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1、Why do we learn Accounting English?What are the learning objectives of Accounting English?Is Accounting English difficult?CHAPTER 1ACCOUNTING:THE BASIS FOR DECISIONSLearning ObjectivesExplain the definition of accounting;Understand the basic function of accounting;Understand the types of accounting
2、information;Ascertain the users of accounting information and know why they need the information;Have a general idea of the professional fields of accounting and their duties.Definition of AccountingAccounting is an information system designed to record, classify and summarize systematically signifi
3、cant financial and other economic information about business firms, and analyses and interprets its results, with monetary unit as its main criterion. Different expresses about “ 企业企业” in English BusinessEnterpriseFirm Accounting 会计（学）会计（学）Accountant 会计师会计师Bean Counter Accounting: Information for De
4、cision MakingThe primary objective of accounting is to provide information that is useful for making decisions.Types of accountingFinancial AccountingManagement Accounting Tax AccountingFinancial AccountingFinancial position 财务状况财务状况Result of operation 经营成果经营成果Income tax returns 纳税申报纳税申报Question:Wha
5、ts the purpose of financial accounting? Management AccountingBank account 银行账户银行账户Owe to 欠欠债债Question:Whats the purpose of management accounting?Tax AccountingPrepare 编制编制Confirm to/with 与与相一致相一致Question:What functions does tax accounting encompass?External usersInternal usersUsers of Accounting Inf
6、ormationInternal users of accounting informationQuestion:How to define internal users of accounting information?Who are internal users of accounting information?Internal users of accounting informationMature = be due v.到期到期 Maturity n.到期到期Meet = pay off 偿还偿还Inventory 存货存货Expense 费用费用Revenue 收入收入Earn
7、ings = profits 利润利润Internal users of accounting informationQuestion:Which decisions are to be made by internal users ?External users of accounting informationWarranty obligations 保证责任保证责任Question:How to define external users of accounting information?Who are external users of accounting information?
8、 And who are the two primary external users of accounting information? Which decisions are to be made by external users ?Objectives of External Financial ReportingWholesale houses 批发商批发商Debt-paying ability 偿债能力偿债能力Return on investment 投资回报投资回报Return of investment 投资回收投资回收练习：练习：P13 Exercises 1Profess
9、ion Fields of Accountingprivate accountingpublic accounting accounting for governments and nonprofit organizationPublic AccountingCPA (Certificated Public Accountants)CPA firm普华永道普华永道(Price Waterhouse Coopers，PwC)安永安永(Ernst&Young，E&Y)毕马威毕马威(KPMG)德勤德勤(Deloitte Touche Tohmatsu，DTT)安达信安达信(Arthur Anders
10、en)(已倒闭已倒闭)ACCA (Association of Chartered Certificated Accountants)AICPA (American Institute of CPA)CICPA (Chinese Institute of CPA)Auditing 审计，审计学审计，审计学Internal/external auditing AuditorPrivate AccountingController 总会计师，会计主管总会计师，会计主管Treasurer 财务主管财务主管Question:What are the responsibilities of accoun
11、tants at the private business?Accounting for Governments and Nonprofit OrganizationsMerchandising Business ProductProductWal-MartGeneral merchandiseAInternet books, music, video retailerMajor Types of BusinessesService Business ProductProductDisney EntertainmentMerrill Lynch Financial adviceMajor Ty
12、pes of BusinessesManufacturing Business ProductProductBoeing PlanesFord Cars Major Types of BusinessesThere are three types of business organizationsProprietorshipPartnershipCorporationA sole proprietorship is owned by one individual. AdvantagesEasy formationLow cost of organizingtotal undivided aut
13、horityDisadvantageslimitation on size: fund raising powerUnlimited liabilitylife of entity: limited by owners choice or deathJoes A sole proprietorshipA sole proprietorship pays no separate income taxes. The owner merely adds any profits or subtracts any losses from the business when determining per
14、sonal taxable income.This business form is widely used in service industry.A partnership is owned by two or more individuals. AdvantagesRaise more fund than a sole proprietorship.Additional management skills.DisadvantagesUnlimited liability.life of entity: limited by owners choice or deathJoe and Ma
15、rtys A partnershipA partnership has two types: a general partnership and a limited partnership.In a general partnership , all partners have unlimited liability for the debts of the firm. These partners are called general partners.A corporation is organized under state or federal statutes as a separa
16、te legal entity.Advantagesseparate legal existencelimited liability of stockholderstransferability of ownership relatively easyDisadvantagesDouble taxation.Extensive governmental regulationJ & M, Inc. Design of accounting systems会计制度设计包括会计核算制度，成本计算制会计制度设计包括会计核算制度，成本计算制度，内部控制制度，会计工作组织制度。度，内部控制制度，会计工作
17、组织制度。Internal control and auditing内部控制广义的讲是指企业的内部管理控制内部控制广义的讲是指企业的内部管理控制系统，包括为保证企业正常经营所采取的一系统，包括为保证企业正常经营所采取的一系列必要的管理措施，贯穿于企业经营活动系列必要的管理措施，贯穿于企业经营活动的各个方面。的各个方面。内部审计同样是一种内部控制，是服务于经内部审计同样是一种内部控制，是服务于经营管理的。营管理的。内部审计对内部控制的作用内部审计对内部控制的作用内部审计人员参与内部控制的制定内部审计人员参与内部控制的制定内部审计人员监督内部控制的执行并对其进行评内部审计人员监督内部控制的执行并对
18、其进行评价价内部审计在实际工作中独立于内部控制内部审计在实际工作中独立于内部控制内控的设计、执行、检查和评估首先是经营管理内控的设计、执行、检查和评估首先是经营管理部门的职责，而内部审计是在经营管理部门基础部门的职责，而内部审计是在经营管理部门基础上的再监督。上的再监督。CHAPTER 2THEORETICAL FRAMEWORKUNDERLIYING FINANCIAL ACCOUNTINGLearning ObjectivesKnow the conceptual framework for financial reportingUnderstand the qualitative cha
19、racteristics of accounting informationDescribe the elements of financial statementsUnderstand the basic assumptions and the basic principles of accounting Know the accounting regulation system in ChinaAccounting theoryWhat does accounting theory consist of ?Where do they come from?Nature of a Theore
20、tical FrameworkA theoretical framework or conceptual framework is a coherent system of interrelated objectives and fundamentals that can lead to consistent standards and that prescribes the nature, function, and limits of financial accounting and financial statements.Role of conceptual framework For
21、m of conceptual framework Accounting assumptions 会计假设会计假设Accounting principles 会计原则会计原则First Level: Basic ObjectivesSecond Level: Fundamental ConceptsQualitative Characteristics of Accounting InformationFigure 2-2 in P16Hierarchy 等级制度等级制度Pervasive 普遍的普遍的Threshold 门槛、起点、开端门槛、起点、开端Elements of Financia
22、l Statementsassetsliabilitiesequityrevenueexpensesnet income (or net loss)Third Level: Recognition and Measurement ConceptsBasic assumptionsBasic principles ConstraintsEach economic unit is an entity and must be kept separate and distinct from its owners, creditors, and other entities.Accounting Ent
23、ity Assumption There are three types of business organizationsProprietorshipPartnershipCorporationA sole proprietorship is owned by one individual. AdvantagesEasy formationLow cost of organizingtotal undivided authorityDisadvantageslimitation on size: fund raising powerUnlimited liabilitylife of ent
24、ity: limited by owners choice or deathJoes A sole proprietorshipA sole proprietorship pays no separate income taxes. The owner merely adds any profits or subtracts any losses from the business when determining personal taxable income.This business form is widely used in service industry.A partnershi
25、p is owned by two or more individuals. AdvantagesRaise more fund than a sole proprietorship.Additional management skills.DisadvantagesUnlimited liability.life of entity: limited by owners choice or deathJoe and Martys A partnershipA partnership has two types: a general partnership and a limited part
26、nership.In a general partnership , all partners have unlimited liability for the debts of the firm. These partners are called general partners.A corporation is organized under state or federal statutes as a separate legal entity.Advantagesseparate legal existencelimited liability of stockholderstran
27、sferability of ownership relatively easyDisadvantagesDouble taxation.Extensive governmental regulationJ & M, Inc. The business will remain in operation in the foreseeable future. Going Concern AssumptionAll transactions should be measured in money form.It implies the stable-money-unit assumption.It
28、makes the information reliable &comparable. Money Unit AssumptionPeriodicity Assumption The life of business should be divided into short ones of equal length.It makes it easier to make financial statements and satisfies the accounting information users need of knowing the current conditions of the
29、business.Accrual basis principleCash basis principleAccrual basis PrincipleAssets and services acquired should be recordedat their actual (historical) cost.Historical Cost PrincipleHistorical cost 历史成本历史成本Replacement cost 重置成本重置成本Net realizable value 可变现净值可变现净值Current value 现值现值Fair value 公允价值公允价值Th
30、e Cost Principle-ExampleYou purchased some land for $ 95,000 on January 1 of the current year. Then, you borrowed $100,000 for 2 years at 10% interest at the local bank that appraised the land for $ 105,000.You will eventually pay the bank $120,000 (20,000 for the interest).On Dec.31 of that year, y
31、ou received a offer for the land for $110,000, but you dont want to sell.At what value should the land be reported on the balance sheet?Realization principleUnder the realization principle, revenues should be recognized at the time goods are sold or services are rendered. Matching principleUnder the
32、 matching principle, revenue for a period is matched with the expenses incurred in generating the revenue.Full disclosure principleFinancial statements should contain all relevant information a reader needs to understand the financial condition and performance of a business. Constraints Cost benefit
33、 relationshipMaterialityConservatismCost benefit relationshipAccountants should weigh the benefit derived from the information against the cost of providing that information. MaterialityThe word “materiality” refers to the relative importance of an item.ConservatismAccountants should be conservative
34、 in choosing the one that has the least favorable impact on net income when there are two or more alternative accounting methods. The Accounting Regulation System in ChinaAccountingLawNPCMinistry of FinanceAccountingStandardsConcreteAccountingStandardsBasicAccountingStandardsEnterpriseAccountingSyst
35、emApplying Guide ofAccountingStandardsBasic Accounting StandardsConcepts Framework of Financial Accounting (CF)Function: Conduct formulating accounting standards我国的企业会计基本准则我国的企业会计基本准则总则总则会计信息质量要求会计信息质量要求资产资产负债负债所有者权益所有者权益收入收入费用费用利润利润会计计量会计计量财务会计报告财务会计报告附则附则Concrete Accounting StandardsGenerally Acce
36、ptedAccounting Principles (GAAP)Function: Guidelines to govern the conduct of accountantsFinancial accounting standards board, FASB, 美国会计准则委员会美国会计准则委员会Statement of financial accounting concepts, SFACS, 财务会计概念公告财务会计概念公告Statement of financial accounting standards, SFASs, 财务会计准则公告财务会计准则公告Interpretation
37、 of the SFASs, 财务会计准则财务会计准则解释解释CHAPTER 3ACCOUNTING CYCLELearning ObjectivesUnderstand the definition of accounting cycle;Have a general idea of the complete accounting process;Understand the rules of double-entry accounting;Learn the accounting terms in this chapter and use them in the translation t
38、ask. Definition of accounting cycleSteps of accounting cycleA transaction is any event that both affects the financial position of the business and can be reliably recorded.Understand how double-entry accounting worksAccounting equation Assets = Liabilities + Owners equityT-accountT-account: a simpl
39、est form of an account, used to help illustrate the effect of transaction.Account nameDebit entries(left side)Credit entries(right side)Debit n. 借借,借方借方,借记借记Debit card 借记卡借记卡 v. 计入借方计入借方,借计借计Debit an account 计入借方账计入借方账Credit n. 贷贷,贷方贷方,贷记贷记Credit card 贷记卡贷记卡 v. 计入贷方计入贷方,贷计贷计Credit an account 计入贷方账计入
40、贷方账Owners EquityAssetsLiabilitiesDebit+DebitCreditDebitCredit+Credit+=+rules of debits &creditsThe type of account determines the side on which increases and decreases are recorded.* The rules of debits and credits keep the accounting equation in balance. DebitsCreditsRevenue accountsDecrease (-)Inc
41、rease (+)Expense accountsIncrease (+)Decrease (-)Income Statement AccountsDouble-Entry AccountingDouble-Entry Accounting“ Double-entry accounting is based on a simple concept: each party in a business transaction will receive something and give something in return. In bookkeeping terms, what is rece
42、ived is a debit and what is given is a credit. The T account is a representation of a scale or balance.” Luca PacioliDeveloper ofDouble-EntryAccountingScale or BalanceReceiveDEBITGiveCREDITT accountLeft SideReceiveDEBITRight SideGiveCREDITDouble-entry accountingDouble-entry accounting means to recor
43、d the dual effects of each business transaction. Single entry accountingThe Double-Entry System1.Each transaction affects at least two accounts.Rules of The Double-Entry SystemRecord transactionsin the journalJournalWhat is a journal?It is a record of each business transaction in a chronological ord
44、er.steps:Identify transaction from source documents.Specify accounts affected.Apply debit/credit rules.Record transaction with description.Why not record transaction directly in the ledger?Omitting the debit or creditEntering the debit or credit twiceJournal classificationGeneral journal-to record a
45、ll kinds transactionsSpecial journal-to record a certain kind transactionsJournal formatWhat does a journal include?date of the transactiontitle of the account description of the transactionreferencedebit creditPost from the journalto the ledgerWhat is posting?Posting is the process that debits and
46、credits are transferred from the journal to the ledger accounts.What is a ledger?A book of accountsWhat is an account? A record based on the items of accounting elements, representing an increase or a decrease and the result of those items.It classifies the effects of business transactions in terms
47、of specific assets, liabilities, and owners equity accounts.In the process, each amount in the debit column of the journal is posted by entering it on the debit side of an ledger account, and each amount in the credit column of the journal is posted by entering it on the credit side of an ledger acc
48、ount.Post. Ref.JOURNALDateDescriptionDebitCreditPage 21 2 3 4Dec. 312005Prepaid Insurance2 400 00Cash2 400 00Paid premium on two-yearpolicy.Dec. 1 NetSolutions paid a premium of $2,400 for a comprehensive insurance policy covering two years.Post. Ref.JOURNALDateDescriptionDebitCreditPage 21 2 3 4Dec
49、. 12005Prepaid Insurance2 400 00Cash2 400 00ACCOUNTPrepaid InsuranceACCOUNT NO. 15BalanceDebitCreditDateDebitCreditItemPost. Ref.2 400 002 400 00Dec. 12005Paid premium on two-yearpolicy.Post. Ref.JOURNALDateDescriptionDebitCreditPage 21 2 3 4Dec. 12005Prepaid Insurance2 400 00Cash2 400 00ACCOUNTPrep
50、aid InsuranceACCOUNT NO. 15BalanceDebitCreditDateDebitCreditItemPost. Ref.2 400 002 400 00Dec. 12005215Paid premium on two-yearpolicy.Post. Ref.JOURNALDateDescriptionDebitCreditPage 21 2 3 4Dec. 12005Prepaid Insurance2 400 00Cash2 400 00Paid premium on two-yearpolicy.15ACCOUNTCashACCOUNT NO. 11Balan
51、ceDebitCreditDateDebitCreditItemPost. Ref.2 000 005 900 00Nov. 3020052Dec. 12 400 003 500 00Post. Ref.JOURNALDateDescriptionDebitCreditPage 21 2 3 4Dec. 12005Prepaid Insurance2 400 00Cash2 400 00Paid premium on two-yearpolicy.15ACCOUNTCashACCOUNT NO. 11BalanceDebitCreditDateDebitCreditItemPost. Ref.
52、2 000 005 900 00Nov. 30200522 400 003 500 00Dec. 1112Classification of LedgersLedgers are created on the basis of the item of financial statements.General ledgerIt contains all of the balance sheet and income statement accounts.Subsidiary ledgerA separate record created to record the individual item
53、s relating to a single general ledger account.A summerizing accountBalance Relationship between general ledger & subsidiary ledgerDifference between journal &ledgerJournal: a chronological record of all the transactions for a business.Ledger: a book of accounts.Prepare a trial balance Trial BalanceW
54、hat is a trial balance?A worksheet listing the names and balances of all the accounts in the order which they appear in the general ledger.Format of a trial balanceNetSolutionsTrial BalanceDecember 31, 2005Cash2 065 00Accounts Receivable2 220 00Supplies2 000 00Prepaid Insurance2 400 00Land20 000 00O
55、ffice Equipment1 800 00Accounts Payable900 00Unearned Rent360 00Chris Clark, Capital25 000 00Chris Clark, Drawing4 000 00Fees Earned16 340 00Wages Expense4 275 00Rent Expense1 600 00Utilities Expense985 00Supplies Expense800 00Miscellaneous Expense455 0042 600 0042 600 00NetSolutionsTrial BalanceDec
56、ember 31, 2005CashCash2 065 002 065 00Accounts ReceivableAccounts Receivable2 220 002 220 00SuppliesSupplies2 000 002 000 00Prepaid InsurancePrepaid Insurance2 400 002 400 00LandLand20 000 0020 000 00Office EquipmentOffice Equipment1 800 001 800 00Accounts PayableAccounts Payable900 00900 00Unearned
57、 RentUnearned Rent360 00360 00Chris Clark, CapitalChris Clark, Capital25 000 0025 000 00Chris Clark, Drawing4 000 00Fees Earned16 340 00Wages Expense4 275 00Rent Expense1 600 00Utilities Expense985 00Supplies Expense800 00Miscellaneous Expense455 0042 600 0042 600 00Balance Balance Sheet Sheet Items
58、ItemsNetSolutionsTrial BalanceDecember 31, 2005Cash2 065 00Accounts Receivable2 220 00Supplies2 000 00Prepaid Insurance2 400 00Land20 000 00Office Equipment1 800 00Accounts Payable900 00Unearned Rent360 00Chris Clark, Capital25 000 00Chris Clark, DrawingChris Clark, Drawing4 000 004 000 00Fees Earne
59、d16 340 00Wages Expense4 275 00Rent Expense1 600 00Utilities Expense985 00Supplies Expense800 00Miscellaneous Expense455 0042 600 0042 600 00Statement Statement of Owners of Owners Equity Equity ItemItemNetSolutionsTrial BalanceDecember 31, 2005Cash2 065 00Accounts Receivable2 220 00Supplies2 000 00
60、Prepaid Insurance2 400 00Land20 000 00Office Equipment1 800 00Accounts Payable900 00Unearned Rent360 00Chris Clark, Capital25 000 00Chris Clark, Drawing4 000 00Fees EarnedFees Earned16 340 0016 340 00Wages ExpenseWages Expense4 275 004 275 00Rent ExpenseRent Expense1 600 001 600 00Utilities ExpenseU
61、tilities Expense985 00985 00Supplies ExpenseSupplies Expense800 00800 00Miscellaneous ExpenseMiscellaneous Expense455 00455 0042 600 0042 600 00Income Income Statement Statement ItemsItemsWhy to prepare the trial balance?What reasons can cause errors during posting?1. Failure to record a transaction
62、 or to post a transaction.2. Recording the same erroneous amount for both the debit and the credit parts of a transaction.3. Recording the same transaction more than once.4. Posting a part of a transaction correctly as a debit or credit but to the wrong account.Errors that will not cause the trial b
63、alance to be unequal:End-of-period Adjusting EntriesWhy should adjusting entries be made?Types of adjusting entries Accruals: for revenues and expenses that are matched to the dates before the transaction have been recordedAccrued RevenuesAccrued ExpensesDefferals: for revenues and expenses that are
64、 matched to the dates after the transaction have been recordedUnearned RevenuesPrepaid ExpensesDo adjusting entries go directly to the relative ledger accounts?Work SheetWhy to prepare work sheet?Work sheet includes unadjusted trial balance, adjusting entries, adjusted trial balance, and income stat
65、ement and balance sheet (with a Dr. column and a Cr. column each).Closing EntriesClassification of accountsBalance sheet accounts-Permanent ( real )accountsIncome statement accounts-Temporary (nominal) accounts Close sth to sth Transfer sth to sthThe aim of making closing entriesPrepare financial st
66、atementsCHAPER 4BASIC FINANCIAL STATEMENTSFinancial statements, called accounting reports, provide information about profitability and financial position of a business to the management and the interested outsider. are the finalproduct of theaccounting process. reflect the financial position and ope
67、rating results of the business.Financial Statements.The balance sheet (or statement of financial position)The income statement (or profit and loss statement)The statement of cash flowsCompanies present at least three major financial statements:Financial StatementsBalance SheetThe balance sheet repor
68、ts a companys financial position as of (at) a point in time.What is financial condition?Balance sheets three major categoriesAssets the economic resources of the firmLiabilities the debts of the firmOwners equity the owners interest in the firm EconomicResourcesClaims toEconomicResources Accounting
69、EquationAssets=Liabilities + Owners EquityAccounting EquationAssets=LiabilitiesStock-holders Equity+The rights of creditorsThe rights of the stockholdersreport form: the balance sheet displays the assets on the top, and below it are liabilities and owners equity in that order.account form: the balan
70、ce sheet presents assets on the left column and liabilities and owners equity on the right column.An Example of Balance Sheet (account form) AssetsCash $ 20,000Accounts receivable 2,000Supplies 500Land11,000Total assets $ 33,500Liabilities and Stockholders EquityLiabilitiesAccounts payable$ 200Stock
71、holders equityCapital stock 20,000 Retained earnings 13,300Total liabilities andowners equity$33,500Assets Classification of assetsCurrent / short-term assetsNon-current / long-term assetsDefinition of current assetsare expected to be converted to cash or sold or used up within one year or less than
72、 the normal course of the entitys operating cycle.Main components of current assetsCash, cash equivalents, accounts receivables, inventories, marketable securities, prepaid itemsDefinition of fixed assetshave relatively permanent usage character and are used in normal business operations.Main compon
73、ents of fixed assetsEquipment, machinery, building, and landDefinition of intangible assetsrefer to long-term assets that do not have physical attributes and are held for use in operation but not for sale.Main components of intangible assetsPatent rights, copy rights, and goodwillLiabilities Classif
74、ication of liabilitiesCurrent liabilitiesLong-term liabilitiesLiabilities Definition of current liabilitiesLiabilities are due within a short time (usually one year or less than the normal course of the entitys operating cycle) and are to be paid out of current assets.Main components of current liab
75、ilitiesAccounts payable, notes payable, other payables, short-term loan, received unearned revenue, the long-term debts that will be due within one yearLiabilities Definition of Long-term liabilitiesLiabilities are due for a long time (usually more than one year)Main components of Long-term liabilit
76、iesLong-term loan, long-term bonds, and long-term payableOwners equityOwners equity presents the interest of the ownership group in the net resource of the enterprise, which arises from investments by owners, and will increase or decrease with the change of operation results.Owners equityPaid-in cap
77、italorContributed capitalRetained earningsOwners equity in the corporationhas two components:Owners equityPaid-in capital (or contributed capital) is the amount that stockholders have contributed to the corporation. Capital stock: common stock and preferred stockAdditional paid-in capitalRetained ea
78、rnings is the amount of net income not paid to stockholders as dividend. (reinvestment)Owners equityIn our country, owners equity includes capital、capital reserve、surplus reserve、undistributed profits。Income StatementAn income statement is a summary of the revenue and the expenses for a specific per
79、iod of time, usually a month or a year.Reports change in financial conditionComponents of Income StatementRevenue increases in net assets resulting from an entitys operation over a period of time. Expenses - decreases in net assets resulting from an entitys operation over a period of time. Net Incom
80、e - the excess of revenue over expenses.Net Loss - the excess of expenses over revenue.The Forms of Income Statement Single-step form-It gathers all the revenue together , then deducts all the expenses from the revenue to get net income.Multiple-step form-It presents gross profits, operating income,
81、 operating income before taxes, and net income.Retained Earnings StatementThe retained earnings statement shows changes in retained earnings balance during period covered by statement.Objective:Reports Reports change in change in financial financial conditionconditionMost firms report a statement of
82、 owners equity, which is more comprehensive than a statement of retained earnings.Statement of Owners EquityReflects operating performance of the firm.Reports changes in all categories of owners equity (following the sequence of equity on balance sheet) during the period.Indicates amount invested by
83、 owners, amount paid out in dividends, and amount of net income or net loss for period.Role of Statement of Owners EquityThe equity item in a sole proprietorship is often reported by giving the proprietors name, followed by the word “capital”.For example, Mary Green is the proprietor of Greens Marke
84、t. Greens Market has total equity of $10,000. Then the owners equity item would be reported as follows: Mary Green, capital $ 10,000In a partnership, the equity of each partner would shown separately.For example, John Black and Henry Brown are equal partners in a laundry business. On December 31, th
85、e equity in the business totaled $100,000. The equity might be reported on that date as following: John Black, capital $ 50,000 Henry Brown, capital $ 50,000 Total equity $ 100,000 G. Gillen, capital, Contributed capital $30,000Net income$ 5,400Cash distributions 2,100G. Gillen, capital, Dec. 31, 20
86、xx$33,300Statement of Owners Equity Example Statement of Stockholders Equity Example AdditionalCommon Paid-inRetained Stock CapitalEarningsBalance, December 31, 20x4$ 80,000 $160,000 $130,000Issuance of stock 20,000 65,000Net income 69,000Cash dividends (21,000)Stock dividends 8% 8,000 26,000 (34,00
87、0)Purchase of treasury stockSale of treasury stock 13,000 Balance, December 31, 20x5$108,000 $264,000 $144,000Footnotes (notes) to Financial StatementsThey are explanatory to related items in the financial statements.They provide additional information not included in body of statements.The aim is t
88、o meet the needs to understand the contents of the statements.It does not have to be numeric.Footnotes (notes) to Financial StatementsExamples:Description of accounting policies, such as depreciation methods, policies with respect to the amortization of intangible assets, inventory methods, policies
89、 regarding the recognition of revenues. Explanation of uncertainties and contingenciesDetails on long-term debt (including the maturity date and interest rate of each bond issued)Description of stock option plans and other management incentive plansCHAPTER 5CURRENT ASSETS-CASH,TENMPORARY INVESTMENT,
90、RECEIVABLESCashWhat is Cash?Cash includes coins, currency (paper money), checks, money orders, and money on deposit that is available for unrestricted withdrawal from banks and other financial institutions.Common ledger accounts for cashCash on handPetty cashCash in banksInternal Control over CashBa
91、nk Reconciliation A bank reconciliation is a listing of the items and amounts that cause the cash balance reported in the bank statement to differ from the balance of the cash account in the ledger.Reasons for Differences Between Depositors Records and the Bank StatementRecorded by depositor not by
92、bankOutstanding checksDeposits in transitRecorded by bank not by depositorService chargesCollectionsNot-sufficient-funds (NSF) checks and relevant chargesErrorsNSFWhen the company deposits a check issued by its client in a bank, the bank will immediately credit the companys account for the amount of
93、 the check. On occasions, the check proves to be uncollectible because the maker of the check does not have sufficient funds in his account. In such case, the bank will debit the companys account for the amount of the check and return the check to the company marked “NCF” .Steps in a Bank Reconcilia
94、tion1. Compare each deposit listed on the bank statement with deposit receipts.2. Compare paid checks and with recorded checks to find outstanding checks .3. Compare bank credit memorandums to entries in the journal.Steps in a Bank Reconciliation1. Compare each deposit listed on the bank statement w
95、ith deposit receipts.2. Compare paid checks and with recorded checks to find outstanding checks .Add deposits not recorded by the bank to the balance according to the bank statement.Deduct checks outstanding that have not been paid by the bank from the balance according to the bank statement.3. Comp
96、are bank credit memorandums to entries in the journal.Add credit memorandums that have not been recorded to the balance according to the depositors records.Steps in a Bank Reconciliation4. Compare bank debit memorandums to entries recording cash payments.5. List any errors discovered during the prec
97、eding steps.Deduct debit memorandums that have not been recorded from the balance according to the depositors records.Petty CashWhy does a firm use a petty cash fund? It is usually not practical for a business to write checks to pay small expenditures, like postage.It is inconvenient and expensive.T
98、o control these small payments, a petty cash fund is used. This is a small cash fund under the control of a petty cashier.Accounting treatment for petty cashEstablish the petty cash fundThe size of the petty cash fund depends on the number and amount of minor expenditure. Many firms maintain funds t
99、hat will last three or four weeks.An example: P62Making disbursements from the petty cash fundPetty cash voucherNumber Date of disbursementName of payeeAmount of the expenditurePurpose for which the expenditure was madeAccount for effected by the expenditureSignature of payeeThe total of cash and vo
100、uchers contained in the petty cash box should agree with the exact amount of fund.Replenishing the petty cash fundAdd the amount of money to restore the fund to its original amount.An example: P63There ordinarily will be no further entries in the Petty Cash account after the fund is established, unl
101、ess the fund is discontinued or a decision is made to change its size from the original amount.The petty cash fund is usually replenished at the end of an accounting period.Petty Cash RecordDate ExplanationVoucher Receipts Payments Post-age Trans-portation-inOffice expen-se Oct.1Established$400Oct.2
102、Postage$20$20Oct.5Transportation-in$35$35Oct.9Postage$30$30Oct.19Office expense$120$120Balance$400$205$50$35$120Oct.31Balance$185Replenishe-d Fund$205If a secretary needs a book of stamps, the secretary signs a voucher that provides a description and amount in exchange for the necessary cash.The pet
103、ty cashier places the voucher in a locked drawer or box for later reconciliation and recording.Most businesses use a payroll bank account to pay employees. This is known as a special-purpose fund.Cash over and shortIt is a normal thing that a small quantity of difference between actual cash and cash
104、 journals often happens.How to record cash over and short?An example: P63Balance sheet presentation for cashUsually ,the entire amount of all cash accounts is shown under a single item: cash and cash equivalents, and is listed first in the balance sheet.An example :P64Marketable SecuritiesMarketable
105、 SecurityMarketable securities Stocks, bonds and other financial instruments that organizations hold in lieu of cash. These are also referred to in the financial statements as short-term investments (temporary investments).Accounting for temporary investments1.Acquisition of temporary investmentsRec
106、orded at historical costDoes the cost include brokers commissions?2.Receiving interest, dividend Interest Cash dividendStock dividend3.Sale of temporary investmentsIt may generate a gain or loss representing the difference between cost and cash proceeds.Cash proceedsbook value of the asset-differenc
107、e is a gainCash proceedsits historical cost, no adjustment will be made.If the market value(replacement cost) its historical cost, the business must write down the value of its inventory according to market value.COGS XX inventory XXDecember 31Cost of Goods Sold 800Inventory 800Write down inventory
108、to LCMLower-of-Cost-or-Market Exampleinventory: $3,000 (cost)Market value at balance sheet date: $2,200What is the journal entry?Estimating Inventory Cost Gross Profit Method of Estimating Inventory Cost1. A gross profit percentage rate is estimated based on previous experience adjusted for known ch
109、anges.2. Estimated gross profit is calculated by multiplying the estimated gross profit rate by the actual net sales.3. Estimated cost of merchandise sold is calculated by subtracting the gross profit from actual sales.4. The cost of merchandise sold estimate is deducted from actual merchandise avai
110、lable for sale to determine the estimated cost of merchandise inventory.Merchandise inventory, January 1 $ 57,000Purchases in January (net)180,000Merchandise available for sale Sales in January (net)$250,000Less: Estimated gross profit Estimated cost of merchandise soldEstimated merchandise inventor
111、y, January 31 ($250,000 x 30%) 75,000 175,000$ 62,000Gross Profit Method$237,000Retail Method of Estimating Inventory CostRetail method is based on relationship between cost of merchandise available for sale and the retail price.Retail prices of all merchandise must be accumulated and totaled.Invent
112、ory at retail price is calculated at retail price of merchandise available for sale less net sales at retail price.Ratio is calculated as cost divided by retail price.Inventory at retail price times cost ratio equals estimated cost of inventory. Retail Inventory MethodStep 1: Determine the ratio of
113、cost to the retail price. Cost RetailMerchandise inventory, Jan. 1 $19,400$ 36,000Purchases in January (net) 42,600 64,000Merchandise available for sale $62,000 $100,000Ratio of cost to retail price =$62,000$100,000= 62% Retail Inventory MethodStep 2: Determine the ending inventory at retail.Sales f
114、or January (net) 70,000Merchandise inventory, January 31, at retail$ 30,000 Cost RetailMerchandise inventory, Jan. 1 $19,400$ 36,000Purchases in January (net) 42,600 64,000Merchandise available for sale $62,000 $100,000 Retail Inventory MethodStep 3: Calculate the estimated inventory at cost.Merchan
115、dise inventory, January 31, at cost($30,000 x 62%)$18,600Sales for January (net) 70,000Merchandise inventory, January 31, at retail $ 30,000 Cost RetailMerchandise inventory, Jan. 1$19,400$ 36,000Purchases in January (net) 42,600 64,000Merchandise available for sale$62,000 $100,000 AssetsCurrent assets:Cash$ 19 400 00Accounts receivable$80 000 00Less allowance for doubtful accounts3 000 0077 000 00Merchandise inventory at lower of cost (first-in, first-out method) or market216 300 00 Metro-ArtsBalance SheetDecember 31, 2007
