西方財務會計WESTERNFINANCIALACCOUNTINGChapter1

TheFinancialAccountingConceptualFrameworkAndTheAccountingEquation1.1ACCOUNTINGAserviceactivity----ProvideusefulinformationabouteconomicentitiestointerestedpartiesAndameasurement-communicationactivity----Theusefulnessofaccountinginformationdependsoneffectivemeasurementoftheeconomicactivitiesandeffectivecommunicationofthosemeasurementstousersofthatinformation.AccountinginformationanddecisionmakersAccountinginformationFinancialaccounting

ManagementAccountingExternalDecisionmakersInternalDecisionmakers1.2COMPARISONBETWEENFINANCIALANDMANAGEMENTACCOUNTINGManagementAccounting----Theprocessofdevelopingandreportingaccountinginformationforinternaluserswhohavedirectaccesstotheinformationpreparing.1.2COMPARISONBETWEENFINANCIALANDMANAGEMENTACCOUNTINGFinancialAccounting----TheprocessofdevelopingandreportingfinancialinformationforexternaluserswhodonothavedirectaccesstotheinformationpreparingwhichshouldbeinaccordancewithGeneralAcceptedAccountingPrinciples(GAAP).

GAAPGenerallyacceptedaccountingprinciplesarethemeasurementrulesusedtodeveloptheinformationinfinancialstatement.Theyarethoseguidelineswhichindicatehowtoreporteconomicevents.Theyconsistofanumberofconcepts,principlesandprocedures.GenerallyAcceptedAccountingPrinciplesTheSecuritiesandExchangeCommission(SEC)hastheauthoritytodeterminethefinancialstatementstobeprovidedtostockholdersandthemeasurementrulesappliedinproducingthestatements.TheFinancialAccountingStandardsBoard(FASB)iscurrentlyrecognizedasthegroupresponsibleforestablishingGAAP.TheConceptualFrameworkTheFinancialAccountingStandardsBoard(FASB)issuesStatementsofFinancialAccountingConcepts.Thesestatementsconstitutetheconceptualframeworkofaccounting.1.3THEFASB’SFINANCIALACCOUNTINGCONCEPTUALFRAMEWORK1.3-1ObjectivesoftheConceptualFrameworkTheFrameworkistobethefoundationforbuildingasetofcoherentaccountingstandardsandrules.TheFrameworkistobeareferenceofbasicaccountingtheoryforsolvingemergingpracticalproblemsofreporting.1.3-2OverviewoftheConceptualFramework----ThreelevelsofobjectiveselementsandprinciplesThefirstlevelconsistsofobjectives.Thesecondlevelexplainsfinancialelementsandcharacteristicsofinformation.Thethirdlevelincorporatesrecognitionandmeasurementcriteria.LevelI.BasicObjectivesofFinancial

ReportingToprovideinformation:abouteconomicresources,theclaimsonthoseresourcesandchangesinthemthatisusefultothosemakinginvestmentandcreditdecisions,suchaspresentandfutureinvestors,creditorsinassessingfuturecashflows;Andtoindividualswhoreasonablyunderstandbusinessandeconomicactivities.LevelII.BasicElementsAndQualitativeCharacteristicsofAccountinginformationLiabilities:ProbablefuturesacrificesofeconomicbenefitsEquity:ResidualorownershipinterestInvestmentbyOwners:IncreasesinnetassetsDistributionstoOwners:DecreasesinnetassetsComprehensiveIncome:Changesinequityfromnon-ownersourcesRevenues:Inflowsfromentity’songoingoperationsExpenses:Outflowsfromentity’songoingoperationsGains:IncreasesinequityfromincidentaltransactionsLosses:DecreasesinequityfromincidentaltransactionsAssets:Probablefutureeconomicbenefits(i)ElementsinFinancialStatements(i)ElementsinfinancialstatementsRevenuesExpenses

incomestatementGainsLossesComprehensiveincomeAssetsLiabilitiesbalancesheetOwner’sequityInvestmentbytheownersDistributionstoownersREVENUESRevenues

arethegrossincreasesinowners’(stockholders’)equitythatresultfromoperatingthebusiness.Generally,revenuesresultfromthesaleofmerchandise,theperformanceofservices,therentalofproperty,orthelendingofmoney.Revenuesusuallyresultinanincreaseinanasset.EXPENSESExpenses

arethedecreasesinowners’(stockholders’)equitythatresultfromoperatingthebusiness.Theyarethecostofassetsconsumedorservicesusedintheprocessofearningrevenue.Examplesofexpensesincludeutilityexpense,rentexpense,suppliesexpense,andtaxexpense.Whenrevenuesexceedexpenses,netincomeresults.Whenexpensesexceedrevenues,anetlossresults.Gainsandlosses(con.)Gains:increaseinequityfromincidentalorperipheraltransactionsnotassociatedwiththecompany’smajororcentrallinesofbusiness,e.g.gainfromdisposaloffixedasset.GainsandlossesLosses:decreaseinequityfromincidentalorperipheraltransactionsnotassociatedwiththecompany’smajororcentrallinesofbusiness,e.g.lossfromdisposaloffixedasset.ASSETSAssetsareresourcesownedbyabusiness.Theyarethingsofvalueusedincarryingoutsuchactivitiesasproduction,consumptionandexchange.Thecommoncharacteristicspossessedbyallassetsisthecapacitytoprovidefutureservicesorbenefitstotheentitiesthatusethem.LIABILITIESLiabilities

areclaimsagainstassets.Theyareexistingdebtsandobligations.Mostclaimsofcreditorsattachtototalenterpriseassetsratherthantothespecificassetsprovidedbythecreditor.Owner’sequityClaimonnetassetsOwner’sequity=totalassets-totalliabilitiesDifferentOE

Proprietorship

andpartnership:Capital(subdivisions:Capital;Drawing)

Corporation:Stockholders’equity

(subdivisions:Paid-incapital;Retainedearnings)InvestmentsbyOwnersRevenuesOwners’EquityDrawingExpensesINCREASESANDDECREASESIN

OWNERS’EQUITYINCREASEDECREASEInvestmentsbyStockholdersRevenuesStockholders’EquityDividendstoStockholdersExpensesINCREASESANDDECREASESIN

STOCKHOLDERS’EQUITYINCREASEDECREASE(ii).QualitativeCharacteristicsofAccountingInformation1.PrimaryqualitiesareRelevanceandReliabilityofaccountinginformation.Relevance

ofinformationmeans“informationcapableofmakingadifferenceinadecisioncontext.”Theinformationmustbetimely

toberelevant.Theinformationshouldhavepredictivevalue:(behelpfulinmakingpredictionsaboutultimateoutcomesofpast,presentandfutureevents).Theinformationshouldhavefeedbackvalue(helpsuserstoconfirmpriorexpectations.)Informationisreliable,whenitcanbereliedontorepresentthetrue,underlyingsituation.Tobereliable,informationmustbe: *verifiable

*faithful,and

*neutral

2.Secondarycharacteristicsare:comparabilityandconsistencyofreportedinformation.Forinformationtobe

comparable,itmustbe:1)measuredandreportedinasimilarmannerfordifferententerprises.2)usefulintheallocationofresourcestotheareasofgreatestbenefit.3)usefultousersinidentifyingrealdifferencesbetweenenterprises.Accountinginformationisconsistent,

if

thesameaccountingprinciplesareappliedinasimilarmannerfromoneperiodtothenext.Accountingprinciplesmaybechanged,ifthechangeresultsinbetterreporting.Ifprinciplesarechanged,thejustificationfor,andthenatureandeffectofthechange,mustbe disclosed.LevelIII.RecognitionandMeasurementCriteria(i).EnvironmentalAssumptions

1.EconomicEntityAssumptionAneconomicentitycanbeanyorganizationorunitinsociety.Abusinessenterprisemaybeorganizedassoloproprietorship,partnershipandcorporation.Solo-proprietorshipAbusinessownedbyoneperson.Theownerisoftenthemanager/operatorofthebusiness.Smallservice-typebusinessesorsmallretailstores.Solo-proprietorshipUsuallyonlyalimitedamountofmoney(capital)isnecessarytostartinbusiness,andtheownerreceivesanyprofits,suffersanylosses,andispersonallyliableforalldebtsofthebusiness.PartnershipWhenabusinessisownedbytwoormorepersons(partners).Whenapartnershipiscreated,thereshouldbeanagreementsettingforthsuchtermsasinitialinvestmentofeachpartner,dutiesofeachpartner,divisionofprofitsorlosses,andsettlementtobemadeupondeathorwithdrawalofapartner.PartnershipEachpartnergenerallyhasunlimitedpersonalliabilityforthedebtsofthepartnership.Thepartnershipaffairsmustbekeptseparatefromthepersonalactivitiesofthepartners.CorporationAbusinessorganizedasaseparatelegalentityunderstatecorporationlawanditsownershipdividedintotransferablesharesofstockiscalledacorporation.Theholdersofthesharesenjoylimitedliability;theyarenotpersonallyliableforthedebtsofthecorporateentity.2.GoingConcernAssumptionThebusinessisassumedtocontinueindefinitelyunlessterminatedbyowners.Thebasisofrecordingfinancialelementsishistoricalaccounting.Liquidationaccounting(basedonliquidationvalues)isnotfollowedunlesssoindicated.3.MonetaryUnit(UnitOfMeasurement)Moneyisthecommonunitofmeasureofeconomictransactions.Useofamonetaryunitisrelevant,andsimpletounderstand.4.TimePeriodAssumption(tobeexplainedinChapter2)2222(ii).ImplementationPrinciples1.CostPrinciple(HistoricalCostPrinciple)Transactionisrecordedatitsacquisitionprice.Itisnotchangedtoreflectmarketprice.Theprincipleappliestoassetsandliabilities.Usersoffinancialstatementsmayfindcurrentfairvalueinformationtobeusefulaswell.A“mixedattribute”systemreportshistoricalcost,fairvalue,andlowerofcostormarketvaluesappliedtoinventoryvaluation(tobeexplainedinChapter7).2.RevenueRecognitionPrincipleRevenueisrecognizedwhenitisearnedorrealizable,theseller’smajortaskhascompletedandtheamountcanbeobjectivelydetermined.24243.TheMatchingPrincipleExpensesinoneperiodarematchedtorevenuesofthesameperiodsoastodeterminetheprofitinthecureentperiodappropriately.4.TheFullDisclosurePrincipleFinancialstatementsmustreportwhatareasonablepersonwouldneedtoknowtomakeaninformeddecision.Disclosuremaybemade:withinthebodyofthefinancialstatements,asnotestothosestatements,orassupplementaryinformation.

(iii)ImplementationConstraints

1.Cost-BenefitRelationship

*Thecostofprovidinginformationshouldnotoutweighthebenefitderived.*Costsandbenefitsarenotalwaysobviousorquantifiable.*Soundjudgmentmustbeusedinprovidinginformation.2.Materialityreferstoanitem’simportancetoafirm’soverallfinancialoperations.3.IndustryPracticesThenatureofsomeindustriesmaysometimesrequiredeparturesfrombasicaccountingtheory.Ifapplicationofaccountingtheoryresultsinstatementsthatarenotcomparableorconsistent,thenindustrypracticesmustexaminedforpossibleexplanations.4.Conservatism

suggeststhatthepreparer,whenindoubt,chooseaconservativesolution.Thissolutionwillbeleastlikelytooverstateassetsandincome.Conservatismdoesnotsuggestthatnetassetsornetincomebedeliberatelyunderstated.1.4TheAccountingEquationAndTransactionsTheAccountingEquation:

Assets=Liabilities+Owners’EquityTransactions

aretheeconomiceventsoftheenterprise.Theymaybeidentifiedasexternalorinternal.

1Externaltransactions

involveeconomicevents betweenthecompanyandsomeoutside enterpriseorparty.

2Internaltransactions

areeconomiceventsthat occurentirelywithinonecompany.TRANSACTIONANALYSISRexNelson

decidedtoopenacomputerprogrammingcompanywhichnamedasSoftroom.Heinvested$150,000cashinthebusiness. TRANSACTIONANALYSISTRANSACTION1ThereisanincreaseintheassetCash,$15,000,andanequalincreaseinthestockholders’equity,R.N.Capital,$150,000.TRANSACTIONANALYSISTRANSACTION1SOLUTION(1)

+150,000=+150,000CapitalAssets=Liabilities+Owners’EquityR.NelsonCashCapitalTRANSACTIONANALYSISTRANSACTION

2Softroom

purchasedcomputerequipmentfor$70,000cash.Cashisdecreased$70,000andtheassetEquipmentisincreased$70,000.TRANSACTIONANALYSISTRANSACTION2SOLUTION=+70,000=(2)

-70,000+70,000

Assets=Liabilities+R.N.CapitalCash+EquipmentOldBal.150,000150,000NewBal.80,000150,000Owners’EquitySoftroom

purchasedcomputerpaperandothersuppliesexpectedtolastseveralmonthsfromAdamSupplyCompanyfor$16,000oncredit.TRANSACTIONANALYSISTRANSACTION

3AdamSupplyCompanySoftroom,Inc.TheassetSuppliesisincreased$16,000andtheliabilityAccountsPayableisincreasedbythesameamount.TRANSACTIONANALYSISTRANSACTION3SOLUTION+=+(3)

+16,000+16,000

Assets=Liabilities+Owners’EquityAccountsR.N.CapitalCash+Supplies+Equipment=Payable+OldBal.80,00070,000150,000NewBal.80,00016,000+70,00016,000150,000Softroom

received$12,000cashfromcustomersforprogrammingservicesithasprovided.TRANSACTIONANALYSISTRANSACTION

4SoftroomCashisincreased$12,000andR.N.Capitalisincreased$12,000.Assets=Liabilities+Stockholders’EquityAccountsCash+Supplies+Equipment=Payable+OldBal.80,00016,00070,00016,000150,000NewBal.92,000+16,000+70,000=16,000+162,000R.N.CapitalTRANSACTIONANALYSISTRANSACTION4SOLUTION(4)+12,000+12,000ServiceRevenue

Softroom

receivedabillfor$2,500fromtheDailyNewsforadvertisingtheopeningofitsbusinessbutpostponedpaymentofthebilluntilalaterdate.SoftroomDailyNewsBillTRANSACTIONANALYSISTRANSACTION

5AccountsPayableisincreased$2,500,andR.N.Capitalisdecreased$2,500.TRANSACTIONANALYSISTRANSACTION5SOLUTIONAssets=Liabilities+AccountsCash+Supplies+Equipment=Payable+OldBal.92,00016,0070,00016,000162,000NewBal.92,000+16,000+70,000=18,500+159,500Stockholders’EquityR.N.Capital+2,500-2,500AdvertisingExpenseSoftroom

providedprogrammingservicesof$35,000forcustomers.Cashamountingto$15,000wasreceivedfromcustomers,andthebalanceof$20,000wasbilledtocustomersonaccount.SoftroomBillTRANSACTIONANALYSISTRANSACTION

6TRANSACTIONANALYSISTRANSACTION6SOLUTION

Assets=Liabilities+Owners’EquityCash+A/R+Supplies+Equipment=AccountsPayable+R.NCapital

Oldbal.

92,00016,00070,00018,500159,500+15000+20000

+35,000ServiceRevenueCashwasincreased$15000;AccountsReceivablewasincreased$20000;andCapitalwasincreased$35000ExpensespaidincashforSeptemberwerestorerent,$6,000,salariesofemployees,$9,000,andutilities,$2,000.Softroom,Inc.$6,000$9,000$2,000TRANSACTIONANALYSISTRANSACTION

7RentExp.SalariesExp.UtilitiesExp.AcountofsuppliesonSeptember30indicatedthat$4,000ofsupplieshadbeenusedindevelopingsoftwareforclients.TRANSACTIONANALYSISTRANSACTION

8

Assets=Liabilities+Owners’EquityCash+A/R+Supplies+Equipment=AccountsPayable+R.NCapital

-4,000

-4,000SuppliesExpenseSoftroom

paiditsDailyNewsadvertisingbillof$2,500incash.Ithadpreviouslybeenrecordedintransaction5asanincreaseinAccountsPayable.Softroom,Inc.DailyNewsTRANSACTIONANALYSISTRANSACTION

9

Assets=Liabilities+Owners’Equity

Cash+A/R+Supplies+Equipment=AccountsPayable+R.NCapital-2500

-2500Thesumof$6,000incashwasreceivedfromcustomerswhohadpreviouslybeenbilledforservicesinTransaction6.TRANSACTIONANALYSISTRANSACTION

10Softroom,Inc.