05 eng104-bai 1-v1.0

ACCOUNTING BASICS

UNIT OBJECTIVES - MỤC TIÊU

DURATION (9 periods) - THỜI LƯỢNG HỌC (9 TIẾT)

• Provide students with an overview of accounting main issues, basic terms and concepts relatedto accounting.

Cung cấp cho sinh viên cái nhìn tổng quan về các vấn đề cơ bản trong kế toán, các thuật ngữvà khái niệm cơ bản trong kế toán.

• Provide for students the way of organizing an academic essay.

Cung cấp học sinh phương pháp tổ chức viết một bài luận.

• At the end of this unit, students will be able to talk and write about accounting main issues.

Sau khi kết thúc bài học này, sinh viên có thể nói và viết về các vấn đề cơ bản trong kế toán.

In this unit, students will be provided knowledge towrite and talk about an overview of accounting mainissues, basic terms and concepts related to accounting.

Trong bài này, sinh viên sẽ được cung cấp các kiến thứcngôn ngữ để nói và viết về các vấn đề tổng quan trongkế toán, các thuật ngữ và khái niệm cơ bản về kế toán.

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Unit 1: Accounting Basics

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Match the words or expressions in the column A with their definition in column B.The suggested time to do this exercise is 10 minutes.

Column A Column B

1. Ledger A The amount of money written on the left side of the ledger

2. Debit B The amount of money written on the right side of the ledger

3. Credit CThe recording of revenues and expenses may take place before related cash is received.

4. Cash method DA book in which the monetary transactions of a business are posted inthe form of debits and credits. A ledger includes the record ofaccounts transferred as final entry from original postings.

5. Accrual method EThe recoding of revenue and expenses takes place when the relatedcash is received

6. Balance sheet FA statement reporting the organization’s economic performance overa specific period of time.

7. Income statement

GThe basis of the standard accounting system in which each transactionis recorded in at least two accounts: debit and credit.

8. Cashflow statement

HThe summary of the organization’s uses of funds (assets) and sourcesof funds (liablilities and equity) at a specific point of time

9. Double-entry accounting

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The basic formula of the double-entry book keeping system. It showshow assets were financed either by borrowing money from someoneelse (liability) or by paying your own money (shareholder’s/ owner’sequity)Assets = Liabilities + Shareholder’s/ owner’s equity

10. Accounting equation

JA statement explaining how an organization obtains cash and how itspend cash and other factors that may affect cash positions.

11. Revenue K A daily record of events or business

12. Book keeping LAn evaluation of a person, organization, system, process, project orproduct in order to certain the validity and reliability of information,and also provide an assessment of a system’s internal control.

13. Creditor MThe recording of all financial transactions undertaken by an individualor organization.

14. Audit Nthe amount of money that a company receives from its activities in agiven period, mostly from sales of products and/or services to cus-tomers

15. Journals O

A party (e.g. person, organization, company, or government) that hasa claim to the services of a second party. The first party, in general,has provided some property or service to the second party under the as-sumption (usually enforced by contract) that the second party will re-turn an equivalent property or service.

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ACCOUNTING BASICS

Definition of Accounting

Accounting is the process of financially measuring,recording, summarizing and communicating the

economic activity of an organization. It is often referred toas “the language of business” and, like any other language,it has its own unique vocabulary and rules. Some peoplethink of accounting as a highly technical field understoodonly by professional accountants. However, technical accounting terms such as assets, liabilities, equity, revenue,expense, income and cash flow are widely usedthroughout the micro-finance field. Thus it is important

that anyone involved in making business decisions understands the basic accounting conceptswhich form the basis of financial management.

Accounting is the process

Accounting is a service activity. It provides financial information about an organization’seconomic activities which is intended to be used as a basis for decision making. It provides

the required to answer questions such as: What are the resources of the organization? Whatdebts does it owe? Are its operating expenses too high relative to revenue? Are the organization’scurrent lending activities generating enough income for it to be sustainable? Not everyoneneeds to understand the intricate details of an organization’s accounting system; however, itis helpful for employees to understand the framework within which accounting operates.Managers, in particular, need to know how to interpret the information accounting provides.Based on this information, managers can analyze the financial status of their organization andmanage the organization’s finances to ensure future financial stability.

Role of Accounting

Accounting falls into two general categories: financial accounting and management accounting. Financial

accounting presents a summary view of the financial resultsof past operations. Financial accounting reports are aimed atexternal audiences although they are widely used internally as well. Management accounting information is tracked andpresented at a much more detailed level, such as by programme or branch. Projected financial information is also a part of management accounting and is aimed primarily at internal audience. Management reports are prepared frequently and report on an on goingbasis the differences between planned and actual results.

Financial Statements

The preparation of financial statements is virtually the last stepin the accounting process but it is an appropriate point to begin studying accounting in order to understand what will

be produced. Financial statements are the primary means through which an organization communicates information about its economic activities. The purpose of these statements is to provide useful financial information to parties such as banks, investors, suppliers, governments,etc., who may make decisions affecting the organizations’ operations or otherwise influence the

Text A: Read text A: Accounting Basics and do exercises 2.1, 2.2 below. The suggested time for reading the text and completing the exercises is 30 minutes.

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direction of its activities. Financial statements are means of conveying a concise picture of the financial position ofthe organization. An individual who hasa clear understanding of these statementswill understand better the purpose of earlier steps in the process. The three most widely used financialstatements are the Balance Sheet, theIncome Statement and the Statement ofChanges in Financial Position. The BalanceSheet is a summary of the economic resources of an organization and theclaims against those resources at a specific point in time. The Income Statement reports theorganization’s economic performance over a specified period of time. The Statement of Changes in Financial Position reports the organization’s sources and usesof funds (also referred to as the Statement of Changes in Sources and Uses of Funds or theCash Flow Statement). It explains how an organization obtains cash (sources of funds) andhow it spends cash (use of funds) including the borrowing and repayment of debt, capitaltransactions, and other factors that may affect the cash position.(Source: http://www.ruralfinance.org/servlet/BinaryDownloaderServlet?fileame=1125440545561_Lesson1_definition_accounts.pdf, retrieved on 15 December, 2009)

Answer the following questions based on the information in text A.1. What is Accounting? 2. Why is it important for business people to understand the basic accounting concepts? 3. What kinds of information does accounting activity provide? 4. What does the accounting information help managers in the business management? 5. Who are financial accounting aimed at? How about management accounting? 6. What kinds of information about the company do financial statements provide? 7. What are the most popular financial statements?

According to text A which of the following sentences are (T) or false (F). Correct the false information.

Note:

The Statement of Changes in Financial Positionis not described until after the recording andsummarizing of economic transactions is explained.The first two statements are explained earlier.Together, these statements summarize all ofthe information contained in the organization’saccounts.

Questions T/F

1. Accounting rules and terms are very technical and only professional accountantscan understand.

2. Accounting activity brings the information about the income and the spendingof the company.

3. As a manager, understanding accounting system entails being able to interpretthe information accounting provides.

4. People like investors and bondholders use management accounting reportsto make their investment decisions.

5. One who can’t read the financial statements can’t understand the accountingprocess.

6. Statement of changes in sources and uses of funds is part of the statement ofchanges in financial position.

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2.1

2.2

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ACCOUNTING POLICIES AND STANDARDS

Text B: Read text B and do exercises 2.3, 2.4, 2.5 below. The suggested time for reading the text and completing the exercises is 40 minutes.

Valuation and measurement

Investors in companies want toknow how much the companies

are worth, so companies regularlyhave to publish the value of theirassets and liabilities. Companiesalso have to calculate their profits

or losses: their managers needthis information, and so doshareholders, bondholders andthe tax authorities. Companiescan choose their accountingpolicies – their way of doing theiraccounts. There are a range ofmethods of valuation – decidinghow much something is worth– and measurement – determininghow big something is – that areaccepted by law or by officialaccounting standards. In the USA,there are Generally AcceptedAccounting Principles (GAAP).In most of the rest of the worldthere are International FinancialReporting Standards (IFRS), setby the International AccountingStandards Board. These aretechnical rules or conventions– accepted ways of doing thingsthat are not written down in a law.Although businesses can chooseamong different accountingpolicies, they have to be consistent, which means using

the same methods every year,unless there is a good reason tochange a policy: this is knownas the consistency principle. Thepolicies also have to be disclosedor revealed to the shareholders:the Annual Report will containa ‘Statement of AccountingPolicies’ that mentions anychanges that have been made.This enables shareholders tocompare profits and valueswith those of previous years.

Areas in which the choice ofpolicies can make a big differenceto the final profit figure includedepreciation – reducing the valueof assets in the company’s accounts, the valuation of stock

or inventory, and the making ofprovisions – amounts of moneydeducted from profits – for future pension payments.

As there is always more thanone way of presenting accounts,the accounts of British companieshave to give a true and fairview of their financial situation– meaning there are variouspossibilities – rather than thetrue and fair view – meaningonly one is possible.

Historical cost and accounting

The aim of accounting standardsis to provide shareholders

with the information that willallow them to make financialdecisions. This is one reasonwhy in many countries accountingfollows the historical cost principle: companies record the original purchase price ofassets, and not their (estimated)current selling price or replace-ment cost. This is more objective, and the current valueis not important if the businessis a going concern – a successfulcompany that will continue todo business – as its assets arenot going to be sold, or do notcurrently need to be replaced.

However, some countries withregular high inflation, e.g. inSouth America, use inflationaccounting systems that takeaccount of changing prices. Onesystem used is replacement costaccounting, which values all assets at their current replacementcost – the amount that wouldhave to be paid to replace themnow.

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Match the two parts of the sentences

Are the following statements true or false?

1. Companies are told which accounting policies to use.

2. Companies can change their accounting policies whenever they like, as long as they disclose this in their Annual Report.

3. Companies could produce several profit figures, depending on how they depreciated theirassets, valued their inventory, etc.

4. There is only one correct interpretation of a company’s financial position, and company accounts must show this.

5. In many countries, companies do not record the current value of their assets.

6. In countries with high inflation, companies value their assets at their current replacementcost.

Complete the table with words from the text and related forms

Put a stress mark in front of the stressed syllable in each word. The first one hasbeen done for you.

Verb Noun(s) Adjective

calcu’lation -

- consistent

- conventional

measure -

present -

valuable

2.3

2.4

2.5

1. Company’s managers, investors, creditorsand the tax authorities all

a. and not their current value, is recorded inaccounts.

2. There are different ways of doing accountingbut companies have to be consistent,

b. need to know the current market value ofits assets.

3. Companies have to disclose or makeknown

c. need to know about the size of profits orlosses.

4. The historical cost principle is that the pricepaid to buy assets,

d. which accounting methods they are using.

5. A going concern usually doesn’t e. which means regularly using the samemethods.

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You are now listerning to a lecture on accounting overview. Listen carefullyand do the exercices 3.1, 3.2, 3.3 below.

Listen to the lecture the FIRST time and answer the questions

1. Why is accounting called the ‘language of business’? ....................................................................................

2. How is a standardized accounting system achieved?....................................................................................

3. What are revenues and expenditures? ...................................................................................

4. In what ways are the balance sheet and the income statement different? ...................................................................................

5. How are accountants classified in the United States? ...................................................................................

6. What kind of services do public accountants provide? ...................................................................................

7. For whom do private and governmental accountants work?...................................................................................

Now listen to the lecture the SECOND time and circle the answer that best completes each of the sentences below

1. Accounting information is used by .................. to help them make financial decisions.a. managers b. potential investorsc. creditors d. all of the above

2. Regardless of the type of business or the amount of money involved:a. all companies use identical accounting systemsb. balance sheets are more important than income statementsc. common procedures are used in handling financial informationd. no standardized accounting system is employed

3. Business monetary transactions are summarized in:a. bank books b. financial statementsc. computers d. cash registers

4. Public accountants may earn the title of CPA by:a. becoming governmental accountantsb. paying a feec. fulfilling rigorous requirementsd. obtaining a Bachelor of Arts degree in accounting.

5. Private and governmental accountants are paid on a ............. basis.

a. salary b. monthly

c. fee d. weekly

3.1

3.2

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An accounting overview

Hi everyone, accounting is frequently called the ‘language of business’because of its ability to communicate financial information aboutan organization. Why is called so? Various (1)………... .parties,such as managers, potential investors, (2)…..…, and the government,depend on a company’s accounting system to help them make informed financial decisions. An effective accounting system, therefore, must include accurate (3)………., recording, classifying,(4)…….., (5)………….and reporting of information on the financialstatus of an organization.

In order to achieve a standardized system, the accounting processfollows accounting principles and rules. Regardless of the type of business or the amountof money (6)…….., common procedures for (7)…….. and presenting financial informationare used. Incoming money (revenues) and outgoing money (expenditures) are carefullymonitored, and (8)………… are summarized in financial statements, which (9)……. themajor financial activities of an organization.

Ok. As you may know, two common financial statements are the balance sheet and the income statement. The balance sheet shows the financial position of a company at onepoint in time, while the income statement shows the financial performance of a companyover a period of time. Financial statements allow interested parties to (10)……. one organization to another and/or to compare accounting (11) ……. within one organization.For example, an (12)…….. may compare the most recent income statements of two corporations in order to find out which one would be a better investment.


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Listen to the first part of the lecture again and fill ONE word in each blank below

Choose the best alternative to complete the sentence. The suggeted time for completing the exercises is 10 minutes

1. It’s up to the accountant to ................. the various financial statements.

a. interpret b. intercept

c. invent d. translate

2. The bookkeeper keeps a record of every financial ................. .

a. action b. transaction

c. entry d. transcription

3. It’s essential to ................. the invoice number in any correspondence.

a. estimate b. quote

c. say d. tell

4. We’re in ................. with our supplier over this invoice so don’t pay it until you hear from me.

a. argument b. dispute

c. agreement d. distress

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5. We send a ................. to customers who haven’t settled their accounts.

a. reminder b. remainder

c. remembrance d. memory

6. If these figures could be ................. into parts and labor it would make them easier to understand.

a. set up b. broken down

c. rounded up d. laid down

7. This company has a weekly ................. of about $100,000.

a. pay b. payroll

c. salary d. wage

8. By examining the balance ................. and other documents we were able to find out thatthe company was not doing as well as they claimed.

a. slip b. ledger

c. account d. sheet

9. The rent for the office is already 3 months .................!

a. overtime b. in the red

c. in demand d. overdue

10. Due to the economic climate we have had to ................. more bad debts this year than everbefore.

a. tell off b. write off

c. find out d. note down

11. Do they have enough working ................. to keep trading?

a. capital b. expenses

c. accounts d. currency

12. Such items as buildings and machinery are known as ................. assets.

a. current b. hidden

c. fixed d. liquid

Complete the text using the words in the box. The suggeted time for completing theexercises is 10 mitutes

Bookkeeping

Bookkeepers record every purchase and sale that a business makes, in the order that theytake place, in (1) .............................. . At a later date, these temporary records are entered inor (2 ).............................. to the relevant account book or (3 )............................. . Of course

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credits

journals

transactions

debits

ledger

transferred

double-entry

posted

trial balance

invoice

receipt

vouchers

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the ‘books’ these days are likely to be computer files. At the end of an accounting period, allthe relevant totals are (4 ).............................. to the profit and loss account. (5).............................. bookkeeping records the dual effect of every transaction – a value bothreceived and parted with. Payments made or (6) .............................. areentered on the left-hand (debtor) side of an account, and payments received or (7) .............................. on the right-hand side. Bookkeeperswill periodically do a (8) .............................. to test whether both sidesof an account book match. In most business (9).....................................,the seller of goods or services sends the buyer a bill or (10).............................. , and later a 11 ............................ acknowledgingpayment. Businesses are obliged to retain the documents – known as(12) .............................. – that support or prove an item in an account,and make them available to the internal and external auditors whocheck the accounts. Bookkeepers are not to be confused with librarians,who also keep books, or with bookmakers, who ‘make books’ in the sense that they acceptbets (on horse races, etc.) and traditionally wrote them down in a book like a bookkeeper’sjournal. Accountants, unlike bookkeepers, analyze financial records, and decide how to present them.

Match the remarks on the left with the responses on the right, check your answers with a partner, then practice the dialogue together

1. You’re an accountant? Doesthat mean you spend yourtime writing down creditsand debits, and adding upcolumns of figures all day?Can’t be exciting.

2. So what do accountants do?

3. You mean the shareholders?

4. So do you prepare reportsfor managers?

5. And the cost of the accountsdepartment!

6. You mean what they do inthe front of shops?

7. Ah, now that’s interesting...

8. Not at all. As a matter offact, I’m a tax inspector...

A. Ha! Now you’re going to ask me to tell you how youcan pay less tax.

B. No, managerial accountants do, but I work in cost accounting. We have to work out the real cost of eachitem the company makes, which means finding a wayto allocate all the overheads to different products.

C. No, not only. Managers always need the help of accountants. They need financial statements, andbudgets, and cash-flow projections, and so on, tomeasure the success of what they’ve done, and tomake decisions for future projects.

D. Of course. But as I said, we’re necessary, and useful. Haven’t you heard of ‘window dressing’?

E. Sure, but it’s also another name for what some people call ‘creative accounting’ – making a company’sfinancial situation look as good as possible in thebalance sheet, and so on. It’s not very legal, but ithappens. The accountants in my firm also have lotsof wonderful ways of reducing our tax bill.

F. That’s bookkeeping. Not quite the same thing.

G. Well, accountants do record cash flows, and the valueof assets and liabilities, and they calculate profitsand losses, and so on. But it’s not just writing downnumbers. We’re really in the business of supplyingpeople with information.

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Based on the information in this unit, answer the following questions with yourown words

1. Give a brief definition of accounting. What is accountinginvolved in?

2. How many kinds of accounting are there? What aretheir differences?

3. Give a brief summary of the three main financial statements.

4. Do all companies follow a common way of accounting ordo they choose their own way of accounting? Explainconsistency principle and historical cost principle.

5. Tell briefly about bookkeeping process.

How to write an essay

1. Organization of an essay

An essay has three main parts: an introduction, a body and a conclusion.

The introductory paragraph attracts the reader’sattention and informs the reader what your main topic of discussion will be. An introductoryparagraph has two parts:

• General statement: Several general sentences thatgive background information on your subject andgradually lead your reader into your specific topic.

• A thesis statement that states the subdivisions(topic of each paragraph). It may also indicateyour method of development.

The body of an essay discusses your subdivided topics, one by one. It contains as manyparagraphs as necessary, often 2 or more explain the controlling ideas in the thesis statement.

The concluding paragraph reminds your reader of what you have said. Remember to usea “conclusion” transition signal. Your concluding paragraph has a summary of the mainideas or a restatement of the thesis in different words and your final comment on the topic.

2. Outlining an Essay

Always make an outline of an essay before you begin to write. See the organization of anessay model below:

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6.1

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I. INTRODUCTION

II. BODY

III. CONCLUSION

3. Writing and revising the Essay

Writing is a process which requires revision again and again in order to produce a good final

product. Follow 3 steps below for your writing improvement.

- Firstly, write the first rough draft of your essay from the outline. Skip lines in order to have

enough space to make changes.

- Secondly, revise the first draft for content and organization, and write a second draft.

- Thirdly, proofread the second draft for grammar, sentence structure, and mechanics. Write

as many drafts as necessary before the final copy.

Writing practice

Write an essay about the main issues in accounting by the using information fromthis unit as well as the additional sources from books or internet websites. The suggested time for completing the exercise is 45 minutes.

General Statements

Thesis statements

- Paragraph 1:

A. Topics sentence

1. Support

2. Support

3. Support

(Concluding sentence)

- Paragraph 2:

B. Topics sentence

1. Support

2. Support

3. Support


- Paragraph 2:

C. Topics sentence

1. Support

2. Support

3. Support


Restatement or summary

of the mains points; final

comments

6.2

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English terms Vietnamese equivalents

A

- Accounting principles - Các nguyên tắc kế toán- Annual Report - Báo cáo thường niên, báo cáo hàng năm- Accounting system - Hệ thống kế toán

B

- Balance sheet - Bảng tổng kết tài sản, bảng kết toán- Bought ledger - Sổ cái mua vào- Bookkeeper - Nhân viên kế toán (lập hồ sơ thu chi, quản lý các

sổ sách kế toán)

C

- Credit - Khoản có, bên có; ghi có- Consistency principle - Nguyên tắc nhất quán- CPA (Certified Public Accountant) - Kế toán viên được xác nhận

(kế toán viên đã qua các kỳ kiểm tra nghề nghiệpvà là thành viên của Hiệp hội các kế toán viênđược xác nhận)

D

- Debit - Khoản nợ, bên nợ; ghi nợ- Debtors - Con nợ, tài khoản phải thu từ khách hàng- Depreciation - Khấu hao- Double-entry bookkeeping - Kế toán kép

E

- Expenditure - Chi tiêu, chi phí

F

- Financial statements - Các báo cáo tài chính- Financial status - Khả năng tài chính- Financial position - Tình trạng tài chính

G

- Going concern concept - Khái niệm doanh nghiệp phát triển bền vững- Generally Accepted Accounting Principles - Những nguyên tắc kế toán được mọi người chấp

nhận, phổ cập

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- Income statement - Báo cáo thu nhập- Inflation - Lạm phát- Inventory (stock) - Hàng hoá, nguyên vật liệu lưu kho

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H

- Historical cost - Giá gốc

J

- Journals - Sổ nhật ký, sổ nhật biên

N

- Nominal ledgers - Sổ cái danh nghĩa

P

- Provisions - Dự phòng

R

- Revenue - Doanh thu- Replacement cost accounting - Kế toán chi phí thay thế

T

- Tax computation - Việc tính toán thuế- Take account of - Xét đến, tính đến- To buy on credit - Mua chịu- To sell on credit - Bán chịu- Trial balance - Cân đối kiểm tra

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05 eng104-bai 1-v1.0

Education