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- 1. ACCOUNTING BASICS UNIT OBJECTIVES - MỤC TIÊU DURATION (9 periods) - THỜI LƯỢNG HỌC (9 TIẾT) • Provide students with an overview of accounting main issues, basic terms and concepts related to accounting. Cung cấp cho sinh viên cái nhìn tổng quan về các vấn đề cơ bản trong kế toán, các thuật ngữ và khái niệm cơ bản trong kế toán. • Provide for students the way of organizing an academic essay. Cung cấp học sinh phương pháp tổ chức viết một bài luận. • At the end of this unit, students will be able to talk and write about accounting main issues. Sau khi kết thúc bài học này, sinh viên có thể nói và viết về các vấn đề cơ bản trong kế toán. In this unit, students will be provided knowledge to write and talk about an overview of accounting main issues, basic terms and concepts related to accounting. Trong bài này, sinh viên sẽ được cung cấp các kiến thức ngôn ngữ để nói và viết về các vấn đề tổng quan trong kế toán, các thuật ngữ và khái niệm cơ bản về kế toán. 1 Unit 1: Accounting Basics v1.0
- 2. Unit 1: Accounting Basics 2 Match the words or expressions in the column A with their definition in column B. The suggested time to do this exercise is 10 minutes. Column A Column B 1. Ledger A The amount of money written on the left side of the ledger 2. Debit B The amount of money written on the right side of the ledger 3. Credit C The recording of revenues and expenses may take place before related cash is received. 4. Cash method D A book in which the monetary transactions of a business are posted in the form of debits and credits. A ledger includes the record of accounts transferred as final entry from original postings. 5. Accrual method E The recoding of revenue and expenses takes place when the related cash is received 6. Balance sheet F A statement reporting the organization’s economic performance over a specific period of time. 7. Income statement G The basis of the standard accounting system in which each transaction is recorded in at least two accounts: debit and credit. 8. Cashflow statement H The summary of the organization’s uses of funds (assets) and sources of funds (liablilities and equity) at a specific point of time 9. Double-entry accounting I The basic formula of the double-entry book keeping system. It shows how assets were financed either by borrowing money from someone else (liability) or by paying your own money (shareholder’s/ owner’s equity) Assets = Liabilities + Shareholder’s/ owner’s equity 10. Accounting equation J A statement explaining how an organization obtains cash and how it spend cash and other factors that may affect cash positions. 11. Revenue K A daily record of events or business 12. Book keeping L An evaluation of a person, organization, system, process, project or product in order to certain the validity and reliability of information, and also provide an assessment of a system’s internal control. 13. Creditor M The recording of all financial transactions undertaken by an individual or organization. 14. Audit N the amount of money that a company receives from its activities in a given period, mostly from sales of products and/or services to cus- tomers 15. Journals O A party (e.g. person, organization, company, or government) that has a claim to the services of a second party. The first party, in general, has provided some property or service to the second party under the as- sumption (usually enforced by contract) that the second party will re- turn an equivalent property or service. v1.0
- 3. Unit 1: Accounting Basics 3 ACCOUNTING BASICS Definition ofAccounting Accounting is the process of financially measuring, recording, summarizing and communicating the economic activity of an organization. It is often referred to as “the language of business” and, like any other language, it has its own unique vocabulary and rules. Some people think of accounting as a highly technical field understood only by professional accountants. However, technical accounting terms such as assets, liabilities, equity, revenue, expense, income and cash flow are widely used throughout the micro-finance field. Thus it is important that anyone involved in making business decisions understands the basic accounting concepts which form the basis of financial management. Accounting is the process Accounting is a service activity. It provides financial information about an organization’s economic activities which is intended to be used as a basis for decision making. It provides the required to answer questions such as: What are the resources of the organization? What debts does it owe?Are its operating expenses too high relative to revenue?Are the organization’s current lending activities generating enough income for it to be sustainable? Not everyone needs to understand the intricate details of an organization’s accounting system; however, it is helpful for employees to understand the framework within which accounting operates. Managers, in particular, need to know how to interpret the information accounting provides. Based on this information, managers can analyze the financial status of their organization and manage the organization’s finances to ensure future financial stability. Role of Accounting Accounting falls into two general categories: financial accounting and management accounting. Financial accounting presents a summary view of the financial results of past operations. Financial accounting reports are aimed at external audiences although they are widely used internally as well. Management accounting information is tracked and presented at a much more detailed level, such as by programme or branch. Projected financial information is also a part of management accounting and is aimed primarily at internal audience. Management reports are prepared frequently and report on an on going basis the differences between planned and actual results. Financial Statements The preparation of financial statements is virtually the last stepin the accounting process but it is an appropriate point to begin studying accounting in order to understand what will be produced. Financial statements are the primary means through which an organization communicates information about its economic activities. The purpose of these statements is to provide useful financial information to parties such as banks, investors, suppliers, governments, etc., who may make decisions affecting the organizations’operations or otherwise influence the Text A: Read text A: Accounting Basics and do exercises 2.1, 2.2 below. The suggested time for reading the text and completing the exercises is 30 minutes. v1.0
- 4. direction of its activities. Financial statements are means of conveying a concise picture of the financial position of the organization. An individual who has a clear understanding of these statements will understand better the purpose of earlier steps in the process. The three most widely used financial statements are the Balance Sheet, the Income Statement and the Statement of Changes in Financial Position.TheBalance Sheet is a summary of the economic resources of an organization and the claims against those resources at a specific point in time. The Income Statement reports the organization’s economic performance over a specified period of time. The Statement of Changes in Financial Position reports the organization’s sources and uses of funds (also referred to as the Statement of Changes in Sources and Uses of Funds or the Cash Flow Statement). It explains how an organization obtains cash (sources of funds) and how it spends cash (use of funds) including the borrowing and repayment of debt, capital transactions, and other factors that may affect the cash position. (Source: http://www.ruralfinance.org/servlet/BinaryDownloaderServlet?fileame=1125440545561_Lesson1_ definition_accounts.pdf, retrieved on 15 December, 2009) Answer the following questions based on the information in text A. 1. What is Accounting? 2. Why is it important for business people to understand the basic accounting concepts? 3. What kinds of information does accounting activity provide? 4. What does the accounting information help managers in the business management? 5. Who are financial accounting aimed at? How about management accounting? 6. What kinds of information about the company do financial statements provide? 7. What are the most popular financial statements? According to text A which of the following sentences are (T) or false (F). Correct the false information. Note: The Statement of Changes in Financial Position is not described until after the recording and summarizing of economic transactions is explained. The first two statements are explained earlier. Together, these statements summarize all of the information contained in the organization’s accounts. Questions T/F 1. Accounting rules and terms are very technical and only professional accountants can understand. 2. Accounting activity brings the information about the income and the spending of the company. 3. As a manager, understanding accounting system entails being able to interpret the information accounting provides. 4. People like investors and bondholders use management accounting reports to make their investment decisions. 5. One who can’t read the financial statements can’t understand the accounting process. 6. Statement of changes in sources and uses of funds is part of the statement of changes in financial position. 4 Unit 1: Accounting Basics 2.1 2.2 v1.0
- 5. 5 Unit 1: Accounting Basics ACCOUNTING POLICIES AND STANDARDS Text B: Read text B and do exercises 2.3, 2.4, 2.5 below. The suggested time for reading the text and completing the exercises is 40 minutes. Valuation and measurement Investors in companies want to know how much the companies areworth,socompaniesregularly have to publish the value of their assets and liabilities. Companies also have to calculate their profits or losses: their managers need this information, and so do shareholders, bondholders and the tax authorities. Companies can choose their accounting policies – their way of doing their accounts. There are a range of methods of valuation – deciding how much something is worth – and measurement – determining how big something is – that are accepted by law or by official accounting standards. In the USA, there are Generally Accepted Accounting Principles (GAAP). In most of the rest of the world there are International Financial Reporting Standards (IFRS), set by the International Accounting Standards Board. These are technical rules or conventions – accepted ways of doing things that are not written down in a law. Although businesses can choose among different accounting policies, they have to be consistent, which means using the same methods every year, unless there is a good reason to change a policy: this is known as the consistency principle. The policies also have to be disclosed or revealed to the shareholders: the Annual Report will contain a ‘Statement of Accounting Policies’ that mentions any changes that have been made. This enables shareholders to compare profits and values with those of previous years. Areas in which the choice of policies can make a big difference to the final profit figure include depreciation – reducing the value of assets in the company’s accounts, the valuation of stock or inventory, and the making of provisions – amounts of money deducted from profits – for future pension payments. As there is always more than one way of presenting accounts, the accounts of British companies have to give a true and fair view of their financial situation – meaning there are various possibilities – rather than the true and fair view – meaning only one is possible. Historical cost and accounting Theaimofaccountingstandards is to provide shareholders with the information that will allow them to make financial decisions. This is one reason whyinmanycountriesaccounting follows the historical cost principle: companies record the original purchase price of assets, and not their (estimated) current selling price or replace- ment cost. This is more objective, and the current value is not important if the business is a going concern – a successful company that will continue to do business – as its assets are not going to be sold, or do not currently need to be replaced. However, some countries with regular high inflation, e.g. in South America, use inflation accounting systems that take account of changing prices. One system used is replacement cost accounting, which values all assetsattheircurrentreplacement cost – the amount that would have to be paid to replace them now. v1.0
- 6. Unit 1: Accounting Basics 6 Match the two parts of the sentences Are the following statements true or false? 1. Companies are told which accounting policies to use. 2. Companies can change their accounting policies whenever they like, as long as they disclose this in their Annual Report. 3. Companies could produce several profit figures, depending on how they depreciated their assets, valued their inventory, etc. 4. There is only one correct interpretation of a company’s financial position, and company accounts must show this. 5. In many countries, companies do not record the current value of their assets. 6. In countries with high inflation, companies value their assets at their current replacement cost. Complete the table with words from the text and related forms Put a stress mark in front of the stressed syllable in each word. The first one has been done for you. Verb Noun(s) Adjective calcu’lation - - consistent - conventional measure - present - valuable 2.3 2.4 2.5 1. Company’s managers, investors, creditors and the tax authorities all a. and not their current value, is recorded in accounts. 2. There are different ways of doing accounting but companies have to be consistent, b. need to know the current market value of its assets. 3. Companies have to disclose or make known c. need to know about the size of profits or losses. 4. The historical cost principle is that the price paid to buy assets, d. which accounting methods they are using. 5. A going concern usually doesn’t e. which means regularly using the same methods. v1.0
- 7. Unit 1: Accounting Basics 7 You are now listerning to a lecture on accounting overview. Listen carefully and do the exercices 3.1, 3.2, 3.3 below. Listen to the lecture the FIRST time and answer the questions 1. Why is accounting called the ‘language of business’? .................................................................................... 2. How is a standardized accounting system achieved? .................................................................................... 3. What are revenues and expenditures? ................................................................................... 4. In what ways are the balance sheet and the income statement different? ................................................................................... 5. How are accountants classified in the United States? ................................................................................... 6. What kind of services do public accountants provide? ................................................................................... 7. For whom do private and governmental accountants work? ................................................................................... Now listen to the lecture the SECOND time and circle the answer that best completes each of the sentences below 1. Accounting information is used by .................. to help them make financial decisions. a. managers b. potential investors c. creditors d. all of the above 2. Regardless of the type of business or the amount of money involved: a. all companies use identical accounting systems b. balance sheets are more important than income statements c. common procedures are used in handling financial information d. no standardized accounting system is employed 3. Business monetary transactions are summarized in: a. bank books b. financial statements c. computers d. cash registers 4. Public accountants may earn the title of CPA by: a. becoming governmental accountants b. paying a fee c. fulfilling rigorous requirements d. obtaining a Bachelor of Arts degree in accounting. 5. Private and governmental accountants are paid on a ............. basis. a. salary b. monthly c. fee d. weekly 3.1 3.2 v1.0
- 8. An accounting overview Hi everyone, accounting is frequently called the ‘language of business’ because of its ability to communicate financial information about an organization. Why is called so? Various (1)………... .parties, such as managers, potential investors, (2)…..…, and the government, depend on a company’s accounting system to help them make informed financial decisions. An effective accounting system, therefore, must include accurate (3)………., recording, classifying, (4)…….., (5)………….and reporting of information on the financial status of an organization. In order to achieve a standardized system, the accounting process follows accounting principles and rules. Regardless of the type of business or the amount of money (6)…….., common procedures for (7)…….. and presenting financial information are used. Incoming money (revenues) and outgoing money (expenditures) are carefully monitored, and (8)………… are summarized in financial statements, which (9)……. the major financial activities of an organization. Ok. As you may know, two common financial statements are the balance sheet and the income statement. The balance sheet shows the financial position of a company at one point in time, while the income statement shows the financial performance of a company over a period of time. Financial statements allow interested parties to (10)……. one organization to another and/or to compare accounting (11) ……. within one organization. For example, an (12)…….. may compare the most recent income statements of two corporations in order to find out which one would be a better investment. Unit 1: Accounting Basics 8 Listen to the first part of the lecture again and fill ONE word in each blank below Choose the best alternative to complete the sentence. The suggeted time for completing the exercises is 10 minutes 1. It’s up to the accountant to ................. the various financial statements. a. interpret b. intercept c. invent d. translate 2. The bookkeeper keeps a record of every financial ................. . a. action b. transaction c. entry d. transcription 3. It’s essential to ................. the invoice number in any correspondence. a. estimate b. quote c. say d. tell 4. We’re in ................. with our supplier over this invoice so don’t pay it until you hear from me. a. argument b. dispute c. agreement d. distress 3.3 4.1 v1.0
- 9. Unit 1: Accounting Basics 9 5. We send a ................. to customers who haven’t settled their accounts. a. reminder b. remainder c. remembrance d. memory 6. If these figures could be ................. into parts and labor it would make them easier to understand. a. set up b. broken down c. rounded up d. laid down 7. This company has a weekly ................. of about $100,000. a. pay b. payroll c. salary d. wage 8. By examining the balance ................. and other documents we were able to find out that the company was not doing as well as they claimed. a. slip b. ledger c. account d. sheet 9. The rent for the office is already 3 months .................! a. overtime b. in the red c. in demand d. overdue 10. Due to the economic climate we have had to ................. more bad debts this year than ever before. a. tell off b. write off c. find out d. note down 11. Do they have enough working ................. to keep trading? a. capital b. expenses c. accounts d. currency 12. Such items as buildings and machinery are known as ................. assets. a. current b. hidden c. fixed d. liquid Complete the text using the words in the box. The suggeted time for completing the exercises is 10 mitutes Bookkeeping Bookkeepers record every purchase and sale that a business makes, in the order that they take place, in (1) .............................. . At a later date, these temporary records are entered in or (2 ).............................. to the relevant account book or (3 )............................. . Of course 4.2 credits journals transactions debits ledger transferred double-entry posted trial balance invoice receipt vouchers v1.0
- 10. Unit 1: Accounting Basics 10 the ‘books’ these days are likely to be computer files. At the end of an accounting period, all the relevant totals are (4 ).............................. to the profit and loss account. (5) .............................. bookkeeping records the dual effect of every transaction – a value both received and parted with. Payments made or (6) .............................. are entered on the left-hand (debtor) side of an account, and payments received or (7) .............................. on the right-hand side. Bookkeepers will periodically do a (8) .............................. to test whether both sides of an account book match. In most business (9)....................................., the seller of goods or services sends the buyer a bill or (10) .............................. , and later a 11 ............................ acknowledging payment. Businesses are obliged to retain the documents – known as (12) .............................. – that support or prove an item in an account, and make them available to the internal and external auditors who check the accounts. Bookkeepers are not to be confused with librarians, who also keep books, or with bookmakers, who ‘make books’ in the sense that they accept bets (on horse races, etc.) and traditionally wrote them down in a book like a bookkeeper’s journal. Accountants, unlike bookkeepers, analyze financial records, and decide how to present them. Match the remarks on the left with the responses on the right, check your answers with a partner, then practice the dialogue together 1. You’re an accountant? Does that mean you spend your time writing down credits and debits, and adding up columns of figures all day? Can’t be exciting. 2. So what do accountants do? 3. You mean the shareholders? 4. So do you prepare reports for managers? 5. And the cost of the accounts department! 6. You mean what they do in the front of shops? 7. Ah, now that’s interesting... 8. Not at all. As a matter of fact, I’m a tax inspector... A. Ha! Now you’re going to ask me to tell you how you can pay less tax. B. No, managerial accountants do, but I work in cost accounting. We have to work out the real cost of each item the company makes, which means finding a way to allocate all the overheads to different products. C. No, not only. Managers always need the help of accountants. They need financial statements, and budgets, and cash-flow projections, and so on, to measure the success of what they’ve done, and to make decisions for future projects. D. Of course. But as I said, we’re necessary, and useful. Haven’t you heard of ‘window dressing’? E. Sure, but it’s also another name for what some people call ‘creative accounting’– making a company’s financial situation look as good as possible in the balance sheet, and so on. It’s not very legal, but it happens. The accountants in my firm also have lots of wonderful ways of reducing our tax bill. F. That’s bookkeeping. Not quite the same thing. G. Well, accountants do record cash flows, and the value of assets and liabilities, and they calculate profits and losses, and so on. But it’s not just writing down numbers. We’re really in the business of supplying people with information. 5.1 v1.0
- 11. Unit 1: Accounting Basics 11 Based on the information in this unit, answer the following questions with your own words 1. Give a brief definition of accounting. What is accounting involved in? 2. How many kinds of accounting are there? What are their differences? 3. Give a brief summary of the three main financial statements. 4. Do all companies follow a common way of accounting or do they choose their own way of accounting? Explain consistency principle and historical cost principle. 5. Tell briefly about bookkeeping process. How to write an essay 1. Organization of an essay An essay has three main parts: an introduction, a body and a conclusion. The introductory paragraph attracts the reader’s attention and informs the reader what your main topic of discussion will be. An introductory paragraph has two parts: • General statement: Several general sentences that give background information on your subject and gradually lead your reader into your specific topic. • A thesis statement that states the subdivisions (topic of each paragraph). It may also indicate your method of development. The body of an essay discusses your subdivided topics, one by one. It contains as many paragraphs as necessary, often 2 or more explain the controlling ideas in the thesis statement. The concluding paragraph reminds your reader of what you have said. Remember to use a “conclusion” transition signal. Your concluding paragraph has a summary of the main ideas or a restatement of the thesis in different words and your final comment on the topic. 2. Outlining an Essay Always make an outline of an essay before you begin to write. See the organization of an essay model below: 5.2 6.1 v1.0
- 12. Unit 1: Accounting Basics 12 I. INTRODUCTION II. BODY III. CONCLUSION 3. Writing and revising the Essay Writing is a process which requires revision again and again in order to produce a good final product. Follow 3 steps below for your writing improvement. - Firstly, write the first rough draft of your essay from the outline. Skip lines in order to have enough space to make changes. - Secondly, revise the first draft for content and organization, and write a second draft. - Thirdly, proofread the second draft for grammar, sentence structure, and mechanics. Write as many drafts as necessary before the final copy. Writing practice Write an essay about the main issues in accounting by the using information from this unit as well as the additional sources from books or internet websites. The suggested time for completing the exercise is 45 minutes. General Statements Thesis statements - Paragraph 1: A. Topics sentence 1. Support 2. Support 3. Support (Concluding sentence) - Paragraph 2: B. Topics sentence 1. Support 2. Support 3. Support (Concluding sentence) - Paragraph 2: C. Topics sentence 1. Support 2. Support 3. Support (Concluding sentence) Restatement or summary of the mains points; final comments 6.2 v1.0
- 13. Unit 1: Accounting Basics 13 English terms Vietnamese equivalents A - Accounting principles - Các nguyên tắc kế toán - Annual Report - Báo cáo thường niên, báo cáo hàng năm - Accounting system - Hệ thống kế toán B - Balance sheet - Bảng tổng kết tài sản, bảng kết toán - Bought ledger - Sổ cái mua vào - Bookkeeper - Nhân viên kế toán (lập hồ sơ thu chi, quản lý các sổ sách kế toán) C - Credit - Khoản có, bên có; ghi có - Consistency principle - Nguyên tắc nhất quán - CPA (Certified Public Accountant) - Kế toán viên được xác nhận (kế toán viên đã qua các kỳ kiểm tra nghề nghiệp và là thành viên của Hiệp hội các kế toán viên được xác nhận) D - Debit - Khoản nợ, bên nợ; ghi nợ - Debtors - Con nợ, tài khoản phải thu từ khách hàng - Depreciation - Khấu hao - Double-entry bookkeeping - Kế toán kép E - Expenditure - Chi tiêu, chi phí F - Financial statements - Các báo cáo tài chính - Financial status - Khả năng tài chính - Financial position - Tình trạng tài chính G - Going concern concept - Khái niệm doanh nghiệp phát triển bền vững - Generally Accepted Accounting Principles - Những nguyên tắc kế toán được mọi người chấp nhận, phổ cập I - Income statement - Báo cáo thu nhập - Inflation - Lạm phát - Inventory (stock) - Hàng hoá, nguyên vật liệu lưu kho v1.0
- 14. Unit 1: Accounting Basics 14 H - Historical cost - Giá gốc J - Journals - Sổ nhật ký, sổ nhật biên N - Nominal ledgers - Sổ cái danh nghĩa P - Provisions - Dự phòng R - Revenue - Doanh thu - Replacement cost accounting - Kế toán chi phí thay thế T - Tax computation - Việc tính toán thuế - Take account of - Xét đến, tính đến - To buy on credit - Mua chịu - To sell on credit - Bán chịu - Trial balance - Cân đối kiểm tra v1.0