Tutoring Class1: Basic Knowledge of Financial Accounting

1. Tutoring Class1: Basic Knowledge of Financial Accounting May Chen Feb 23,2008

2. Four Topics Topic 1: Accounting information Topic 2: Balance sheet and Income statement and related accounting concepts Topic 3: Accounting cycle Topic 4: Future value and present value

3. Topic1 ACCOUNTING INFORMATION 会计信息

4. The accounting process Accounting “links” decision makers with economic activities ¾ and with the results of their decisions. Accounting information Economic activities Actions (decisions) Decision makers

5. Types of Accounting Information Financial 财务 Tax 税收 Managerial 管理

6. 资产负债表 利润表 现金流量表 Balance Sheet Income Statement Statement of Cash Flows Three Primary Financial Statements

7. External Users of Accounting Information • Owners • Creditors • Labor unions • Governmental agencies • Suppliers • Customers • Trade associations • General public

8. Users of Internal Accounting Information • Board of directors • Chief executive officer (CEO) • Chief financial officer (CFO) • Vice presidents • Business unit managers • Plant managers • Store managers • Line supervisors

9. Topic2 Balance sheet and income statement and related accounting concepts

10. It is a snapshot of a business’ financial condition at a specific moment in time. 反映企业某一特定时点的财务状况 Balance Sheet Income Statement Statement of Cash Flows Balance Sheet 资产负债表

11. Balance Sheet 资产负债表 ABC Corporation Balance Sheet June 30, 20xx Assets Current Assets流动资产 Noncurrent Assets非流动资产 Total Assets总资产 $ xxx Liabilities and Equity负债与股东权益 Current Liabilities 流动负债 Long-Term Liabilities长期负债 Stockholders’ Equity Contributed Capital 股本 Retained Earnings 留存收益 Total Stockholders’ Equity Total Liabilities + Stockholders’ Equity负债与股东权益 $ xxx 中国《企业会计准则第30号—财务报表列报》应用指南：“Financial Statements Presentation. PDF” P3

12. Related Concepts • The Accounting Equation 会计平衡式 Assets = Liabilities + Owners’ Equity 资产 负债 所有者权益 • Assets are economic resources that are owned by the business and are expected to provide positive future cash flows. • Current assets and non-current assets 流动资产与非流动资产 • Historical Cost Principle 历史成本原则

13. Related Concepts • Liabilities（负债）are debts that represent negative future cash flows for the enterprise. • Current liabilities and long-term liabilities 流动负债与长期负债 • Owners’ equity（所有者权益）represents the owners’ claims to the assets of the business. （Stockholders’ Equity 股东权益） • Owner’s investment and business earning • Payments to owners and business loss • Owners’ Investments • Business Earnings

14. Balance Sheet Depicts the revenue and expenses for a designated period of time. 反映企业一定期间的收入与费用 Income Statement Statement of Cash Flows Income Statement 利润表

15. Income Statement ABC Corporation Income Statement For the period ending June 30, 20xx Net revenues …………. $xx,xxx Cost of Goods Sold …… (x,xxx) Gross Profit xx,xxx Operating expenses: Research & Development x,xxx Selling expenses …….. x,xxx General & Admin. ….. x,xxx Total Operating Expenses (xx,xxx) Income from Operationsxx,xxx Other revenues & expenses (x,xxx) Income before taxes x,xxx Income tax expense (x,xxx) Net Income $ x,xxx Earnings per share $x.xx* *EPS = Net Income After Taxes /Common Shares Outstanding 中国《企业会计准则第30号—财务报表列报》应用指南：“financial statements presentation. PDF” P4

16. Related Concepts • The Accounting Equation Net income= Revenue –Expense 净利润=收入-费用 • Revenue • The price for goods sold and services rendered during a given accounting period. • Increases owner’s equity • Expense • The costs of goods and services used up in the process of earning revenue. • Decrease owner’s equity • Cash VS. Accrual Basis Accounting

17. Cash Basis Accounting 现金制会计 • Under the cash basis accounting, revenues and expenses are recognized as follows: • Revenue is recognized when cash is received. • Expense is recognized when cash is paid.

18. Accrual Basis Accounting 权责发生制 • Under the accrual basis accounting, revenues and expenses are recognized as follows: • Revenue realization principle 收入实现原则(Revenue is recognized when it is realized or earned ) • Matching principle 配比原则 （Expense is recognized in the period in which related revenue is recognized ）

19. Relationships Among Financial Statements • Three accounting equations Net income= Revenue –Expense Ending R/E=Beginning R/E + NI –Dividends Assets = Liabilities + Owners’ Equity

20. Relationships Among Financial Statements Date at beginning of period Date at end of period Time Balance Sheet Balance Sheet Income Statement Statement of Cash Flows

21. Relationships Among Financial Statements

22. Topic3 ACCOUNTING CYCLE 会计循环

23. The Accounting Cycle 4 Prepare adjusting entries. 编制调整分录 1 Journalize transactions. 编制会计分录 3 Prepare trial balance. 编制试算平衡表 2 Post entries to the ledger accounts.过账 7 Journalize and post closing entries.编制结账分录并过账 6 Prepare financial statements.编制财务报表 5 Prepare adjusted trial balance.编制调整后试算平衡表 8 Prepare after-closing trial balance.编制结帐后试算平衡表

24. The Ledger 分类账 Accounts（帐户）are individual records showing increases and decreases. Cash Accounts Payable The entire group of accounts is kept together in an accounting record called a ledger. Capital Stock

25. Increases are recorded on one side of the T-account （T字型帐户）, and decreases are recorded on the other side. Title of the Account Left or Debit Side Right or Credit Side The Use of Accounts

26. Double Entry Accounting: The Equality of Debits and Credits 复式记帐法 A=L+OE = Debit balances Credit balances In the double-entry accounting system, every transaction is recorded by equal dollar amounts of debits and credits.

27. ASSETS LIABILITIES EQUITIES Debit for Increase Credit for Decrease Debit for Decrease Credit for Increase Debit for Decrease Credit for Increase Debit and Credit Rules（借贷规则） Debits and credits affect accounts as follows: A=L+OE

28. EXPENSES REVENUES Debit for Increase Credit for Decrease Debit for Decrease Credit for Increase Debits and Credits for Revenue and Expense Expenses decrease owner’s equity. Revenues increase owner’s equity. EQUITIES Debit for Decrease Credit for Increase

29. EQUITIES Debit for Decrease Credit for Increase DIVIDENDS CAPITAL STOCK Debit for Increase Credit for Decrease Debit for Decrease Credit for Increase Investments by and Payments to Owners Payments to owners decrease owners’ equity. Owners’ investments increase owners’ equity.

30. Receipts are on the debit side. Payments are on the credit side. The balance is the difference between the debit and credit entries in the account. Debit and Credit Entries（借贷分录）

31. Step 1: Journalize the Transaction编制会计分录 In an actual accounting system, transactions are initially recorded in the journal.

32. Step2 :Posting Journal Entries to the Ledger Accounts 过账

33. Posting Journal Entries to the Ledger Accounts

34. Sales Revenue increases $750 with a credit. Cash increases $750 with a debit. May 29: JJ’s provided lawn care services for a client and received $750 in cash.

35. Step 3: Prepare Trial Balance 编制试算平衡表 Proves equality of debits and credits.

36. Step 4: Prepare Adjusting Entries编制调整分录 Adjusting entries are Every adjusting needed whenever revenue or expenses affect more than one entry involves a change in either a revenue or expense and an asset or liability. accounting period.

37. Types of Adjusting Entries • Converting assets to expenses • Converting liabilities to revenue • Accruing unpaid expenses • Accruing uncollected revenues

38. Adjusting Entry • Recognizes portion of asset consumed as expense, and • Reduces balance of asset account. Converting Assets to Expenses End of Current Period Prior Periods Current Period Future Periods Transaction Paid cash in advance of incurring expense (creates an asset).

39. The Concept of Depreciation (折旧) The portion of an asset’s utility that is used up must be expensed in the period used. The asset’s usefulness is partially consumed during the period. Fixed Asset (debit) Depreciation Expense (debit) On date when initial payment is made . . . At end of period . . . Accumulated Depreciation (credit) Cash (credit)

40. Depreciation expense (per period) Cost of the asset Estimated useful life = $2,500 50 $50 = Depreciation Is Only an Estimate On May 2, 2005, JJ’s Lawn Care Service purchased a lawn mower with a useful life of 50 months for $2,500 cash. Using the straight-line method（直线法）, calculate the monthly depreciation expense.

41. Depreciation Is Only an Estimate JJ’s Lawn Care Service would make the following adjusting entry. Contra-asset

42. Accumulated depreciation would appear on the balance sheet as follows:

43. Step 5: Adjusted Trial Balance All balances are taken from the ledger accounts on May 31 after preparing the two depreciation adjusting entries.

44. Step 6: Prepare Financial Statements Net income also appears on the Statement of Retained Earnings.

45. Now, let’s prepare the Balance Sheet.

46. Next, let’s prepare the Statement of Cash Flows for JJ’s Lawn Care Service for May.

48. Step 7: Closing the Temporary Equity Accounts The closing process gets the temporary accounts ready for the next accounting period. • Close Revenue accounts to Income Summary. • Close Expense accounts to Income Summary. • Close Income Summary account to Retained Earnings. • Close Dividends to Retained Earnings.

49. Closing the Temporary Equity Accounts Let’s prepare the closing entries for JJ’s Lawn Care Service.

50. Closing Entries for Revenue Accounts