CHAPTER 1 BASIC FINANCIAL ACCOUNTING REVIEW … · BASIC FINANCIAL ACCOUNTING REVIEW Savichaya S....

CHAPTER 1BASIC FINANCIAL

ACCOUNTING REVIEWSavichaya S. Trirat

Financial

accounting

provides information in the form of

1. balance sheets

2. income statements

3. other financial

statements

recording of financial transactions and analyzing the effect of such transactions to assist in the development of

business decisions.

Hospitality

management

accounting

• Internal information is the basis for planning alternative short- or long-term courses of action and the decision as to which course of action is selected.

Providing specialized internal information to managers who are responsible for directing and controlling operations within the hospitality industry.

• direct the needed material resourcesand motivate the human resources needed to carry out a selected course of action.

• control the implemented course of action to ensure that the plan is being followed and, as necessary, modified to meet the objectives of the selected course of action.

Managers

1. Balance sheet

• Assets (A) : Resources of value used by a business entity to create sales revenue, which, in turn, increases assets.

• Liabilities (L) : Debt obligations owed to creditors as a result

of operations to generate sales revenue; to be paid in the near

future with assets.

• Ownership equity (OE) : Ownership equity represents claims

to assets of a business entity.

(Resource) (Creditor's Equity)

ASSETS = LIABILITIE + OWNERSHIP EQUITY

300,000 = 200,000 + 100,000

300,000 = 300,000

increase Debit Credit Credit

decrease Credit Debit Debit



300,000 = 200,000 + 100,000

300,000 = 300,000



1. Balance sheet

• Cash

• Bank deposit

• Account Receivable

• Credit card receivables

• Inventory

• Prepaid expenses

• Accrued income



317,000 = 217,000 + 100,000



• Land

• Building

• Equipment

1. Balance sheet



317,000 = 217,000 + 100,000



• Loan

• Account payable

• Credit card payable

• Notes payable

• Deferred revenue

• Accrued Expenses

1. Balance sheet(Resource) (Creditor's Equity)


317,000 = 217,000 + 100,000



• Capital, (person1)



• There are three basic forms of

ownership equity:

• 1. Proprietorship—entity

financing provided by a sole

owner.

• 2. Partnership—entity

financing provided by two

or more owners (partners).

• 3. Corporation—a legal

entity incorporated under

the laws of a state,

separate from its owners.

2. Income statement

Sales Revenue 150,000

Less: Cost of sales (5,000)

Gross margin 145,000

Operating Expenses

Wages expense 2,000

Salaries expense 8,000

Utilities expense 400

Miscellaneous expense 300

Insurance expense 200

Depreciation expense 100

Total expenses (11,000)

Net Operating Income 134,000

Sales Revenue 150,000

Less: Cost of sales (5,000)

Gross margin 145,000

Operating Expenses

Wages expense 2,000




Insurance expense 200

Depreciation expense 100

Total expenses (11,000)

Net Operating Income 134,000

2. Income statement

• Sales revenue (SR) : Sales revenue is produced from

the sale of goods and/or services.

• Cost of sales (cs) : Cost of sales reflects the cost of inventories purchased for resale that were sold.

• Gross margin (GM) : Sales revenue minus cost of sales (also known as gross profit).

• Expenses (E) : The cost of assets consumed to

produce sales revenue. This does not include the cost of inventory consumed.

• Breakeven (BE) : An economic result of operations

when total sales revenue equals total costs; no

profit (operating income) or loss will exist.

2. Income statement

• Operating income (OI) : Income before taxes.

• Net income (NI) : An economic result of operations

when total sales revenue is greater than total costs

after income taxes.

• Net loss (NL) : An economic result of operations

when total sales revenue is less than total costs.

THE LEDGER ACCOUNT AND DEBIT-CREDIT

FUNCTIONS

THE

JOURNAL

AND

JOURNAL

ENTRY

• Three requirements

characterize journal entries:

• 1. The journal entry must

identify at least two

accounts.

• 2. The journal entry must

show at least one debit and

one credit entry.

• 3. The sum of the debits

and credits must be equal.

RULES OF DEBIT-CREDIT FUNCTIONS AND THEIR

EFFECT ON THE BALANCE SHEET ACCOUNTS





RULES OF DEBIT-CREDIT FUNCTIONS AND THEIR

EFFECT ON INCOME STATEMENT

SALES REVENUE EXPENSES

increase Credit Debit

decrease Debit Credit

General Journal

Date Account Titles Debit Credit

1

2

3

4

5

6

General Ledger

Debit Credit Balance Debit Credit Balance

_______________ _______________

Exhibit 1.1 - Journal Entry to Initiate Accounting System

• A proprietor, Gram Disk, begins a business entity called the

Texana Restaurant on May 1, 2019. He makes an initial

investment of 100,000 cash to begin operations.


5/1/2019 Cash 100,000

Gram Disk, Capital 100,000

Debit Credit Balance

100,000 100,000

45,000 55,000

Cash


100,000 100,000

Gram Disk, Capital


Exp1.1 5/1/2019 Cash 100,000


5/5/2019 Building 150,000

Cash 45,000

Note payable 105,000

Food inventory 8,000

Beverage inventory 2,000

Cash 10,000

Equipment 12,000

Account payable 12,000

Exp1.3 5/6/2019 Prepaid insurance 3,600

Cash 3,600

Food inventoiy 4,200

Accounts payable 4,200

GeneralJournal


• On May 5, 2019, A Smith purchased a former restaurant

building for 150,000, paying 45,000 in cash and assuming a

note payable for 105,000 balance owed.


5/1/2019 Cash 100,000


5/5/2019 Building 105,000

Cash 45,000




Cash 10,000

Equipment 12,000

Account payable 12,000 Debit Credit Balance

100,000 100,000

45,000 55,000

Cash


105,000 105,000

Note payable


150,000 150,000

Building


5/1/2019 Cash 100,000


5/5/2019 Building 105,000

Cash 45,000




Cash 10,000

Equipment 12,000


150,000


• In addition, he purchased 8,000 of food inventory and

2,000 of beverage inventory for cash.


5/1/2019 Cash 100,000


5/5/2019 Building 105,000

Cash 45,000




Cash 10,000

Equipment 12,000

Account payable 12,000 Debit Credit Balance

8,000 8,000

Food inventory


2,000 2,000

Beverage inventory


100,000 100,000

45,000 55,000

10,000 45,000

Cash


5/1/2019 Cash 100,000


5/5/2019 Building 105,000

Cash 45,000




Cash 10,000

Equipment 12,000



• He purchased equipment for 12,000 on short credit

(accounts payable).


5/1/2019 Cash 100,000


5/5/2019 Building 105,000

Cash 45,000




Cash 10,000

Equipment 12,000



5/1/2019 Cash 100,000


5/5/2019 Building 105,000

Cash 45,000




Cash 10,000

Equipment 12,000



12,000 12,000

EquipmentDebit Credit Balance

12,000 12,000

Account payable



Exp1.1 5/1/2019 Cash 100,000


5/5/2019 Building 150,000

Cash 45,000




Cash 10,000

Equipment 12,000


GeneralJournal



100,000 100,000

45,000 55,000

10,000 45,000



150,000 150,000


8,000 8,000


2,000 2,000


12,000 12,000

ASSETASSET

Cash

Building

Food inventory

Beverage inventory

Equipment


100,000 100,000

45,000 55,000

10,000 45,000



150,000 150,000


8,000 8,000


2,000 2,000


12,000 12,000

ASSETASSET

Cash

Building

Food inventory

Beverage inventory

Equipment


100,000 100,000

45,000 55,000

10,000 45,000



150,000 150,000


8,000 8,000


2,000 2,000


12,000 12,000

ASSETASSET

Cash

Building

Food inventory

Beverage inventory

Equipment


100,000 100,000

45,000 55,000

10,000 45,000



150,000 150,000


8,000 8,000


2,000 2,000


12,000 12,000

ASSETASSET

Cash

Building

Food inventory

Beverage inventory

Equipment


100,000 100,000

45,000 55,000

10,000 45,000



150,000 150,000


8,000 8,000


2,000 2,000


12,000 12,000

ASSETASSET

Cash

Building

Food inventory

Beverage inventory

Equipment


105,000 105,000 100,000 100,000


12,000 12,000

4,200 16,200

LIABILITY OWNERSHIP EQUITY

Gram Disk, CapitalNote payable

Account payable _______________

ASSET LIABILITY OWNERSHIP EQUITY

Cash 45,000 LIABILITIES:

Food inventory 8,000 Account payable 12,000

Beverage inventory 2,000 Note payable 105,000

Building 150,000 Total Liabilities 117,000

Equipment 12,000

OWNERSHIP EQUITY:


Total Assets 217,000 Total Liabilities & OE 217,000

5-May-19

Balance Sheet

Texana Restaurant

Exhibit 1.3 - Operating Journal Entry 2

• Continuing from the preceding May 1 and 5 with the Texana

Restaurant transactions, we will look at typical operating

transactions regarding sales revenue and operating expenses.

Assume during the period May 6 to May 31 that the following

additional transactions occurred:


Exp1.1 5/1/2019 Cash 100,000


5/5/2019 Building 150,000

Cash 45,000




Cash 10,000

Equipment 12,000



Cash 3,600



GeneralJournal


Exp1.1 5/1/2019 Cash 100,000


5/5/2019 Building 150,000

Cash 45,000




Cash 10,000

Equipment 12,000



Cash 3,600



GeneralJournal

1) Paid two-year premium on liability and casualty insurance 3,600 2) Purchased food inventory on account 4,200



Exp1.1 5/1/2019 Cash 100,000


5/5/2019 Building 150,000

Cash 45,000




Cash 10,000

Equipment 12,000



Cash 3,600



GeneralJournal


Exp1.1 5/1/2019 Cash 100,000


5/5/2019 Building 150,000

Cash 45,000




Cash 10,000

Equipment 12,000



Cash 3,600



GeneralJournal


100,000 100,000

45,000 55,000

10,000 45,000

3,600 41,400

Cash


8,000 8,000

4,200 12,200

Food inventory


12,000 12,000

4,200 16,200

Account payable


3,600 3,600

Prepaid insurance



Exp1.1 5/1/2019 Cash 100,000


5/5/2019 Building 150,000

Cash 45,000




Cash 10,000

Equipment 12,000



Cash 3,600



GeneralJournal

Wages expense 3,400

Cash 3,400


Cash 1,400


Cash 1,800


Cash 282

Cash 24,280

Credit card receivables 620

Revenue 24,900


Cash 818

1) Paid two-year premium on liability and casualty insurance 3,600

2) Purchased food inventory on account 4,200

3) Paid employee wages 3,400

4) Purchased beverage inventory for cash 1,400

5) Paid employee salaries 1,800

6) Received and paid May utilities expense 282

7) Sales revenue for May; 24,280 cash, 620 on credit cards 24,900

8) Paid miscellaneous expenses for the month 818


100,000 100,000

45,000 55,000

10,000 45,000

3,600 41,400

3,400 38,000

1,400 36,600

Cash


3,400 3,400

Wages expense


2,000 2,000

1,400 3,400

Beverage inventory



Exp1.1 5/1/2019 Cash 100,000


5/5/2019 Building 150,000

Cash 45,000




Cash 10,000

Equipment 12,000



Cash 3,600



GeneralJournalWages expense 3,400

Cash 3,400


Cash 1,400


Cash 1,800


Cash 282

Cash 24,280


Revenue 24,900


Cash 818










100,000 100,000

45,000 55,000

10,000 45,000

3,600 41,400

3,400 38,000

1,400 36,600

1,800 34,800

282 34,518

Cash


1,800 1,800

Salaries expense


282 282

Utilities expense



Exp1.1 5/1/2019 Cash 100,000


5/5/2019 Building 150,000

Cash 45,000




Cash 10,000

Equipment 12,000



Cash 3,600



GeneralJournal

Wages expense 3,400

Cash 3,400


Cash 1,400


Cash 1,800


Cash 282

Cash 24,280


Revenue 24,900


Cash 818










100,000 100,000

45,000 55,000

10,000 45,000

3,600 41,400

3,400 38,000

1,400 36,600

1,800 34,800

282 34,518

24,280 58,798

818 57,980

Cash


24,900 24,900

Revenue


620 620

Credit card receivables


818 818

Miscellaneous expense


620 620


Debit

END-OF-

PERIOD

ADJUSTING

ENTRIES

• Adjusting entries are also used for items

that, by their nature, are normally

deferred. These consist of two types of

adjustments:

• 1. The use or consumption of an asset

and recognition of it as an expense.

This type of adjustment typically

adjusts supplies, prepaid expenses, and

depreciable assets.

• 2. The reduction of a liability and

recognition of sales revenue. This

adjustment concerns the recognition of

unearned revenue as being recognized

as earned.

Exhibit 1.4 – Trial Balance


Exp1.4 6/5/2019 Cash 57,980


Prepaid insurance 3,600


Beverage inventoiy 3,400

Building 150,000

Equipment 12,000


Notes payable 105,000

Gram Disk, capital 100,000

Sales revenue 24,900

Wages expense 3,400




Account Totals 246,100 246,100

General Journal


100,000 100,000

45,000 55,000

10,000 45,000

3,600 41,400

3,400 38,000

1,400 36,600

1,800 34,800

282 34,518

24,280 58,798

818 57,980

Cash


150,000 150,000

Building


8,000 8,000

4,200 12,200

Food inventory


2,000 2,000

1,400 3,400

Beverage inventory


3,600 3,600

Prepaid insurance


620 620


Exhibit 1.4 – Trial Balance


Exp1.4 6/5/2019 Cash 57,980


Prepaid insurance 3,600


Beverage inventoiy 3,400

Building 150,000

Equipment 12,000


Notes payable 105,000

Gram Disk, capital 100,000

Sales revenue 24,900

Wages expense 3,400




Account Totals 246,100 246,100

General Journal


12,000 12,000

Equipment


12,000 12,000

4,200 16,200

Account payable


105,000 105,000

Note payable


100,000 100,000

Gram Disk, Capital


24,900 24,900

Revenue


3,400 3,400

Wages expense


1,800 1,800

Salaries expense


282 282

Utilities expense


818 818

Miscellaneous expense

VocabulariesChapter 1

1 General Journal : สมุดรายวันทั่วไป

2 Ledger account : บัญชีแยกประเภท

3 Trial Balace : งบทดลอง

4 Income statements : งบก าไรขาดทุน

5 Sales Revenue : รายได้จากการขาย

6 Cost of sales : ต้นทุนขาย

7 Gross margin : ก าไรขั้นต้น

8 Operating Expenses : ค่าใช้จ่ายในการด าเนินงาน

9 Wages expense : ค่าจ้าง

10 Salaries expense : เงินเดือน

Vocabularies

11 Utilities expense : ค่าสาธารณูปโภค

12 Miscellaneous expense : ค่าใช้จ่ายเบ็ดเตล็ด

13 Insurance expense : ค่าประกันภัย

14 Prepaid insurance : ค่าประกันภัยจ่ายล่วงหน้า

15 Depreciation expense : ค่าเสื่อมราคา

16 Food inventory : อาหารคงคลัง

17 Beverage inventory : เครื่องดื่มคงคลัง

18 Net Operating Income : ก าไรจากการด าเนินงานสุทธิ

19 Net income : ก าไรสุทธิ

20 Net loss : ขาดทุนสุทธิ

Vocabularies22 Asset : สินทรัพย์

23 Cash : เงินสด

24 Bank account : เงินฝากธนาคาร

25 Account receivable : ลูกหนี้

26 Credit card receivable : ลูกหนี้บัตรเครดิต

27 Accrued revenue : รายได้ค้างรับ

28 Prepaid expense : ค่าใช้จ่ายล่วงหน้า

29 Land : ที่ดิน

30 Building : อาคาร

31 Equipment : อุปกรณ์

32 Accumulated Depreciation : ค่าเสื่อมราคาสะสม

Vocabularies

31 Liability : หนี้สิน

32 Loan : เงินกู้ยืม

33 Account payable : เจ้าหนี้

34 Note payable : ตั๋วเงินจ่าย

35 Credit card payable : เจ้าหนี้บัตรเครดิต

36 Deferred revenue : รายได้รับล่วงหน้า

37 Accrued Expenses : ค่าใช้จ่ายค้างจ่าย

38 Owner & Equity : ส่วนของเจ้าของและผู้ถือหุ้น

39 Capital : ทุน

40 Retained earnings : ก าไรสะสม

Company…...................................

Balance Sheet

Date…...............................

Assets Liability & Ownership Equity

Cash : เงินสด LIABILITIES:

Bank account : เงินฝากธนาคาร Loan : เงินกู้ยืม

Account receivable : ลูกหนี้ Account payable : เจ้าหนี้

Credit card receivable : ลูกหนี้บัตรเครดิต Note payable : ต๋ัวเงินจ่าย

Accrued revenue : รายได้ค้างรับ Credit card payable : เจ้าหนี้บัตรเครดิต

Prepaid expense : ค่าใช้จ่ายล่วงหน้า Deferred revenue : รายได้รับล่วงหน้า

Land : ที่ดิน Accrued Expenses : ค่าใช้จ่ายค้างจ่าย

Building : อาคาร

Equipment : อุปกรณ์ OWNERSHIP EQUITY:

Accumulated Depreciation : ค่าเสื่อมราคาสะสม Capital : ทุน

Retained earnings : ก าไรสะสม

Accounting transactions related to

balance sheets

3.Depreciation Expense

• Depreciation is the systematic expensing of the

cost of a long-lived physical asset (except land)

that provides economic benefits in excess of one

year. Estimated value recovered at the end of

the asset’s serviceable life, such as trade-in

value, salvage, or scrap value, is referred to as

residual value.

• four methods of depreciation:

• Straight line

• Units of production

• Sum of the years’ digits : SYD

• Double declining balance : DDB

3.1 Straight-Line Depreciation

• breaks depreciation expense to be recovered into

equal periods, such as months, quarters, half years,

or years.

Ex. Equipment Depreciation Calculation: Purchased equipment for

12,000 that has an 8-year estimated life and no residual value.

(Cost — Residual)= Depreciation expense per period

Life

12000= 1500 per year

8

3.2 Units-of-Production Depreciation Method

• Cost minus residual remains the numerator, and the

denominator again expresses the life of the asset.

However, the life of the asset is expressed in units.

Ex. Assume that a van was purchased for 29,800 with an estimated

residual value of 1,800 based on a life of 140,000 miles. During the

month of May, the van recorded 580 miles of use.

(Cost — Residual) = Depreciation expense per unit x Units used = Depreciation expense

Life in units

29800 - 1800= 0.20 x 580 = 116

140000

3.3 Sum-of-the-Years’-Digits Depreciation: SYD

• to be depreciated using a fraction multiplied by the costminus the residual value.

• The maximum years of a depreciable asset’s life becomes the numerator in the first year and then reduces the numerator by one in each subsequent year of the asset’s life.

Ex. equipment, which is purchased for 34,200 with a life of five

years and a residual value of 600

(34200 - 600)

Year SYD Fraction x Cost — Residual = Depreciation

1 5/15 x 33,600 = 11,200

2 4/15 x 33,600 = 8,960

3 3/15 x 33,600 = 6,720

4 2/15 x 33,600 = 4,480

5 1/15 x 33,600 = 2,240

Ʃ = 15/15, or 1 Total depreciation 33,600

3.4 Double-Declining-Balance Depreciation: DDB

• in the first year, the book value of an asset using the DDB method is the depreciable assets’ cost — accumulated depreciation, which is cost — zero because no previous depreciation expense was recorded. After the first year of DDB depreciation expense is posted, the book value changes to cost — first-year depreciation expense. In subsequent years, book value will decrease each year by the amount of depreciation expense charged in the previous year.

Ex. equipment that had a five-year life and a residual value of

1,000 was purchased for 16,000

DDB X Book value = Depredation expense

DDB% is calculated as 100%, or 1 divided by years of life:

100% = 20% x 2 = 40%

5

3.4 Double-Declining-Balance Depreciation: DDB

Book value = Cost - Accumulated depreciation.

Depreciation expense is DDB% Book X value.

Year DDB% X Book Value = Depr.Expense Net Book Value

0 16,000

1 40% X 16,000 = 6,400 9,600

2 40% X 9,600 = 3,840 5,760

3 40% X 5,760 = 2,304 3,456

4 40% X 3,456 = 1,382 2,074

5 40% X 2,074 = 830 1,244

5-Year DDB Depreciation Schedule

Total accumulated depreciation (expense) 14,756

(16000 - 6400)

(9600 - 3840)

(5760 - 2304)

(3456 - 1382)

(2074 - 830)

CHAPTER 1 BASIC FINANCIAL ACCOUNTING REVIEW … · BASIC FINANCIAL ACCOUNTING REVIEW Savichaya S....

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Transcript of CHAPTER 1 BASIC FINANCIAL ACCOUNTING REVIEW … · BASIC FINANCIAL ACCOUNTING REVIEW Savichaya S....