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Principle of accounting Nguyên lý kế toán FTU

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Principle of accounting – FTU – Notes HHG PRINCIPLE OF ACCOUNTING Textbook Financial Accounting with IFRS (2019) CHAPTER 1 Accounting Activities and Users 3 activities Identification Select economic e.

Principle of accounting – FTU – Notes - HHG PRINCIPLE OF ACCOUNTING Textbook: Financial Accounting with IFRS (2019) CHAPTER 1:  Accounting Activities and Users o activities  Identification: Select economic events (transaction)  Recording: Record, classify, summarize  Communication: Prepare accounting record, analyze + interpret for users o Users  Internal users: Finance, Marketing, HR Department/ Managers  Managerial Accounting (internal report)  External users: investors, governments, creditors => Taxing authorities, regulation agencies, Labor union  Financial Statements under IFRS  Fields of accounting - Accounting can be divided in fields: financial accounting and managerial accounting depending on users of information - Managerial accounting is concerned with providing economic and financial information to managers and other internal users - Financial accounting is concerned with communicating information about business to external users through financial statements => Comparing managerial accounting and financial accounting  The building Blocks of Accounting o Ethics in Financial Accounting Principle of accounting – FTU – Notes - HHG      Ethics is an important issue in effective financial reporting It helps to develop investors’ faith in reliability of financial reports  Recognize an ethical situation and the ethical issues involved  Identify and analyze the principle elements in the situation  Identify the alternatives and weigh the impact of each alternative on various stakeholders Accounting Standard o Ensure high-quality financial reporting  At global level: International Accounting Standards Board (IASB) o IFRS  At country level: Financial Accounting Standards Board (FASB) and other equivalent authorities Measurement Principles: o Historical cost principle (cost principle): dictates that companies 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: 2017: land: $1m | 2022: market price: $2m => The cost of the land is 1m b/c the cost of this land is remained over the time it is held o Fair value principle: states that assets and liabilities should be reported at fair value (the price received to sell an asset or settle a liability)  The land can be presented in $2m Selecting measurement principle: Selection of which principle to follow generally relates to trade-offs between relevance and faithful representation o Relevance: financial information is capable of making a difference in a decision o Faithful representation: the numbers and descriptions match what really existed or happened—they are factual o Assumption o Monetary unit assumption: requires that companies include in the accounting records only transactions data that can be expressed in money terms o Economic entity assumption: owner | entity: requires that the activities of the entity be kept separate and distinct from the activities of its owner and all other economic entities Typical entity forms are proprietorship, partnership, corporation o Principle of accounting – FTU – Notes - HHG  Forms of Business Organization o Sole proprietorship  Easy to establish  Owner controlled  Tax advantage => Unlimited liability for all debts o Corporation  Easier to transfer ownership  Easier to raise funds  No personal liability => Limited liability o Partnership  Simple to establish  Shared control  Broader skills and resources  Tax advantage  Accounting Equation - The basic Accounting Equation => Assets = Liabilities + Equity - - - Assets: Obligation o Resources a business owns o Provide future services or benefits o Ex: Cash, Suppliers, Equipments, etc Liabilities: nợ phải trả o Claims against assets o Ex: Accounts payable, notes payable, salaries and wages payable, taxes payable Equity: vốn chủ sở hữu o The ownership claim on a company’s total asset o Ordinary share capital (common stock) => When a company issue share => investors invest money in the business o Retained earning => The amount that remains and haven’t given to the shareholders => The retained earning is smaller than Ordinary share capital => Equity is negative Example: Principle of accounting – FTU – Notes - HHG - Contribute 60m in cash => Cash increases by 60m => Assets increase by 60m, liabilities remain => Equity increase by 60m => Cash( +60) = SC(+ 60) - Purchased some clothes for VND 50m by bank transfer: => Cash (60-40=20) + Inventory (+ 40 ) => SC(=60) - Borrowed VND 20m from some friends => Cash: (+ 20 = 40) + Inventory (40) = Loan(20) + Share Capital (60) - Purchased VND 15m in equipment, such as hangers, wardrobes, etc in cash => Cash (-15 = 25) + Inventory (40) + Equipment (+ 15) = Loan (20) + SC (60) - Pay VND 5m => Cash (-5 = 20) + Inventory (40) + E (15) = Loan (-5=15) + SC(60) 720.000 = 480.000 + equity Revenue: 1.200.000 Expenses: 680.000 Dividents: 120.000 => 720.000 + 1.200.000 = 680.000 + 120.000 +480.000 + equity => equity = 640.000 EX 5: Assets: - Equipment: 25.000 - Cash: 9.000 -Suppliers: 3.000 - A/R: 5.000 Liabilities: - Note payable: 10.500 - Account payable 8.000 Equity Principle of accounting – FTU – Notes - HHG - dividends: (2000) => negative number - Share capital: 26.000 Principle of accounting – FTU – Notes - HHG Principle of accounting – FTU – Notes - HHG ANALYZE THE EFFECTS OF BUSINESS TRANSACTIONS ON THE ACCOUNTING EQUATION Principle of accounting – FTU – Notes - HHG  ANALYZING BUSINESS TRANSACTIONS o Accounting information System: => collecting + processing transaction data + communicating financial information to decisionmakers  IDENTIFYING ACCOUNTING TRANSACTIONS:  Expanding the Balance Sheet Equation for analysis Principle of accounting – FTU – Notes - HHG Accounting transaction => impact the financial statements of the company (assets, liabilities, equity,…) Principle of accounting – FTU – Notes - HHG Principle of accounting – FTU – Notes - HHG Principle of accounting – FTU – Notes - HHG Principle of accounting – FTU – Notes - HHG CLOSING ENTRIES CLASSIFIED STATEMENT OF FINANCIAL POSITION Principle of accounting – FTU – Notes - HHG INCOME STATEMENT Principle of accounting – FTU – Notes - HHG Principle of accounting – FTU – Notes - HHG Principle of accounting – FTU – Notes - HHG Principle of accounting – FTU – Notes - 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Equity Principle of accounting – FTU – Notes - HHG - dividends: (2000) => negative number - Share capital: 26.000 Principle of accounting – FTU – Notes - HHG Principle of accounting – FTU – Notes

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