1、Lesson 1 Introduction To Accounting,Task Team of FUNDAMENTAL ACCOUNTING Business School, Sun Yat-sen University,Outline,The nature of firm; The value of accounting; The Evolution of accounting; Accounting: A bird view,2,Opening Story,Everyone here is supposed to know the Outlaws of the Marsh; Questi
2、on I: Who plays the role of “CFO” of the Marsh Mountain Liang? There are two;,3,Opening Story,Some other positions related to accounting;,4,Opening Story,Question II: Why does the Marsh Mountaion Liang need such positions as CFO and Chief Controller? We must know that the title of SHUIHUZHUAN is als
3、o translated as All Men are Brothers.,5,The Value of Accounting,Why does accounting exist in every organization? I explain this question in another way: what kind of unique value does accounting possess? The value must be fundamental and the society could not go without; Another way to explain: Darw
4、inism; Natural selection and the fittest survive;,6,The Nature of Firm,Although every organization needs accounting, we just talk about enterprise accounting for simplicity; What is the nature of firm? We discuss about human nature first;,7,The Nature of Man,Ethic Man; Human Nature: Virtue vs. Evil;
5、 Confucis vs. Hsun Tzu Economic Man; There is no ethics concept in Economists dictionary; It is not from the benevolence of the butcher, the brewer, or the baker that expect our dinner, but from their regards their own interest. (Adam Smith);,8,The Nature of Man,We need a compound analytical tool; M
6、aslow and the Hierarchy of Needs: the most common tool; Michael Jensen and William Meckling REMM Resourceful, Evaluator, Maximizer, Model.,9,The Nature of Firm,Classical theories; A device to capture transaction costs; A nexus of contracts; Agency theory; Economic Darwinism; , REMM perspective: A co
7、alition of economic men;,10,The Nature of Firm,On the coalition of economic men: Why does REMM join a firm? Maximization of his own interests; When does REMM quit from a firm? Seek different chance to maximize his own interests; When we define human being as REMM, we have to solve the fundamental is
8、sue: How does REMM trust each other?,11,The Value of Accounting,Without trust, we could not have even a family, let alone a firm; 911 and the increase of trusting cost; REMMs have to find efficient ways to develop and maintain trust; They know that they have to; The problem is how;,12,The Value of A
9、ccounting,Historically, REMMs have created and experimented numerous ways; Accounting is proven to be cost-effective; It is suitable to all kinds of firms, No matter of their size, No matter of the geographic locations; No matter of ownership;,13,The Evolution of Accounting,Now that accounting is co
10、nnected with human nature and trusting issue, we may trace the history of accounting to the early days of human beings, or Primitive Society; the Incas and Quipu;,14,Sumer and CUNEIFORM Phoenician and ALPHABET,15,The Evolution of Accounting,Why do our ancestors invent Alphabet? To build trusting via
11、 enhanced memory; This is the right value of Accounting. Chronology of spelling by Steve Bett; 3200 BC Writing developed as an extension of the accounting system in Babylon; A British accounting scholar claimed: Phoenician invented ALPHABET for the sake of accounting.,16,The Evolution of Accounting,
12、The primitive stage of accounting; A tool to help to maintain the trusts; Alphabet, numeric and organizational control;,17,The Evolution of Accounting,The birth of double-entry bookkeeping; A. C. Littleton on the birth of DEB; Another story The Crusaders (1095-1270); Italian commodity economy, devel
13、oped bank business; DEB: the symbol of accounting science;,18,The Evolution of Accounting,From Bookkeeping to Financial Accounting Capital market: accounting information is widely circulated; The most common users: outside of the reporting entity; GAAP: the symbol of the conversion; Financial Accoun
14、ting is also called External Accounting;,19,The Evolution of Accounting,Industrial revolution and modern mass manufacturing process; Business profiting model is changed; Originally, buy low, sell high; Now, buy raw materials, manufacture into products and sell out; The determination of the cost of m
15、anufactured products is essential in profit determination; Cost Accounting is “invented”;,20,The Evolution of Accounting,From cost accounting to management accounting; More complicated business activities; Dynamic and keep-changing environment; Much larger business scale; Decision making: much more
16、complicated; Management Accounting is “invented”;,21,The Evolution of Accounting,From commodity market to capital market; The developing of capital market raises two issues: Effective ways to raise and allocate capital; Trust crisis; We have Corporate Finance and Auditing subjects respectively.,22,C
17、orporate Finance and Auditing,23,The Evolution of Accounting,Accounting will evolve with the development of economy and technology; The invention of computer and its adoption into accounting practice; Reduces time, effort and cost of record-keeping; Improves clerical accuracy; Changes the way we sto
18、re, process and summarize large masses of data;,24,The Evolution of Accounting,Website and Internet; dissemination of accounting information: easy and no increment cost; Internet based financial reporting system; Extensible Business Reporting Language (XBRL) was developed to provide users with an ef
19、ficient and effective means of preparing and exchanging financial information over the Internet. Extensible Assurance Reporting Language (XARL) was designed to enable assurance providers to report on the integrity of information distributed over the Internet and help users and companies place warran
20、ted reliance on such information Events accounting: may be re-introduced under internet environment;,25,The Evolution of Accounting,SOX and its impact on accounting; Enron filed for bankruptcy protect in December 3, 2001; WorldCom reported billions of false profit in June, 2002; Sarbanes-Oxley Act o
21、f 2002 was signed by President Bush and became a law in June 30, 2002; It mainly focuses on accounting;,26,The Boundary of Accounting,Accounting: a boundless discipline; What should accountants supposed to do? For instance, the job description of CFO; The job description of chief controller; No defi
22、nite definition; No generally accepted principles;,27,What should we do?,郭靖纵身离开北斗星位，抢到“天璇”。他此时武 功已胜全真诸子，兼之精通阵法奥妙，一加推动，阵势威力大增。北斗阵本以“天 权”为主，但他一入阵，枢纽移至“天璇”，阵法立时变幻。 The implication to us!,28,You may use knowledge freely as soon as you find the underlying regularity;,29,Summary,The nature of firm: contem
23、porary interest coalition of REMM; REMMs have to find cost-effective ways to build trust; Accounting is proven cheap and reliable; Accounting is evolving with economy and technology, etc; Four main branches: Financial accounting, management accounting, corporate finance and auditing; Computer and in
24、ternet: already changed accounting significantly;,30,Case for open discussion,Collect relevant comments and news reports on the financial fraud of Shanghai listed company Hongguang Industrial (600083), especially the first lawsuit filed by Ms. Jiang from Shanghai. Requirements: Is the suit filed by
25、Ms. Jiang merit or meritless? Is the rejection by local court reasonable or not? Why? Suppose that Ms. Jiang had won the case, what kind of consequences are expected?,31,The End of Lesson 1,32,Lesson 2 Business Transactions and Accounting Equation,Task Team of FUNDAMENTAL ACCOUNTING School of Busine
26、ss, Sun Yat-sen University,Outline,Enterprises Accounting Transactions, Accounting Events, and Accounting Circumstances Economic Activities and Accounting Elements Accounting Equation,34,Opening Story,Funding and Spending at College Assets of a college student Cash CD player Computer Funding these a
27、ssets Sponsored by parents Sponsored by relatives Borrowed from relatives and acquaintance,35,Opening Story (continued）,We could deal with the above-mentioned financial issues from the following perspectives： How do we fund our daily expenditures and possessions？ How do we spend the “funds” which we
28、 have sourced？ What about the relationship between the “funds” which we have sourced and our daily expenditures and possessions？,36,Enterprises,Concept of Enterprise Definition of “enterprise” Functions of an enterprise Characteristics of an enterprise,37,Forms of Enterprise,There are three major fo
29、rms of enterprise: Sole-proprietorship Partnership Corporations,38,Sole proprietorships,Single person owns the business Not separate from its owner in terms of responsibility and liability The business is the owner and the owner is the business,39,Partnership,Owned by two or more people Similar to a
30、 sole proprietorship Not separate from the owners in terms of responsibility and liability,40,Corporations,Legally separate and financially separate from the owners Ownership in a corporation is divided into units called shares of capital stock Owners are called shareholders or stockholders Corporat
31、ions are separate legal entities,41,Characteristics of Enterprise,42,Four Types of Enterprise,Service organization provides services (does something for you) rather than selling something Merchandising business buys goods, adds value to them, then sells them to customers Manufacturer makes the produ
32、cts it sells Financial services company doesnt make tangible products and doesnt sell products made by other companies; deals in services related to money,43,Resources in an Enterprise,Major resources： Human resources Properties,plant and equipment,supplies, raw materials, finished products or inven
33、tories Financing In cash or bank deposits In material forms,44,Movements of Material Resources in an Enterprise,An example-Beauty Photo Store,45,Movements of Material Resources in an Enterprise,Movements in a manufacturing enterprise cash/bank depositraw materials work-in-processfinished productsfin
34、cash/bank deposit Movements in a merchandising enterprise cash/bank depositinventory cash/bank deposit,46,Activities of Enterprise,Three major phases of business activities: Inception Operating Liquidation,47,Inception of Enterprise,Inception and investment of funds External funding State, legal per
35、sons, privates or foreign investors； Financing from banking institutions, other legal persons or privates Ownersequity and liabilities,48,Inception of Enterprise,Forms of Investment Monetary(cash/bank deposits) Property, plants and equipment Raw materials and goods,etc. Sources and changes of funds
36、Increase of ownersequity or liabilities Increase of assets,49,Operating Activities,Operating activities and changes of asset Changes of assets in Beauty Photo Store Connections between Beauty Photo Store and Suppliers, clients, etc.,50,Liquidation of Enterprise,Liquidation of enterprise and payoff o
37、f funds Payment of taxes Distribution of profits Declaration of dividends Payoff of borrowings Withdrawals and changes of funds Decrease of assets Decrease of liabilities or ownersequity,51,Accounting Transactions,A business transaction is an event that affects the financial position of a business a
38、nd may be reliably recorded,52,Economic Activities and Accounting Elements,Accounting element： Uses of funds and assets cash equipment,etc. Resources of funds and equity Borrowings and equity of creditors-liabilities Investments and ownersequity,53,Uses of Funds,Uses and changes of funds Beauty Phot
39、o Store From cash to equipment Using equipment to produce photos From photos to cash,54,Circulation of Funds,Circulation of funds: Uses of funds Beauty Photo Store Cost of equipment Cost of supplies Human costs？ Uses and payoff of funds What are the operating purposes for Beauty Photo Store？,55,Payo
40、ff of Funds,Payoff of Funds and Revenues Cash receptions and revenues by Beauty Photo Store Net increase of funds and profit Difference between uses and payoff of cash？ Nature of profit?,56,Accounting Transactions,Accounting transactions-Economic exchange between two different accounting entities Mu
41、tual exchange A purchases an asset,paying cash or bearing the responsibility of paying cash in future B sells the asset, earning the rights of receiving or collecting cash One-way transaction Investments or donations to another accounting entity,57,Accounting Events,Accounting events-internal transf
42、erring of resources among departments of a same entity allotments of raw materials for plants Damages caused by earthquakes External versus internal events Between different entities Within a same entity,58,Accounting Circumstances,Accounting circumstances-usually an outcome of collaboration of mult
43、iple events Circumstances and their impacts Changes in prices,exchange rates How to determine these changes？ E.g. uncollectability of receivables due to the liquidation of the debtor Unpredictability,59,Accounting Elements,Assets Liabilities Ownersequity Revenues Expenses Profits,60,Assets,Assets ar
44、e economic resources owned by a business that are expected to be of benefit in the future.,61,Further Thoughts on Assets,Human resources as an asset？ Value and labor of Manager of Beauty Photo Store？ Cameramen and shop assistants？ Natural resources as an asset?,62,Liabilities,Liabilities are credito
45、rs claims to the assets. Liabilities are obligations to outsiders,63,OwnersEquity,Owners Equity is the owners claim to the assets. It is the amount of assets that remains after subtracting the liabilities.,64,Changes in OwnersEquity,Investments by owners and revenues, amounts earned by delivering go
46、ods or services to customers, increase owners equity. Withdrawals of assets from the business by owners and expenses decrease owners equity. Expenses occur when assets are used or liabilities increase as a result of earning revenues.,65,Revenue,Revenues (sales) are increases in owners equity arising
47、 from increases in assets received in exchange for the delivery of goods or services to customers. Revenues are increases in economic resources, either through increases to assets or reductions to liabilities,66,Revenue Recognition,Revenue should be recognized in the financial statement when: the pe
48、rformance has been achieved there is reasonable assurance regarding the measurement and collectability of the consideration,67,Expense,Expenses are decreases in owners equity that arise because goods or services are delivered to customers. Expenses are decreases in economic resources, either through
49、 outflows or the using-up of assets or incurrence of liabilities from delivering or producing goods, rendering services, or carrying out other activities that constitute the entitys normal business,68,Expense Recognition,Cost, expenditure, and expense General recognition criteria Approaches to expense recognition,69,Cost, Expenditure, and Expense,When we agree to pay out cash (or other assets) for goods or services received, we have incurred a cost When we actually pay the cash, we have an expenditure When the benefits of the cost have been used and we p
