1、1.1 Accounting and Accounting Profession1.1 Accounting and Accounting ProfessionAccounting is an information system designed to identify,record,and reflect economic activities and events about an enterprise with monetary unit as its main criterion.The primary objective of accounting is to provide us
2、eful information to decision makers.Ethic Ethic is an ideological standard by which ones conducts are judged as right or wrong,honest or dishonest,and fair or not fair.When analyzing economic activities involving ethics,it is helpful for accountants to follow the following three steps.recognize the
3、ethical situation and the involved ethical issues.identify and analyze the principal elements in the ethical situation in order to figure out who or which group may be harmed by or benefited from this situation,and which party should take the responsibility and obligation.identify the alternatives,a
4、nd to assess the impact of each alternative to its stakeholders.The accounting functionaccounting function refers to the objective functions of the accounting during operation and management.Calculation functionCalculation function By using the monetary form and certain methods or procedures,account
5、ing records the economic activities,and then makes the necessary calculation,sorting,processing,and summarizing so as to put data into a series of information that could reflect accounting objects,and summarize producing and operating activities and their results.Supervision functionSupervision func
6、tion to examine the authenticity,legality,and rationality of economic businesses of a specific accounting subject when the accounting personnel carry out the calculation function.Just as calculation function,it is one of the basic functions of accounting,and is also an important component of Chinese
7、 economic supervision system.In additionIn addition prediction,decision making,analysis,and so on.Internal users Internal users Internal users of accounting information are the users who are inside an enterprise and plan,organize,manage its business Such as board of directors,Chief Executive Officer
8、(CEO),Chief Financial Officer(CFO),and so on.By reading and analyzing the detailed information about the companys financial position and financial performance,these internal users could make their own decisions about operating,financing,and investing.External users The users who are outside the ente
9、rprise Such as shareholders(investors),creditors(lenders),tax shareholders(investors),creditors(lenders),tax officesoffices,external(independent)auditors,labor unionsexternal(independent)auditors,labor unions,and so on.Different external users need different kinds of information.The accounting profe
10、ssion can be divided into three broad categories:public accounting,private public accounting,private accounting,and accounting for government and accounting,and accounting for government and nonprofit organizations.nonprofit organizations.Public accounting provides accounting services to the public
11、on a compensable foundation base.Private accounting modern accounting can be divided into two main branches:financial financial accounting accounting and management accounting.management accounting.Financial accounting concerned with providing accounting information to shareholders,creditors,and oth
12、er information users.It measures and records business transactions and prepares financial statements to convey information.management accounting help managers to choose,communicate,and implement appropriate strategies,and then help the company fulfill its development targets.Accounting for governmen
13、t and nonprofit organizations provides accounting service to government and nonprofit organizations.two major activities:1.to check and supervise the implementation of budget for each level of the government and all the non-profit organizations.2.to identify,measure and report all the financial inco
14、mes and expenditures of government and nonprofit organizations as well as the corresponding result.A reasonable setting for the scope,contents,basic procedures,and methods of accounting.The basic premise of accounting calculation Four major accounting assumptions Business entity Going-concern Moneta
15、ry unit Time periodA business entity should be accounted separately from other business entities,including its owner.The business entity A unit which has independence or relative independence in management or economy.Also an economic unit stands on its own interest.As the basic premise of accounting
16、,its of great significance to identify the business entity.Firstly,business entity assumption helps to define the spacial scale of accounting.Secondly,this assumption defines the scope of economic business activities and events that need to be treated by the accounting.Business entity is different f
17、rom legal entitylegal entity.A legal entity must be a business entity,but a business entity is not always a legal entity.A business entity could be a legal entity and it also could be a non-legal entity.The business activities of an accounting entity will continue indefinitely,and will not disappear
18、 for bankruptcy,liquidation,and dissolution in the foreseeable future.If a specific entity is actually threatened by bankruptcy or liquidation,the going-concern assumption should be abandoned.If the going-concern assumption is not applicable because of threatens from liquidation or bankruptcy,the fi
19、nancial statements must clearly disclose this situation.Monetary unit assumption means that the accounting is based on the measurement of currency with currency stability.Because only in the situation of currency is stable or relatively stable,the asset value at different points of time can be compa
20、rable,the income and expense during the same period can be compared,operating results can be calculated and determined,and the accounting information provided by the financial statements can truly reflect the operating condition of an enterprise.Money is the common ground of business.The time period
21、 assumption presumes that the life of a going-concern company can be divided into periods,such as months,quarters,years,so that financial reports can be prepared separately by those periods.According to the going-concern assumption,a business will continue to operate by the current size and status.I
22、ts necessary for enterprises to divide its whole life into continuous period of equal duration,and then to recognize,measure,and report its financial condition,operating results,and cash flows in each period.The time period assumption also makes different types of accounting entities have an account
23、ing benchmark,and then exerts receivables,payables,depreciation,amortization,and other accounting treatment methods.In summary,these four fundamental accounting assumptions depend on each other and complement each other.The accounting entity assumption establishes the scope of accounting.The time ra
24、nge of accounting is established by the going-concern assumption and time period assumption.Monetary unit assumption provides the necessary means for accounting.Without the accounting entity assumption,the going-concern assumption would lose its meaning.There would be no time period without going-co
25、ncern assumption.Without monetary unit assumption,there would be no modern accounting.There are five basic accounting principles that are used to record economic transactions:(1)Accrual basisAccrual basis;(2)Historical cost;Historical cost;(3)Realization;Realization;(4)Matching;Matching;(5)Full disc
26、losure.Full disclosure.The accrual basis of accounting recognizes revenue when realized and expenses when incurred.It refers to all revenues and costs which incurred in the current period,whether or not the payment is received or paid,treated as the income and expenses of the current period.On the c
27、ontrary,those who do not belong to this period of income and expenses,even if the amount is received or paid in this period,shouldnt be treated as income or expenses of the current period.Under the accrual basis,the criteria for the recognition of revenuesrevenues are as follows:The process to earn
28、revenue is completed and the authority to receive payment is obtained，but not the money has been collected.Under the accrual basis,the criteria for the recognition of expenses expenses are the related benefits have been enjoyed and the obligation of payment has been assumed,and rather not the paymen
29、ts have been paid.Accrual basis is a standard taking whether have obtained the authority of receiving payment or assumed the payment obligation as the criterion to recognize revenues and expenses.It could reflect the operating performance of enterprises in different periods more reasonably.The accru
30、al basis requires numerous adjustments at the end of an accounting period.Above all,we can dig out that the use of the accrual basis complicates the accounting process.Then why do we use it?Thats because the measurement result of an entitys financial condition and operating performance based on accr
31、ual basis is more representative than that based on cash basiscash basis.Meanwhile,if without accrual basis,it would be unnecessary to make the time period assumption.Cash basis accounting is to deal with economic transactions,to recognize revenues and expenses according to whether actually receipt
32、and payment of money has incurred.Based on cash basis,if payment is actually paid during one period,regardless of whether it bring benefits to the company in the current period,it should be recognized as a cost or expense;If cash is actually received during one period,regardless whether its earned d
33、uring this period,it should be treated as revenue.In practice,immaterial items are frequently handled on cash basis,and some specific standards also allow the application of cash basis.In China,accrual basis is required to use.Measurement attribute is the basis of determining the amount of accountin
34、g elementsaccounting elements.There are typically five measurement attributesmeasurement attributes,historical costhistorical costcurrent costcurrent costcurrent market valuecurrent market valuenet realizable valuenet realizable valuepresent valuepresent value.Historical cost means to record account
35、ing elements based on the cost when economic business occurs.The realization principle provide guidance on when a company must recognize revenue,and then help accountants to solve this problem.Three concepts are important to revenue recognition.(1)Revenue is recognized when earned.The earnings proce
36、ss is generally complete when services are performed or the ownership of products is transferred to the buyer.(2)Proceeds from selling products and services need not be in cash.For example,when a customer purchases merchandises and promises to pay at a future date,this sale is called sale on credits
37、ale on credit.(3)Revenue is measured by the cash received plus the cash value of any other items received.The recognition of revenue at the completion of the production process is acceptable when the price of the item is known and there is a ready market.The matching principle prescribes that a comp
38、any record the expenses it incurred to generate the revenue reported.The basic intent is to determine the revenue first and then match the appropriate costs against this revenue.To allocate these costs against revenues,there are some systematic policies which can be adopted.The principle of matching
39、 and realization are essential to modern accounting.The accounting reports must disclose all facts that may influence the judgment of an informed reader.This principle prescribes that a company report the details behind financial statements that would impact users decisions.There are several methods
40、 of disclosure parenthetical explanationssupporting schedulescross-referencesnotes.Because of the complexity of the business and the increased expectations of the public,to full disclose is becoming more and more difficult.The Conceptual Framework for Financial Accounting and ReportingConceptual Fra
41、mework for Financial Accounting and Reporting was set by FASBFASB since its inception in 1973.The Framework is intended to set forth a system of interrelated objectives and underlying concepts that will serve as the basis for evaluating existing standards of financial accounting and reporting.In May
42、 1980,the framework project issued a concept statement of Qualitative Qualitative Characteristics of Accounting InformationCharacteristics of Accounting Information(SFAC No.2).It examines the characteristics that make accounting information useful for investing,credit,and similar decisions.Those cha
43、racteristics of accounting information that make it a desirable commodity can be viewed as a hierarchy of qualities,with understandability and usefulness for decision making of most importance The primary decision-specific qualities relevance ReliabilityTwo secondary qualities comparability consiste
44、ncyTo make accounting information be valuable,it should be related to decision-making.For information to be relevant,it needspredictive valuepredictive valuefeedback valuefeedback valuepresented on a timely basispresented on a timely basisReliability is the extent to which information should be with
45、 verifiabilityverifiability,representational faithfulness representational faithfulness,and neutrality.neutrality.Verifiability means the accounting information can be proved to be true.It implies a consensus among different measures.Representational faithfulness means information should match what
46、really existed.Faithfulness exists when there is an agreement between a measure or description and the phenomenon it purports to represent.Neutrality means cannot select information for favor one over another.Comparability is the ability to help users distinguish similarities and differences between
47、 events and conditions.Consistency requires an entity to give the same treatment to comparable transactions from period to period.MaterialityMateriality concept involves the relative size and importance of an item to a firm.For users of accounting information,the information for decision-making has
48、important influence and is most important.If accounting information misplaced priorities,it will mislead decision-making and lead users to make wrong decisions.Its important to note that an item material to one entity may not be so material to another.The determination of materiality is largely depe
49、nds on the professional judgment of accountants.information system 信息系统economic activities and events 经济活动与事项monetary unit 货币单位financial condition 财务状况operating performance 经营业绩financial reports 财务报告bookkeeping function 记账职能ethical behavior 道德行为accounting law 会计法accounting standards 会计准则accounting f
50、unction 会计职能calculation function 核算职能supervision function 监督职能information users 信息使用者internal users 内部信息使用者external users 外部信息使用者board of directors 董事会Chief Executive Officer(CEO)首席执行官Chief Financial Officer(CFO)首席财务官，财务总监tax offices 税务部门external(independent)auditors 外部（独立）审计师labor unions 工会business
