Financial Accounting

Financial Accounting 财务会计 March 2010 Lecturer 夏明会 CPA China CPA Australia Assessment Attendance 10 Homework 10 Mid exam 30 Final exam 50 Total marks 100 Textbook • Financial Accounting (5th): Weygandt, Kieso, Kimmel • This is US-base textbook Question References • • • • • • 任何一本中文的 财务会计 国际会计准则委员会: www.iasb.org.uk 中国注册会计师协会: www.cicpa.org.cn PWC: www.pwcglobal.com ACCA: www.accaglobal.com AICPA: www.aicpa.org Chapter ACCOUNTING MATTERS Study Objectives • • • • • • • What accounting is Uses and users of accounting Ethics as a fundamental business concept GAAP Monetary unit & economic entity assumptions The accounting equation How business transactions affect the accounting equation • Basic financial statements WHAT IS ACCOUNTING Accounting is an information system that Identifies （确认）, records（记录）, and communicates （沟通）the economic events (transactions 业务) of an organization to interested users THE ACCOUNTING PROCESS Communication Identification Recording Accounting Reports Prepare accounting reports SOFTBYTE Annual Report Select economic events (transactions) Record, classify and summarize 记录、分类 总结 Analyze and interpret for users Partial Income Statement Income from operations $560,000 Less: loss from Discontinued operation (210,000) Net income 350,000 EXTRAORDINARY ITEMS 非常项目 • Extraordinary items are events and transactions that meet two conditions: they are - unusual in nature and - infrequent in occurrence • Extraordinary items are reported net of taxes in a separate section of the income statement immediately below discontinued operations EXAMPLES OF EXTRAORDINARY items • • • • Effect of major casualties (acts of God ) Property takeover by a foreign government Effects of newly enacted law Destruction of property by fire Partial Income Statement Income from operations $560,000 Less: loss from Discontinued operation (210,000) Income before extraordinary item 350,000 Less: extraordinary item (49,000) Net income 301,000 CHANGE IN ACCOUNTING PRINCIPLE 会 计原则变化 • To make them comparable, financial statements are expected to be prepared on a basis consistent with that used in the preceding period • A change in accounting principle occurs when the principle used in the current year is different from the one used in the preceding year CHANGE IN ACCOUNTING PRINCIPLE 会计原则变化 • A change is permitted when - management can show that the new principle is preferable to the old principle and - the effects of the change are clearly disclosed in the income statement CHANGE IN ACCOUNTING PRINCIPLE • When a change in accounting principle has occurred - the new principle should be used in reporting the results of operations of the current year and - the cumulative effect累计效应 of the change on all prior year income statements should be disclosed net of applicable income taxes in a special section immediately preceding net income STATEMENT PRESENTATION OF CHANGE IN ACCOUNTING PRINCIPLE • At the beginning of 2002, Acro Energy Inc changes from the straight-line method of depreciation to the declining-balance method for equipment purchased on January 1, 1999 • Assuming a 30% income tax rate the net of income tax effect of the change is $16,800 ($24,000 X 70%) Partial Income statement For the year ended at Dec 31, 2002 Income before extraordinary item and cumulative effect of change in accounting principle Less: extraordinary item $350,000 cumulative effect of change in accounting principle Net income (16,800) (49,000) $284,200 LIMITATIONS OF FINANCIAL ANALYSIS 财 务分析的限制 • You should be aware of some of the limitations of the three analytical tools illustrated in the chapter and of the financial statements on which they are based - Estimates 估计: Financial statements contain numerous estimates; to the extent that these estimates are inaccurate, the financial ratios and percentages are inaccurate LIMITATIONS OF FINANCIAL ANALYSIS 财 务分析的限制 - Cost: Traditional financial statements are based on cost and are not adjusted for pricelevel changes Comparisons of unadjusted financial data from different periods may be rendered invalid by significant inflation or deflation LIMITATIONS OF FINANCIAL ANALYSIS 财 务分析的限制 • Alternative Accounting Methods不同的会计方法: Variations among companies in the application of GAAP may hamper comparability Although differences in accounting methods might be detectable from reading the notes to the financial statements, adjusting the financial data to compensate for the different methods is difficult, if not impossible, in some cases LIMITATIONS OF FINANCIAL ANALYSIS 财 务分析的限制 • Atypical Data非典型的数据: Fiscal year-end data may not be typical of the financial condition during the year Firms often establish a fiscal year-end that coincides with the low point in operating activity or in inventory levels • Thus, certain account balances may not be representative of the account balances during the year LIMITATIONS OF FINANCIAL ANALYSIS 财 务分析的限制 • Diversification of Firms公司的多元化: Diversification in American industry also restricts the usefulness of financial analysis Many firms today are too diversified to be classified by industry, while others appear to be comparable when they are not Homework • E15-7, E15-9 • P15-2A [...]... of accounting Field of Accounting 会计领域 • Accounting can be divided into two fields • Financial accounting (财务会计): provides information for people outside the company, such as investors and creditors • Managerial accounting (管理会计) : focuses on information for internal decision makers, such as mangers of the company Financial Accounting As financial accounting information relates to public Regulating accounting! ... example, Chinese GAAP - THE BUILDING BLOCKS OF ACCOUNTING • Accounting principles - Cost Principle 成本原则: assets should be recorded at their cost • Accounting assumptions - Monetary unit assumption 货币单位假设 - Accounting entity 会计主体假设 ACCOUNTING ASSUMPTIONS • MONETARY UNIT ASSUMPTION: - Only transaction data that can be expressed in terms of money is included in the accounting records - The unit of measure (the... Ethics in accounting are so important! • Most corporations also set standards of ethical conduct for employees • Truth is always better than dishonesty in accounting, in business, and in life THE BUILDING BLOCKS OF ACCOUNTING • What is GAAP 一般公认的会计原则: A set of standards generally accepted and universally practiced by accountants - Indicates how economic events are reported Generated by the Financial Accounting. .. relate to the regulation of accounting - FASB(财务准则委员会): formulates accounting standards - SEC(美国证监会): regulate security markets - AICPA(美国注册会计师协会): regulate Certified Public Accountants 注册会计师 - IMA: regulate Certified Management Accountants 注册管理会计师 www.fasb.org www.sec.gov www.aicpa.org www.ima.org The rules that govern public accounting information are called Generally Accepted Accounting Principles 公认的会计原则... Investors and creditors need relevant and reliable information about a company • But is the accounting information of the company reliable? Reliable information • There are so many ways to keep accounting information reliable - SEC requires firms to have their financial statements audited 审计 by independent accountants - Accounting information must be prepared under the standards and the principles standards.. .Accounting is called the language of business Why do we need accounting information Making decisions ! The bigger the decision, the greater the need USERS OF ACCOUNTING • Internal Users 内部使用者 - Marketing managers Production supervisors Finance directors Company officers QUESTIONS... line is the most profitable USERS OF ACCOUNTING • External Users 外部使用者 - Investors 投资者 Creditors 债权人 Tax Department 税务当局 Customers Labor unions QUESTIONS ASKED BY EXTERNAL USERS • Is the company earning satisfactory income? • How does the company compare in size and profitability with its competitors • Will the company be able to pay its debts as they come due到期? Accounting and bookkeeping • Bookkeeping... accountants - Accounting information must be prepared under the standards and the principles standards and the principles These standards and the principles are viewed as the building blocks of accounting THE BUILDING BLOCKS OF ACCOUNTING 会计的基石 • ETHICS 道德: A set of standards by which one’s actions are deemed right or wrong, honest or dishonest • Most individuals in business are ethical Their actions are both... UNIT ASSUMPTION • The dollar’s purchasing power购买力 is relatively stable • This allows us to add and subtract dollar amounts as each dollar has the same purchasing power as any other dollar at any time ACCOUNTING ASSUMPTIONS • ECONOMIC ENTITY ASSUMPTION - An economic entity includes any organization or unit in society - All activities of an entity are kept separate from the activities of its owners and