Introduction to accounting
- What is accounting?
Business activities: trading (buy and sell goods/services)
Eg: sale of 10 items of Coke to customers (transaction) for VND 120,000.
Transaction: exchange of goods/services between two or more parties
Identify: a sale transaction, 120,000 (evidence: source document: bill/invoice, receipt,
cheque…)
Record: Revenue of 120,000, Cash 120,000
Communicate: include in the financial report
The company places an order of 100,000 items of Coke from a supplier => not yet a
transaction.
A company borrows 10 bil VND from a bank.
- WHY ACCOUNTING? Provide information
Support/assist DECISION MAKING
Users of accounting information
Internal users
Managers: performance, areas for improvement
External users:
Shareholders/investors: profit, growth rate, return
Customers: quality of products, ability to buy on credit
Government: tax, compliance with regulations
Suppliers: ability to get payment
Lenders: ability to get back interest and principal
Employees/union: salary, benefits, promotion
- Areas of accounting: FINANCIAL ACCOUNTING and MANAGEMENT ACCOUNTING
Financial accounting: general users, general purpose FS, regulation/accounting standards,
annually (audited)/semi-annually (reviewed)/quarterly, historical (past) data, quantifiable
data (reliable, verifiable)
Reporting period: Company can choose reporting period, generally it can be calendar year.
VN: 1 Jan – 31 Dec
AU: 1 July – 30 June
Management accounting: internal users, specific purpose report, no standard, whenever
required by managers, past and future data, both quantitative and qualitative data
- Role of Accounting Information in Business Planning
- Digital disruption
- Business sustainability
Financial statements: 4 statements
- Statement of Financial Position (Balance Sheet): reports financial status of a
business at a point in time. Balance Sheet reports Assets (investments) and sources
of financing (Liabilities and Equity). It proves the accounting equation
Assets (Tài sản) = Liabilities (Nợ) + Equity (Vốn chủ sở hữu)
Equity = Assets – Liabilities = Net assets
• Assets: what the business owns (cash, account receivable, inventories, land,
building, equipment, machinery, patent, trademarks…..)
• Liabilities: what the business owes others (account payable, loans, other
payables…)
• Equity: what the owners invest in the business (contributed capital, retained
earnings/profit, reserves…)
- Statement of Profit and Loss (Income Statement): reports a business financial
performance over a period of time (generally one year). This statement reports
Revenues (R) and expenses (E) and Profit/Loss = R - E
- Statement of Changes in Equity: reports the changes/movements in equity (share
issue, share repurchase, cumulative profit, dividends, reserves)
- Statement of Cash flows: reports cash inflows and outflows for a period of time
CASH: cash on hand (notes, coins, gold, precious gems, credit card), cash at banks (current
account, saving account)
CASH vs PROFIT
Question 1
What is accounting and what is its objective?
Question 2
Explain the differences between financial and management accounting.
Question 3
From the following information for sole trader J Pfahlert, software designer, draw up
a statement of financial position at the end of the financial year (30 June 2021).
You are also required to determine the amount of owner’s capital: accounts payable
(L) $9600; land (A)$120 000; cash on hand (A) $12 000; office building (A) $276 000;
bank mortgage (L) $16 800; profit $800; accounts receivable (A) $9180; computer
equipment (A) $1200.
Accounts receivable: amount owing from customers
Account payable: amount owing to suppliers
bank mortgage: borrowing collaterised by property
Statement of Financial Position as at 30 June 2021
Assets
Cash on hand 12,000
Account Receivable 9,180
Computer Equipment 1,200
Building 276,000
Land 120,000
Total assets 418,380
Liabilities
Account payable 9,600
Bank mortgage 16,800
Total liabilities 26,400
Equity
Contributed capital 391,180 [418,380-26,400-800]
Profit 800
Total equity 391,980
