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AD1101 Lecture # 1

Date:
Day:
Time:
Venue:

13 January 2015
Tuesday
0830 to 1030 hrs
LT24 (South Spine)

Course Assessment
(1) Class participation (I):
(2) Team Project (T)
(3) In-class quiz (I)
(4) Team presentation (I,T)
(5) Final Examination ** (I)
TOTAL

10%
20%
10%
10%
50%
100%

(I) - Individual; (T) - Team


**

Final Examination (50%)


Date: 24 April 2015, Friday
Time: 9 am to 11.30 am
2

Business and value creation


What is a business?
The exchange of
goods, services,
and money on an
arms length basis
that results in
mutual benefit or
profit for both
parties involved.

What are the risks ?


(possible future
sacrifices)

What are the rewards ?


(possible future
benefits)

Business and value creation


Why do people trade ?

To ____________
(i.e. to make
themselves
better off)

Sources of VALUE CREATION

Seller may be able to produce item(s) more


cheaply than the buyer and thus has a
_____________________ in production.

Forms of Business Organization


Proprietorship Partnership
Owner(s)

Corporation

Proprietor One Partners two Shareholders


owner
or more
generally
owners
many owners

Personal
Proprietor is
General
liability of
personally liable partners are
owner(s) for
personally
business
liable; limited
debts
partners are
not

Copyright 2014 Pearson Education

Shareholders
are NOT
personally
liable

Lects 9- 10
Debt/
Equity

Intangible
assets

Operating
Activities

Investing
Activities

Lect

Re
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ne nu
pr ra e
oc tin
es g
s

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v

4-

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In

h Lect 11
s
a
C
s
w
flo

s
t
n

n
isitio
Acqu ayment
p
and oods
for g ices
serv
and

Le
cts

Lects 7 - 8

Lect 12
F/S
Analysis

PP

Financing
Activities

Business Processes

Financing Activities
Cash received
by borrowing
money from
banks or
through issue of
bonds
(liabilities)
Cash received
by issuing
stock/shares to
investors

It
Takes
MONEY
to
Make
MONEY!

Investing Activities
Examples of assets .....
Activities
Cash
involving
Accounts
the
Receivable
purchase or
sale of
Inventory
resources or Buildings,
assets
Equipment,
Delivery Vans,
used in the
Furniture
business
operations
9

Operating Activities
are the main activities for which
the organization is in business.

10

The Relationship Among


Business Processes
Long-lived
assets used
in operations

Investing
Activities

Operating
Activities
$ Profits$
r
o
f g
h tin
s
a es
C v
in
Cash from owners and
creditors to purchase
long-lived assets

Cash for
owners and
creditors

Financing
Activities
11

Accounting - The Language of Business


Measures business activities
Processes data into reports
Communicates results to
financial statement users
12
Copyright 2014 Pearson Education

Types of Accounting Information

Financial
information

Managerial
information

for external users


Investors
Creditors
Government
The public

for internal users


managers
Budgets
Forecasts

Copyright 2014 Pearson Education

13

Financial
information

14

Financial information

15

Conceptual Framework of Accounting

Objective of general-purpose
financial reporting
To provide financial ____________
about the reporting entity that is
______ to existing and potential
_________, _________ and other
_________ in making decisions about
providing resources to the entity
Ref: The Conceptual Framework for Financial Reporting

17

Measurement and
recording system

18

What Is Measured?
Business transactions as the
object of measurement.
Business transactions are
economic events that affect the
financial position of a business
entity.
19

Source Documents
Purchase
Invoice

Cash
Register
Tape
Payroll
Records

Evidence needed
in an accounting
system to record
transactions
Shipping
Document

Sales
Invoice

Cheques

Receiving
Document
20

Outputs of the
measurement process system
The Financial Statements
1. Statement of Profit or Loss and
Other Comprehensive Income
2. Statement of Financial Position
(Balance Sheet)
3. Statement of Changes in Equity
4. Statement of Cash Flows
5. Notes to the Financial
Statements

21

Recording
System
Economic events are the basis for recording
transactions in an accounting system.
For every transaction, it is essential to analyze
its effect on the accounting equation:-

A = L + OE

22

Accounting

Equation

A = L + OE
Assets
Future
economic
benefits

Liabilities

Equity

How the assets are financed


23

A=

Assets

An asset is a resource controlled by the entity as a result


of past events and from which future economic benefits
are expected to flow to the entity

Examples of assets .....

Cash
Accounts Receivable
Prepaid Insurance / Prepaid Rent
Office supplies
Inventory
Intangible assets copyrights,
patents
Buildings, Equipment, Delivery
Vans, Furniture

24

L=

Liabilities

A liability is a present obligation of the entity arising from


past events, the settlement of which is expected to result
in an outflow from the entity of resources embodying
economic benefits.

Examples of liabilities include

Accounts payable
Interest payable
Salaries payable
Notes payable
Unearned service fees

25

E=

Equity

Equity is the residual interest in the


assets of the entity after deducting all
its liabilities.

A = L + E
E

=
26

Statement of financial position


Assets = Liabilities + Equity

Assets
$90,000

Liabilities
$20,000

Equity
$70,000
Copyright 2014 Pearson Education

19

Statement of financial position

28

29

Statement of financial position

Assets - Liabilities = Equity

Assets
$90,000

Liabilities
$20,000
Copyright 2014 Pearson Education

Equity
$70,000

19

31

Expansion of Equity

Liabilities

Assets

Equity
Copyright 2015 Clement Tan

32

Statement of profit or loss


Total Revenue - Total Expenses + Gains - Losses
= Net Income (Loss)

Total
Revenue

Total
Expenses

Copyright 2015 Clement Tan

Gains/
(losses)

Net
Income
(or Loss)

33

Statement of profit or loss and


Other Comprehensive Income

+
Total Comprehensive income34
Copyright 2015 Clement Tan

Statement of financial position

35

Copyright 2015 Clement Tan

Statement of financial position

Statement of profit or loss and


Other Comprehensive Income

36
\

Copyright 2015 Clement Tan

The Components of Retained Earnings

Net Income
(or Loss)

Ending
Retained
Earnings

Beginning
Retained
Earnings

Copyright 2015 Clement Tan

37

The Components of
the Retained Earnings
and the Accounting
Equation

Copyright 2015 Clement Tan

during the period

38

The Expanded Accounting Equation Framework

Statement of financial position

Statement of profit or loss and Other Comprehensive Income

39
Copyright 2015 Clement Tan

Types of transactions affecting


Equity?
S
R
E
D
O
40

Principles of Transaction Analysis

A= L + E
The accounting equation
must remain in balance
after each transaction.
41

Transaction Analysis
1

Joan Miller forms a media and design consulting


business which he names as JM Pte Ltd. He sets it
up as a corporation. He personally invests $10,000
cash in the new company and deposits the cash in a
bank account opened under the name of JM Pte Ltd

A= L + E
* Also known as Common Stock or Contributed Capital

42

Transaction Analysis
2

Rents an office, pays $800 rent in advance

A= L + E

43

Transaction Analysis
3

Purchases art equipment, $4,200 with cash

A= L + E

44

Transaction Analysis
4

Purchases office equipment, $3,000, pays


$1,500 in cash and agrees to pay the rest
next month.

A= L + E

45

Transaction Analysis
5

Purchases art supplies, $1,800, and office


supplies, $800, from Taylor Supply Co on
credit.

A= L + E

46

Transaction Analysis
6

Pays $1,000 of amount owed to Taylor Supply


Co.

A= L + E

47

Transaction Analysis
7

Pays $480 for a one-year insurance policy


with cash.

A= L + E
48

Transaction Analysis
8

Collects a fee of $1,400 for


advertisements placed

A= L + E

49

Transaction Analysis
9

Performs an advertising service for


$2,800. Fee to be collected next month.

A= L + E

50

Transaction Analysis
10

Accepts $1,000 for art work to be done for


another agency.

A= L + E

51

Transaction Analysis
11

Pays the secretary two weeks wages, $600.

A= L + E

52

Transaction Analysis
12

Receives and pays the utility bill, $100.

A= L + E

53

Transaction Analysis
13

Receives (but has not paid) telephone bill,


$70.

A= L + E

54

Transaction Analysis
14

Declares and pays a dividend of $1,000.

A= L + E

55

Transaction Analysis - A Summary


ASSETS
+ $10,000
+ $800
- $ 800
+ $4,200
-$4,200
+ $3,000
- $1,500
+ $1,800
+ $800
+ $ 480
- $ 480
- $1,000
+ $1,400
- $ 600
+ $1,000
+ $2,800
- $ 100

LIABILITIES

+ $10,000

NET INCOME
+ $1,500

+ $ 3,430

+ $2,600

- $1,000

+$1,000
+ $ 70

- $1,000
$16,600

OWNERS EQUITY

+$4,170
+$3,170

+ $1,400
- $ 600
+ $1,000
+ $2,800
- $ 100
- $ 70
- $1,000 Dividend
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+$13,430
+$12,430

REVIEW
Business and value creation.
Relationship among business
processes
Accounting as The Language of
Business
Types of Accounting information
Conceptual Framework of Accounting
Accounting Equation
Expanded Accounting Equation
Framework

57

REVIEW
Note that the accounting equation
ALWAYS remains in balance after
each transaction.

A= L + E
58

REVIEW of The Expanded Accounting Equation Framework

Statement of financial position

Statement of profit or loss and Other Comprehensive Income

59
Copyright 2015 Clement Tan

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