businesses in the
market are doing. 15
 Financial
Financial accounting
accounting vs.
vs.
Management
Management accounting
accounting
Financial
Financial accounting
accounting means
means thethe work
work of
of collating,
collating,
processing,
processing, checking,
checking, analyzing
analyzing and
and providing
providing
economic
economic and
and financial
financial information
information in
in the
the form
form of
of
financial
financial reports
reports for
for entities
entities which
which have
have the
the
requirement
requirement to to use
use thethe information
information of of the
the
accounting
accounting entity.
entity.

Management
Management accounting
accounting means
means thethe work
work of of
collating,
collating, processing,
processing, analyzing
analyzing and
and providing
providing
economic
economic and
and financial
financial information
information as
as required
required by
by
management
management and and forfor economic
economic and and financial
financial
decisions
decisions made
made internally
internally by
by an
an accounting
accounting entity.
entity. 16
 The Differences Between
Management and Financial
Accounting

17
 Financial and Management
Accounting
• Management accounting is concerned with
providing managers with information required
for day-to-day running of the business
• Links to Internal Users

• Financial accounting is concerned with

providing the other users with useful information
• Links to External Users
18
 Financial and management
accounting (cont’d)
Financial accounting Management accounting
Focus Mainly external Internal only
Nature of reports General purpose Specific purpose
Level of detail Broad overview Quite detailed
Restrictions Accounting standards and No restrictions
other regulations
Reporting interval Mainly semi-annual or Whenever required
annual
Time horizon Mainly historical Both past and future
Range of information Quantifiable in money Can contain non-financial
terms; focus on objective information; less focus on
19 and verifiable data objectivity and verifiability
 Requirements
Requirements for
for
accounting
accounting information
information
• Integrity
• Objectivity (Neutrality)
• Completeness
• Timeliness
• Understandability
• Comparability

20
 Integrity
Integrity
Accounting
Accounting information
information should
should bebe recorded
recorded
and
and disclosed
disclosed as
as supported
supported by by sufficient
sufficient valid
valid
evidence
evidence and
and represents
represents the the substance
substance of of
economic
economic transactions
transactions in
in terms
terms of
of nature
nature and
and
value.
value.

Objectivity
Objectivity
Accounting
Accounting information
information to
to be
be recorded
recorded and
and
disclosed
disclosed should
should bebe factual,
factual, truthful
truthful and
and
unbiased.
unbiased.
21
Example 1: ‘substance over form’

Financial lease Operating lease

Legal form: Leased Leased Asset

Asset

Substance: Asset on Asset on FS of Leasor

the FS of Leasee

22
 Completeness
Completeness
Transactions
Transactions arising
arising in
in an
an accounting
accounting period
period
should
should be
be completely
completely recorded
recorded and
and reported.
reported.

Timeliness
Timeliness
Accounting
Accounting information
information should
should be
be reported
reported
on
on aa timely
timely basis,
basis, i.e.
i.e. on
on or
or before
before the
the due
due
date.
date.
23
 Understandability
Understandability
Information
Information presented
presented inin financial
financial statements
statements
should
should bebe straightforward
straightforward andand understandable.
understandable.
Users
Users areare assumed
assumed to to have
have aa reasonable
reasonable
knowledge
knowledge of of business,
business, economics,
economics, finance
finance and
and
accounting.
accounting. Information
Information about
about complex
complex matters
matters
isis presented
presented inin the
the notes
notes to to the
the financial
financial
statements
statements

24
 Comparability
Comparability
Accounting
Accounting information
information should
should be be produced
produced andand
presented
presented in in aa consistent
consistent manner
manner to to enable
enable users
users to
to
interpret
interpret the
the enterprise’s
enterprise’s financial
financial performance
performance for for aa
period
period in
in relation
relation with
with other
other enterprises.
enterprises.
Otherwise,
Otherwise, explanatory
explanatory notes notes should
should be be used
used toto
disclose
disclose the
the inconsistency
inconsistency to to facilitate
facilitate comparison
comparison by by
users
users of
of the
the enterprise’s
enterprise’s accounting
accounting information
information with
with
other
other enterprises,
enterprises, of of the
the current
current period
period with
with the
the prior
prior
periods
periods and
and of of the
the financial
financial performance
performance with with the
the
budget
budget plan
plan
25
• What should they compare?
• What basic requirement for
comparability?

26
• Compare: +current/prior period
+ the enterprise/others
+Actual/budget plan
Requirement: consistent policies

27
2.
2. Basic
Basic accounting
accounting concepts
concepts and
and principles
principles

• Basic accounting concepts

• Accounting principles

28
 Basic
Basic accounting
accounting concepts
concepts
• Accounting entity (reporting entity)
• Monetary unit
• Accounting period

29
 Accounting
Accounting entity
entity
• A accounting entity is defined
– as an entity in which it is reasonable to expect the
existence of users who depend on general-purpose
financial statements for information to enable them to
make economic decisions,
• Or more detailed:
– as a clearly defined economic unit which (1) engages
in identifiable economic activities, (2) controls economic
resources (for which accounting records are maintained
and periodic financial statements are prepared) and (3)
is distinct from the personal dealings of its owners or
employees
30
 Accounting
Accounting entity
entity
(a)State
(a)State bodies,
bodies, professional
professional entities
entities and
and
organizations
organizations using
using State
State Budget
Budget funding;
funding;
(b)
(b) Professional
Professional entities
entities and
and organizations
organizations not not
using
using State
State Budget
Budget funding;
funding;
(c)
(c) Enterprises
Enterprises from
from all
all economic
economic sectors
sectors
established
established and
and operating
operating pursuant
pursuant toto the
the law
law of
of
Vietnam;
Vietnam; branches
branches and
and representative
representative offices
offices of
of
foreign
foreign enterprises
enterprises operating
operating inin Vietnam;
Vietnam;
(d)
(d) Co-operatives;
Co-operatives;
(dd)
(dd) Individual
Individual business
business households,
households, cooperation
cooperation
groups
groups 31
 Accounting
Accounting currency
currency
Accounting
Accounting currency
currency isis the
the currency
currency used
used in
in
keeping
keeping records
records and
and in
in presenting
presenting the
the
financial
financial statements.
statements.

32
 Accounting
Accounting period
period
• Accounting period is the period for which
an entity prepares its internal or external
accounts
• Accounting period means a period of time
fixed from the time an accounting entity
commences to post entries in accounting
books until the time it ends the posting of
entries in accounting books and closes
them in order to prepare financial reports
33
 Accounting
Accounting principles
principles
• Accrual basis
• Going concern
• (Historical) Cost
• Matching
• Consistency
• Prudence
• Materiality 34
 Accrual
Accrual basis
basis
• Transactions which have effects on assets,
liabilities, equities, revenues and expenses of
an enterprise are recognized when they
occur, not at the time cash or cash
equivalents are received or paid. The
financial statements prepared on the accrual
basis reflect the past, present and future
business performance of the enterprise.

35
 Accrual Basis of Accounting


Revenue
Revenue reported
reported when
when earned
earned

Expense
Expense reported
reported when
when incurred
incurred

Properly
Properly matches
matches revenues
revenues and
and
expenses
expenses in
in determining
determining net
net
income
income

Requires
Requires adjusting
adjusting entries
entries at
at end
end
of
of period
period

36
 Cash vs Accrual accounting
Cash basis Accrual basis

Revenue When received When earned

recorded
Expense When paid When incurred
recorded
Profit is Cash inflows from Revenues less
revenues less cash expenses
outflows on
expenses

37
 Why use Accrual Accounting?
• Necessitated by the time period
assumption
– over life of business:
cash profit = accrual profit
– need regular and timely reporting to users
– transactions may span more than one
accounting period
– cash flows often do not coincide with revenue
and expense recognition

38
 Going
Going concern
concern
Financial statements are normally prepared on
the assumption that an enterprise is a going
concern and will continue business for a
foreseeable future, that is, the enterprise is
assumed to have neither the intention nor the
need to liquidate or curtail materially the scale
of its operations. If such an intention or need
exists, the financial statements may have to be
prepared on a different basis and accordingly
that fact is disclosed 39
 (Historical)
(Historical) Cost
Cost

Assets are recognized at historical cost.

The historical cost of an asset is the amount
of
cash or cash equivalents paid, or payable, or
fair value of the asset at the time the asset is
recognized. Cost is not changed unless
otherwise required under specific standards.

40
 Matching
Matching
Revenues should match with expenses. The
recognition of revenue should be combined
with the recognition of expenses incurred to
earn the revenue. Expenses matching with
revenue include those incurred in the period the
revenue is generated and those incurred in prior
periods or accruals which are associated with
the revenue of the current period.

41
 Consistency
Consistency
The accounting policies and practices selected
by an enterprise should be applied
consistently for at least one accounting
period. The causes and effects of any change
in the current accounting policies and
practices should be disclosed in a note to the
financial statements.

42
 Prudence
Prudence
Prudence is the inclusion of a degree of caution in the
exercise of the judgement needed in making estimates in
the event of uncertainty.
The prudence concept requires that:
a) Provisions should be made, however, excessive
provision is not allowed;
b) Assets and incomes should not be overstated;
c) Liabilities and expenses should not be understated;
d) Revenues and incomes are recognized if, and only if, it
is probable that economic benefits will flow to the
enterprise while expenses should be recognized when there
is evidence that economic outflows are probable.
43
 Materiality
Materiality
Information is material if its omission or misstatement
could influence the economic decisions of users taken on
the basis of the financial statements.
Materiality depends on the size of the item or error
judged in the particular circumstances of its omission or
misstatement. Materiality of information is considered in
both qualitative and quantitative terms.

44
 3.
3. Financial
Financial statements’
statements’ elements,
elements,
transactions
transactions and
and events.
events.
• Assets
• Liabilities
• Equity
• Revenues
• Expenses

45
 Assets
Assets
An
An asset
asset isis aa resource,
resource, resulting
resulting from
from past
past
events,
events, which
which isis controlled
controlled byby the
the enterprise
enterprise
and
and from
from which
which future
future economic
economic benefits
benefits are
are
expected
expected toto flow
flow toto the
the enterprise.(VAS
enterprise.(VAS 01 01 ––
Framework)
Framework)

46
 Liabilities
Liabilities
AA liability
liability represents
represents aa present
present obligation
obligation of of
the
the enterprise
enterprise arising
arising from
from past
past transactions
transactions
or
or events,
events, the
the settlement
settlement of
of which
which isis expected
expected
to
to result
result in
in an
an outflow
outflow ofof resources
resources from
from the
the
enterprise
enterprise (VAS
(VAS 01
01 –– Framework)
Framework)

47
 Equity
Equity
Equity
Equity refersrefers to
to the
the enterprise’s
enterprise’s net net assets,
assets,
that
that is,
is, the
the residual
residual interest
interest in
in the
the assets
assets after
after
all
all its
its liabilities
liabilities (VAS
(VAS 01
01 –– Framework)
Framework)

48
 The
The Accounting
Accounting Equation
Equation

Assets = Liabilities + Owners’

Equity
The resources The rights of the The rights of the
controlled by a creditors, which owners
business represent debts
of the business

49
 Revenues
Revenues and
and other
other incomes
incomes

Revenues
Revenues and and other
other incomes
incomes are are increases
increases in
in
economic
economic benefits
benefits as as aa result
result of
of ordinary
ordinary
activities
activities and
and other
other events
events of of the
the enterprise
enterprise
during
during the
the accounting
accounting period
period in in the
the form
form of
of
inflows
inflows oror enhancements
enhancements of of assets
assets or
or decreases
decreases
of
of liabilities
liabilities that
that result
result in
in increases
increases inin equity,
equity,
other
other than
than those
those relating
relating to
to contributions
contributions from
from
equity
equity participants
participants (VAS
(VAS 0101 –– Framework)
Framework)
50
 Expenses
Expenses
Expenses
Expenses areare decreases
decreases in in economic
economic benefits
benefits
during
during the
the accounting
accounting period
period inin the
the form
form of
of
outflows
outflows or or depletions
depletions of of assets
assets or or
incurrences
incurrences of of liabilities
liabilities that
that result
result inin
decreases
decreases inin equity,
equity, other
other than
than those
those relating
relating
to
to distributions
distributions to
to equity
equity participants
participants (VAS
(VAS 0101
–– Framework)
Framework)

51
Net impact of business transactions

Revenue - Expenses = Profit

52
 Owners’
Assets = Liabilities + Equity

Contributed Retained
capital Earnings

The
Accounting Revenue - Expenses

Equation = Net
Income
A = L + OE 53
 Transactions
• Are economic events of an entity that are
recorded
• May be identified as external or internal
– External transactions involve economic events
between the entity and some outside entity
– Internal transactions are economic event that occur
entirely within one entity.
• Each transaction must have a dual effect on
the equation because the equality of the basic
equation must be preserved.

54
 Transactions
• Practice transaction analysis for the
following transaction?
– Investment by owners
– Purchase of equipment for cash
– Purchase of supplies on credit
– Services provided for cash
– Payment of expenses/ account payable
– Receipt of cash on account
55
Exercise

56
4.
4. Double
Double entry
entry and
and accounting
accounting cycle.
cycle.

4.1 Double entry.

4.2 Accounting cycle.

57
 The account
• An account is an individual accounting record of
increases and decreases in a specific asset, liability
or owner’s equity item.
• An account consists of, at least three parts
– The title of the account
– A left or debit side
– A right or credit side
• T account is a simplified format of account
• Examples: Cash, Account Receivable, Account
Payable.

58
 Debits and credits
• The term debit indicates left, and credit indicates
right
• Debiting the account means entering an amount
on the left side of an account
• Crediting the account means making entry on the
right side
• For every transaction there must be at least one
debit and one credit
• For each transaction debits must equal credits in
the accounts  this provides the basis for the
double – entry system of recording transactions.
59
 Double – entry system
• Under this system, the dual (two – sided)
effect of each transaction is recorded in
appropriate account
• Advantages:
– Providing a logical method for recording
transactions
– Offering a means of proving the accuracy of
the recorded amounts.
• If every transactions is recorded with equal debits
and credits, then the sum of all the debits to the
accounts must equal the sum of all the credits.
60
 Debit-Credit Rules . . .

Debits Credits
Liabilities
Assets
Increase Equity
Expenses Revenue
Liabilities
Assets
Decrease Equity
Revenue Expenses
61
 Exh.
2.2

The Accounting Process

Source
Transaction documents Analysis
or event

Reporting
Trial balance Recording &
posting
62
 Steps in Processing
Transactions

Assets
Assets = Liabilities +
Liabilities Equity
Equity

Step 1: Examine
Step 2: Analyze
source documents.
transactions.

We saw these steps earlier. Now,

let’s look at some additional ones.
63
 Steps in Processing Transactions
Assets
Assets = Liabilities +
Liabilities Equity
Equity

Step 1: Examine
source
Step 2: Analyze
documents.
transactions.

ACCOUNT NAME: ACCOUNT No.

Date Description PR Debit Credit Balance

Step 5: Prepare Step 4: Record the Step 3: Record

a trial balance. journal information in transactions in
a ledger. a journal. 64
 The journal
• A journal contains a chronological
record of the transactions of a
business.

65
 Journals . . .
• make several significant contributions
to the recording process:
– Disclose in one place the complete effects of
a transaction
– Provide a chronological record of transactions
that cross references to both the source
document and the ledger entry
– Help to prevent or locate errors because the
debit and credit amounts for each entry can
be readily compared
66
 General Journal
H&F Corporation

Transaction Titles of Affected

Posting date
Date Accounts
Vouchers Amount

Description Accounts
Date
D N Debit Credit

1/1/2013 1/1/13 0012 Buying goods on Inventory 800

credit
800
Payables
….

Transaction 67
explanation
 The ledger
• The entire group of accounts
maintained by an entity is referred
to as the ledger
• The ledger keeps in one place all
the information about changes in
specific account balances

68
 Ledger
Account Inventory –AC 156
H&F Corporation

Voucher Ref. Amount

Date s Account
D N Description s Debit Credit
reference

Beginning -
balance
Buying goods .. Payables 800

Selling goods C.0.G.S 400

Ending 69
 Trial balance
• A trial balance is a list of accounts
and their balances at a given time
• The purpose of a trial balance is to
prove (check) that the debits equal
the credits after posting.
• It is also useful in the preparation of
financial statements

70
Trial Balance
H&F Corporation

Account Balance

Code Name Debit Credit

Total amount

71
 Limitations of a trial balance
• A trial balance does not guarantee
freedom from recording errors: it does not
prove that all transactions have been
recorded or that the ledger is correct.
• Numerous errors may exist even though the trial
balance columns agree when
– A transaction is completely omitted
– A correct journal entry is not posted
– A journal entry was posted twice
– Incorrect accounts are used in journalizing or posting
– Offsetting errors are made in recording the amount.
72
73
 Exh.
3.4

Adjusting entries
• Adjusting entries are needed to
ensure that the income recognition
and matching principle are followed.
– Income recognition principle requires that
income recognized in the accounting period in
which it is earned
– Matching principle requires that expenses
matched with income in the period when
efforts are expended to generate income

74
 Exh.
3.4

Adjusting entries
• Adjusting entries make it possible to
report on the balance sheet the
appropriate assets, liabilities and
owner’s equity at the statement date
and to report on the income statement
the proper net profit (or loss) for the
period
• Adjusting entries are required every
time financial statements are prepared
75
 Types of adjusting entries
• Adjusting entries can be classified as
either prepayments or accruals
– Prepayments:
• Prepaid expenses
• Depreciation
• Unearned revenues
– Accruals:
• Accrued expenses
• Accrued revenues

76
 Exh.
3.4

Framework for Adjustments

F ra m e w o rk fo r A d ju s tm e n ts

Ad ju s tm e n ts

P re p a id D e p rec ia tion U n e a rn ed Ac c ru ed Ac c ru ed
E x pe ns es R e ven u es E x pe ns es R e ven u es

Transactions where cash is paid or

received before a related expense
or revenue is recognized.

Transactions where cash is paid or

received after a related expense
or revenue is recognized.
77
Adjusting entries for prepayments
• Adjusting entries are required to record the
portion of the prepayment that represents
the expense incurred or the income earned
in the current accounting period
– If an adjustment is needed for prepayments,
the asset and liability are overstated and the
related expense and income are understated
before the adjustment
– The adjusting entry for prepayments will
decrease a balance sheet account and
increase an income statement account
78
 Adjusting Prepaid Expenses
Resources paid Here is the check
for my first
for prior to 6 months’ rent.
receiving the
actual benefits.

Asset(Ac 242) Expense(Ac 641,642,…)

Unadjusted Credit Debit
Balance Adjustment Adjustment

79
 Adjusting Prepaid Expenses
– On December 1, 2010, Scott Company
paid $12,000 to cover rent for December
2010 through May 2011.
– Let’s look at the adjusting journal entry
needed on December 31, 2010.

GENERAL JOURNAL Page 34

Date Description PR Debit Credit

80
 Adjusting Prepaid Expenses
– After posting, the accounts involved look
like this:

Prepaid Rent (Ac 142,242) Rent Expense(Ac642,641,…

12/1 $12,000 12/31 $2,000 12/31 $2,000

81
 Exh.
3.4

Framework for Adjustments

F ra m e w o rk f o r A d justm e nts

Ad ju stm e n ts

Pre p a id D e p re c ia tio n U n e a rn e d Ac c ru e d Ac c ru e d
E x p e n se s R e ve n u e s E x p e n se s R e ve n u e s

Transaction where cash is paid

before a related expense is
recognized.

82
 Adjusting for Depreciation
– Depreciation is the process of
computing expense from allocating the
cost of plant and equipment over its
expected useful lives.

Asset Cost – Residual Value

Straight-Line
=
Depreciation Useful Life

83
84
 Adjusting for Depreciation
• On January 1, 2011, Monroe, Inc.
purchased oil pumping equipment for
$62,000 cash.
• The equipment has an estimated useful
life of 5 years.
• Monroe expects to sell the equipment at
the end of its life for $2,000 cash.

85
 Adjusting for Depreciation
• Let’s compute depreciation expense for
the year ended December 31, 2011.

$62,000 - $2,000
2011
Depreciation =
5
Expense
= $12,000
86
 Adjusting for Depreciation
– Prepare the journal entry.

Dr Ac Depreciation Exp: 12,000

Cr Ac Accumulated Depreciation:12,000

Accumulated depreciation is
a contra asset account.

87
 Adjusting for Depreciation
– After posting, the accounts involved
look like this:
Equipment (Ac 211) Depreciation Expense (Ac 627,641,..
1/1 $62,000 12/31 $12,000

Accumulated Depreciation (Ac 214)

12/31 $12,000

88
 Exh.
3.4

Framework for Adjustments

F ra m e w o rk f o r A d justm e nts

Ad ju stm e n ts

Pre p a id D e p re c ia tio n U n e a rn e d Ac c ru e d Ac c ru e d
E x p e n se s R e ve n u e s E x p e n se s R e ve n u e s

Transaction where cash is

received before a related
revenue is recognized.

89
 Adjusting Unearned Revenue
Cash received in
advance of Buy your season tickets for
providing all home basketball games NOW!
products or
services. “GO SEAWOLVES”

Liability Revenue
Debit Unadjusted Credit
Adjustment Balance Adjustment

90
 Adjusting Unearned Revenue
On October 1, 2011, UAA sold 1,000 season
tickets to its 20 home basketball games for
$100 each. UAA makes the following entry:

Dr Ac Cash (111): 100,000

Cr Unearned Revenue (3387): 100,000

91
Adjusting Unearned Revenue

On December 31, UAA has played 10 of its

regular home games, winning 8 and
losing 2.

Dr Unearned Revenue (3387): 50,000

Cr Revenue (511): 50,000

92
 Adjusting Unearned Revenue
– After posting, the accounts involved look
like this

Unearned Basketball
Revenue Basketball Revenue
12/31 $50,000 10/1 $100,000 12/31 $50,000

93
 Adjusting entries for accruals
• Adjusting entries are required to record the
income earned and expenses incurred in
the current accounting period that have not
been recognized through daily entries.
– An accrual adjustment is needed when various
accounts are understated: the income account
and the related asset account, and/ or the
expense account and the related liability
account
– The adjusting entry for accruals will increase
both a balance sheet account and an income
statement account 94
 Adjusting Accrued Revenue
Revenue earned but not yet received in cash
or not recorded

Asset (Ac 131) Revenue (Ac 511)

Debit
Credit
adjusting
adjusting
entry (+)
entry (+)

95
 Adjusting Accrued Expenses
Expenses incurred but not yet paid in cash or
recorded.

Expense (Ac 635) Liability (Ac 335)

Debit
Credit
adjusting
adjusting
entry (+)
entry (+)

96
Summary of Adjustments and
Exh.
3.18

Financial Statement Links

Before Adjusting
Adjusting
Category
B/S I/S Entry

Dr. Expense
Prepaid Expense Asset Expense
Cr. Asset
Unearned Dr. Liability
Liability Revenue
Revenue Cr. Revenue
Accrued Dr. Expense
Liability Expense
Expenses Cr. Liability
Accrued Dr. Asset
Asset Revenue
Revenues Cr. Revenue
Overstated
97
Understated
 Closing entries…
• are entries made at the end of an
accounting period to bring the income
statement accounts back to a zero
balance, making them ready for a new set
of transactions
– They clear all nominal accounts and prepare
them to receive transactions in the new
accounting period.
– They summarize a period’s revenues and
expenses.
98
 Closing process…
• Income and expense accounts are closed
to another temporary account, Income
Summary ; only the net profit or net loss is
transferred from this account to owner’s
capital
• Closing entries are journalized in the
general journal, then they are posted to
the ledger accounts.

99
5.
5. Introduction
Introduction to
to current
current Vietnamese
Vietnamese
accounting
accounting system
system
5.1 System of accounting vouchers
5.2 System of accounts
5.3 System of accounting forms
5.4 System of financial statements

100
5.1
5.1 System
System of
of accounting
accounting vouchers
vouchers
• Cash:
– Receipt voucher
– Payment voucher…
• Inventory:
– Good receipt notes
– Good dispatches notes…
• Fixed assets:
– Fixed assets delivery and receipt notes
– Fixed assets disposal minutes…

101
5.1
5.1 System
System of
of accounting
accounting vouchers
vouchers (cont’d)
(cont’d)
• Wages and salaries
– Time sheet
– Payroll slip
• Sales:
– Payment for good consignment
– VAT receipt…
• …

102
 5.2 Summarizing a chart of accounts
Off- B/s acc: Permanent acc
Type 0 Type 1: Current Assets Prepare
Type 2: Non-current assets B/S
Type 3: Liabilities
Type 4: Owners’equity

Chart of acc
Temporary acc
Type 5: Revenues
Type 6: Expenses
Prepare
Type 7: Other Incomes
On- B/s acc: P/L
Type 8: Other expenses
Type 1~9
Type 9: Income Summary
103
 Normal Balances of Accounts
Increase Decreases
(Normal Balances)
Balance sheet accounts:
Asset Debit Credit
Liability Credit Debit
Owners’ (Stockholders’) Equity:
Capital Stock Credit Debit
Retained Earnings Credit Debit
Income statement accounts:
Revenue Credit Debit
Expense Debit Credit
104
 5.3 System of accounting forms
Enterprises should select on of the following
accounting forms:
• General journal
• Journal voucher
• General journal voucher
• Journal ledger
• Computerized accounting

105
 General journal
Original documents

Special journals General journal Detailed books

General ledgers General detailed

reports

Trial balance

Financial
statements
106
 5.4 System of financial statements

• Balance sheet
• Income statement
• Cash flow Statement
• Notes to financial statements

107
 Balance
Balance sheet
sheet

• Statement of financial position

• As at the end of the period

A = L + OE

108
 Income
Income statement
statement

• Statement of financial performance

• For the period
Revenues – Expenses = Net Income

R – E = NI

109
 Cash
Cash flow
flow statement
statement
• Explain the change in cash during the
period
Beginning balance of Cash
± net cash from Operating Activities
± net cash from Investing Activities
± net cash from Financing Activities
Ending balance of Cash

110
 Notes
Notes to
to financial
financial statements
statements
• Comprising a summary of significant
accounting policies and other
explanatory information

111
Part 1

The
The end
end

112