Kế toán, kiểm toán - Chapter 3: The accounting process

CHAPTER 3The Accounting Process1Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynOverviewBasic accounting equation expanded to include income and expenses.Transactions and balancing the equation.Linking the income statement to the balance sheet through owners’ equity.Horizontal modelAdjustmentsTransaction analysis2Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynThe Accounting ProcessTransactions are economic exchanges between entities that are accounted for and reflected in financial statements.3Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynA = L + OEThe Accounting EquationThe basic accounting equation will always remain in balance and we can now also expand it to include revenues and expenses.4Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynA = L + OEThe Accounting EquationShare capitalRetained earnings (B/S)Retained earnings beginning of periodIncome- expenses5Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynA = L + OEThe Accounting EquationA = L + SC +RE + (I – E) - DWhere: SC = share capitalRE = retained earnings beginningI = incomeE = expensesD = dividends paid 6Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van Rhyn Let’s see how some transactions affect the operation of this equation.Transactions7Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynTransactions1. Investment of $30 by owners.8Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynTransactions2. Equipment costing $25 was purchased for cash.9Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynTransactions3. The firm borrowed $15 from the bank.10Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynTransactions4. Inventory costing $20 was purchased for resale. $10 was paid in cash and $10 was on account.11Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynTransactions5. Equipment that cost $7 was sold . $2 was received in cash and $5 will be received later.12Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynTransactions6. The $5 account from the sale of equipment was collected.13Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynTransactions7. Sold inventory on account for $20. Original cost was $12.14Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynTransactions8. Wages of $3 have been recorded as an expense, but not paid.15Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynTransactionsColumns totalled.16Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynTransactionsIf the accounting period was to end after these transactions, the financial statements could be prepared using the totals from the columns.17Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van Rhyn Transactions Statement of changes in owners’ equity18Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van Rhyn Transactions From income statementBalance Sheet19Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van Rhyn Transactions Statement of changes in owners’ equity20Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van Rhyn TransactionsWhat have we learned from the foregoing?Net profit on the income statement gets into the balance sheet via the retained income section of owners’ equity.On the previous worksheet, revenues and expenses were treated as a part of owners’ equity to keep the equation in balance, but in financial statements they are shown in the income statement.21Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van Rhyn TransactionsWhat have we learned from the foregoing?If any retained income is distributed to the owners as a dividend, it is shown on the statement of changes in owners’ equity, not on the income statement.A dividend is not an expense. It is a distribution of income to the owners of the business.22Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynTransactionsBalance sheet Assets = Liabilities + Owners’ equityIncome statementNet profit = Income – ExpensesThe key to using this model is to keep the balance sheet in balance.Horizontal Financial Statement Relationship Model 23Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynTransactionsBalance sheet Assets = Liabilities + Owners’ equityIncome statementNet profit = Income– ExpensesCash (Asset) + 30 Contributed capital (OE) + 30An investment of $30 by owners24Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynTransactionsBalance sheet Assets = Liabilities + Owners’ equityIncome statementNet profit = Income– ExpensesCash (Asset) - 12 Advertising expense - 12 (Expense)Note that a minus sign for expenses means that net profit (and owners’ equity) is reduced. $12 paid for advertising25Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynTransactionsBalance sheet Assets = Liabilities +Owners’ equityIncome statementNet profit = Income– ExpensesCash (Asset) + 40Accounts receivable (Asset) - 40 A transaction can affect two accounts in a single balance sheet or income statement category.$40 received for services provided in a prior period26Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynTransactionsBalance sheet Assets = Liabilities + Owners’ equityIncome statementNet profit = Income– ExpensesCash (Asset) + 45Accounts receivable (Asset) + 15 Service revenues + 60(Income)A transaction can affect more than two accounts.$60 worth of services provided, $45 collected in cash and $15 to be collected later27Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynAdjustmentsACCRUAL ACCOUNTINGRequires adjustments at end of the periodTo recognise income and expenses as they occur (earned/incurred)28Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynAdjustments/Adjusting Entries Adjusting entries are needed whenever revenue or expenses affect more than one accounting period. Every adjusting entry involves a change in either a revenue or expense and an asset or liability.29Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynAdjusting Entries - CategoriesThe initial recording of a transaction does not result in assigning revenues to the period in which they were earned or expenses to the period in which they were incurred.ReclassificationsTransactions for which cash has NOT yet been received or paid, but the affect of which must be recorded in the accounts in order to accomplish a matching of revenues and expenses.Accruals30Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynExamples:interestwages and salariesproperty rates & taxesrevenue earned but not invoicedincome taxAdjustments - Accruals31Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynAdjustments - Accruals April 7$60 Wages ExpenseMarch 31PaidOn 31 March, wages of $60 are owed.  Pay day is on April 7.32Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynAdjustments - AccrualsBalance sheet Assets = Liabilities + Owners’ equityIncome statementNet profit = Income – Expenses Wages payable + 60(Liability) Wage expense - 60(Expense) Using the horizontal model, the accrued wages adjustment has the following affect on the financial statements:33Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynExamples:supplies usedprepaid insurance policiesrevenues received in advanceAdjustments - Reclassifications34Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynAdjustments - ReclassificationsPurchase of supplies at a cost of $100 during February was recorded initially as an increase in the supplies (asset) account and a decrease in cash.The cost of supplies used during February of $35 must be removed from the asset account and recorded as supplies expense.35Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynAdjustments - ReclassificationsBalance sheet Assets = Liabilities + Owners’ equityIncome statementNet profit = Income– ExpensesSupplies (Asset) - 35 Supplies expense - 35(Expense) Using the horizontal model, the supplies adjustment has the following affect on the financial statements: 36Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynTransaction Analysis MethodologyAnswer these questions:What is going on?What accounts are affected?How are they affected?Does the balance sheet still balance? (Do the changes balance out?)Does my analysis make sense?37Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van Rhyn