Kế toán, kiểm toán - Kế toán, kiểm toán - Chapter 2: Financial statements and accounting concepts / principles

CHAPTER 2Financial Statements and Accounting Concepts/Principles1OverviewAccounting transactionsFinancial statementsThe accounting equationTime line for financial statementsGenerally accepted concepts and principlesLimitations of financial statementsCompany annual report2Accounting TransactionsTransactions are economic exchanges between entities that are accounted for and reflected in financial statements.Trans + action = between parties3Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynFinancial StatementsTransactionsProcedures for sorting, classifying, and presenting (bookkeeping).Selection of alternative methods of reflecting the effects of certain transactions (accounting).FINANCIAL STATEMENTS4Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van Rhyn Financial StatementsACCOUNTS Transactions are summarised in accounts. Accounts are further summarised in the financial statements.5Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynFinancial Statements6Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynBalance SheetThe balance sheet lists an organization's ASSETS, LIABILITIES and OWNERS’ EQUITY at a point in time.It is a snapshot of its financial position.It used to be called the STATEMENT OF FINANCIAL POSITION.7Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynBalance SheetTwo sections shown side by side, with total of each side the same. A= L + OE8Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynBalance SheetTwo sections shown side by side, with total of each side the same.9Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynBalance SheetAssets represent the amount of resources owned by the entity.10Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynBalance SheetLiabilities are amounts owed to other entities.11Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynBalance SheetEquity is the right of the owner(s) of the entity in the assets that remain after deducting the liabilities (known as net assets) or residual amount.12Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynBalance SheetCurrent assets are those assets that are likely to be converted into cash or used to benefit the entity within one year.Current liabilities are those liabilities that are likely to be paid with cash within one year of the balance sheet date.13Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynBalance SheetExplanation of balance sheet accounts:14Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynBalance SheetExplanation of balance sheet accounts:15Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynThe Accounting EquationA=L+OEACCOUNTING EQUATION16Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynThe Accounting EquationACCOUNTING EQUATIONA=L+OESometimes re-arranged as:OE=A-LConsistent with everyday meaning of EQUITY as residual interestNET ASSETS 17Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynIncome StatementThe income statement shows the profit or loss for the period of time under consideration.It is sometimes called: Statement of financial performanceStatement of earningsProfit and loss statementStatement of operations18Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynIncome StatementRevenues result from the entity’s operating activities (e.g. selling inventory).19Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynIncome StatementCosts and expenses are incurred in generating revenues and operating the entity.20Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynIncome StatementExplanation of income statement accounts:21Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynIncome StatementExplanation of income statement accounts:22Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynROA and ROE ratios A ratio is a relationship. The Return on Assets (ROA) measures the return on investment on assets that management had available during the year = Operating ProfitAverage Assets Return on Equity (ROE) measures the net return the owners receive on their ownership in the company.= Profit - interest and tax Average Owners’ Equity23Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynStatement of Changesin Owners’ EquityThis financial statement shows the detail of owners’ equity and explains the changes that occurred in the components of owners’ equity during the year.It is sometimes called:Statement of changes in share capitalStatement of changes in retained earnings24Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynStatement of Changes in Owners’ EquityTotal amount invested by the owners25Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynStatement of Changes in Owners’ EquityLink between the balance sheet and the income statement26Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynStatement of Changesin Owners’ EquityExplanation of accounts:27Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynStatement of Cash FlowsThe purpose of this financial statement is to identify the sources and uses of cash during the year.This is done by reporting the changes in all other balance sheet items.Cash flow data is important as it is highly reliable and is less subject to manipulation than accrual accounting.28Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynStatement of Cash FlowsCash consequences of the income statement29Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynStatement of Cash FlowsCash used to purchase, or cash received from sale of, long term assets.30Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynStatement of Cash FlowsAmounts raised from issue of long-term borrowings or shares, or dividends paid31Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynStatement of Cash FlowsExplanation of headings:32Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynTime-line ModelBalance Sheet1/7/06Balance Sheet30/6/07Financial Year 2007A = L + OEA = L + OEIncome Statement for the YearStatement of Changes in Owners’ Equity 33Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynTime-line ModelBalance Sheet1/7/06Balance Sheet30/6/07Financial Year 2007A = L + OEA = L + OECash Flow Statement 34Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynFinancial Statement RelationshipsThe arrow indicates that net profit affects retained earnings, which is a component of owners’ equity.The key to using this model is to keep the balance sheet in balance.Horizontal Model35Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynConcepts/PrinciplesBroad concepts and principles (practices) that have been generally agreed upon over time Related to entire modelRelated to financial statementsRelated to transactionsRelated to the accounting process36Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynConcepts/PrinciplesRelated to entire model Accounting Entity; Every economic entity can be separately identified and accounted for. Not the same as legal entity. Going Concern Concept; The presumption that the entity will continue to operate in the future—it is not being liquidated.37Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynConcepts/Principles Objectivity; The accountant’s desire to have a given transaction recorded in the same way in all situations. Cost Principle; Transactions are recorded at their original cost to the entity as measured in dollars.Related to transactions Unit of Measurement; Only transactions denominated in $A dollars are recorded in the accounting records.38Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynConcepts/Principles Accounting Period; The period of time selected for reporting results of operations and changes in financial position. Accrual Accounting; Recognise revenue at the point of sale and recognise expenses when incurred, even though the cash receipt or payment occurs at another time. Matching Concept; All expenses incurred to generate that period’s revenues be deducted from revenues earned.Related to the accounting process39Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van Rhyn Full Disclosure; Circumstances and events that make a difference to financial statement users should be disclosed. Materiality; The increased benefit of increased accuracy should out weigh the cost of achieving the increased accuracy.Concepts/Principles Comparability; Consistent use of accounting treatments, with changes and effects of changes disclosedRelated to financial statements Relevance; Financial information should assist users to make informed decisions.40Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van Rhyn Prudence; Conservatism should guide accounting choices and judgments. Timeliness; Information should be provided within the decision time frame to assist in economic decision making.Concepts/Principles Understandability; Information must be presented in such a way that it is comprehensible to usersRelated to financial statements Reliability; Financial information should be free from error or bias.41Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynLimitations of Financial Statements Financial statements report only quantitative economic data. They do not reflect qualitative economic variables, such as the value of the management team or the employee morale.42Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynLimitations of Financial Statements The balance sheet does not generally report market values or the replacement costs of the assets. Many estimates are used, such as warranty costs, depreciation and doubtful debts expense.43Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynLimitations of Financial Statements Financial statements are not adjusted to show the impact of inflation. Financial statements do not reflect opportunity cost, i.e. income foregone when an income earning opportunity is foregone.44Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynThe Company’s Annual Report The annual report is distributed to shareholders (and others). It contains the financial statements and notes, together with the report of the external auditor’s examination of the financial statements. It may also contain highlights for the year, including net revenue, earnings per share and return on average shareholders equity, as well as an historical summary of some financial data for the last five years.45Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van Rhyn