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Accounting
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1-1
Welcome to BU8101 Accounting: A User Perspective
Lectures
1 to 6
Financial
Accounting Mrs. Ho Yin Kheng
Lectures
7 to 12
Managerial
Accounting Mr. Rony Lim
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
Learning Objective 2 LO 2
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
Learning Objective 3 LO 3
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 $710.
Identify ethical situations and
ethical issues
Analyze the stakeholders in the
situation involved
Identify options
and weigh the effect
of each option
1-26
Review Questions
One purpose of accounting standards and principles is to make accounting information
prepared by different companies more comparable.
TRUE
An audit guarantees that the financial statements are free of all misstatements. FALSE
Ethics are the standards of conduct by which one's actions are judged as:
A. right or wrong C. honest or dishonest
B. fair or not fair D. all of the options D
True/False
True/False
AdminSticky NoteTrue
AdminSticky NoteD
AdminSticky NoteTrue
1-27
Learning Objective 4 LO 4
Explain elements of the financial
statements and basic accounting principles
1-28
Basic Accounting Principles
Assumptions Accounting entity: Activities of the business are separate from activities of owners.
Going concern: The entity will not go out of business in the near future.
Unit-of-measure: Accounting measurements will be in the national monetary unit (i.e., S$ 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 $10,000
True/False
1-34
Learning Objective 5 LO 5
Analyze business
transactions using
the accounting
equation
1-35
Lets analyze some transactions for Green
Lawn Care Service and
see how they affect the
operation of the
accounting equation.
LO 5
Transactions are a businesss economic events. May be external or internal. Not all activities represent transactions. Each transaction has a dual effect on the
accounting equation.
1-36
Assets = Liabilities +
Cash +
Accts.
Rec. + Equip. + Truck =
Notes
Payable +
Accts.
Pay. +
Capital
Stock +
Retained
Earnings
5/1 28,000$ 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 $50 was paid in cash.
LO 5
1-37
Assets = Liabilities +
Cash +
Accts
. Rec. + Equip. + Truck =
Notes
Payable +
Accts.
Pay. +
Capital
Stock +
Retained
Earnings
1/5 28,000$ 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$ $700
Owners' Equity
Cash 26,200$ 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
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
Assets = Liabilities +
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$ $700
Owners' Equity
Statement of cash flows Income
statement
Lets prepare the Income Statement and Statement of Cash Flows for Green Lawn Care
Service for the month ending May 31, 2014.
LO 5
Statement of changes in equity
1-40
Income Statement
Green Lawn Care Service
Income Statement
For the Month Ended May 31, 2014
Service Revenue 750$
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
Green Lawn Care Service
Statement of Changes in Equity
For the Month Ended May 31, 2014
Beginning equity -$
Issuance of shares 28,000
Net income 700
less: Dividend -
Ending equity 28,700$
1-42
Green Lawn Care Service
Statement of Cash Flows
For the Month Ended May 31, 2014
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 $70,000 cash from its bank. Which of the following was unaffected by this
transaction?
A. Assets.
B. Liabilities.
C. Owners' equity. C
D. Cash.
Which of the following is correct when a corporation uses cash to pay for an expense?
A. Total assets will decrease.
B. Retained earnings will increase.
C. Owners' equity will increase. A
D. Liabilities will increase.
AdminSticky NoteC
AdminSticky NoteA
1-44
Learning Objective 6 LO 6
Show how financial
statements are
linked
1-45 Relationships Among Financial Statements
Date at beginning
of period
Date at end of
period
Balance
Sheet
Balance
Sheet
Time
Statement of Cash Flows
Revenue
- Expenses
Net Income
Income Statement
Cash Provided (Used) by:
Operating Activities
Investing Activities
Financining Activities
+ Beginning Cash Balance
Ending Cash Balance
A = L + OE A = L + OE
LO 6
Statement of Changes in Equity Beginning equity
issuance of shares
Net income
less: Dividend
Ending equity
1-46
Green Lawn Care Service
Income Statement
For the Month Ended May 31, 2014
Service Revenue 750$
Operating Expense:
Gasoline Expense 50
Net Income 700$
Green Lawn Care Service
Statement of Cash Flows
For the Month Ended May 31, 2014
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$
Green Lawn Care Service
Statement of Changes in Equity
For the Month Ended May 31, 2014
Beginning equity -$
Issuance of shares 28,000
Net income 700
less: Dividend -
Ending equity 28,700$
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
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