会计专业英语教案一.docx
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会计专业英语教案一.docx
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会计专业英语教案一
CHAPTER1:
INTRODUCTION
1.TYPESOFBUSINESSOWNERSHIP
Aswithtypesofbusinesses,thewayinwhichtheaccountinginformationisreportedwilldependonthetypeofownership.
Themaintypesofownershipare:
Soleproprietor
Thisisonepersoninbusinessonhisorherown.Theownergetstomakeallthedecisionsbuthasnootherownerofthebusinesstoconsultifneeded.Theowneralsogetstokeepalltheprofitsbut,ifthebusinessshouldfail,theownernotonlylosesthebusinessbutallhisorherpersonalpossessionsaswelluntilthedebtsaresatisfied.Asoleproprietorhasunlimitedliability.Itisalsomoredifficulttoobtainfinanceforasoleproprietorbusiness.Nevertheless,mostbusinessesbeginlifeundersoleproprietorownership.
Partnership
Underthistypeofownership,twoormorepeopledecidetopooltheirskillsandresourcesandgointobusinesstogether.Apartnership,likeasoleproprietorship,hasunlimitedliability.Indeed,onepartnermayberesponsibleforgettingthepartnershipintodebtbutanotherpartnermayhavetopaythosedebtsoutoftheirpersonalfunds.Apartnershiptypeofownershipiscommonamonglawyersanddoctorsastheyareboundbytheethicsoftheirprofessiontosufferunlimitedliability.Accountantscannowformcompanies,withtheexceptionofAuditors.
Company
Animportantfeatureofacompanyisthatitisaseparatelegalentityfromitsowners(shareholders).Sincethecompanyisalegalentityinitsownright,itisresponsibleforitsowndebtsandlosses.Thismeansthatoncetheshareholdershavepaidwhattheyagreedtopayfortheshares,theirobligationtothecompanyandthecompany’screditorsissatisfied.Thisisofgreatimportancetotheshareholderssincetheyknowtheirliabilityislimited.
Anotherfeatureofacompanyisthatitslifeisnotlimitedbythelifeoftheshareholders.Sharesmaybesoldbyanexistingshareholdertoanotherpersonwhowishestobecomeashareholder.Whenashareholderdies,thatperson’ssharespasstothebeneficiaryofhisorherestate.
COMPARISONOFOWNERSHIP
SoleProprietorPartnershipCompany
LegalStatusofNotaseparateNotaseparateSeparatelegal
BusinessEntitylegalentitylegalentityentity
RiskofOwner’spersonalPartners’personalLimitedliability
Ownershipassetsatriskassetsatrisk
DurationExpiresbyowner’sExpiresbychoicePerpetual
ofLifechoiceordeathoforwithdrawalofsuccession
ownerpartner
TransferabilityIfproprietorsellsPartnershipshareUsually
ofOwnershiphisinterest,thecannotbesoldtransferable
Interestsbusinessiswithoutagreement
reconstitutedofotherpartners:
undernewnewpartnership
ownershipformed
SourcesofOwner’sfundsandPartners’fundsShares,
Financeloansandloansdebentures,
loans
ProfitAllaccruetoSharedaccordingDividends
Sharingownertopartnershipdeclaredby
agreementordirectors
PartnershipAct1908
OwnershipOneownerTwoormoreOneormore
CapitalProvidedbyPartnerscontributeDividedinto
owneraccordingtoshares
partnershipagreement
LiabilityforUnlimitedUnlimitedLimitedto
firm’sdebtstheamount
outstandingon
sharecapital
ManagementOwnerEachpartnerAppointedbyshareholders
2.UsersofFinancialInformation
InternalUsers
⏹Managerswhoplan,organizeandrunabusiness
⏹Marketingmanagers
⏹Productionsupervisors
⏹Financedirectors
⏹Companyofficers
External
⏹Investors
⏹Creditors
⏹Others
⏹Regulatoryagencies
⏹Taxauthorities
⏹Customers
⏹LaborUnions
⏹Economicplanners
3.TypesofBusinessActivity
FinancingActivities
⏹Borrowingcreatesliabilities
⏹Bankloans
⏹Debtsecurities
⏹Goodsoncreditorpayables
⏹Sellingstockcreatesstockholders’equity
InvestingActivities
⏹Obtainingresourcesorassetstooperatethebusiness
⏹Land
⏹Buildings
⏹Vehicles
⏹Computers
⏹Furniture
⏹Equipment
OperatingActivities
⏹Primaryactivityofbusiness
Sellinggoods
Providingservices
Manufacturing
CostofSales
Advertising
Payingemployees
Payingutilities
OperatingActivities
Revenuesaretheincreasesinassetsresultingfromthesaleofaproductorservice
Expensesarethecostofassetsconsumedorservicesusedingeneratingrevenue.
Ifrevenue>expense=NetIncome
Ifrevenue 4.ContentandPurposeofFinancialStatements ⏹Accountantscommunicatewithusersthroughfourfinancialstatements TheObjectiveofFinancialStatements ⏹Theobjectiveoffinancialstatementsistoprovideinformationaboutthefinancialposition,performanceandchangesinfinancialpositionofanenterprisethatisusefultoawiderangeofusersinmakingeconomicdecisions. FourFinancialStatements ⏹IncomeStatement ⏹RetainedEarningsStatement ⏹BalanceSheet ⏹StatementofCashFlows THEINCOMESTATEMENT PURPOSEOFTHEINCOMESTATEMENT ThepurposeoftheIncomeStatementistoreporttheresultsofthebusinessoperationsforagivenperiodoftime,calledtheAccountingPeriod. ItmeasuresProfit(orLoss)fortheperiodbydeductingExpensesfromIncome,usingtheformula INCOME–EXPENSES=PROFIT(LOSS)FORTHEPERIOD USESOFTHEINCOMESTATEMENT ∙Managersallocateresourcesbasedontheperformanceofthebusiness ∙Itcanbeusedtodiscoverifthebusinessismaintaininganadequatemarginonsales ∙TheInlandRevenueDepartment(IRD)usesittoassesstaxationliability ∙Unionsmayexamineitaspartofsalarydiscussions ∙Investorsareinterestedinjudgingtheperformanceofthebusinesstoassessthemanagementperformance,andtojudgebothfuturebusinesssuccessandreturnoninvestment ∙Itcanbesubmittedtobanksinsupportofaloanapplication,toassistbankstojudgeincomepotential(torepaytheloan! ) ∙Externalusers,inparticular,canassess oInvestmentvalue(isthereagoodreturnonassets? ) oCreditworthiness(isthebusinessearningenoughtopaysuppliers? ) oAbilitytoearnincome ∙Overallitisusefulinevaluatingthepastperformanceofthebusiness CLASSIFYINGTHEINCOMESTATEMENT Incomecanbeclassifiedas a)Revenue(or,foratradingorganisation,TradingRevenue)and b)OtherIncome Revenueisallrevenueincludedindeterminingtheoperatingprofitoftheperiod,andisthemainsourceofrevenueforthefirm.Forexample,foratradingbusinessthiswilbethesaleofgoods. OtherIncomeissupplementaryrevenues,notfromthemainactivitiesofthefirm,\.Forexamplerentingoutsomesparewarehousespace. Expensescanbeclassifiedas a)TradingExpenses b)SellingandDistributionExpenses c)AdministrativeExpenses d)FinancialExpenses e)OtherExpenses Expensesmaybefurtherclassifiedintovariousgroupsthatsuitaparticularbusiness.Eachgroupcontainstypesofexpensesthathaveasimilarnature.Acommonclassificationis: a)TradingExpenses-thosethatrelatedirectlytobringingthegoodsintothebusinessforresale. Forexamplecustomsduty,cartageinwards,packaging. b)Sellinganddistributionexpenses–thoseexpensesincurredtoincreasethesalesofabusinessanddistributetheproducttothecustomers. Forexamplesalessalariesandwages,advertising,salesvanexpenses,cartageoutwards. c)Administrativeexpenses–thoseexpensesincurredinordertoorganiseabusiness. Forexampleelectricity,rates,telephone,rent,officesalariesandwages,insurance,accountancyfees. d)Financialexpenses–thoseexpensesincurredinfinancingthebusiness. Forexamplebaddebts,interestonloan,interestonmortgage,discountallowed. ExamplesofOtherExpensesarelossonsaleofproperty,donations RetainedEarningsStatement(alsocalledchangesinequity) ⏹Showschangesinretainedearningsforperiod: month,quarter,year ⏹Beginningbalance ⏹AddNetIncomefromincomestatement. ⏹DeductDividends ⏹Endingbalance ForaSoleProprietor,TheCapital,orEquity,thatshowsontheTrialBalanceistheOPENINGCapital.TransactionsoccurduringthefinancialyearthatwillaffecttheEquity,causingittohaveincreasedordecreasedbytheendofthefinancialyear.ThechangefromOpeningtoClosingCapitalisusuallyshownwithintheEquitysectionatthebottomoftheBalanceSheet,asshowninthefollowingexampleforRichard’sRhubarbShop: EXAMPLE: AccountsPayable35,000 AccountsReceivable45,000 BankLoanLongTerm175,000 BankOverdraft21,000 Land(cost)195,000 Inventory213,000 Cashonhand2,000 SharesinotherCompanies8,000 Goodwill5,000 Capital(opening)238,800 Drawings10,200 OtherInformation: Profitfortheyearended31March2016was$8,400 Required: CompleteafullyclassifiedBalanceSheet ANSWER: Richard’sRhubarbShop BalanceSheetasat31March2016 $$$ CurrentAssets CashonHand2,000 AccountsReceivable45,000 Inventory213,000260,000 Non-CurrentAssets Property,PlantandEquipment Land195,000 Investments Sharesinothercompanies8,000 Intangibles Goodwill5,000208,000 TotalAssets468,000 CurrentLiabilities BankOverdraft21,000 AccountsPayable35,00056,000 Non-CurrentLiabilities BankLoan175,000 TotalLiabilities231,000 NETASSETS$237,000 EQUITY Capital(opening)238,800 Plus: Profitfortheperiod8,400 247,200 Less: Drawings10,200 Capital(closing)$237,000 THEBALANCESHEET THEPURPOSEOFTHEBALANCESHEET ThepurposeoftheBalanceSheetistoshowthefinancialpositionofabusinessataparticularpointoftime. Itreportstheassetsofthebusinessandhowtheseassetshavebeenfunded.Theassetscanbefundedbyliabilities(externalfunding)orowner’sequity(inter
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