The Accounting Equation and Double-entry Bookkeeping
Chapter One The Accounting Equation and Double-entry Bookkeeping
I. Learning objectives
After completing this session, students should be able to (1) Define assets, liabilities, owner’s equity, revenue and expenses; (2) Understand the functions of the fundamental accounting equation; (3) Record business transactions and illustrate their effects on the fundamental accounting equation; (4) Understand the accounts payable, accounts receivable, prepaid insurance, and drawing accounts; (5) Understand the basic principle of double-entry bookkeeping and the use of T- account form; (6) Understand the rules of debits and credits; (7) Prepare a trial balance.
II. Lecture notes
1. Some important definitions as per the International Accounting Standards (IAS)
(1) Assets: economic resources controlled by the business enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise.
Need to emphasize three elements in this definition: control (as compared with ownership), past event, and future economic benefits.
Recognition of the elements of financial statements: * An item that meets the definition of asset should be recognized if: (a) it is possible that any future economic benefit associated with the item will flow to the enterprise; and (b) the item has a cost or value that can be measured with reliability. * Example: Human resources are the most important assets of a company, but why can’t we find them on the financial statement? * Some professional football club is an exception to these recognition criteria.
(2) Liabilities: the existing obligations of the enterprise arising from past events, the settlement of which is expected to result in a sacrifice of economic benefits of the enterprise.
Need to emphasize three elements in this definition: existing obligations, past events, and sacrifice of economic benefits
(3)
I. Learning objectives
After completing this session, students should be able to (1) Define assets, liabilities, owner’s equity, revenue and expenses; (2) Understand the functions of the fundamental accounting equation; (3) Record business transactions and illustrate their effects on the fundamental accounting equation; (4) Understand the accounts payable, accounts receivable, prepaid insurance, and drawing accounts; (5) Understand the basic principle of double-entry bookkeeping and the use of T- account form; (6) Understand the rules of debits and credits; (7) Prepare a trial balance.
II. Lecture notes
1. Some important definitions as per the International Accounting Standards (IAS)
(1) Assets: economic resources controlled by the business enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise.
Need to emphasize three elements in this definition: control (as compared with ownership), past event, and future economic benefits.
Recognition of the elements of financial statements: * An item that meets the definition of asset should be recognized if: (a) it is possible that any future economic benefit associated with the item will flow to the enterprise; and (b) the item has a cost or value that can be measured with reliability. * Example: Human resources are the most important assets of a company, but why can’t we find them on the financial statement? * Some professional football club is an exception to these recognition criteria.
(2) Liabilities: the existing obligations of the enterprise arising from past events, the settlement of which is expected to result in a sacrifice of economic benefits of the enterprise.
Need to emphasize three elements in this definition: existing obligations, past events, and sacrifice of economic benefits
(3)