Financial Accounting
Weygandt, Kimmel and Kieso
IFRS 3rd Edition
(04)2708-8787
2014
WEEK 12
CH 1
Accounting in Action
WEEK 35
CH 2
The Recording Process
WEEK 89
WEEK 67
CH 4
CH 3
Completing the
Accounting Cycle
Adjusting the Accounts
WEEK 10
Mid-Term Exam
35%
WEEK 1112
CH 5
Accounting for
Merchandising Operations
WEEK 1315
CH 6
Inventories
WEEK 1617
WEEK 18
Final Exam
35%
CH 7
Fraud, Internal Control,
and Cash
tku
35% 35%
30%
What is Accounting?
Accounting consists of three basic activities it identifies
(), records (), and communicates () the
economic events of an organization to interested users.
Identifying
Economic events
(transactions)
Recording
Record, classify
and summarize
Communicating
Prepare and analyze
accounting reports
Bookkeeping
() function
Financial Statements
()
6
Who Uses Accounting Data
Accounting is often called the language
of business ().
The purpose of financial information is to
provide inputs for decision making.
Two user groups: external users () and internal
users ().
Managerial
Accounting
Objectives of Financial Reporting
Objectives of Financial Reporting
(adverse selection)
George Akerlof
(Lemon Laws)
()
Ethics in Financial Reporting
The goal of accounting is to provide
useful information for decision.
For information to be useful, it must be
trusted. This demands ethics () in
accounting.
Standards of conduct by which ones actions are judged
as right or wrong, honest or dishonest, fair or not fair, are
ethics.
Effective financial reporting depends on sound ethical
behavior.
10
Ethics in Financial Reporting
In accounting, we frequently encounter ethical dilemmas
().
Time, job, client, personal and peer pressures can
complicate the process of ethical sensitivity and selection
among alternatives.
Steps in analyzing ethics cases and situations:
11
Accounting Standards
International
Accounting
Standard Board
(IASB)
International Financial Reporting
Standards (IFRS)
IFRS
Today, IFRSs are
used by listed
companies in over
115 jurisdictions.
12
Financial Reporting Concepts
Mixed up
Harmonization
Convergence
2013
IFRS
Adoption
(Taiwan-IFRSs)
13
Financial Reporting Concepts
Securities and
Exchange
Commission
delegates
power
(SEC)
Financial
Accounting
Standards Board
(FASB)
Generally
Accepted
Accounting
Principles
(GAAP)
The SEC enforces
the rules
The FASB
makes the rules
GAAP are
the rules
14
Measurement Principles
Relevance
Historical
Cost
Principle
Fair Value
Principle
Faithful
Representation
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.
Assets and liabilities ()
should be reported at fair value
(the price received to sell an
asset or settle a liability).
15
Assumptions
Monetary Unit
Requires that companies include in the accounting
records only transaction data that can be expressed in
money terms.
Excludes some relevant information, for example, the
health of the owner, quality of service and the morale of
employees.
10 5 2
2,000 3,000
4,000
43,000 $2,000 10 + $ 3,000 5 + $ 4,000 2
16
Assumptions
Economic Entity
Requires that activities of the entity be kept separate and
distinct from the activities of its owner and all other
economic entities.
Economic phenomenon
legal entity
A
> Legal form
1)
20
2)
17
Assumptions
Forms of Business Organization
Stockholders
Proprietorship
Partnership
Corporation
Separate legal entity
Limited liability
Transfer ownership
Unlimited life
18
The Basic Accounting Equation
Accounting equation () provides the
underlying framework for recording and summarizing
economic events.
Assets
Liabilities
(Assets)
Equity
()
19
The Basic Accounting Equation
10
(equity)
10 10
Assets
10
Liabilities
0
Equity
10
20
The Basic Accounting Equation
Assets
Liabilities
Equity
()
(Liabilities)
21
The Basic Accounting Equation
20
2020
()
()
20
30(10+20)20
10
Assets
30
Liabilities
20
Equity
10
22
The Basic Accounting Equation
Investment by
shareholders
Dividends
Equity
Revenues
INCREASE
Expenses
DECREASE
23
The Basic Accounting Equation
Investment by
shareholders
Dividends to
shareholders
Equity
Revenues
Investments by shareholders
represent the total amount
paid in by shareholders for the
ordinary shares they
purchase.
Expenses
The ownership claim on a
companys total assets.
24
The Basic Accounting Equation
Investment by
shareholders
Dividends to
shareholders
Equity
Revenues
Revenues result from business
activities entered into for the
purpose of earning income.
Sales, fees, services,
commissions, interest, dividends,
royalties, and rent.
Expenses
Expenses are the cost of
assets consumed or services
used in the process of earning
revenue.
Salaries expense, rent expense,
utilities expense, property tax
expense, etc.
25
The Basic Accounting Equation
Investment by
shareholders
Dividends to
shareholders
Equity
Revenues
Expenses
Dividends are the distribution of cash
or other assets to shareholders.
Dividends reduce retained earnings.
However, dividends are not expenses.
26
The Basic Accounting Equation
(net income)
(net loss)
Revenue
>
Expense
Net Income
Revenue
<
Expense
Net Loss
27
Using the Accounting Equation
Transactions () are a
businesss economic events recorded
by accountants. Transactions may be
external or internal.
An accounting transaction occur when financial position
(assets, liabilities or equity items) change ()
as a result of some economic event.
Each transaction has a dual effect on the accounting
equation.
Two or more items
can be affected
28
Using the Accounting Equation
Are the following events recorded in the accounting
records?
Purchase
computer.
Event
Criterion
Discuss
product
design with
customer.
Pay rent.
Is the financial position (assets, liabilities, or equity)
of the company changed?
Record/
Dont Record
29
Using the Accounting Equation
Assets =
Liabilities
Share CapitalOrdinary
Equity
Retained
Earnings
Revenue
Expense
- Dividends
30
Using the Accounting Equation
31
Transaction Analysis
Investment by Shareholders. Ray and Barbara Neal decides
to start a smartphone app development company that they
incorporate as Softbyte SA. On 9/1/2017, they invest 15,000
cash in exchange for 15,000 of ordinary shares.
Asset
Liabilities
Equity
Cash
Share Capital
+15,000
+15,000
Issued
Shares
32
Transaction Analysis
Purchase of Equipment for Cash. Softbyte SA purchases
computer equipment for 7,000 cash.
Asset
Cash
Equipment =
15,000
Equity
Share Capital
15,000
-7,000
8,000
Liabilities
+7,000
+
7,000
15,000
15,000
33
Transaction Analysis
Purchase of Supplies on Credit. Softbyte SA purchases for
1,600 headsets and other accessories expected to last
several months. The supplier allows Softbyte to pay this bill in
October.
Asset
Liabilities
Accounts
Cash + Supplier + Equipment =
Payable
8,000
+
+
7,000
16,600
Share Capital
15,000
+1,600
8,000 + 1,600 + 7,000
Equity
+1,600
=
1,600 +
15,000
16,600
34
Transaction Analysis
Services Provided for Cash. Softbyte SA receives 1,200
cash from customers for app development services it has
performed.
Asset
= Liabilities +
Equity
Accounts
Share Retained Earnings
Cash + Supplier + Equipment =
+
Capital + Rev. - Exp. - Div.
Payable
8,000
7,000
1,600
15,000
+1,200
+1,200
9,200 + 1,600 + 7,000
17,800
Service
Revenue
1,600 + 15,000 + 1,200
17,800
35
Transaction Analysis
Purchase of Advertising on Credit. Softbyte SA receives a
bill for 250 from the Programming News for advertising on its
website but postpones payment until a later date.
Asset
= Liabilities +
Equity
Accounts
Share Retained Earnings
Cash + Supplier + Equipment =
+
Capital + Rev. - Exp. - Div.
Payable
9,200 1,600
7,000
1,600
15,000
1,200
+250
-250
9,200 + 1,600 + 7,000 = 1,850 + 15,000 + 1,200 -250
17,800
17,800
Advertising
Expense
36
Transaction Analysis
Services Provided for Cash and Credit. Softbyte SA
provides 3,500 of services. The company receives cash of
1,500 from customers, and it bills the balance of 2,000 on
account.
Asset
= Liabilities +
Accounts
Share Retained Earnings
+
Payable
Capital + Rev. - Exp. - Div.
Accounts
Cash +
+ Supplier + Equipment
Receivable
9,200
1,850
+1,500
1,600
7,000
15,000
+2,000
10,700 + 2,000 + 1,600 + 7,000
Equity
1,200
+3,500
= 1,850
+ 15,000
+ 4,700
-250
Service
Revenue
21,300
21,300
37
Transaction Analysis
Payment of Expenses. Softbyte SA pays the following
expenses in cash for September: office rent 600, salaries and
wages of employees 900, and utilities 200.
Asset
= Liabilities +
Accounts
Cash +
+ Supplier + Equipment
Receivable
10,700
2,000
1,600
7,000
Accounts
Share Retained Earnings
+
Payable
Capital + Rev. - Exp. - Div.
1,850
15,000
-1,700
9,000 + 2,000 + 1,600 + 7,000
19,600
Equity
= 1,850
+ 15,000
4,700
250
Expenses
-600
-900
-200
+ 4,700
-1,950
19,600
38
Transaction Analysis
Payment of Accounts Payable. Softbyte SA pays its 250
Programming News bill in cash.
Asset
= Liabilities +
Share Retained Earnings
Accounts
+
Capital + Rev. - Exp. - Div.
Payable
Accounts
Cash +
+ Supplier + Equipment
Receivable
9,000
1,850
2,000
1,600
7,000
-250
Equity
15,000
4,700
1,950
+ 15,000
+ 4,700
-1,950
-250
8,750 + 2,000 + 1,600 + 7,000
19,350
= 1,600
19,350
39
Transaction Analysis
Receipt of Cash on Account. Softbyte SA receives 600 in
cash from customers who had been billed for services [in
Transaction (6)].
Asset
= Liabilities +
Equity
Accounts
Cash +
+ Supplier + Equipment
Receivable
Accounts
Share Retained Earnings
=
+
Payable
Capital + Rev. - Exp. - Div.
8,750
7,000
1,600
15,000
4,700
1,950
9,350 + 1,400 + 1,600 + 7,000
= 1,600
+ 15,000
+ 4,700
-1,950
+600
2,000
1,600
-600
19,350
19,350
40
Transaction Analysis
Dividends. The corporation pays a dividend of 1,300 in cash
to Ray and Barbara Neal, the shareholders of Softbyte SA.
Asset
= Liabilities +
Accounts
Cash +
+ Supplier + Equipment
Receivable
9,350
1,400
1,600
7,000
Equity
Share Retained Earnings
Accounts
+
Capital + Rev. - Exp. - Div.
Payable
1,600
15,000
4,700
1,950
-1,300
-1,300
8,050 + 1,400 + 1,600 +7,000
18,050
= 1,600
+ 15,000
+ 4,700
18,050
-1,950
-1,300
Dividends
41
EXERCISE 1-6
Selected transactions for Spring Cruises ASA are listed below.
1. Sold ordinary shares for cash to start business.
2. Paid monthly rent.
3. Purchased equipment on account.
4. Billed customers for services performed.
5. Paid dividends.
6. Received cash from customers billed in (4).
7. Incurred advertising expense on account.
8. Purchased additional equipment for cash.
9. Received cash from customers when service was performed.
Describe the effect of each transaction on assets, liabilities, and equity.
42
Financial Statements
Assets, liabilities, expenses and
revenues are of interest to user of
Accounting information. For business
purposes, it is customary to arrange
this information in the format of four
financial statements:
a.
b.
c.
d.
Performance
Income Statement
Statement of Financial Position
Retained Earnings Statement
Statement of Cash Flows
43
Income Statement
Reports success or profitability of the
companys operations over a specific
period of time ().
Summarizes all revenue and expenses
for period--month, quarter, or year.
If revenues exceed expenses, the result
is a net income. If expenses exceed
revenue, the result is a (net loss).
Dividends are payments to
the stockholders and are
not expenses.
Amounts received from
issuing stock or obtaining
loans are not revenues.
44
Retained Earnings Statement
Indicates amount paid out in dividends
and amount of net income or net loss for
period.
Shows changes in the retained earnings
() balance during period covered
by statement.
Ending retained earnings represents net income since
the inception of the business that has not been paid out
as dividends.
Beginning +
Balance
Net Income from
income statement
Dividends
Ending
Balance
45
Statement of Financial Position
Shows assets and claims to those assets at
a specific point in time (). These
claims are subdivided into two categories:
claims of the creditors (liabilities) and claims
of the owners (equity).
Assets and equities (liabilities and equity)
must balance.
Assets
Liabilities
Equity
46
Statement of Cash Flows
Provides information about cash
receipts and cash payments for
the accounting period.
Reports the cash effects of a
companys (1) operations ()
for a period of time.
Shows cash increases and decreases from (2) investing
() and (3) financing activities ().
Indicates increase or decrease in cash balance as well
as ending cash balance.
47
Financial Statements
Net income is
needed to
determine the
ending balance
in retained
earnings.
48
Financial Statements
The ending balance
in retained earnings
is needed in
preparing the
balance sheet
49
Financial Statements
The balance
sheet and income
statement are
needed to prepare
statement of cash
flows.
50
EXERCISE 1-12
The following information relates to Karen Weigel Co. Ltd. for the year 2017.
Retained earnings, January 1, 2017 48,000
Advertising expense
1,800
Dividends during 2017
5,000
Rent expense
10,400
Service revenue
62,500
Utilities expense
3,100
Salaries and wages expense
28,000
Other comprehensive income
400
Prepare (a) an income statement, (b) a comprehensive income statement,
and (c) a retained earnings statement.
51
52
53
EXERCISE 1-14
Bear Park Ltd., a camping ground in the Lake District, has compiled the
following financial information as of December 31, 2017.
Revenues during 2017camping fees
140,000
Revenues during 2017general store
47,000
Accounts payable
11,000
Cash on hand
20,000
Original cost of equipment
105,500
Fair value of equipment
140,000
Notes payable
60,000
Expenses during 2017
150,000
Supplies on hand
2,500
Share capitalordinary
20,000
Retained earnings
?
(a) Determine Bear Park's net income for 2017. (b) Prepare a statement of
financial position.
54
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