CHAP 3

THE STATEMENT OF FINANCIAL POSITION AND FINANCIAL DISCLOSURES

The Statement of Financial Position

Reports a company’s financial position on a particular date.
Limitations:
- The Statement of Financial Position does not portray the market value of the entity as a going concern nor
its liquidation value.
- Resources such as employee skills and reputation are not recorded in the Statement of Financial Position.
Usefulness:
- The Statement of Financial Position describes many of the resources a company has for generating future
cash flows.
- It provides liquidity information useful in assessing a company’s ability to pay its current obligations.
- It provides long-term solvency information relating to the riskiness of a company with regard to the
amount of liabilities in its capital structure.

ASSETS
Assets are resources controlled by the entity as a result of past events and from which future economic
benefits are expected to flow to the entity.
- Current investment used to trade stocks
- Long term investment: mua để đó chứ chưa có ý định sử dụng
Bond – creditors. Stocks – shareholders

Current assets:
- Will be converted to cash or consumed within one year or the
operating cycle, whichever is longer. (Cash, Cash
Equivalents, Short term investments, Receivables,
Inventories, Prepaid Expenses, Supply )
o Cash equivalents: include certain negotiable items such as
commercial paper, money market funds, and Treasury
bills. (tương đương tiền, quyết định dựa trên thời hạn 3
tháng)
Operating Cycle of a Typical Manufacturing Company

Noncurrent Assets:
Not expected to be converted to cash or consumed within one year or the operating cycle, -whichever is
longer. (Investments Property, Plant, & Equipment, Intangibles, Other Asset)
Investments
- Not used in the operations of the business.
- Include both debt and equity securities of other corporations, noncurrent receivables, and cash set aside for
special purposes.
Property, Plant, and Equipment
- Are tangible, long-lived, and used in the operations of the business.
- Include land, buildings, equipment, machinery, and furniture.
- Reported at original cost less accumulated depreciation.

Intangible assets
- Used In the operations of the business but have no physical substance.
- Include patents, copyrights, and franchises.
- Reported net of accumulated amortization.

Other Assets
- Include long-term prepaid expenses, any noncurrent assets not falling in one of the other classifications.
(VN quyết định PPT hay equipment dựa trên giá trị đơn lẻ dưới 30tr)

Liabilities
Liabilities are present obligations 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

Current Liabilities (<3 tháng)

- Obligations are expected to be satisfied through current assets or creation of other current liabilities within
one year or the operating cycle, whichever is longer (Accounts Payable, Notes Payable (VN không có)
Accrued Liabilities, Unearned Revenues, Current Maturities of Long-Term Debt)

Long-Term Liabilities
- Obligations that will not be satisfied within one year or operating cycle, whichever is longer. (Long-term
Notes, Mortgages, Long-term Bonds, Pension Obligations, Lease Obligations)

Shareholders’ Equity
Shareholders’ Equity is the residual interest in the assets of the entity after deducting all its liabilities (Issued
Capital, Retained Earnings, Treasury shares, capital reserve, translation reserve and other reserves, and other
comprehensive income items)
- Under Vietnamese regulations, current items must be presented before non-current items.
- IFRS does not prescribe the format of financial statements, but current items often be reported after non-
current items.

Disclosure Notes
- Operating characteristics of entity.
- Accounting period, accounting monetary unit.
- Accounting Standards and Regime applying by
the entity.
- Related parties information;

Using Financial Statement Information

 Liquidity Ratios

Financing Ratios

CHAP 4
THE INCOME STATEMENT, STATEMENT OF CASH FLOWS
An income statement for a hypothetical manufacturing company that you can refer to as we proceed through
the chapter.
Gain: unexpected salary,… (không nhận được thường xuyên.
INCOME FROM CONTINUING OPERATIONS
Revenues: Inflows of resources resulting from providing goods or services to customers.
Expenses: Outflows of resources incurred in generating revenues.
Gains and Losses: Increases or decreases in equity from peripheral or incidental transactions of an entity.
Income Tax Expense: Because of its importance and size, income tax expense is a separate item.

OPERATING VERSUS NONOPERATING INCOME

Operating Income (sustainable income) Nonoperating Income
Includes revenues and expenses directly related to Includes gains and losses and revenues and
the principal revenue- generating activities of the expenses related to peripheral or incidental
company activities of the company

INCOME STATEMENT
Multiple step cái để học
SINGLE step
U. S. GAAP vs. IFRS
There are more similarities than differences between income statements prepared according to IFRS and those
prepared according to U.S. GAAP.
US GAAP
 Has no minimum requirements
o SEC requires that expenses be classified by function.
 “Bottom line” called net income or net loss.
 Report extraordinary items separately.
IFRS
 Specifies certain minimum information to be reported on the face of the income statement.
 Allows expenses classified by function or natural description.
 “Bottom line” called profit or loss.
 Prohibits reporting extraordinary items.

EARNINGS QUALITY
Earnings quality refers to the ability of reported earnings to predict a company’s future earnings.
Transitory Earnings versus Permanent Earning

MANIPULATING INCOME AND INCOME SMOOTHING

“Most executives prefer to report earnings that follow a smooth, regular, upward path.” ~Ford S. Worthy,
Two ways to manipulate income:
1. Income shifting (chuyển từ future income hoặc income khác để đạt đủ KPI)
2. Income statement classification

THE STATEMENT OF CASH FLOWS

 Provides relevant information about a company’s cash receipts and cash disbursements.
 Helps investors and creditors to assess
o future net cash flows o long-term solvency.
o liquidity
 Required for each income statement period reported.

CASH FLOWS FROM OPERATING ACTIVITIES

Inflows from (+)
 sales to customers.
 interest and dividends received from investments.
Outflows for (-)
 purchase of inventory.  income taxes.
 salaries, wages, and other operating expenses.  dividends paid. Còn có thể thay đổi
 interest on debt.
Both inflows and outflows of cash that result from activities reported on the income statement; The cash
effects of the elements of net income are reported as cash flows from operating activities; Cash received from
customers, Cash paid to suppliers of inventory, Cash paid to empoyees, Cash paid to banks and other
creditors, Cash paid to the government, Cash paid for various expenses, Paying interest on debt

TWO FORMATS FOR REPORTING OPERATING ACTIVITIES

Direct Method Reports the cash effects of each operating activity
- Under the direct method, the cash effect of each operating activity is reported directly in the statement.
Indirect Method Starts with accrual net income and converts to cash basis
- By the indirect method, we arrive at net cash flow from operating activities indirectly by starting with
reported net income and working backwards to convert that amount to a cash basis.

CASH FLOWS FROM INVESTING ACTIVITIES

Inflows from (+)
 sale of long-lived assets used in the business.  collection of nontrade receivables.
 sale of investment securities (shares, bonds).
 interest or dividends received from investments. (có thể để ở mở nhưng sẽ hơi mơ hồ, ở VN không dể
nhưng international thì được)
Outflows for: (-)
 purchase of long-lived assets used in the business.
 purchase of investment securities (shares and bonds).
 loans to other entities.

Related to the acquisition and disposition of assets, other than (a) inventory and (b) assets classified as cash
equivalents. The category includes cash paid to acquire; Property, plant and equipment; Investments in
securities of other firms; Receivables (by making loans to others); Later transactions related to these
acquisitions, such as the sale of the assets and the collection of loans, also are classified as investing activities

CASH FLOWS FROM FINANCING ACTIVITIES (DÙNG ĐỂ CÂN BẰNG)

Inflows from:
 sale of shares to owners.
 borrowing from creditors through notes, loans, mortgages, and bonds.
Outflows for:
 owners for the repurchase or reacquisition of shares previously sold.
 owners in the form of dividends or other distributions (VN KHÔNG cho phép để ở operating act)
 creditors for the repayment of the principal amounts of debt.
 creditors for the payment of interest on debt

Result form the external financing of a business. The category includes cash received from the issuance of:
common and preferred stock; Bonds and other debt securities. Later transactions related to the sale of these
securities, such as paying dividends to shareholders, the purchase of treasury stock, and the repayment of debt,
also are classified as financing activities.

CHAP 7
CASH AND RECEIVABLES

CASH AND CASH EQUIVALENTS

Cash:
- Currency and coins
- Balances in current bank accounts
- Items for deposit such as checks and money orders from customers
Cash equivalents are short-term, highly liquid investments that can be readily converted to cash.
- Money market funds
- Treasury bills: người phát hành muốn mượn tiền nên phát hành trái phiếu kho bạc, sau đó người mua sẽ
nhận lại khoản tiền sau 1 tgian + tiền lãi
- Commercial paper

INTERNAL CONTROL
- Encourages adherence to company policies and procedures
- Promotes operational efficiency
- Minimizes errors and theft
- Enhances the reliability and accuracy of accounting data (phiếu thu, phiếu chi,..)

INTERNAL CONTROL PROCEDURES

Cash Receipts
- Separate responsibilities for receiving cash, recording cash transactions, and reconciling cash balances.
- Match the amount of cash received with the amount of cash deposited.
- Close supervision of cash-handling and cash-recording activities.
Cash Disbursements
- All disbursements, except petty cash, made by check.
- Separate responsibilities for cash disbursement documents, check authorization, check signing, and
record keeping.
- Checks should be signed only by authorized individuals.

ACCOUNTS RECEIVABLE
- Result from the credit sales of goods or services to customers
- Are classified as current assets

CASH DISCOUNTS
Gross Method
- Sales are recorded at the invoice amounts
- Sales discounts are recorded as reduction of
revenue if payment is received within the
discount period.
Net Method
- Sales are recorded at the invoice amount less
the discount.
- Sales discounts forfeited are recorded as
interest revenue if payment is received after
the discount period
Ex: On October 5, Hawthorne sold merchandise for $20,000 with terms 2/10, n/30. On October 14, the
customer sent a check for $13,720 taking advantage of the discount to settle $14,000 of the amount. On
November 4, the customer paid the remaining $6,000.
SALES RETURNS
- Merchandise may be returned by a customer to a supplier.
- A special price reduction, called an allowance, may be given as an incentive to keep the merchandise.
- To avoid misstating the financial statements, sales revenue and accounts receivable should be reduced by
the amount of returns in the period of sale if the amount of returns is anticipated to be material.
Ex: During the first year of operations, Hawthorne sold $2,000,000 of merchandise that had cost them
$1,200,000 (60%). Industry experience indicates 10% return rate. During the year $130,000 was returned prior
to customer payment. Record the returns and the end of the year adjustment.

NOTES RECEIVABLE
A written promise to pay a specific amount at a specific future date.
Face amount of the note × Annual interest rate × Fraction of the annual period = Interest
Even for maturities less than 1 year, the rate is annualized.

RECEIVABLES MANAGEMENT

This ratio measures how many times a company converts its receivables into cash each year.

This ratio is an approximation of the number of days the average accounts receivable balance is outstanding.
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS (nợ khó đòi - nợ xấu)
Net realizable value is the amount of the accounts receivable that the business expects to collect.
- Income Statement Approach
- Balance Sheet Approach
 Composite Rate
 Aging of Receivables

giá trị thuần có thể thực hiện được

2 cách xác định: dựa trên thời gian quá hạn nợ và tình hình của khách hàng

INCOME STATEMENT APPROACH

- Focuses on past credit sales to make estimate of bad debt expense.
- Emphasizes the matching principle by estimating the bad debt expense associated with the current
period’s credit sales
Bad debt expense is computed as follows:
Current Period Credit Sales × Estimated Bad Debt % = Estimated Bad Debt Expense

Ex: In 2013, MusicLand has credit sales of $400,000 and estimates that 0.6% of credit sales are uncollectible.
What is Bad Debt Expense for 2013?
MusicLand computes estimated Bad Debt Expense of $2,400.
$ 400,000 × 0.60% = $ 2,400
Bad debt expense 2,400
Allowance for uncollectible accounts. 2,400

BALANCE SHEET APPROACH

- Focuses on the collectability of accounts receivable to make the estimate of uncollectible accounts.
- Involves the direct computation of the desired balance in the allowance for uncollectible accounts.
1. Compute the desired balance in the Allowance for Uncollectible Accounts.
2. Bad Debt Expense is computed as:

Desired Balance in Allowance for Uncollectible Accounts

-- Existing Year-End Balance in Allowance Uncollectible Accounts
= Estimated Bad Debt Expense

Composite Rate (
On Dec. 31, 2013, MusicLand has $50,000 in Accounts Receivable and a $200 credit balance in Allowance
for Uncollectible Accounts. Past experience suggests that 5% of receivables are uncollectible.
What is MusicLand’s Bad Debt Expense for 2013?

Aging of receivables (tính tuổi nợ của kh)

Year-end Accounts Receivable is broken down into age classifications.
Each age grouping has a different likelihood of being uncollectible.
Compute desired uncollectible amount.
Compare desired uncollectible amount with the existing balance in the allowance account.

UNCOLLECTIBLE ACCOUNTS
As accounts become uncollectible, this entry is made: (sau khi dự tính, khách hàng không trả)
Allowance for uncollectible accounts 500
Accounts receivable 500
When a customer makes a payment after an account has been written off, two journal entries are required. (ghi
rồi nhưng kh muốn trả)
Accounts receivable. 500
Allowance for uncollectible accounts 500
Cash. 500
Accounts receivable 500

Direct Write-off Method

If uncollectible accounts are immaterial, bad debts are simply recorded as they occur (without the use of an
allowance account).
Bad debts expense xxx
Accounts receivable. xxx
 CHAP 8 -9
INVENTORIES
RECORDING AND MEASURING INVENTORY
Types of Inventory
- Merchandise Inventory: Goods acquired for resale
- Manufacturing Inventory: Raw Materials / work-in-progress / Finished Goods
Process of Manufacturing Inventories

INVENTORY SYSTEMS
Two accounting systems are used to record transactions involving inventory:
Perpetual Inventory System: The inventory account is continuously updated as purchases and sales are made.
(ghi liên tục ngay khi bán cả cost of goods sale rồi sales, đảm bảo số lượng)
Periodic Inventory System: The inventory account is adjusted at the end of a reporting cycle. (chỉ ghi tổng
lạisau khi đếm ở cuối kì chứ không biết cụ thể mỗi lần bán)

Transaction or Event Periodic Inventory Perpetual Inventory

Routine purchases of various Costs debited to purchases
Costs debited to inventory account
inventory items account
No accounting entries made
Sale of inventory Debit Cost of goods sold and credit inventory
to inventory
Physical count to
End-of-period accounting entries No separate determination of cost of goods
determine ending inventory
and related activities sold necessary
and cost of goods sold

PERPETUAL INVENTORY SYSTEM

Ex1: Lothridge Wholesale Beverage Company (LWBC) begins 2013 with $120,000 in inventory. During the
period it purchases on account $600,000 of merchandise for resale to customers.
Inventory 600,000
Accounts payable. 600,000
Purchase of merchandise inventory on account
Returns of inventory are credited to the inventory account.
Discounts on inventory purchases can be recorded using the gross or net method.

Ex2: During 2013, LWBC sold, on account, inventory with a retail price of $820,000 and a cost basis of
$540,000, to customers.
2013
Inventory. 600000
Accounts payable 600000
Purchase of merchandise inventory on account.
2013
Accounts receivable. 820 000
Sales revenue 820 000
Record sales on account.
Cost of goods sold 540 000
Inventory. 540 000
Record cost of goods sold.

PERIODIC INVENTORY SYSTEM

The periodic inventory system is not designed to track either the quantity or cost of merchandise inventory.
Cost of goods sold is calculated, after the physical inventory count at the end of the period.

Beginning Inventory
+ Net Purchases

Cost of Goods Available for Sale

- Ending Inventory

Cost of Goods Sold

Ex1 Purchases. 600,000
Accounts payable. 600,000
Purchase of merchandise inventory on account
Ex2:
Accounts receivable 820,000
Sales revenue 820,000
Record sales on account.

No entry is made to record Cost of Goods Sold. A physical count of Ending Inventory shows a balance of
$180,000. Let’s calculate Cost of Goods Sold at the end of 2013. We need the following adjusting entry to
record cost of good sold.

Transaction or Event Periodic Inventory Perpetual Inventory

Routine purchases of various
Costs debited to purchases account Costs debited to inventory account
inventory items
No accounting entries made to Debit Cost of goods sold and credit
Sale of inventory
inventory inventory
Physical count to
End-of-period accounting entries No separate determination of cost of
determine ending inventory and cost
and related activities goods sold necessary
of goods sold

INCLUDED IN INVENTORY
General Rule: All goods owned by the company on the inventory date, regardless of their location.
- Goods in Transit: Depends on FOB shipping terms
- Goods on Consignment

Expenditures
PURCHASE RETURNS
On November 8, 2013, LWBC returns merchandise that had a cost to LWBC of $2,000, and a cost basis to the
seller of 1,600.

Returns of inventory are credited to the Purchase Returns and Allowances account when using the periodic
inventory method. The returns are credited to Inventory using the perpetual inventory method.

PURCHASE DISCOUNTS

Partial payment not

made within the
discount period

Việc lập dự phòng sẽ cho thấy giá trị thấp hơn giữa giá gốc và giá thấp hơn.