Chapter 2: Concepture Framework

A/ Overview accounting process

B/ GAAP generally accepted accounting principles
A/ Overview accounting process
identifying => measuring => recording => communicating
a1/ identifying economic transactions
Events >< Economic transactions
* Eg1: purchased new equipment on 1/Jan/2021 with cash:
Purchase price
Freight in
Installment
* Eg 2: Opened new business on 15/Mar/2021
Past event
Important?
How much?
* Eg 3: Shareholders' meeting held on 30 Apr 2021
Past event
Important?
How much?
* Eg 4: intend to acquire new building in Nov/2021 in Saigon, $3,000,000
Building
Future event
Classification of economic transactions
=> External transactions: related two acounting entities
B business purchase RM from A business
B borrowed money from Vietcombank
 => Internal transaction: within one accounting entity
B business: issued RM for production
calculate depreciation expense
Invoice, voucher system used to copy all economic transactions

a2/ Measuring
Reasons
Physical measurement
Chairs
Tables
Computer
projector

Time measurement
A employee
B employee
C employee
Problems
Power of money, inlfation
Foreign currency
a3) Recording
Invoice, voucher system => General Journal => General Ledger => Trial
to journalize
T-accounts
a4) Communicating
To prepare FSs
 Income statement, P&L, Statement of financia
Balance sheet (B/S), Statement of fiancial po
Cash flows statement (CFS), Statement of ca
Statement of change in OE (Statement of RE
Notes to FSs
To provide FSs to users
Accounting = Recording

B/ GAAP generally accepted accounting principles

b1/ Users of FSs
Internal Users
Management at
different levels

Who are they?

Which information do they need for making
decisions?
Is FSs important to them? How?
b2) GAAP
Why GAAP needed for accounting?
communicating

n/2021 with cash: => economic transaction

100,000 Past event
500 Cost = ? 101,500
1,000 Cash decreased 101,500, equipment increa
=> not economic transaction

Apr 2021 => not economic transaction

ov/2021 in Saigon, $3,000,000

10,000,000 => 13,000,000 10 Sept 2021

unting entities
chase RM from A business
ney from Vietcombank
nting entity
ued RM for production
culate depreciation expense
economic transactions

urement How much is it invested?

50 units 1,000
25 units 2,000
1 unit 1,000
1 unit 1,200
5,200
Salary & Employees' benefit
26 days 13,000
15 days 7,500
20 days 500*20 - penalty

nal => General Ledger => Trial balance => Adjusted trial balance => FSs
to post Adjusting entries
ent, P&L, Statement of financial performance, Statement P, L & other comprehensive in
(B/S), Statement of fiancial position/Picture
ement (CFS), Statement of cash flows
hange in OE (Statement of RE)

External Users
Banks & Other credit
organizations current ratio = Current assets/current liabilities
Govermental agencies
Investors Price sharesProfitability
Dividend
Gross profit % = Gross profit/Net sales
Employee (Trade unions)
Community....

ion do they need for making

nt to them? How?
conomic transaction

objective
1,500, equipment increased 101,500
ot economic transaction

ot economic transaction

ept 2021
e => FSs
other comprehensive income

rrent liabilities
Chapter 3: Accounting information system
Source documents (invoice, voucher) => Journa
to journalize to post

A/ Review of T letter account

Definition: a basic device for summary data

General structure

Specific structure
A = L + OE = L + Common stock
A + Expenses + Dividends = L +

Normal balance: XXX

 Methods of recording on accounts
Single entry: example operating
Double entry

Exercise 3.1
B/ Journal, Ledger
General Journal
Organized by order
Format (slide 29)

General Ledger
Organized by individual account
Format (slide 29)
capital

Service revenue

Unearned service R
C/ Worksheet
c1/ Trial Balance
Trial balance
Items
Dr
Cash 33,630
A/R 1,100
Supplies 580
Equipment 14,000
Computer 5,100
A/P
Unearned service R
capital
Service revenue
Office rent ex 600
Salary expens 1,160
Insurance exp 110
Supplies expe 120
Total 56,400
c2/ Adjusting entries
cash basic
accounting
Revenue Cash inflows
Case 1: sales 10,000
Case 2: sales -

Case 3:
received in
advance from
customer
$5,000 5,000
15,000
Expenses Cash outflows
Case 1: paid
advertising
expense
$3,000 3,000
Case 2: salary -

Case 3: paid
office rent in
advance for
next 6
months,
$6,000 6,000
9,000
net income 6,000
cash basic not used
High net income => Face on bankcruptcy?
Net loss => Controll cash well
Cash increased, No recognition
- Issue of share with cash
 - Issue of bonds
- Collected cash on acount
- Received in advance
Expense increased, No decrease
- Dep expense
- Prepaid…(rent, insurance…)
Ex 3.18
Revenue 162,826
Expenses 60,864
w1 Unearned revenue

w2
Accrued expense (payabl

a 1,327
 Accrued expense (payabl

b 59,155

3,435 + ?? - 59,155 = 2,108

?? = 57,828

Revenue
Less: Expense
Net income

Cash collected
Less: Cash paid
Net income

Adjusting entries
Up to date assets, liabilities
Calculate net income under accrual basic
Catergories of adjusting entries
Hints:
- Never involve in cash
- At least one item belonging to P/L and the ot
Catergory 1: Prepaid…..(rent, insurance…..)
Cash

Catergory 2: Dep expense

Dr Dep expense (P/L)
Cr Acc depreciation

B/S
Motorbike
- Cost
- Acc dep
 CA (book value)
Dep expense

catergory 3: Unearned revenue (deferred reven

Service revenue (P/L)

4,000

Catergories (1+2+3) => Deferred

Catergory 4: Accrual revenue
Catergory 5: Accrual exepense
catergories (4+ 5) => Accrual

Loan:
Principle: $100,000
Interest rate: 3%
1/Jul/2020 => 1/7/2021
Dr Interest expense
Cr Interest payable

Cash
 Dr Interest receivable
Cr Interest revenue

P3.4
a/ Adjusting entries
1/ Supplies
Supplies used 4,000
Dr Supplies e 4,000
Cr Supplies

2/ Dep expense
Dr Dep expens 15,000
Cr Acc dep

3/ Interest expense
Dr Interest ex 11,000
Cr Interest payable

2/ Adjusted trial balance

Trial balances
Accounts
Dr Cr
Cash 28700
A/R 33700
Inventory 45000
Supplies 5500
Equipment 133000
Acc dep 24,000
Notes payables 51,000
A/P 48,500
Share capital 90,000
RE 8,000
Sales revenues 757,200
Sales R & A 4200
COS 495400
Salary expense 140000
Adv expense 26400
Utilities expense 14000
M & R expense 12100
Delivery expense 16700
Rent expense 24000
Total 978700 978700
Supplies expense
Dep expense
Interest expense
Interest payable

Net loss
Total
D/ Closing entries
....Expenses
263,200 263,200
 COS

495,400 495,400

Closing 1: Closing revenues

Dr Revenues
Cr Income summary A/C
Closing 2: Closing expeses
Dr Income summary A/C
Cr ....expenses
Closing 3: Closing Income summary A/c
If revenues > Expenses => Difference = Net inc
Dr Income summary A/C
Cr RE
If revenues < Expenses => Difference = Net los
Dr RE
 Cr Income summary A/C
Closing 4: Closing Dividend
Dr RE
Cr Dividend
voice, voucher) => Journal => Ledger => worksheet (....) => FSs
to journalize to post

vice for summary data

name of accounts (cash, bank,

material....)

Left side Right side

Debit (Dr) Credit (Cr)

OE = L + Common stocks + Revenue - Expenses - Dividends (drawings)

penses + Dividends = L + Common stocks + Revenue

Cash
Dr Cr

Increases Decreases

balance: XXX

contra account

Provision for Doubtful Debt

 decreases

Acc deprecition

decreases

on accounts
entry: example operating lease of $10,000 Dr leased asset 10,000

at least 1 account recorded in Dr, at least 1 account rec

total DR = total CR
Simple double entry: (only 2 accounts used)
Example: Purchased merchandise on credit $10,000
Dr Merchandise
Cr A/P
Compound double entry: (at least 3 accounts used)
Example: Purchased merchadise $10,000, of which $6
Dr Merchandise
Cr Cash
Cr A/P
zed by order
(slide 29)
To post

zed by individual account

(slide 29)
capital
44,000 2/9
12/9
17/9
5,100 30/9
49,100 NB

Service revenue
1,100 11/9
2,300 17/9

3,400 NB

Unearned service R 11/9

3,200 12/9

3,200 NB

30/9
 NB

30/9

NB

Trial balance Adjusting entries

Cr

700
3,200
49,100
3,400

_____
56,400

Accrual basic
accounting
 Realized
10,000
50,000

-
60,000
utflows Occuring, matching

3,000
9,000

-
12,000
48,000

ace on bankcruptcy?
ash well
ncreased, No recognition of revenue
of share with cash
 of bonds
ected cash on acount
eived in advance
e increased, No decreases of cash
expense
aid…(rent, insurance…)

Unearned revenue
2,840 OB
1,271 a

4,111 EB

a
b

Accrued expense (payable)

3,435 OB

c
 2,108 Eb

Accrued expense (payable)

3,435 OB

57,828 c

2,108 Eb

146,006
- 57,828
88,178

142,600
 - 60,470
82,130

under accrual basic

ng entries

elonging to P/L and the others belonging to B/S

…..(rent, insurance…..)
Cash

6,000 31/Dec/20

expense (P/L)
cc depreciation (B/S)

Y1 Y2

50,000 50000
- 10,000 -20000
ok value) 40,000 -20000
pense 10,000 10000

revenue (deferred revenue)

Unearned service revenue (B/S)

31/Jan/21 4000

> Deferred
evenue
xepense
Accrual

31/Dec/2020

1,500

est expense 1500

erest payable

Cash
1/Jul/21
3,000
 est receivable 1500
erest revenue

4,000

15,000

11,000

Adjusting entries
Dr Cr
 4,000 a

15,000 b

a 4,000
b 15,000
c 11,000
11,000 c
30,000 30,000
Income summary A/C
753,000
 758,600

5,600
758,600 758,600

es => Difference = Net income

es => Difference = Net loss

=> FSs
to make adjusting entries
to make closing entries

dends (drawings)

A/P
Dr Cr
><
Decreases Increases

Normal balance: XXX

Doubtful Debt
 increases

Normal balance: XXX

precition

increases

Normal balance: XXX

et 10,000

least 1 account recorded in Cr

s used)
on credit $10,000
10,000
10000
accounts used)
10,000, of which $6,000 paid with cash, the remaining amount will be paid in
10,000
6000
4000
End bal = Beg + Increases - Decreases

Cash Equipment
30,000 2/9 14,000
3,200 600 7/9
2,300 110 21/9
1160 30/9
33,630 NB 14,000

A/P Supplies
700 3/9 700

700 NB 580
A/R Office rent expense
1,100 7/9 600

1,100 NB 600
Salary expense Insurance expense
1,160 21/7 110
1,160 NB 110

Supplies expense Computer

120 30/9 5,100

120 NB 5,100

Adjusted Trial balance

 Service revenue A/R
OB 11,250

146,006 c 146,006

EB 15,927

Cash
11,250 + ?? - 141,329 =
1,271 ?? = 15,927 + 141,329
141,329 146,006

Expenses Prepaid expense (asse

OB 1,917

57,828 b 59,143
 EB 3,232
Cash
1,917 + 59,143 - ?? = 3
1,327 a => ?? =
59,143 b

Expenses Prepaid expense (asse

OB 1,917

57,828 a 1,315

EB 3,232
Cash

59,155 b 60,470
1,315 a

6,048
 Prepaid rent (B/S) Rent expense (P/L)

6,000 1000 31/Jan/21 1,000

Y3 Y4 Y5

50,000 50,000 50000

- 30,000 - 40,000 - 50,000
 20,000 10,000 - 50,000
10,000 10000 10000

ce revenue (B/S) Cash

5000 B1Dec-20 5000

1/7/2021
$100,000 <= principle
3,000 <= interest

(P/L)
1,500 (B/S)

Interest payable Interest expense

1,500 1500 31/Dec/20 1,500

 1,500

1,500

Adjusted trial balance Income statement

Dr Cr Dr Cr
 28,700
33,700
45,000
1,500
133,000
39,000
51,000
48,500
90,000
8,000
757,200 757,200
4,200 4,200
495,400 495,400
140,000 140,000
26,400 26,400
14,000 14,000
12,100 12,100
16,700 16,700
24,000 24,000

4,000 4,000
15,000 15,000
11,000 11,000
11,000
1,004,700 1,004,700
_______ 5,600
762,800 762,800
 Income statement
For the year ended 30 Novem
CU: $

Sales revenue
Less: Sales returns & A
Net sales
Less: COS
Gross profit
Less:
Selling expense
Admin expense
Supplies expense
Dep expense
Interest expense
Net loss

RE statement
For the year ended Nov 30
CU: $
Beg RE (1/12/2018)
Less: Net loss
End RE (30/11/2019)

Sales revenue
757,200 757200
Sales returns and Allowance
4,200 4,200

RE
8,000 OB
5,600

2,400 EB
ount will be paid in 10 days
 Equipment

Supplies
120 30-Sep

fice rent expense

surance expense
Computer
 A/R

141,329 b

0 + ?? - 141,329 = 15,927
15,927 + 141,329 - 11,250

aid expense (asset)

57,828 c
+ 59,143 - ?? = 3,232
57,828

aid expense (asset)

ent expense (P/L)
nterest expense
 Statement of financial po
Balance sheet As at 30 Nov 2019
Dr Cr CU: $
 28,700 Assets
33,700 Current assets
45,000 Cash
1,500 A/R
133,000 Inventory
39000 Supplies
51000 Total current asset
48500 NCA
90000 Equipment
8000 Less: Acc dep
Total assets
Liabilities & Equity
Liabilities
Current liabilities
Notes payables
A/P
Interest payable
Non current liability-note payable
Total liabilities
Equity
Share capital
RE
Total equity
11,000 Total L + E

5,600 _____
247,500 247,500
ncome statement
r ended 30 November 2019
CU: $

w1
757,200
- 4,200 Salary expense
753,000 Rent expense
- 495,400 Utilties expense
257,600 Maintenance & R
Adv expense
171,500 Delivery expense
61,700 Total expense
4,000
15,000
11,000 263,200
- 5,600

RE statement
year ended Nov 30 2019
CU: $
8,000
- 5,600
2,400
nt of financial position
at 30 Nov 2019
CU: $
 28,700
33,700
45,000
1,500
108,900

133,000
-39000 94,000
202,900

30000
48500
11,000
-note payable 21000
110500

90000
2,400
92400
202900
 Selling
Admin expenses
expense
98,000 42,000
19,200 4,800
11,200 2,800
12,100
26,400
16,700 _____
171,500 61,700
Chapter 4: Income Statement
Profit and loss statement
Statement of financial performance
Statement of P, L and other comprehensive income
A/ Usefulness, disadvantages of income statement
Usefulness (slide 4)

Sales revenue
.....
Net income
P/L => net income => Cash
Disadvantages (slide 5)
Inventory: FIFO, LIFO, average, specific ...=> Different numbers g

Sales revenue
COS
Gross profit
Gross profit%
Dep exepenses: Straight method, reducing balance, activity.

judgments
Provision for uncollectible accounts: T% uncollectible
Dep expense: useful life, residual value

B/ Elements and classification

Incomes (revenue)
Definition (slide 7)
* Incomes increased => Ass
Assets increased
 H (H') - T': Sales rev
H (H') - A/R - T': Sal
Liabilities decreased: Sale
* Income increased => net in
Net income = Incom
* other than contribution from

Classification
* Revenues

* Other income

Expenses
Definition (slide 9)
* Expenses =>

* Expenses increased => Ne

* Dividend >< Expenses
Classification
 DM
DL
MO

Ex 4.5
Income statement
For the year ended 31/12/2019
Sales revenue
Less: COS
Gross profit
Less: Selling expense
- Sales commissions 7,980
- Dep expense of sales equipment 6,480
- Delivery expense 2,690
Less: Admin expense
- Officers' salary 4,900
 - Dep expense of offcice equipment 3,960
Other income
- Rent revenue
Income from operation
Less: Interest expense
Income before tax
Less: Income tax
Profit after tax
EPS (14,710/40,550)

Ex 4.4
COS 500,000
Admin costs = COS*18% => Admin costs = 500,000*18%
90,000
Sales revenue ?
Sales revenue (90,000*100%/8%) 1,125,000

Operating expenses = selling expenses + admin expense

90,000 => 1/5
? <= 4/5
Selling expense (90,000*4) 360,000

Income statement
For the ended 31/12/2019
Gross sales
Less: sales discount
Net sales
Less: COS
Gross profit
Less: sales discount
Selling expense
Admin expense
Income from operation
Less: Interest expense
Profit before income tax
Income tax (138,000*30%)
Net income
EPS (96,600/30,000)
 Comparison
2,017 2018 2019 2018/2017
200,000 250000 253000 125.00%

20,000 25000 25300 125.00%

Different numbers generated from different methods used

A (FIFO) B (LIFO)
100,000 100000
50,000 60000
50,000 40000
1 40.00%
alance, activity.

ollectible

n (slide 7)
es increased => Assets increased or liabilities decreased
increased
H (H') - T': Sales revenue earned => Cash increased
H (H') - A/R - T': Sales revenue eanred => A/R increased
es decreased: Sales revenue earned => Unearned revenue decreased
increased => net income increased => OE increased
Net income = Incomes - Expenses
han contribution from the owners

Incomes earned from ordinary activites

=> Sales revenue for trading, manufacturing activities
=> Service revenue for service
=> Interest revenue
=> Dividend revenue
....
Incomes earned from extraodinary activities
=> Gain on disposal of NCA
=> Penalty

n (slide 9)
es =>
Assets decreased:
Liabilities increased:
es increased => Net income decreased => RE decreased => OE
d >< Expenses

=> Sales revenue for trading, manufacturing activities

=> Service revenue for service
=> Interest revenue
=> Dividend revenue
 Losses: flood, fire
loss from disposal of NCA, penalty

Based funtions & nature of expenses Nature

Mr Thanh
Mrs Lien The same
Mrs Thuy Anh

Sales revenue
COS
Selling expenses
Admin cost
Office buildings
Factory The same
Showroom

019
96,500
- 63,570
32,930

- 17,150
 - 8,860

17,230
24,150
- 1,860
22,290
- 7,580
14,710
0.36

0,000*18%
=> 8%
<= 100%

in expense

9
1,125,000
- 17,000
1,108,000
- 500,000
 608,000

- 360,000
- 90,000
158,000
- 20,000
138,000
- 41,400
96,600
3.22
parison
2019/2018
101.20%

101.20%
enue decreased

tivities

sed => OE

tivities : COS, salary expense, dep expense,...

the same
Interest expense
Function
Admin cost
Manufacturing overhead
Direct labor cost

Admin cost
Manufacturing overhead
Selling expense
Chapter 5: Statement of financial position & Cash Flow Statement
A/ Statement of Financial Position
Definition (slide 4)
=> Items reported on B/S: Assets, Liabilities, Equity
=> Relation of items reported on B/S: A = L + E
=> Prepared at certain point of time
=> Items expressed in monetary unit

Usefulness (slide 5)
net profit/total asset: 10,000/500,000
capital structure

Current ratio = Current Assets/Curren

Limitations (slide 6)
Classification
Assets
Definition (slide 7)
=> Control >< Ownership: financial l
 => past events:
=> future economic inflows
Classification
=> Current assets: being converted
=> Non current assets

Liabilities
Definition (slide 8)
Classifition
Current liabilities: maturity within 1 y
NCA
Owners' equity
OE = Assets - Liabilities
Contributed capital: sole trader, partn
Retained earning:

Funds

B/ Cash flows statement

b1/ Classification of cash flows
Cash flows from operating activities; related to sales revenues, s
Cash receipt from customers
Cash payment to suppliers
Cash payment to employee
Cash payment for tax
Cash payment for interest
Cash flows from investing activities; related to long term assets
 Cash receipt from sales, disposal of P
Cash receipt from interest, dividend
Cash payment to purchase tangible a
Cash receipt from sales of investmen
Cash flows from financing activities: related to OE and long term
Cash receipt from issue of share, bon
Cash payment to purchase treasury s
Cash payment for dividend
b2/ Methods used to prepare CFS
 & Cash Flow Statement

Liabilities, Equity
B/S: A = L + E

it/total asset: 10,000/500,000 0.02

structure A B
Total assets 500000 500000
Total liabilities 100000 400000
Total L/ Total A 20% 80%

ratio = Current Assets/Current Liabilities

A B
Current asset 400000 100000
NCA 100000 400000
Total assets 500000 500000

on (slide 7)
ntrol >< Ownership: financial lease
Case 1: borrowed $700 to purchase a new computer
Dr Computer 700
Cr Long term loan 700
Total payment during 5 years > 700: 900
 Case 2: leased
Total payment during 5 years > 700: 900
t events:
re economic inflows

rent assets: being converted or used up within 1 year or operating cycle, whic
n current assets

on (slide 8)

t liabilities: maturity within 1 year or 1 operating cyle

ssets - Liabilities
uted capital: sole trader, partners, shareholders
d earning:
Net income = Incomes - Expenses

s; related to sales revenues, service revenue

eceipt from customers
ayment to suppliers
ayment to employee
ayment for tax
ayment for interest
s; related to long term assets
eceipt from sales, disposal of PPE
eceipt from interest, dividend
ayment to purchase tangible assets, intangible assets
eceipt from sales of investments
s: related to OE and long term liabilities
eceipt from issue of share, bonds
ayment to purchase treasury shares
ayment for dividend
computer
on B/S
 on B/S

ear or operating cycle, which one is longer