CHAPTER 1

- Three activities of the accounting process:

+ Identification: select economic events – transactions.
+ Recording: Record, classify, summarize.
+ Communication: Prepare accounting reports, Analyze and interpret for users.

- Bookkeeping usually involves only the recording of the transactions.

- Users of financial in4:

+ Internal users (Trong): manager – who plan, organize, run the business (Ex: mkt managers,
production supervisors, finance directors, company officers.  Managerial accounting – report-
provider
+ External users: individuals and organizations outside the company:
Investor (owners): use in4 to decide whether to buy, hold, sell ownership shares.
Creditors (suppliers or bankers): use in4 to evaluate the risks of granting credit or lending
money.  Financial accounting – answers these questions.

- Step in analyzing ethics cases and situations:

+ Recognize an ethical situation and ethical issues involved.
+ Identify and analyze the principal elements in the situation.
+ Identify alternatives and weigh the impact of each alternative on various stakeholders.

- 2 primary accounting standard-setting bodies (Hội đồng Chuẩn mực Kế toán Quốc tế):
+ IASB: determines IFRS.
Used in 130 countries.
+ FASB: determines GAAP.
Used by most companies in the US.

- Convergence – hoa hop: reduce the differences between IFRS and GAAP to increase
comparability.

Measurement Principles: (IFRS generally uses 1 of 2)

- Historical cost principle (cost principle): record assets at their cost. This is true not only
at the time the asset is purchased, but also over the time the asset is held. (Ex: land,
equipment…)
- Fair value principle: assets and liabilities should be reported at fair value (the price
received to sell an asset or settle a liability (Ex: investment securities…)
 Selection of which principle to follow generally relates to trade-offs between relevance
and faithful representation.

- 2 main assumptions:
 + Monetary unit assumption requires that companies include in the accounting records
only transaction data that can be expressed in money terms, is vital to applying the
historical cost principle, prevents the inclusion of some relevant information in the
accounting records (Ex: the health of a company’s owner, the quality of service, and the
morale of employees).
+ Economic entity assumption requires that the activities of the entity be kept separate
and distinct from the activities of its owner and all other economic entities.

- Proprietorship (Công ty tư nhân): no legal distinction between the business as an

economic unit and the owner, but the accounting records of the business activities are
kept separate from the personal records and activities of the owner.
- Partnership (Công ty hợp danh): Each partner generally has unlimited personal liability
for the debts of the partnership. Like proprietorship, for accounting purposes the
partnership transactions must be kept separate from the personal activities of the partners.
- Corporation (Công ty cổ phần): shareholders enjoy limited liability, may transfer all or
part of their ownership shares to other investors at any time can easily change adds to the
attractiveness of investing in a corporation. Because ownership can be transferred without
dissolving the corporation, the corporation enjoys an unlimited life.

- The revenue produced by corporations is much greater.

- Basic accounting equation:

Assets = Liabilities + Equity
(Liabilities appear before equity in the basic accounting equation because they are paid
first if a business is liquidated)
- Expanded accounting equation:
 CHAPTER 2
- In its simple form, an account consists of 3 parts:

- Use this form to explain

basic accounting relationships
- For each transaction, debits must equal credits
- Assets accounts normally show debit balance
Liabilities accounts normally show credit balance
- Occasionally, though, an abnormal balance may be correct.
- The recording process:
1. Analyze transaction.
2. Enter transaction in journal.
3. Transfer journal in4 to ledger accounts.

- The steps in the recording process occur repeatedly.

- The journal makes several significant contributions to the recording process:

1. It discloses in one place the complete effects of a transaction.
2. It provides a chronological record of transactions.
3. It helps to prevent or locate errors because the debit and credit amounts for each entry
can be easily compared.

- Three steps of preparation:

1. List the account titles and their balances in the appropriate debit or credit column.
2. Total the debit and credit columns.
3. Verify the equality of the two columns.

- A trial balance may balance even when:

1 - Transaction not journalized.
2 - Correct journal entry not posted.
3 - Journal entry posted twice.
4 - Incorrect accounts used in journalizing or posting.
5 - Offsetting errors made in recording the amount of a transaction.
 CHAPTER 3
- Accountants divide the economic life of a business into artificial time periods.
- Accounting time periods are generally a month, a quarter or a year.
- Interim periods: monthly or quarterly
- Most large companies must prepare both quarterly and annual financial statements.
- Fiscal year - Năm tài chính: Một kỳ kế toán kéo dài trong một năm
- Calendar year: January 1 to December 31

- Accrual – Basic Accounting: Transactions are recorded in the periods in which the
events occur.
+ Recognize revenues when they perform services.
+ Recognize expense when incurred/ when efforts are made to generate revenue.
+ In accordance with IFRS.

- Cash-Basic Accounting:
+ Revenues are recorded when cash is received.
+ Expenses are recorded when cash is paid.
+ Not in accordance with IFRS.

- Adjusting entries: ensure that the revenue recognition and expense recognition
principles are followed.
+ Required every time a company prepares financial statements.
 + Include 1 income statement account & 1 statement of financial position account.

- Types of Adjusting entries:

+ Deferrals: Prepaid expense: expense paid in cash before they are used or consumed.
Unearned revenues: Cash received before services are performed.
+ Accruals: Accrued revenues: Revenues not yet received in cash or recorded.
Accrued expense: Expense incurred but not yet paid in cash or recorded.

- Prior to adjustment, assets are overstated & expenses are understated.

- Recognize Supplies expense at the end of the accounting period.
- Depreciation is the process of allocating the cost of an asset to expense over its useful
life.
- Depreciation is an allocation concept, not a valuation concept.
(That is, depreciation allocates an asset’s cost to the periods in which it is used.
Depreciation does not attempt to report the actual change in the value of the asset.)

- Adjusting trial balance:

+ It shows the balances of all accounts, including those adjusted, at the end of the accounting period.
+ Prove the equality of the total debit balances and the total credit balances in the ledger after all
adjustments.
+ Primary basis for the preparation of financial statements.
 CHAPTER 4
- The worksheet:
+ Multiple-column form used in preparing financial statements.
+ Not a permanent accounting record
+ May be a computerized worksheet
+ Using 5 steps process.
1. Prepare a trial balance on the worksheet.
2. Enter adjustment data.
3. Enter adjusted balances.
4. Extend adjusted balances to appropriate statement columns.
5. Total the statement columns, compute net income (or net loss) and complete worksheet
+ Use of worksheet is optional.

- Closing the books :

- Closing entries formally recognize in the ledger the transfer of:

+ Net income (or net loss) to owner’s capital
+ Dividends to retained earnings.
- Produce a zero balance in each temporary account.
- Companies generally journalize and post closing entries only at end of the annua accounting
period

- Instead of preparing a correcting entry, it is possible to reserve the incorrect entry and then
prepare the correct entry.
- Intangible Assets: long-lived assets that do not have physical substance.
- Current assets are listed in the reverse oder of expected conversion to cash.
- Property, plant and equipment:
+ Long useful lives
+ Currently used in operations.
+ Depreciation – allocating the cost of assets to a number of years.
+ Accumulated depreciation – total amount of depreciation expensed thus far in the asset’s life.
+ Sometime called fixed assets or plant assets.
- Long-Term Investments:
+ Investments in stocks and bonds of other companies
+ Investments in long-term assets such as land or buildings that are not currently being used in operating
activities.
+Long-term notes receivable.
- Current Assets:
+ Assets that a company expects to convert to cash or use up within one year or the operating cycle,
whichever is longer.
+ Operating cycle is the average time that it takes to: purchase inventory, sell it on account and collect
cash from customers.
- Equity:
+ Proprietorship - one capital account
+ Partnership - capital account for each partner
+ Corporation – Share Capital—Ordinary and Retained Earnings
- Non-current liabilities: Obligations a company expects to pay after 1 year.
- Current Liabilities:
+ Obligations company has to pay within coming year or its operating cycle, whichever is longer
+ Common examples are accounts payable, salaries and wages payable, notes payable, interest payable,
income taxes payable, and current maturities of long-term obligations.
+ Liquidity - ability to pay obligations expected to be due within the next year.
- Reversing Entries:
+ It is often helpful to reverse some adjusting entries before recording regular transactions of the next
period
+ Companies make a reversing entry at beginning of next accounting period
+ Each reversing entry is exact opposite of adjusting entry made in previous period
+ Use of reversing entries does not change amounts reported in the financial statements

CHAPTER 5
- Wholesal  Retailers  Consumers
- The primary source of revenue is sales revenue (sales).
- 2 categories of expenses: cost of goods sold, operating expenses.

Perpetual System:
+ Keep detailed records of the cost of each inventory purchase and sale.
+ Records continuously show inventory that should be on hand for every item
+ Company determines cost of goods sold each time a sale occurs
Advantages:
+ Traditionally used for merchandise with high unit value
+ Show quantity and cost of inventory that shouldbe on hand at any time
+ Provides better control over inventories.
- Recording purchases:
+ Made using cash or credit.
+ Normally record when goods are received from the seller.
+ Purchase invoice should support each credit purchase.

- Purchase return A return of goods from the buyer to the seller for a cash or credit refund.
- Purchase allowance: A deduction made to the selling price of merchandise, granted by the seller so that
the buyer will keep the merchandise.
- Purchase discount: A cash discount claimed by a buyer for prompt payment of a balance due.
Advanatages:+ Buyer saves money.
+ Seller shortens the operating cycle by converting the Accounts receivable into cash earlier.
- Recording sales:
+ Made on credit or cash.
+ Sales revenue is recorded whe the performance obligation is satisfied
+ Sales invoice should support each credit sale

- Periodic System:
+ Determine the cost of goods sold only at the end of the accounting period, determined by count.
 Freight costs incurred by the seller are an operating expense.
- Net Purchase = Purchase - (Purchase Return & Purchase Allowance + Purchase Discount).
- Net Service Revenue = Service Revenue - (Sales Return & Allowance + Sale Discount)

CHAPTER 6
- Merchandising company: one classification: Merchandise inventory
- Manufacturing company: Three classification: + Raw materials
+ Work in process
+ Finished Goods
- Regardless of the classification, companies report all inventories under Current Assets on the statement of
financial position.
- Physical Inventory taken for 2 reasons:
+ Perpetual System:
1. Check accuracy of inventory records.
2. Determine amount of inventory lost due to wasted raw materials, shoplifting or employee theft.
+ Periodic System:
1. Determine the inventory on hand.
2. Determine the cost of goods sold for the period.
- Taking a Physical Inventory: involves counting, weighing or measuring each kind of inventory on hand,
taken:
+ When the business is closed, or business is slow.
+ at the end of the accounting period.
- Goods in transit: + Purchased goods not yet received.
+ Sold goods not yet delivered.
- Goods in transit should be included in the inventory of the company that has legal title to the goods.
- Legal title is determined by the terms of sale.
- FOB shipping point: Ownership of the goods passes to the buyer when the public carrier accepts the goods
from the seller. (Buyer pays freight cost).
- FOB Destination: Ownership of the goods remains with the seller until the goods reach the buyer. (Seller
pays freight cost).
- Freight costs incurred to acquire inventory are added to the cost of inventory, but the cost of shipping
goods to a customer is a selling expense.
- Inaccurate inventory counts affect not only the inventory amount shown on the statement of financial
position but also the cost of goods sold calculation on the income statement.
- Inventory is accounted for at cost:
• Cost includes all expenditures necessary to acquire goods and place them in a condition ready for sale
• Unit costs are applied to quantities to determine the total cost of inventory and cost of goods sold using
the following costing methods: + Specific identification
+ Cost flow assumptions (First-in first-out and Average-cost)
- Specific Identification: Costing method in which items still in inventory are specifically costed to arrive at
the total cost of the ending inventory.
• Practice is relatively rare.
• Most companies make assumptions (cost flow assumptions) about which units were sold.
- There are 2 assumed cost flow methods:
+ First-in, first-out (FIFO)
+ Average-cost
- Cost flow does not need be consistent with the physical movement of the goods.
- (Beginning inventory + Purchased) – Ending inventory = Cost of Goods sold.
- COGS + CO the ending inventory = COGA4S
- Beginning inventory + COG purchased - Ending inventory = Cost of Goods sold
- Cost of Goods available for sale = Beginning Inventory + Cost of Goods Purchased

- Average-cost method Inventory costing method that uses the weighted-average unit cost to allocate to
ending inventory and cost of goods sold the cost of goods available for sale.
- Three factors: (1) income statement effects, (2) statement of financial position effects, or (3) tax effects
- In a period of inflation, FIFO produces a higher net income because the lower unit costs of the first units
purchased are matched against revenues.
- Rising price, FIFO produces a higher net income
- Price are falling, Average-cost produces a higher net income
- Statement of Financial Position effects:
+ A major advantage of the FIFO method is that in a period of inflation, costs allocated to ending inventory
will approximate their current cost
+ A shortcoming of the average-cost method is that in a period of inflation, costs allocated to ending
inventory may be understated in terms of current cost
- Tax effects:
+Both inventory and net income are higher when companies use FIFO in a period of inflation
+ Average-cost results in lower income taxes (because of lower net income) during times of rising prices
- Inventory errors affect both the income statement and statement of financial position:
+ Income statement:
Affect the computation of cost of goods sold and net income in two periods.
 Over the two years, though, total net income is correct because the errors off

set each other

+ Statement of financial position:

Lower-of-cost or Net Realizable Value:

- The best choice among accounting alternatives is the method that is least likely to
overstate assets and net income.
- Inventory turnover measures the number of times on average the inventory is sold during the period

Average Inventory = (Beginning Inventory + Ending Inventory) : 2

 CHAPTER 7
7 accounting principles:
- Accrual basis
- Going concern
- Historical cost
- Matching
- Consistency
- Prudence
- Materiality

5 accounting requirements:
- Honesty
- Objective
- Fullness
- Timeliness
- Understandability
- Comparability

5 elements of financial statements:

- Assets
- Liability
- Equity
- Revenue and other income
- Expense

- Financial statements system includes:

+ Annual financial statements: Balance sheet (Statement of financial position)

Income statement
Cash flow statement
Notes to the financial statements
+ Interim financial statements