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    Lecture - 1 - Accounting - in - Business - NUS ACC1002 2020 Spring Post

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    Lecture - 1 - Accounting - in - Business - NUS ACC1002 2020 Spring Post

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    Accounting

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    Lecture_1_Accounting_in_Business -- NUS ACC1002 2020 Spring Post

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    Accounting

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    59 views42 pages

    Lecture - 1 - Accounting - in - Business - NUS ACC1002 2020 Spring Post

    Uploaded by

    Zenyui
    Accounting

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    of 42

    ACCOUNTING IN BUSINESS

    Dr. Michael Shen

    © Copyright National University of Singapore. All Rights Reserved.


    ABOUT ME
    Michael Shen
    - Ph.D. in Accounting
    - Labor Market / Machine Learning
    - Originally from Zhejiang, China
    - Loves NBA / Tech

    © Copyright National University of Singapore. All Rights Reserved.


    © Copyright National University of Singapore. All Rights Reserved.
    “You have to know accounting. It’s the
    language of practical business life. It was a
    very useful thing to deliver to civilization.
    I’ve heard it came to civilization through
    Venice which of course was once the great
    commercial power in the Mediterranean.
    However, double entry bookkeeping was a
    hell of an invention.” - Charlie Munger

    © Copyright National University of Singapore. All Rights Reserved.


    TEXTBOOK

    • Textbook: John J. Wild, Winston Kwok, Ken W. Shaw,


    and Barbara Chiappetta, Financial Accounting:
    Information for Decisions, Revised 3rd Edition,
    McGraw-Hill Education (Asia), 2020.
    • ONLY eBook version is available.
    • VitalSource app
    • Several copies at Hon Sui Sen library
    • Video for how to use the ebook at LumiNUS
    LEARNING OBJECTIVES
    1. Explain the purpose, importance, users, and uses of
    accounting
    2. Explain generally accepted accounting principles
    and the Conceptual Framework
    3. Define and interpret the accounting equation
    4. Identify the typical financial statements and explain
    how they interrelate
    LEARNING OBJECTIVE 1
    Explain the purpose, importance,
    users, and uses of accounting
    PURPOSE AND IMPORTANCE OF ACCOUNTING
    is a
    Accounting Identifies
    system that

    Records

    information
    Relevant Communicates
    that is

    Reliable
    to help users make
    Comparable better decisions.
    USERS OF ACCOUNTING INFORMATION

    External Users Internal Users

    •Shareholders
    (Investors) •Consumer Groups •Managers •Sales Staff
    •Lenders •External Auditors •Officers/Directors •Budget Officers
    (Creditors)
    •Customers •Internal Auditors •Controllers
    •Governments
    EXTERNAL USERS AND USES OF FINANCIAL INFORMATION
    ❑ Singapore Airlines Ltd (SGX: C6L)
    ❑ Annual report which contains
    financial statements, auditor’s
    report, notes to accounts and other
    information such as chairman’s
    statement.
    ❑ The annual report is one of the most
    important source of information for
    investors and creditors
    LEARNING OBJECTIVE 2
    Explain generally accepted accounting
    principles and the Conceptual Framework
    GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
    ❑ Help determine what information to be included in
    financial statements.
    ❑ Not physical science laws. It can change based on
    needs of society.
    ❑ Applied based on professional judgment.
    ❑ Therefore, a business transaction could have more
    than one accounting treatment or method resulting in
    different financial numbers.
    GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
    PRINCIPLES AND ASSUMPTIONS OF ACCOUNTING

    Revenue Recognition Principle Cost Principle


    1. Recognize revenue when it is earned. Accounting information is based on
    2. Proceeds need not be in cash. actual cost. Actual cost is considered
    3. Measure revenue by cash received objective.
    plus cash value of items received.

    Expense Recognition or Full Disclosure Principle


    Matching Principle A company is required to
    A company must record its report the details behind
    expenses incurred to generate financial statements that
    the revenue reported. would impact users’
    decisions.
    ACCOUNTING ASSUMPTIONS

    Now Future
    Going-Concern Assumption Monetary Unit Assumption
    Reflects assumption that the business Express transactions and events in
    will continue operating instead of monetary, or money, units.
    being closed or sold.

    Business Entity Assumption Time Period Assumption


    A business is accounted for Presumes that the life of a company
    separately from other business can be divided into time periods, such
    entities, including its owner. as months and years.
    ACCOUNTING ASSUMPTIONS
    Business Entity
    • A business is accounted for separately from other business
    entities, including its owner. Separate information is necessary for
    good decisions.
    • Three general business entity forms:

    Proprietorship Partnership Corporation


    INTERNATIONAL STANDARDS

    The International Accounting Standards Board (IASB), an


    independent group (consisting of 16 individuals from many
    countries), issues International Financial Reporting Standards
    (IFRS) that identify preferred accounting practices

    IASB
    IASB’S CONCEPTUAL FRAMEWORK
    IASB identified the Qualitative Characteristics of financial
    information that distinguish better (more useful) information from
    inferior (less useful) information for decision-making purposes

    Fundamental
    Qualitative
    Characteristics

    Enhancing
    Qualitative
    Characteristics
    Qualitative Characteristics
    Relevant financial information is capable of making a difference in users’ decisions

    can be used as provides Information is


    an input to feedback about material if
    processes (confirms or omitting it or
    employed by changes) misstating it could
    users to predict previous influence
    future outcomes. evaluations decisions
    Qualitative Characteristics
    Faithful representation means that the numbers and descriptions
    match what really existed or happened

    (1) (2) (3)


    1. includes all information necessary for a user to understand the
    phenomenon being depicted, including all necessary descriptions
    and explanations
    2. without bias in the selection or presentation of financial information
    3. there are no errors or omissions in the description of the phenomenon,
    and the process used to produce the reported information has been
    selected and applied with no errors in the process
    Qualitative Characteristics

    (1) (2) (3) (4)

    1. enables users to identify and understand similarities in, and differences


    among items

    2. means that different knowledgeable and independent observers could reach


    consensus, although not necessarily complete agreement

    3. means having information available to decision-makers in time to be capable


    of influencing their decisions

    4. Classifying, characterising and presenting information clearly and concisely


    makes it understandable
    LEARNING OBJECTIVE 3
    Define and interpret the accounting equation
    ACCOUNTING EQUATION

    Assets = Liabilities + Equity

    Resources a Claims against the company’s resources


    company owns
    or controls Claims by Claims by owners
    creditors (investors or
    (lenders) shareholders)
    ASSETS

    Cash
    Accounts
    Receivable
    …….
    Resources
    Vehicles owned or
    controlled Land

    Notes
    Store Receivable
    Supplies
    Equipment
    LIABILITIES

    Accounts Notes
    Payable Payable

    Creditors’
    claims on
    resources

    Taxes Wages
    Payable Payable
    …….
    EQUITY IS ASSETS LESS LIABILITIES
    ❑ What’s left (residual) of the
    company’s assets after it
    pays liabilities
    ❑ Also called net assets, net
    worth, or residual equity

    ❑ Share capital: amount invested in company, represented


    by ordinary shares issued to shareholders
    ❑ Retained earnings: amount earned and retained in the
    business
    NET PROFIT
    ❑ The common measure of a company’s result for a period:

    Net Profit = Revenues - Expenses


    ❑ Revenues: Sales of products or services
    ❑ Expenses: Cost incurred to provide products or services
    ❑ Net profit or net income increases equity
    ❑ If expenses more than revenues, then net loss which
    decreases equity
    DIVIDENDS
    ▪ Disbursement of cash or other business assets to the
    shareholders
    ▪ Not compulsory to be paid but up to directors to decide
    whether to pay
    ▪ Dividends decrease retained earnings
    EXPANDED ACCOUNTING EQUATION

    Net Profit
    LEARNING OBJECTIVE 4
    Identify typical financial statements
    and explain how they interrelate
    THE FOUR TYPICAL FINANCIAL STATEMENTS
    • Statement of Profit or Loss and Other Comprehensive Income
    (including the Income Statement)
    • Statement of Changes in Equity
    • Statement of Financial Position (Balance Sheet)
    • Statement of Cash Flows

    • These titles are recommended by IAS 1 Presentation of Financial


    Statements but not mandatory; “Balance Sheet” instead of
    “Statement of Financial Position” is still the favorite title of many
    reporting entities
    • Prior to 1 July 2012, the recommended title for “Statement of Profit
    or Loss and Other Comprehensive Income” was “Statement of
    Comprehensive Income”
    FINANCIAL STATEMENT HEADING
    ❑ Name of company
    ❑ Title of statement
    ❑ Reporting period
    ❑ Currency and units
    LINKS AMONG THE
    FINANCIAL STATEMENTS
    ❑ Each financial statement tells a portion of the story about
    business operations
    ❑ Users rely on all four statements when analyzing financial
    performance and health
    ❑ The statement of profit or loss and other comprehensive
    income, statement of changes in equity and statement of cash
    flows are flow statements (showing the inflows and outflows
    during the period)
    ▪ “for the year ended December 31, 2018”
    ❑ The statement of financial position is a stock statement
    (showing at a point in time)
    ▪ “as at December 31, 2018”
    LINKS BY TIME PERIODS
    At
    beginning At end of
    of period Time period

    Statement of Statement of
    Financial Financial
    Position Position

    Statement of Profit or Loss and


    Other Comprehensive Income

    Statement of Changes in Equity

    Statement of Cash Flows


    UNDERSTANDING FINANCIAL STATEMENTS
    • Income Statement
    • Statement of Changes in Equity
    • Statement of Financial Position
    • Statement of Cash Flows

    • We will illustrate the statements using a company called


    FastForward, a start-up consulting (service) business, in its
    first month of operations December 2016
    • Comprehensive income will be explained in a future lecture;
    we focus on the income statement for now
    INCOME STATEMENT
    The income statement describes a company’s revenues and
    expenses along with the resulting net profit or loss over a
    period of time due to earnings activities

    to Statement of
    Changes in Equity
    STATEMENT OF CHANGES IN EQUITY
    The statement of changes in equity reports information about
    how equity changes over the reporting period
    from Income
    Statement

    to Statement of
    Financial Position
    STATEMENT OF FINANCIAL POSITION
    The statement of financial position describes a company’s
    financial position at a point in time
    from Statement of
    Changes in Equity

    to Statement of Cash Flows


    STATEMENT OF CASH FLOWS
    The statement of cash flows describes a company’s cash
    flows for operating, investing, and financing activities

    from Statement of
    Financial Position
    NOTES TO THE FINANCIAL STATEMENTS
    Reference via a number to the notes shown after the financial statements.
    NOTES TO THE FINANCIAL STATEMENTS

    ❑ Types of notes:
    • Summary of significant accounting policies or assumptions etc.
    • Additional information about the summary totals in financial
    statements
    • Disclosure of important information that is not recorded
    • Supplementary information

    ❑ Full disclosure principle


    THE END

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