I.
II.
III.
Topic 2: Dimensions of Accounting: Financial and Management
1. Financial accounting: deal with reporting of financial result of an company to
interested parties external to the business, such shareholder, creditor, banker,
investor and government. Accepted accounting principle indicate how financial
accounting info is prepared and reported
2. Management accounting: prepare and report info for internal and management
purpose , management indicate what info they needed
3. Although lack of rule make management accounting become more attractive,
but company aim to hire only one accounting to do both external and internal
info report, most of company prefer financial accounting
Important terms
1. Supplies: asset (cash) +, liability +
2. Paid supplies: asset (cash) -, liability3. Equipment: asset (equipment) +. Liability +
4. Service to customer: asset (cash) +, revenue +
5. Invest: asset (cash) +, capital+
6. Withdraw: asset (cash) -, drawing –
7. Hiring, nothing change
8. Purchase sth 1000, pay 800 first, leave the balance on account (payable)
9. Borrowed from bank: asset (cash) +, liability (payable) +
10. Sign a contract, nothing happens on the account
11. Receive a bill: nothing change in asset, but liability (payable)-, expense –
12. Bill others: receivable +, revenue +
13. Prepaid insurance: similar as equipment, asset (cash)-, prepaid insurance +
14. Customer is billed to pay sth: asset (account receivable) +, revenue +
15. Cash received for service: asset (Cash)+, revenue +
16. Sign contract (有预付或承诺之后付钱)and cash received for service is provided
for next months: unearned revenue: asset (cash)+, liability +
Should the transaction be recorded
1. A company pays $10,000 cash to purchase equipment at a bankruptcy sale. The
equipment's fair value is $15,000.
1) This is a transaction that should be recorded in the accounts as there has
been an exchange of assets. Cash was reduced and equipment was
increased. The historical cost of $10,000 should be used when recording this
transaction.
2. A Canadian company purchases equipment from a company in the United States
and pays US$5,000 cash. It cost the company $5,200 Canadian to purchase the
U.S. dollars from its bank.
1) This is a transaction that should be recorded in the accounts as there has
been an exchange of assets. Cash was reduced and equipment was
increased. The transaction is to be recorded in Canadian funds to follow the
monetary unit concept, so the amount that should be used when recording
this transaction is $5,200.
IV.
3. A company provides $4,000 of services to a customer on account.
1) This is a transaction that should be recorded in the accounts because a
performance obligation has been completed related to a contract with a
customer and accounts receivable should be increased as the company now
has a right to payment. The amount of $4,000 should be used when
recording this transaction.
4. A company hires a new chief executive officer, who will bring significant
economic benefit to the company. The company agrees to pay the new
executive officer $500,000 per year.
1) This is not a transaction as an exchange has not yet occurred.
5. A company signs a contract to provide $10,000 of services to a customer. The
customer pays the company $4,000 cash at the time the contract is signed. The
performance obligation required by the company has not been completed.
1) This is a transaction that should be recorded in the accounts because an
asset (cash) has increased and a liability (unearned revenue) has increased.
The company has an obligation to perform services for the customer at a
future date. The amount of $4,000 should be used when recording this
transaction.
Income statement
V.
Statement of owner equity
VI.
Balance sheet