lecture_01s11516

1-1

Welcome to BU8101 Accounting: A User Perspective

Lectures

1 to 6

Financial

Accounting Mrs. Ho Yin Kheng

[email protected]

Lectures

7 to 12

Managerial

Accounting Mr. Rony Lim

[email protected]

1-2 Course Objectives and Requirements

Course Objectives To expose students to the environment of accounting and the

role of accounting in business organizations for useful

decision making

Course Schedule 1.5-hour lecture per week commencing on 11 August 2015.

1.5-hour seminar per week commencing from the week

beginning 17 August 2015.

Prescribed Text Williams, J.R., Haka S.F. and Bettner M.S. (WHB) Financial

and Managerial Accounting: The Basis For Business

Decisions, 17th Edition, McGraw-Hill (2015)

Further Information Course Outline in Edventure

1-3 Course Objectives and Requirements

Online e-learning McGraw Hills Connect system (compulsory)

Course Assessment Continuous Assessment

Online Assignments (compulsory) 10%

Presentation 10%

Participation 10%

Online Quiz (closed book) 20% 50%

Final Examination (closed book) 50% Total Assessment 100%

Online quiz to be held in the week commencing 5 October

2015 during seminar sessions at IT labs

Final Examination on Wednesday, 24 November 2015 at

5.00pm

1-4 BU8101 Accounting: A User Perspective

Lecture 1

Introduction to Accounting

1-5

Suggested Readings

Compulsory Lecture notes

Chapters 1 (learning objectives 1 to 7) & 2 of Financial and

Managerial Accounting: The Basis For Business Decisions

17th edition by Williams, J.R., Hakka,S.F. and Bettner,

M.S. (2015).

Reference Chapter 1 of Accounting Principles 11th edition by Jerry J.

Weygandt, Paul D. Kimmel, Donald E Kieso (2014).

http://www.acra.gov.sg/

http://www.asc.gov.sg

SingPost Annual Report 2014

1-6

Learning Objectives

1. Describe business and the goals of business

2. Explain the importance of accounting

3. Discuss the accounting environment and the

importance of ethics

4. Explain elements of the financial statements and

basic accounting principles

5. Analyze business transactions using the

accounting equation

6. Show how financial statements are linked

1-7

Learning Objective 1 LO 1

Describe business

and the goals of

business

1-8

A business is an economic unit that aims to sell

goods and services to customers at prices that will

provide an adequate return to its owners.

Business Goals Profitabilityearning a sufficient return to maintain owner interest Liquidityhaving enough cash to pay debts as they come due

Some well-known businesses are:

Overview of Business LO 1

1-9

This diagram gives you a big picture of how business operates:

Financing Activities

Business - The Big Picture

Operating Activities Investing Activities

Financial resources from

owners and other creditors

Operating assets are used to

produce and sell goods and services

Profits generated

are also reinvested

Profits are used to

repay owners

and creditors

LO 1

Used to acquire

operating assets

1-10

Financing Activities

Financing activities occur when owners or creditors provide

resources to a company or when a company transfers resources to

owners or creditors.

LO 1

1-11

Investing Activities

Investing activities involve the acquisition or disposal of

long-term resources used by a business.

LO 1

1-12

Operating Activities

Operating activities are those activities necessary to

acquire and sell goods and services.

Purchase of Goods for Sale Selling Goods to Customers

LO 1

1-13


Explain the importance

of accounting

1-14

The Accounting Process LO 2

Identifies Business

Activities

Records Business

Activities

Communicates

Business Activities

Accounting:

the language of

business

is a

system that

information

that is

Decision-makers

use reports to make

better decisions.

Qualitative

Characteristics

Relevance Faithful

representation

Comparability Verifiability Timeliness

Understandability Cost Constraint

1-15

Users of Accounting Information LO 2

Financial

Accounting

External Decision

Makers

1-16

Users of Accounting Information LO 2

Managerial Accounting

Internal Decision Makers

1-17

Who Uses Accounting? LO 2

The Accounting Umbrella

Non-Profit Organizations

Corporation Partnership Sole

Proprietorship

Private Publicly -

Traded

Governmental Accounting

For-Profit Organizations

1-18

Forms of For-Profit Organizations

Sole

Proprietorship Partnership Corporation

LO 2

Copyright 2012 The McGraw-Hill Companies, Inc.

For more information on the above, refer to ACRA website http://www.acra.gov.sg/

1-19 Reporting Ownership Equity in the Statement of Financial Position

Owner's equity:

Jill Jones, capital 8,000$

Sole Proprietorships

Partners' equity

Jill Jones, capital 4,000$

Bill Jones, capital 4,000

Total partners' equity 8,000$

Partnerships

Owners' equity

Share capital 7,000$

Retained earnings 1,000

Total shareholders' equity 8,000$

Corporations

Copyright 2012 The McGraw-Hill Companies, Inc.

LO 2

1-20

Review Questions

Liquidity means having enough funds on hand to pay debts when they fall due. TRUE

Which of the following is not an external user of a businesss financial information?

A. Tax authorities C. Shareholders

B. Customers D. Managers D

Which type of business organization is owned by one owner?

A. Corporation C. Sole proprietorship

B. Partnership D. Items a and b C

True/False

AdminSticky NoteD

AdminSticky NoteC

1-21


Discuss the accounting environment and the importance of ethics

1-22 The Accounting Environment for Financial Statements Reporting

Financial

Statements Reporting

Accounting Standards and Principles (*SFRS)

Code of Corporate Governance (pages 40-60#)

Independent Auditors Report (pages 82#)

Accounting Professionals

#See Singpost Annual Report 2014

LO 3

* Singapore Financial Reporting Standards

Singapore Companies Act &

Other statutory reqts.

1-23

Importance of Ethics

Effective financial reporting depends on sound ethical behavior.

Recent unethical financial reporting include: In US Enron, Worldcom,

In Singapore China Aviation Oil and others.

Beliefs that distinguish right

from wrong

Ethics

Accepted

standards of good

and bad behavior

LO 3

1-24

Identify ethical situations and

ethical issues

Analyze the elements in the

situation involved

Identify options and weigh the effect

of each option

Use personal

ethics to identify

ethical situations

and issues

Identify stakeholders persons who may be

harmed or benefited.

What are the

responsibilities and

obligations of parties

involved?

Choose best option

after weighing all

consequences.

Guidelines for Ethical Decisions

LO 3

Video clip

1-25

Ethical Decision LO 3

Andrew, a final year engineering student at NTU, received two office

interview invitations from the Hong Kong offices of two large firms.

Both firms offered to cover his out-of-pocket expenses (travel, hotel,

and meals). He scheduled the interviews for both firms on the same

day, one in the morning and one in the afternoon. At the conclusion

of each interview, he submitted to both firms his total out-of-pocket

expenses for the trip to Hong Kong for a total of $710. He believes

this approach is appropriate. If he had made two trips, his cost would

have been two times $710. He is certain that neither firm knew he

had visited the other on that same trip. Within 10 days, Andrew

received two cheques in the mail, each in the amount of $710.

Identify ethical situations and

ethical issues

Analyze the stakeholders in the

situation involved

Identify options

and weigh the effect

of each option

1-26

Review Questions

One purpose of accounting standards and principles is to make accounting information

prepared by different companies more comparable.

TRUE

An audit guarantees that the financial statements are free of all misstatements. FALSE

Ethics are the standards of conduct by which one's actions are judged as:

A. right or wrong C. honest or dishonest

B. fair or not fair D. all of the options D

True/False

True/False

AdminSticky NoteTrue

AdminSticky NoteD

AdminSticky NoteTrue

1-27


Explain elements of the financial

statements and basic accounting principles

1-28

Basic Accounting Principles

Assumptions Accounting entity: Activities of the business are separate from activities of owners.

Going concern: The entity will not go out of business in the near future.

Unit-of-measure: Accounting measurements will be in the national monetary unit (i.e., S$ in the Singapore).

Principles

Historical cost: (or cost principle) dictates that companies record assets at their cost.

Objectivity: Accounting information is supported by independent unbiased evidence.

LO 4

1-29 Financial Statements Financial Statements

Statement of Financial Position (usually called Balance Sheet)

Statement of Comprehensive Income ( which consist of 2 parts:

the Income Statement plus Other Comprehensive Income)

Statement of Cash Flows

Statement of Changes in Equity

Notes to the financial statements

LO 4

Cash 26,200$ Notes payable 13,000$

Accounts receivable 500 Accounts payable 2,500

Equipment 2,500

Truck 15,000 Capital stock 28,000

Retained earnings 700

Total shareholders' equity 28,700

Total assets 44,200$ Total liabilities & equity 44,200$

Assets Liabilities

Owners' Equity

Green Lawn Care Service

Balance Sheet

May 31, 2014

1-30

The Basic Accounting Equation

Provides the underlying framework for recording and summarizing economic events.

Assets are economic resources that are owned by the entity and are expected to provide positive future cash

flows. Examples: cash, supplies, plant and equipment.

Liabilities are debts that represent negative future cash flows for the entity. Examples: accounts payable, notes

payable.

Owners equity represents the owners claims to the assets of the business. Examples: Owner's capital,

revenue, expenses and dividends.

Assets = Liabilities + Owners Equity

LO 4

1-31

Expanded Accounting Equation

Expenses Dividends Owners capital

Revenues _ + _

Retained Earnings

LO 4

Net Income

Uses of funds Sources of funds

Retained Earnings represents the total net income of the firm over the entire lifetime of the business, less dividends

distributed to the shareholders.

1-32

Owners Equity

Increases in Owners Equity are caused by: Owners capital - the assets the owner puts into the

business.

Revenues - result from business activities entered into

for the purpose of earning income. Examples: sales,

fees, services, commissions.

Decreases in Owners Equity are caused by: Dividends - Drawings by owner or distribution of

profits to owner.

Expenses - the cost of assets consumed or services

used in the process of earning revenue. Examples:

salaries expense, rent expense, utilities expense, etc.

LO 4

1-33

Review Questions

For accounting purposes, a business entity is regarded as separate from the personal activities

of its owners. Ans: True

Using the expanded accounting equation, solve for the missing amount: $40,000

Assets $100,000

Liabilities $40,000

Owners' capital ?

Revenue $60,000

Expenses $30,000

Dividend $10,000

True/False

1-34


Analyze business

transactions using

the accounting

equation

1-35

Lets analyze some transactions for Green

Lawn Care Service and

see how they affect the

operation of the

accounting equation.

LO 5

Transactions are a businesss economic events. May be external or internal. Not all activities represent transactions. Each transaction has a dual effect on the

accounting equation.

1-36

Assets = Liabilities +

Cash +

Accts.

Rec. + Equip. + Truck =

Notes

Payable +

Accts.

Pay. +

Capital

Stock +

Retained

Earnings

5/1 28,000$ 28,000$

5/8 (2,000) 15,000$ 13,000$

5/11 $2,500 2,500$

5/29 250 500 $750

5/31 (50) (50)

Bals 26,200$ 500$ 2,500$ 15,000$ 13,000$ 2,500$ 28,000$ $700

Owners' Equity

Transactions of Green Lawn Care Service in May 2014

5/1 The owners invested $28,000.

5/8 Truck costing $15,000 was purchased for $2,000 cash and signing a

note payable for $13,000.

5/11 Purchase lawn mower for $2,500 on account.

5/29 The company provided services for $750, of which $500 was on

account and the balance of $250 was received in cash.

5/31 Gasoline for the lawn mower and the truck of $50 was paid in cash.

LO 5

1-37


Cash +

Accts

. Rec. + Equip. + Truck =

Notes

Payable +

Accts.

Pay. +

Capital

Stock +

Retained

Earnings

1/5 28,000$ 28,000$

8/5 (2,000) 15,000$ 13,000$

11/5 $2,500 2,500$

29/5 250 750

31/5 (50) (50)

Bals 26,200$ 500$ 2,500$ 15,000$ 13,000$ 2,500$ 28,000$ $700

Owners' Equity



Equipment 2,500





Assets Liabilities

Owners' Equity


Balance Sheet

May 31, 2014

These balances will

appear on the Balance

Sheet

Lets prepare the Balance Sheet for Green Lawn Care Service for May 31, 2014.

LO 5

1-38 Statement of Financial Position (Balance Sheet)

Reports the assets, liabilities, and owners equity at a specific date.

Total assets must equal total liabilities and owners equity.

Is a snapshot of the companys financial condition at a specific moment in time (usually the month-

end or year-end).

LO 5

1-39


Cash +

Accts

. Rec. + Equip. + Truck =

Notes

Payable +

Accts.

Pay. +

Capital

Stock +

Retained

Earnings

1/5 8,000$ 8,000$

8/5 (2,000) 15,000$ 13,000$

11/5 2,500 2,500$

29/5 250 500 750

31/5 (50) (50)

Bals 6,200$ 500$ 2,500$ 15,000$ 13,000$ 2,500$ 8,000$ $700

Owners' Equity

Statement of cash flows Income

statement

Lets prepare the Income Statement and Statement of Cash Flows for Green Lawn Care

Service for the month ending May 31, 2014.

LO 5

Statement of changes in equity

1-40

Income Statement


Income Statement

For the Month Ended May 31, 2014

Service Revenue 750$

Operating Expense:

Gasoline Expense 50

Net Income 700$

The income statement shows the profit for the period of

time under consideration.

Owners and other

decision makers

can use the

statement to

evaluate how well

a company has

performed.

LO 5

Expenses > Revenue = Net Loss

Revenue > Expenses = Net

Income/Profit

1-41

Statement of Changes In Equity

The statement of changes in equity shows the changes in

equity for the period of time under consideration.

LO 5




Beginning equity -$

Issuance of shares 28,000

Net income 700

less: Dividend -

Ending equity 28,700$

1-42




Cash flows from operating activities:

Cash received from revenue transactions 250$

Cash paid for expenses (50)

Net cash provided by operating activities 200$

Cash flows from investing activities:

Purchase of truck (2,000)

Net cash used by investing activities (2,000)

Cash flows from financing activities:

Investment by owners 28,000

Increase in cash for month 26,200$

Cash balance, May 1, 2014 -

Cash balance, May 31, 2014 26,200$

LO 5

Depicts the way cash has changed during a period of time.

1-43

Review Questions

Deerpark Corporation recently borrowed $70,000 cash from its bank. Which of the following was unaffected by this

transaction?

A. Assets.

B. Liabilities.

C. Owners' equity. C

D. Cash.

Which of the following is correct when a corporation uses cash to pay for an expense?

A. Total assets will decrease.

B. Retained earnings will increase.

C. Owners' equity will increase. A

D. Liabilities will increase.

AdminSticky NoteC

AdminSticky NoteA

1-44


Show how financial

statements are

linked

1-45 Relationships Among Financial Statements

Date at beginning

of period

Date at end of

period

Balance

Sheet

Balance

Sheet

Time


Revenue

- Expenses

Net Income

Income Statement

Cash Provided (Used) by:

Operating Activities

Investing Activities

Financining Activities

+ Beginning Cash Balance

Ending Cash Balance

A = L + OE A = L + OE

LO 6

Statement of Changes in Equity Beginning equity

issuance of shares

Net income

less: Dividend

Ending equity

1-46


Income Statement


Service Revenue 750$

Operating Expense:

Gasoline Expense 50

Net Income 700$




Cash flows from operating activities:

Cash received from revenue transactions 250$

Cash paid for expenses (50)

Net cash provided by operating activities 200$

Cash flows from investing activities:

Purchase of truck (2,000)

Net cash used by investing activities (2,000)

Cash flows from financing activities:

Investment by owners 28,000

Increase in cash for month 26,200$

Cash balance, May 1, 2011 -

Cash balance, May 31, 2012 26,200$




Beginning equity -$

Issuance of shares 28,000

Net income 700

less: Dividend -

Ending equity 28,700$



Equipment 2,500





Assets Liabilities

Owners' Equity


Balance Sheet

May 31, 2014

LO 6

1-47

Review Questions

A transaction that causes an increase in an asset may also cause an increase in another asset, a

decrease in a liability, or a decrease in owners'

equity. Ans: False

A companys owners equity is one-third of its total assets. Its liabilities total $200,000. What is the

amount of its total assets?

A. $200,000

B. $300,000

C. $350,000

D. $400,000 B

True/False

AdminSticky NoteB

1-48 Learning Outcomes Do You Know?

1. What are the goals of a business?

2. Why is accounting important?

3. What are the factors that safeguard the reliability of

accounting information?

4. Why is ethics important in financial statements reporting?

5. What are the six basic accounting principles you have

learnt?

6. How do business transactions affect the accounting

equation?

7. How are financial statements linked?

1-49

End of Lecture 1

lecture_01s11516

Documents

financial accounting

managerial accounting

goals of business

bu8101 accounting

environment of accounting

accounting environment

financing activities

importance of accounting