Preview of Chapter 1

Financial Accounting
IFRS Second Edition
Weygandt Kimmel Kieso
1-1
 進入會計第一現場當柯南

1-2
 什麼是會計 ?
 很難? 很恐怖? 很無聊? 數學程度要很厲害才
能念?
 夠專業/幫你了解一家公司/幫你抓漏當柯南
 不難找工作/幫你賺錢
 會計是一種語言，一種溝通方式

1-3
 What is Accounting?

Accounting consists of three basic activities - it

 identifies,

 records, and

 communicates

the economic events of an organization to interested users.

美國會計學會（American Accounting Association，簡稱

AAA）的定義：
「會計是對經濟資訊的認定、衡量與溝通的程序，以
協助資訊使用者做判斷與決策。」
1-4 LO 1 Explain what accounting is.
 What is Accounting?
Illustration 1-1

Three Activities The activities of the

accounting process

The accounting process includes

the bookkeeping function.

1-5 LO 1 Explain what accounting is.

 一、什麼是會計 ?

 美國會計學會（American Accounting Association，

簡稱AAA）的定義：
「會計是對經濟資訊的認定、衡量與溝通的程序，以協助資
訊使用者做判斷與決策。」
 美國會計師協會(AICPA)的會計原則委員會第四號公報的
官方說法：
「會計的功能在提供有關經濟個體的數量化資訊－尤其是財
務資訊，以便使用者藉此資訊在各種行動方案中，做一個
明智的抉擇。」

會計的目的就是幫助會計資訊的使用人，提供訊息及解決問
題。將資料彙整成表，以提供會計資訊給需要的人。

1-6
 Who Uses Accounting Data

External
Internal Users
Human Taxing
Users Authorities
Resources
Labor
Unions
Finance
Management Customers

Creditors
Marketing Regulatory
Agencies
Investors

1-7 LO 2 Identify the users and uses of accounting.

 一、什麼是會計 ?
 會計分為財務會計與管理會計兩種。
財務會計的目的是利用財務報表，向投資者和債
權人傳達公司的資訊；
管理會計則可採任意方式，向經營者在公司內部
管理與決策上傳達所需要的資訊。

 會計是管帳的 不是管錢

 會計是講平衡 、 “講公平 講道理” 的學問

1-8
 Who Uses Accounting Data

Common Questions Asked User

1. Can we afford to give our
employees a pay raise? Human Resources
2. Did the company earn a
satisfactory income? Investors
3. Should any product lines be
eliminated? Management
4. Is cash sufficient to pay dividends
to shareholders? Finance
5. What price for our product will
maximize net income? Marketing
6. Will the company be able to pay
its debts? Creditors
1-9 LO 2 Identify the users and uses of accounting.
 Ethics in Financial Reporting

Question
Ethics are the standards of conduct by which one's actions are
judged as:

a. right or wrong.

b. honest or dishonest.

c. fair or not fair.

d. all of these options.

1-10 LO 3 Understand why ethics is a fundamental business concept.

 The Building Blocks of Accounting

Accounting Standards

International Accounting Standards Board (IASB)

http://www.iasb.org/

International Financial Reporting Standards (IFRS)

Financial Accounting Standards Board (FASB)

http://www.fasb.org/

Generally Accepted Accounting Principles (GAAP)

1-11 LO 4 Explain accounting standards and the measurement principles.

 Another Perspective

Key Points
 IFRS tends to be less detailed in its accounting and disclosure
requirements than GAAP. This difference in approach has resulted in a
debate about the values of “principles-based” (IFRS) versus “rules-
based” (GAAP) standards.
 U.S. regulators have recently eliminated the need for foreign companies
that trade shares in U.S. markets to reconcile their accounting with
GAAP.

1-12
 The Building Blocks of Accounting

Measurement Principles
Cost Principle – or historical cost principle, dictates that
companies record assets at their cost.

Fair Value Principle – states that assets and liabilities

should be reported at fair value (the price received to sell an
asset or settle a liability).

1-13 LO 4 Explain accounting standards and the measurement principles.

 The Building Blocks of Accounting

Assumptions
Monetary Unit – include in the accounting records only
transaction data that can be expressed in money terms.

Economic Entity – requires that activities of the entity be

kept separate and distinct from the activities of its owner and
all other economic entities.
 Proprietorship.
 Partnership. Forms of Business
Ownership
 Corporation.

LO 5 Explain the monetary unit assumption

1-14
and the economic entity assumption.
 Forms of Business Ownership

Proprietorship Partnership Corporation

 Generally owned  Owned by two or  Ownership

by one person more persons divided into
 Often small shares
 Often retail and
service-type service-type  Separate legal
businesses businesses entity organized
 Owner receives under corporation
 Generally
any profits, law
unlimited
suffers any personal liability  Limited liability
losses, and is
 Partnership
personally liable
agreement
for all debts

LO 5 Explain the monetary unit assumption

1-15
and the economic entity assumption.
 Indicate whether each of the following statements presented below
is true or false.

1. The three steps in the accounting process are

identification, recording, and communication. True

2. The two most common types of external users are

investors and company officers. False

3. Shareholders in a corporation enjoy limited legal

liability as compared to partners in a partnership. True

LO 5 Explain the monetary unit assumption

1-16
and the economic entity assumption.
 Indicate whether each of the following statements presented below
is true or false.

4. The primary accounting standard-setting body outside

the United States is the International Accounting True
Standards Board (IASB).

5. The cost principle dictates that companies record

assets at their cost. In later periods, however, the fair False
value of the asset must be used if fair value is higher
than its cost.

LO 5 Explain the monetary unit assumption

1-17
and the economic entity assumption.
 The Building Blocks of Accounting

Question
Combining the activities of Kellogg and General Mills would
violate the

a. cost principle.

b. economic entity assumption.

c. monetary unit assumption.

d. ethics principle.

LO 5 Explain the monetary unit assumption

1-18
and the economic entity assumption.
 Forms of Business Ownership

Question
A business organized as a separate legal entity under law
having ownership divided into ordinary shares is a

a. proprietorship.

b. partnership.

c. corporation.

d. sole proprietorship.

LO 5 Explain the monetary unit assumption

1-19
and the economic entity assumption.
 The Basic Accounting Equation

Assets = Liabilities + Equity

Provides the underlying framework for recording and

summarizing economic events.

Applies to all economic entities regardless of size.

1-20 LO 6 State the accounting equation, and define its components.

 The Basic Accounting Equation

Assets = Liabilities + Equity

Provides the underlying framework for recording and

summarizing economic events.

Assets
 Resources a business owns.
 Provide future services or benefits.
 Cash, Inventory, Equipment, etc.

1-21 LO 6 State the accounting equation, and define its components.

 The Basic Accounting Equation

Assets = Liabilities + Equity

Provides the underlying framework for recording and

summarizing economic events.

Liabilities
 Claims against assets (debts and obligations).
 Creditors - party to whom money is owed.
 Accounts payable, Notes payable, etc.

1-22 LO 6 State the accounting equation, and define its components.

 The Basic Accounting Equation

Assets = Liabilities + Equity

Provides the underlying framework for recording and

summarizing economic events.

Equity
 Ownership claim on total assets.
 Referred to as residual equity.
 Share capital-ordinary and retained earnings.

1-23 LO 6 State the accounting equation, and define its components.

 Using the Accounting Equation

Transaction Analysis
Illustration 1-9
Expanded accounting equation

1-24 LO 7 Analyze the effects of business transactions on the accounting equation.

 The Basic Accounting Equation
Illustration 1-7

Revenues result from business activities entered into for the purpose
of earning income.
Generally results from selling merchandise, performing services,
renting property, and lending money.

1-25 LO 6 State the accounting equation, and define its components.

 The Basic Accounting Equation
Illustration 1-7

Expenses are the cost of assets consumed or services used in the

process of earning revenue.
Common expenses are salaries expense, rent expense, interest
expense, property tax expense, etc.

1-26 LO 6 State the accounting equation, and define its components.

 The Basic Accounting Equation
Illustration 1-7

Dividends are the distribution of cash or other assets to shareholders.

 Reduce retained earnings
 Not an expense

1-27 LO 6 State the accounting equation, and define its components.

 Classify the following items as issuance of shares, dividends,
revenues, or expenses. Then indicate whether each item
increases or decreases equity.

Classification Effect on Equity

1. Rent expense Expense Decrease

2. Service revenue Revenue Increase

3. Dividends Equity Decrease

4. Salaries expense Expense Decrease

1-28 LO 6 State the accounting equation, and define its components.

 Using the Accounting Equation

Transactions are a business’s economic events recorded

by accountants.

 May be external or internal.

 Not all activities represent transactions.

 Each transaction has a dual effect on the accounting

equation.

1-29 LO 7 Analyze the effects of business transactions on the accounting equation.

 Using the Accounting Equation

Illustration: Are the following events recorded in the accounting

records?
Illustration 1-8
Discuss
Purchase product
Event Pay rent.
computer. design with
customer.

Criterion Is the financial position (assets, liabilities, or equity)

of the company changed?

Record/
Don’t Record

1-30 LO 7 Analyze the effects of business transactions on the accounting equation.

 Using the Accounting Equation

Transaction Analysis
Illustration 1-9
Expanded accounting equation

1-31 LO 7 Analyze the effects of business transactions on the accounting equation.

 Transaction Analysis
Transaction (1). Investment by Shareholders. Ray and Barbara Neal
decides to open a computer programming service which he names
Softbyte. On September 1, 2014, they invest €15,000 cash in exchange for
€15,000 of ordinary shares.
Illustration 1-10

1-32
LO 7
 Transaction Analysis
Transaction (2). Purchase of Equipment for Cash. Softbyte purchases
computer equipment for €7,000 cash.

Illustration 1-10

1-33
LO 7
 Transaction Analysis
Transaction (3). Purchase of Supplies on Credit. Softbyte purchases
for €1,600 from Acme Supply Company computer paper and other supplies
expected to last several months. The purchase is on account.

Illustration 1-10

1-34
LO 7
 Transaction Analysis
Transaction (4). Services Provided for Cash. Softbyte receives €1,200
cash from customers for programming services it has provided.

Illustration 1-10

1-35
LO 7
 Transaction Analysis
Transaction (5). Purchase of Advertising on Credit. Softbyte receives a
bill for €250 from the Daily News for advertising but postpones payment
until a later date.

Illustration 1-10

1-36
LO 7
 Transaction Analysis
Transaction (6). Services Provided for Cash and Credit. Softbyte
provides €3,500 of programming services for customers. The company
receives cash of €1,500 from customers, and it bills the balance of €2,000
on account.
Illustration 1-10

1-37
LO 7
 Transaction Analysis
Transaction (7). Payment of Expenses. Softbyte pays the following
expenses in cash for September: store rent €600, salaries and wages of
employees €900, and utilities €200.

Illustration 1-10

1-38
LO 7
 Transaction Analysis
Transaction (8). Payment of Accounts Payable. Softbyte pays its €250
Daily News bill in cash.

Illustration 1-10

1-39
LO 7
 Transaction Analysis
Transaction (9). Receipt of Cash on Account. Softbyte receives €600 in
cash from customers who had been billed for services [in Transaction (6)].

Illustration 1-10

1-40
LO 7
 Transaction Analysis
Transaction (10). Dividends. The corporation pays a dividend of €1,300
in cash.

Illustration 1-10

1-41
LO 7
 Financial Statements

Companies prepare four financial statements :

Retained Statement Statement

Income
Earnings of Financial of Cash
Statement
Statement Position Flows

1-42 LO 8 Understand the four financial statements and how they are prepared.
 Financial Statements

Question
Net income will result during a time period when:

a. assets exceed liabilities.

b. assets exceed revenues.

c. expenses exceed revenues.

d. revenues exceed expenses.

1-43 LO 8 Understand the four financial statements and how they are prepared.
 Net income is needed to determine the
Financial Statements ending balance in retained earnings.

Illustration 1-11
Financial statements and
their interrelationships

1-44 LO 8
 The ending balance in retained earnings is
Financial Statements needed in preparing the balance sheet

Illustration 1-11

1-45 LO 8
 The balance sheet and income statement are
Financial Statements needed to prepare statement of cash flows.

Illustration 1-11

1-46 LO 8
 Financial Statements

Question
Which of the following financial statements is prepared as
of a specific date?

a. Statement of financial position.

b. Income statement.

c. Retained earnings statement.

d. Statement of cash flows.

1-47 LO 8 Understand the four financial statements and how they are prepared.
4C
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ILLUSTRATION 1.13 Comprehensive income statement
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Ch 1 Accounting in Action