01 Introduction & Framework for Financial Accounting ACCT101 FINANCIAL ACCOUNTING TESSCHUA@SMU.EDU.SG WEEK 1 INTRODUCTION & FRAMEWORK 1 Week ACCT101 Course Coverage Topic 1 Introduction and Framework for Financial Accounting 2 Ch.2. The Accounting Cycle: During the Period 3 Ch.3. The Accounting Cycle: End of the Period 4 Ch.4. Cash and Internal Control Ch.5. Receivables and Sales 5 Ch.6. Inventory & Merchandizing Operations Quiz 1 6 Group presentations 7 Ch.7. Long-Term Assets 9 Ch.8. Current Liabilities Ch.9. Long-Term Liabilities 10 Ch.10. Stockholders’ Equity 11 Quiz 2 Ch.12. Financial Statement Analysis 12 13 Ch.11. Statement of Cash Flows Final Exam Review Session Q&A WEEK 1 INTRODUCTION & FRAMEWORK 2 • Only 10% because they are for learning Grading: Homework 10% • Split into 4 pieces of Homework • Available on the Quiz section on eLearn • Access granted on Thursday 0001 and due on Sunday 2359 of that week • Reinforce lessons, good revision for graded quizzes • Automatically graded by eLearn • Unlimited attempts allowed WEEK 1 INTRODUCTION & FRAMEWORK 3 • For you to practice key concepts • Not required to hand-in, not graded Grading: Practice work • Can do in study groups, individually, etc. • Released weekly in class • Solutions will be provided under “Announcements” the following week WEEK 1 INTRODUCTION & FRAMEWORK 4 • Attend class Grading: Participation 10% • If you are unable to attend class, email me • Excused classes do not impact your participation grade • Excused quizzes add to the final’s weighting • Ask/answer questions in class • Help those in your group to understand concepts • Fill in the Google Form immediately after the class ends WEEK 1 INTRODUCTION & FRAMEWORK 5 • Weeks 6 & 11 • What to expect? Grading: Quizzes 15% • 1 hour each • Context based • Long format • Extracting information from a situation • Problem solving • Taken on eLearn WEEK 1 INTRODUCTION & FRAMEWORK 6 • 6 Groups per class, self-assigned Grading: Group Project 15% • Group presentations on Week 6 • In relation to any SGX listed company, analyse their Sustainability Report • More details on eLearn WEEK 1 INTRODUCTION & FRAMEWORK 7 • 3 hours Grading: Final Exam 50% • Long format • Taken on eLearn • Same exam across all sections WEEK 1 INTRODUCTION & FRAMEWORK 8 SMU Classification: Restricted Expectations In Class Outside Class • Participate • Check eLearn for course announcements • Ask questions • Clarify • Read in advance of class • Add to the discussion • Do homework and be aware of deadlines • Answer questions • Submit on eLearn • Work with classmates • Do practices on your own or in groups • Tech use is okay • Short questions can be emailed WEEK 1 INTRODUCTION & FRAMEWORK 9 SMU Classification: Restricted Your friendly TAs G8 - Hannah Hannah.liu.2023@business.smu.edu.sg G9 - Qi Zhen Qizhen.yap.2022@economics.smu.edu.sg Pay attention, try the inclass exercises, spend time to digest after class - Hannah Just actively compile notes at the end of class each week to help you better understand the concepts and clarify if needed :) - Qizhen WEEK 1 INTRODUCTION & FRAMEWORK 10 SMU Classification: Restricted Textbook WEEK 1 INTRODUCTION & FRAMEWORK • Spiceland, Thomas and Herrmann • Financial Accounting, 6th edition, McGraw Hill. • Purchase e-Book • https://www.mheducation.com.sg/fina ncial-accounting-ise-9781265578022asia-group 11 Introduction to Accounting CHAPTER 1, FINANCIAL ACCOUNTING, 6TH EDITION, MCGRAW HILL WEEK 1 INTRODUCTION & FRAMEWORK 12 SMU Classification: Restricted Learning Objectives Not yet covered Covering today Completed • Develop a base understanding of accounting institutions • Understand the building blocks of the accounting system • Apply the “accounting equation” Theory Standards Accruals Accounts A=L+E Business Processes • Depreciation • COGS • Bonds Outputs • B/S • I/S • SCF WEEK 1 INTRODUCTION & FRAMEWORK 13 SMU Classification: Restricted Accounting is… the language of business Business activities: Sales, spendings, inventory changes… Accounting measures business activities of a company and communicates all these measurements to external parties. Eventually these reports are communicated to the users of the financial statements WEEK 1 INTRODUCTION & FRAMEWORK 14 SMU Classification: Restricted Types of Accounting 01 FINANCIAL 02 MANAGERIAL • Provides information to external users • Provides information to internal users • Needs to be decision relevant • Used for budgeting, forecasting, strategy • Auditing, book-keeping etc 03 TAX • Technically a subset of financial accounting • Used for determining tax liability • How companies communicate information publicly WEEK 1 INTRODUCTION & FRAMEWORK 15 SMU Classification: Restricted Forms of Businesses 01 SOLE PROPRIETORSHIP • One owner, usually small service firms 02 PARTNERSHIP • • Not a legal entity • Owner receives all profit and loss • • Multiple owners, at least one • Has a board of directors, CEO, CFO, is a General Partner while COO, etc. others are Limited Partners • From Initial Public Offering or Not a legal entity Secondary/Seasoned Equity Offering Owners receive all profit and • Separate legal entity under corporate loss law Read more at https://www.acra.gov.sg/ • Profit/loss goes to the company … up to 20 in a General Partnership WEEK 1 INTRODUCTION & FRAMEWORK 03 CORPORATION … up to 50 shareholders in a Private Limited Company 16 SMU Classification: Restricted International Financial Reporting Standards (IFRS) BACKGROUND • The International Accounting Standards Board created IFRS in 2001 • An attempt to bring consistency and integrity to accounting standards and practices • Over 100 countries use IFRS WEEK 1 INTRODUCTION & FRAMEWORK CONCEPTUAL FRAMEWORK • Prescribes nature, function, and boundary of an accounting system 17 SMU Classification: Restricted IFRS Conceptual Framework https://tinyurl.com/ACCTFRWK The IFRS Conceptual Framework - Dr Themin Suwardy WEEK 1 INTRODUCTION & FRAMEWORK 18 SMU Classification: Restricted Financial Statements WEEK 1 INTRODUCTION & FRAMEWORK 01 INCOME STATEMENT 02 BALANCE SHEET 03 STATEMENT OF CHANGES IN EQUITY 04 STATEMENT OF CASH FLOWS 19 SMU Classification: Restricted Financial Statements 01 INCOME STATEMENT WEEK 1 INTRODUCTION & FRAMEWORK 02 BALANCE SHEET 20 SMU Classification: Restricted Financial Statements 03 STATEMENT OF CHANGES IN EQUITY WEEK 1 INTRODUCTION & FRAMEWORK 04 STATEMENT OF CASH FLOWS 21 The Accounting Equation WEEK 1 INTRODUCTION & FRAMEWORK 22 SMU Classification: Restricted The Accounting Equation 01 ASSETS WEEK 1 INTRODUCTION & FRAMEWORK 02 LIABILITIES 03 EQUITY 23 SMU Classification: Restricted The Accounting Equation 01 ASSETS 02 LIABILITIES • Economic resources controlled by an entity • Present obligations of the entity • Expected to produce future economic benefits to the entity • Expected to result in an outflow of economic benefits from the entity WEEK 1 INTRODUCTION & FRAMEWORK 03 EQUITY • The residual interest in the entity’s assets after deducting the entity’s liabilities • Represents the owner’s residual claim to the entity’s assets 24 SMU Classification: Restricted The Accounting Equation 01 ASSETS 02 LIABILITIES • Cash • Accounts payable • Accounts receivable • Payments outstanding • Inventory • Equipment • Factories • Machinery WEEK 1 INTRODUCTION & FRAMEWORK • Salaries payable • Utilities payable • Loans 03 EQUITY Share capital: Amount paid by shareholders Retained earnings: Net profit not released as dividends Revenue: Sales, income Expenses: costs of doing business 25 SMU Classification: Restricted The Accounting Equation Assets = Liabilities + Equity But Equity comprises of… Revenue for the period Retained Earnings, beginning balance WEEK 1 INTRODUCTION & FRAMEWORK Expenses for the period Net Income/ (Loss) Dividends Retained Earnings, ending balance 26 SMU Classification: Restricted The (Expanded) Accounting Equation Assets = Liabilities + Retained earnings + Revenue – Expenses – Dividends (if any) WEEK 1 INTRODUCTION & FRAMEWORK 27 SMU Classification: Restricted Assets = Liabilities + Equity 01 ASSETS 02 LIABILITIES 03 EQUITY IRL Example: Starting a Hair Salon • Cash • Bank loan • Inventory (Shampoo, hair treatment products) • Unearned revenue (from your prepaid packages!) • Fixed assets (Furniture and fittings, equipment) WEEK 1 INTRODUCTION & FRAMEWORK • Unpaid bill from suppliers • The money put in by the partners • Revenue (Hair services) • Expenses (COS, wages, rental, utilities) 28 SMU Classification: Restricted Assets = Liabilities + Equity 01 ASSETS 02 LIABILITIES 03 EQUITY IRL Example: Starting a Café at SMU • Cash • Bank loan • Inventory (coffee beans, food) • Outstanding utility bill • Fixed assets (Coffee machine, furniture and fittings) WEEK 1 INTRODUCTION & FRAMEWORK • Unpaid bill from coffee supplier • The money put in by the owner • Revenue (Sales of coffee and food) • Expenses (COGS, wages, rental, utilities) 29 SMU Classification: Restricted Assets = Liabilities + Equity 01 ASSETS 02 LIABILITIES • Your turn! • In your groups, pick any type of business • Determine 3 each of: 03 EQUITY • Assets • Liabilities • Equity WEEK 1 INTRODUCTION & FRAMEWORK 30 SMU Classification: Restricted Liabilities Economic resources controlled by an entity which are expected to produce future economic benefits to the entity. Present obligations of the entity which are expected to result in an outflow of economic benefits from the entity Equity The residual interest in the entity’s assets after deducting the entity’s liabilities and represents the shareholder’s residual claim to the entity’s assets Debit Assets ▪ Receiving assets ▪ Creating assets ▪ Paying off a debt ▪ Paying dividends to shareholders Credit Definition The building blocks of accounting ▪ Selling assets ▪ Using assets ▪ Creation of Debt ▪ Recognising owings ▪ Increasing share capital ▪ Retained earnings WEEK 1 INTRODUCTION & FRAMEWORK 31 SMU Classification: Restricted The Accounting Equation Examples Assets Liabilities Equity Assets Liabilities Equity Raising capital Paying an expense early Paying prerecorded wages Earning revenue (services) Earning revenue (with inventory) Paying debt WEEK 1 INTRODUCTION & FRAMEWORK 32 SMU Classification: Restricted The Accounting Equation Examples Assets Liabilities Equity Sell a latte to a customer Pay the utility bill Buy lunch for the supplier’s representative Take a business trip to Guatemala to visit coffee farms. Paid by cash. Take a vacation to Guatemala (not for business) Bought a new coffee maker on credit WEEK 1 INTRODUCTION & FRAMEWORK 33 SMU Classification: Restricted The Accounting Equation Examples Assets Liabilities Equity Provide a haircut to a customer Receive the utility bill Sell a scalp package to a customer Paid for Dyson hairdryers for the business Bringing one Dyson hairdryer home for yourself Repairing the air-condition system in the salon WEEK 1 INTRODUCTION & FRAMEWORK 34 SMU Classification: Restricted The Accounting Equation Examples Assets Liabilities Equity 1. Pick a company (or use the one identified earlier) 2. Come up with 3 transactions the company might have 3. How would each transaction affect the company’s accounting equation, and why? Email your TA your 3 transactions + explanation by the end of the day Include all group members’ names in the email! WEEK 1 INTRODUCTION & FRAMEWORK 35 WEEK 1 INTRODUCTION & FRAMEWORK 36 SMU Classification: Restricted Before the next class… • Recap the reading for this week • Read the pages for next week • Practice Qns (for your own understanding) • Bookkeeping (Chapter 2) • Practice on eLearn Microsoft Word Document • Automatic feedback provided • Make sure you have the accounts and accounting equation down! • You’ll need to know these next week WEEK 1 INTRODUCTION & FRAMEWORK 37
