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1、Chapter 1 An overview of AccountingLearning 0bjectives：After learning this chapter，the students should：1Understand the definition of accounting2Identify the qualitative characteristics of accounting information3Figure 0ut the basic elements of financial statements and equations5Comprehend the basic

2、accounting assumptions6Understand the important accounting principlesWords:Financial accounting; Reliability; Relevance; Comparability; ConsistencyTimeliness; Understandability; Conservatism; Materiality;Industry practicesAssets; Liabilities; Equity; Revenues; Expenses; Net incomeBasic Assumptions o

3、f Accounting (会计基本假设)(1) economic entity; (2) going-concern(3) periodicity; (4) monetary unitBasic Principles of Accounting (会计的一般原则)Historical cost; Revenue recognition; Matching principle Full disclosure principle; Accrual Basis; Revenue expenditure Capital expenditure; Accounting Equation; Busine

4、ss economic activities; Certified Public AccountantReading material:1.1 Introduction about AccountingAccounting is an information system of interpreting，recording，measuring，classifying，summarizing，reporting and describing business economic activities with monetary unit as its main criterionConcernin

5、g this definition，we should pay attention t0 three important pointsFirstly，the accounting involves many activities：interpreting，recording，measuring，classifying，summarizing，reporting and describingSecondly，the 0bject of accounting is business economic activitiesThirdly, the monetary unit is the main

6、criterion used in accountingBesidesThe objective of accounting is to record and measure the business economic activities of an entity and present the financial report to users including management，creditors，and other potential investors，etcThe field of accountantswork is divided into three kinds：pub

7、lic accountingaccounting for private business，and accounting for government and nonprofit 0rganjzationThe accountants work in public accounting are called CPAs (Certified Public Accountants)In USA，AICPA(American Institute of Certified Public Accountant)will organize the examination for the CPAs，and

8、the different states set additional qualificationsIn China，CICPA(Chinese Institute ofCertified Public Accountant)will organize the examination for the CPAsPublic accounting firms are called CPA firms，and they have different forms such as proprietorship，partnership，and corporationIn China，CPA firms c

9、annot be a proprietorshipThe primary service offered by CPA firms include auditing，tax serviceand consultative serviceAuditing is the accumulation and evaluation of evidence about information to determine and report on the degree of correspondencebetween the information and the established criteriaA

10、uditing should be done by a competent, independent personTax service offered by CPA firms usually include helping the clients to“le the tax report and giving the clients some suggestions to minimize the tax amountThe consultative services mainly refer to management advisory services such as whether

11、the business earns profit properly， how to budget the business resources，and so onThe accountants in private enterprises are in charge of designing the accounting system，cost accounting，and internal control and auditingThe accounting for government and nonprofit organization is similar to that for p

12、rivate company except that the objective of earning a profit is absent from accounting for government and nonprofit organization.12 Fundamental ConceptsIn this part，the qualitative characteristics of accounting information are explained，and the elements of financial statements are defined1.2.1 Quali

13、tative Characteristics of Accounting InformationIn Chinathe qualitative characteristics of accounting information include：(1)reliability，(2)relevance，(3)comparability and consistency，(4)timeliness，(5) understandability, (6) Conservatism, (7) Materiality, (8) Industry practicesReliabilityReliability

14、means that the accounting information is reliable to the extent that it is verifiable, is a faithful representation, and is reasonably free of error and bias.Reliability is the base of accounting. If thr contents in the accounting information are not true，or the figures in the accounting information

15、 are not correctthe financial statements cannot reflect the financial position，the results of operation，and cash flows faithfullyRelevanceRelevance means that there is a connection between the accounting information and the decision the users make, and the accounting information is able to make a di

16、fference in a decision. It has predictive value and feedback value. The predictive value means that the relevant information helps users make predictions about the ultimate outcome of past, present, and future events. The feedback value means that the relevant information can help users to confirm o

17、r correct prior expectations.ComparabilityComparability means that information should be m，measured and reposed in a similar manner for different enterprisesUnder comparability，the users can compare the results of the companies with different places and different industries during the same or differ

18、ent periodsConsistencyConsistency means that an entity applies the same accounting treatment to similar events from period to periodBut it does not mean the companies cannot switch ：from one method of accounting to anotherCompanies can change methods，but the changes are restricted to situations in w

19、hich it can be demonstrated that the newly adopted method is preferable to the oldAnd the nature and effect of the accounting change，as well as the justification for it，must be disclosed in the financial statements for the period in which the change is madeTimelinessTimeliness means that the measure

20、ment of accounting should be timely，and should not be advanced or deferred. There are three aspects about timeliness. Firstly, the accountants should collect the accounting information timely. Secondlythe accountants should deal with the accounting information timely. Thirdly，the accountants should

21、deliver accounting information timely.UnderstandabilityUnderstandability means that the reasonably informed users can perceive the quality of informationIf the accounting information cannot be understood by the usersthe information is uselessTo obey the understandability，the accountants should assur

22、e that the accounting entries are correct and clear，ledgersrelationship is understandable，a11 items included are recorded，and no omission or overstatement existsConservatismConservatism means when in doubt choose the solution that will be least likely to overstate assets and income. MaterialityMater

23、iality is related to an items impact on a firms overall financial operations. An item is material if its inclusion or omission would influence or change the judgment of a reasonable person. Industry practicesIndustry practices mean that the peculiar nature of some industries and business concerns so

24、metimes requires departure from basic theory. 1.2.2 Basic ElementsIn Chinathe basic elements include six components-assets，liabilities，equity，revenues，expenses，and net incomeAssets: Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or ev

25、ents.Liabilities: Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.Equity: Residual interest in the assets of an entity that remain

26、s after deducting its liabilities. In a business enterprise, the equity is the ownership interest.Revenue: Inflows or other enhancements of assets of an entity or settlement of its liabilities (or a combination of both) during a period from delivering or producing goods, rendering services, or other

27、 activities that constitute the entitys ongoing major or central operations.Expenses: Outflows or other using up of assets or incurrence of liabilities (or a combination of both) during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute

28、the entitys ongoing major or central operations.Profits: The results of operations during an accounting period in an entity.Gains: Increases in equity (net assets) from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the

29、 entity during a period except those that result from revenues or investments by owners. Losses: Decreases in equity (net assets) from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity during a period except tho

30、se that result from expenses or distributions to owners.1.2.3 Basic Equation:Assets =Equity =Liabilities + Stockholders EquityThis equation shows the relationship among assets, liabilities, and stockholders equity. Assets Liabilities = Stockholders Equity (Net Assets)This equation shows that the own

31、ers claim to business assets is residual1.3 Recognition and Measurement Concepts 1.3.1 Basic Assumptions of Accounting (1) Economic Entity AssumptionThe economic entity means that the unit, which offers the accounting information, and it can be a business enterprise, an department, a division, or an

32、 entire industry.The economic entity assumption means that the activity of a business enterprise can be kept separate and distinct from its owners and any other business unit.The entity concept does not necessarily refer to a legal entity.(2) Going Concern Assumption The going concern assumption mea

33、ns that the business enterprise will remain a long life according to current situation. (3) Periodicity AssumptionThe periodicity (or time period) assumption means that the economic activities of an enterprise can be divided into artificial time periods. (4) Monetary Unit Assumption The monetary uni

34、t assumption means that money is the common denomination of economic activity and provides an appropriate basis for accounting measurement and analysis. 1.3.2 Basic Principles of Accounting (1) historical costThe historical cost principle requires that assets, liabilities and equity be accounted for

35、 and reported on the basis of acquisition price. (2) matchingThe matching principle means that the expense recognition is tied to revenue recognition. (3) Revenue expenditure & capital expenditure: If the expenditure just influences current period, the expenditure is classified as revenue expenditur

36、e. If the expenditure influences not only current period but also future periods, the expenditure is called capital expenditure. (4) Accrual basis: Under accrual basis, the revenue is recognized when it is earned, and expenses are recognized in the period incurred, without regard to the time of rece

37、ipt or payment of cash. Under cash basis, revenue is recognized when the cash is received, and expenses are recognized only when the cash is paid.Discussion questions:1.Explain the definition of accounting.2. How many qualitative characteristics are include in accounting information.?3.Could you fig

38、ure out the basic elements of financial statement in China4.How many basic accounting assumptions are there? Explain each of them.5.State the accounting equation in two alternative forms.6.State the important accounting principles.Exercises：Translate the following Chinese into English or translate t

39、he English into Chinese1.Accounting is an information system of interpreting，recording，measuring，classifying，summarizing，reporting and describing business economic activities with monetary unit as its main criterion2Reliability means that the accounting information is reliable t0 the extentthat it i

40、s verifiable，is a faithful representation，and is reasonably free of errorand bias3Assets are probable future economic benefits obtained or controlled by particular entity as a result of past transactions or events4Revenue are inflows or other enhancements of assets of an entity or settlement of its

41、liabilities(or a combination of both)during a period from delivering or producing goods，rendering services，or other activities that constitute the entitys ongoing major or central operations5负债是企业过去的交易、事项形成的现时业务，履行该义务预期会导致经济利益流出企业。6历史成本是指企业拥有的各项资产应当以得时实际发生的成本入账。7收人确认原则是指收入在两个条件下才能确认，一个是收入是可实现的，另一个是收

42、入已经赚到。8收益性支出是指企业为取得本期收益而发生的支出，该支出的效益只与本会计期间相关；资本性支出是指企业为了取得本期和以后几个会计期间的收益而发生的支出，这种支出与几个会计期间相关。Supplementary Reading： Parties Involved in Standard SettingA number of organizations are instrumental in the development of financial accounting standards(GAAP)in USAThe major organizations are as following

43、s： 1Securities and Exchange Commission(SEC) 2American Institute of Certified Public Accountants(AICPA) 3Financial Accounting Standards Board(FASB) 4Governmental Accounting Standards Board(GASB) 5Other influential organizationsSECThe objective of SEC is to help develop and standardize financial infor

44、mationpresented to stockholdersIt is a federal agencyUsually SEC has two mainrightsFirstly，most companies that issue securities to the public or are listed ona stock exchange are required to file audited financial statements with the SECSecondly，the SEC has broad powers to prescribe the accounting p

45、ractices andstandards to be employed by the companies that fall within its jurisdictionTheSEC filing requirements and accounting opinions are published in：(1)its Financial Reporting Release(FRRs)，(2)Regulation S-X，which contains instructions and forms for filing financial statements，and(3)decisions

46、on cases coming before the SECAICPAAICPA is the national professional organization of practicing Certified Public Accountants(CPAs)Before it was founded，several various committees and boards are established，such as Committee on Accounting Procedure(CAP)，and Accounting Principles Board(APB) From 1 93

47、9 to 1 959，The CAP consisting of practicing CPAs，issued 51 accounting research bulletins，which mainly dealing with a variety of timely accounting problemsIn 1959，APB was foundedIts major purposes including(1)advancing the written expression of accounting principles；(2)determining appropriate practic

48、es；and (3)narrowing the areas of difference and inconsistency in practiceThe Boards official pronouncements are called APB OpinionFASBFASB is an important part of new standardsetting structure after the demise ofthe APBIts mission is to establish and improve standards of financial accountingand reporting for the guidance and education of the public，which includes issu