01-1
Chapter 1
ENVIRONMENT AND
THEORETICAL STRUCTURE OF
FINANCIAL ACCOUNTING
© 2013 The McGraw-Hill Companies, Inc.
1
Slide 2
Contents
1.1 Nature of Accounting
1.2 Legal environment of accounting
1.3 Accounting principles
1.4 Elements of financial statements
[Image Info] www.wizdata.co.kr
- Note to customers : This image has been licensed to be used within this PowerPoint template only. You may not extract the image for any other use.
2
Slide 3
1.1 NATURE OF ACCOUNTING
DATA
Pro
ces
sing
Inform
ation
Financial
Reporting
Management
Reporting
3
01-2
Financial Accounting & Managerial Accounting
MA
FA
o Users:
o Users:
➔Internal
o Characteristics: :
➔Flexible, not specified
➔Towards the future
➔Internal & External
o Characteristics:
➔Comply with Accounting principles
➔ Reflects past events
o Information requirement :
o Yêu cầu thông tin:
➔Requires timeliness over
than accuracy
➔Requires high objectivity.
o Types of reports :
➔Financial reports as
prescribed by the State
➔Periodic
o Types of reports :
➔Special Report
➔Regularly
o Validity :
➔illegally enforceable
o Validity:
➔Legally enforceable
4
Slide 5
FINANCIAL STATEMENTS
SoFP
Present
financial
position of
enterprises
at a time.
SoIS
SoCF
Demonstra
te the
business
situation of
enterprises
in a certain
period
Cash flow
formation
and used
by the
enterprises
in a certain
period
Notes
Explain
some
information
on the
financial
statements
5
Slide 6
Statement of financial position
◦ ASSETS = LIABILIDIES + OWNER’S EQUITY
CURRENT
ASSET
LIABILITY
ASSET EQUITY
NON CURRENT
ASSET
6
OWNER’S
EQUITY
01-3
Slide 7
NET SALES
SALES
Income
statement
minus
minus
COST OF GOODS SOLD
DEDUCTION
equals
equals
NET SALE
GROSS PROFIT (GROSS MARGIN)
plus or minus
FINANCIAL INCOME & EXPENSES
minus
OPERATING EXPENSES
equals
INCOME BEFOR TAX
INCOME FROM OPERATIONS
minus
plus or minus
OTHER REVENUES & EXPENSES
TAX INCOME
equals
equals
NET INCOME
INCOME BEFOR TAX
7
Slide 8
Statement of cash flows
Cash received
from sales of
goods
Statement of cash flows
To acquire fix
assets
Operating
activities
Cash
payments to
suppliers for
goods
Cash and
cash
equivalent
Investing
activities
Sale of fix
assets
Financing
activities
Issuing shares
Loans & borrowings
Payments to owners
Repayment of amounts
8
borrowed
8
Slide 9
Notes to the financial statements
An inseparable part of the financial
statements used to describes the narrative
or analyze in detail of the information and
figures presented in the statements of
financial position, income statement, cash
flows statement as well as other necessary
information as required by the specific
accounting standards.
9
9
01-4
Slide 10
Notes to the financial statements
Basic contents:
 Characteristics of operations of enterprise
 Accounting period, currency used
 Accounting policies
10
10
Slide 11
Notes to the financial statements
Basic contents:
Additional information for items presented in
the statement of financial positions.
 Additional information for items presented in
the income statement.
 Additional information for the cash flows
statement.
 Other information

11
11
Slide 12
1.2 The legal environment of Vietnamese accounting
1
Accounting Law
2
Accounting Standard
3
Accounting regime
12
01-5
Slide 13
Accounting Law
The highest legal document
Specify the principle issues
As the basis, the foundation of accounting
standards and accounting regime
13
Slide 14
Accounting standard
Accounting standards are the regulations
and
guidelines
principles,
for
basic
contents,
accounting
methods
and
procedures, which are the most common
basis
for
recording
accounting
and
preparing financial statements in order to
achieve honest and consistent evaluation.
Objective about the financial position and
business results of enterprises.
14
Slide 15
Accounting standard
Group 1
Framework
15
Group 2
Group 3
Specific
accounting
standards
Standards
on making
and
presenting
financial
statements
01-6
Slide 16
National Assembly
Accounting Law
Ministry of Finance
(Combine with: Department of Accounting and Auditing Regulations)
Accounting Standard + Circular guiding of Accounting Standard
Accounting Regime
Guiding the method
of preparing and
presenting the
consolidated
financial statements
Cir. 202/2014/TT-BTC
Guiding the
accounting regime of
enterprises
Cir. 200/2014/TT-BTC
Cir. 75/2015/TT-BTC
Cir. 53/2016/TT-BTC
Guiding the
accounting regime of
small and medium
enterprises
Cir.133/2016/TT-BTC
© 2013 The McGraw-Hill Companies, Inc.
16
Slide 17
ACCOUNTING REGIME
Cir.133
Cir.200
Specific
Accounting
regime
Published Accounting regimes
[Image Info] www.wizdata.co.kr
- Note to customers : This image has been licensed to be used within this PowerPoint template only. You may not extract the image for any other use.
17
Slide 18
Accounting regime according to Cir.200
Accounting Voucher
(Guidline)
1
Accounting Accounts
4
2
Finacial Statement
3
18
Ledger
(Guidline)
01-7
Classify accounting accounts
- Type 1: Current Asset
- Type 2: Non-current Asse
- Type 3: Liability
- Type 4: Owner’s Equity
- Type 5: Revenue
- Type 6: Expense
- Type 7: Other Income
- Type 8: Other Expense
- Type 9: Income Sumerize
Asset
Equity
Type of business
process
19
▪ STRUCTUER OF ACCOUNTS
Account 1 , 2
Account 3 , 4
Beg. Bal.
Beg. Bal.
End. Bal.
End. Bal.
20
Account (511, 515)
Slide 21
-Revenue
deductions
-Net sales transfer
to Acc. 911
Account 521 (Revenue adjusting account)
Transfer to Acc.(511)
21
01-8
Slide 22
Account 6*
Acc. 154
(621,622,627)
Transfer
Acc. 911
(632,635,641,642)
22
Slide 23
Acc. 811,821
Acc. 711
Acc. 911
23
Slide 24
In future, VAS will be changed in VFRS in
harmonizing trend with IAS and IFRS
© 2013 The McGraw-Hill Companies, Inc.
24
01-9
2
5
Slide 25
1.3. Accounting Principles
1. Accrual
2. Going concern
3. Cost
4. Matching
5. Consistence
6. Prudence
7. Materiality
Using for recording
(to ledger)
Different from the
principles of
presentation of
financial
statements
© 2013 The McGraw-Hill Companies, Inc..
25
Slide 26
Accounting Principals according to VAS
Accrual basis
All economic and financial operations of enterprises,
which are related to assets, liabilities, owners’ equity,
revenues, and costs must be recorded in accounting
books at the time they arise, not at the time of the
actual receipt or payment of cash or cash
equivalents. Financial statements made on the basis
of accrual shall reflect the financial status of
enterprises in the past, at present and in the future.
© 2013 The McGraw-Hill Companies, Inc.
26
Slide 27
Accounting Principals according to VAS
Going concern
Financial statements must be made on the basis of
the assumption that enterprises are operating
continuously and will continue business activities
normally in the near future, i.e., they have no
intention or are not compelled to cease operation or
to substantially downscale their operation. Where
reality differs from the continuous operation
assumption, the financial statements must be made
on another basis, which must be explained.
© 2013 The McGraw-Hill Companies, Inc.
27
01-10
Slide 28
Accounting Principals according to VAS
Historical cost
Assets must be recognized according to their historical
cost. The historical cost of an asset shall be calculated
according to the cash amount or cash equivalent
already paid or to be paid, or according to the
reasonable value of the asset at the time the asset is
recognized. The assets’ historical costs must not be
modified except otherwise prescribed in specific
accounting standards .
© 2013 The McGraw-Hill Companies, Inc.
28
Slide 29
Accounting Principals according to VAS
Matching
The recognition of revenues and that of costs must
match. When a revenues is recognized, a
corresponding cost related to the creation of such
revenue must be recognized. Costs corresponding to
revenues include costs of the period in which
revenues are created and costs of the previous
periods or payable costs related to the revenues of
such period.
© 2013 The McGraw-Hill Companies, Inc.
29
Slide 30
Accounting Principals according to VAS
Consistency
The accounting policies and methods selected by
enterprises must be applied consistently within at least
one accounting year. Where appear changes in the
selected accounting policies or methods, the reasons
for and impacts of such changes must be presented in
the explanations of financial statements.
© 2013 The McGraw-Hill Companies, Inc.
30
01-11
Slide 31
Accounting Principals according to VAS
Prudence
Prudence means the examination, consideration and
anticipation needed to establish accounting estimates under
uncertain conditions. The prudence principle requires that:
a/ The reserves must be set up, which must not be too big;
b/ The values of assets and incomes are not overestimated;
c/ The values of liabilities and costs are not underestimated;
d/ Revenues and incomes shall be recognized only when
there are solid evidences of the possibility of obtaining
economic benefits, while costs must be recognized when
there are evidences of the possibility of arising costs.
© 2013 The McGraw-Hill Companies, Inc.
31
Slide 32
Accounting Principals according to VAS
Materiality
Information shall be considered material in cases
where the insufficiency or inaccuracy of such
information may distort significantly the financial
statements, thus affecting the economic decisions of
the users of the financial statements. Materiality
depends on the amount and nature of information or
errors assessed in particular circumstances. The
materiality of information must be examined both
quantitatively and qualitatively
© 2013 The McGraw-Hill Companies, Inc.
32
Slide 33
1.4 ELEMENTS OF FINANCIAL STATEMENT
◦ Financial Position included: 3 Elements
◦ ASSETS = LIABILITIES + OWNER’S EQUITY
CURRENT
ASSET
LIABILITY
ASSET EQUITY
NON CURRENT
ASSET
33
OWNER’S
EQUITY
01-12
Slide 34
Elements of statements of financial
position
Definition
Resource controlled by the entity as a
result of past event & from which future
economic benefits are expected to flow
into the entity
ASSET
Examples
Cash
Account receivables
Inventories
Property, Plant, Equipment
34
34
Slide 35
Elements of statements of financial
position
Definition
Present obligation arising from past
events, the settlement of which is
expected to result in an outflow from
the entity of resources embodying
economic benefit
LIABILITY
Example
-Trade payables
-Salaries payables
-Loans
-Long-term notes
35
35
Slide 36
Elements of statements of financial
position
Definition
Residual interest in the asset of the entity
after deducting all its liabilties
= ASSETS - LIABILITIES
EQUITY
Examples
Share capital
Retained earnings
36
36
01-13
Slide 37
Elements of Income statement
Income statement
EXPENSE
INCOME
37
37
Slide 38
Elements of Income statement
INCOME encompasses both REVENUE
and OTHER INCOMES (GAINS)
Total value of economic benefit earned by an
entity during the accounting period, arising
from normal operations and other activities,
excluding capital contributions made by
entity’s shareholders or owners.
Examples: sales, fees, interest received,
rent…
38
38
Slide 39
Elements of Income statement
Expenses
Total value of amounts which reduce economic
benefit during the accounting period. They take
the form of an outflows or depletion of assets
(such as cash, property…) or arising of liabilities,
which lead to a decrease in the owner’s equity,
excluding the amounts distributed to
shareholders or owners.
Examples: cost of goods sold, distribution
expenses, other expenses
39
39
01-14
Slide 40
Valuation models
Historical cost
Fair value
 Net realizable value
 Present value
 Replacement cost/current cost


40
End of Chapter 1
© 2013 The McGraw-Hill Companies, Inc.
41