Chapter 1

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은경 남궁
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1 1. Conceptual Framework Accounting: - Business language to describe business operation. - Information System that a identifies, b records, and c communicates the economics events of an organisation to interested users Internal Users Managers Employees Union HR Managers Why? - Contract negotiations over payrates - other business decisions External Users Investors why? - Ask for dividends - Purchase low & Sell high Creditors why? - to decide whether they should lend money or not - to set interest rate Managerial Accounting - Future Oriented - No Specific Style - Ultra current to very long time horizons - Detailed plans - Continuous performance reports - Past Oriented Financial Accounting - GAAP compliant & CPA Audited - Periodic Financial Statements (Historical Quarterly & Annual Reports) & related disclosures - Objective: to provide useful economic information about a business to help external parties, primarily investors & creditors,make sound financial decisions

2 Business Operations: - Shareholders Contribute - Creditors Lend Distribute Dividends (ii) Cash Collected Profit Made Pay Interests (i) CASH Retained Earnings Reinvested Sell Products / Merchandise - Build factory / warehouse - Purchase materials / parts - Hire Employees - Manufacture Products Inventory (i) Company needs money for operation Borrow from 2 sources initially 1. Shareholders Selling ownership of the company 2. Creditors Creditors lend money for certain duration with interest charge (ii) Cash collected through business operations are used Interest Payments MUST be PAID (OBLIGATION) 2. Dividend Distribution Company can decide whether to distribute dividends or not (NO Obligation) 3. Leftover money becomes Retained Earnings then Re-invested in business operations Accounting Standards: Financial Statement MUST follow accounting standard CONSISTANTLY 1. Generally Accepted Accounting Principle (US GAAP)!! issued by Financial Accounting Standard Board (FASB) used in US! 특징 : Rule Based ( 세세하게정해줌 ) 2. International Financial Reporting Standard (IFRS)!! issued by International Accounting Standard Board (IASB) used in EU, HK, Kor! 특징 : Principle Based ( 여러나라다른법, 착하게살아라... 하는가이드라인격 )

3 Basics 1: (1) Bookkeeping? a. What? 재산의증감 & 변화를체계적으로기록 b. Why? 재산상태와경영성과파악 c. How? Single Journal Entry - 단식부기 eg) Cash Cash의 Source를알수없음 Double Journal Entry - 복식부기 eg) Cash 100 / Rev 100 eg) Cash 100 / Borrowing 100 eg) Cash 100 / Equity 100 Cash 의 Source 를파악하고 Cash 를계획적으로사용가능 d. When / Where? 무역이발달하기시작한베니스상인들로부터사용되기시작했다고추정되었다. 배를타고무역 Buy in Bulk Cost them a lot need investors and creditors 추후수익이발생한후배분문제를해결하기위해복식부기발달시작 BUT 고려시대개성상인들이베니스상인들보다먼저사용하기시작 송도사개치부법 - 한국은행에보관되어있음 재산상태 vs 경영성과 ( 재산상태가더중요 ) Company A: Net Income = $10M & Liability = $100M Company B: Net Income = $5M & Liability = $10M (2) Balance Sheet ( 재산상태 ) - 중요한것부터보여줌 A = L + E why not A - E = L? - Asset 이가장 Obvious 하게먼저보인다. - L & E 는 Asset 을구성하는요소 (3) Income Statement ( 경영성과 ) Expense + Net Income = Revenue Cash 가이미왼쪽 (Debit) 에자리잡았기때문에 Revenue 는오른쪽에표기 )

4 Basics 2 (Accounting Equations): <Balance Sheet> shows financial position of an entity at a given point of time (STOCK)! Assets = Liabilities + Shareholder s Equity Shows your Assets are financed by Liabilities & Shareholder s Equity - Paid-in-Capital - Retained Earnings - Accumulated Other Comprehensive Income Intermediate Accounting 주주와의거래는 I/S 를못타고바로 B/S 로들어옴 주주는 I/S ( 경영성과 ) 를조작할유혹이있음 Investment / Distribution Shareholders <Income Statement> shows how efficiently NI (i.e. Profit) is earned! NI = Revenue - Expense * Rev. & Exp. are captured based on delivery of a product & service / consumption of economic resources. NOT based on movement of cash * Dividend is NOT counted as Expense while Tax & Interest Payments do. Company has no obligation to pay for Dividends <Retained Earnings Statement> shows how NI is distributed to owners! Ending R/E = Beginning R/E + NI - Dividends <Comprehensive Income Statement> shows financial performance (=NI) & results of operations! Comprehensive Income = NI + Other Comprehensive Income (OCI)! OCI = contains all changes that are not permitted in profit or loss!! eg. Foreign Currency Translation Adjustment, etc. Accumulated Other Comprehensive Income = Beginning OCI + Ending OCI <Cash Flow Statements> shows additional info. in addition to NI for future business investments! Δ Cash = Cash Flow from Operating Activities (CFO) Cash Flow from + Investing Activities + (CFI) Cash Flow from Financing Activities (CFF)! Cash at the end of Year = Cash at beginning of Year + Δ Cash

5 Financial Accounting Concepts (FACs): <Conceptual Framework for Financial Accounting & Reporting> Objectives to provide Useful Information to Primary Users 1 Economic Resources (Assets) & Claims (Liabilities & Equities)! - 당기 B/S 2 Δ Economic Resources & Claims! - 여러기의 B/S 3 Financial Performance by Accrual Basis! - I/S 4 Δ Economic Resources & Claims NOT resulting from financial Performance!! - in R/E Statement 5 Financial Performance reflected by past Cash Flows! - CF Statement Qualitative Characteristics Fundamental Enhancing i. Relevance - Capable of making a difference in the decision a. Predictive Value ( 예측가치 ) - used as an input to processes employed by users to predict future outcomes b. Confirmatory Value ( 확인가치 ) - Provides feedback about previous evaluations eg NI = $8M NI = $10M NI =? --> Predictive Value 2013 년 F/S 나오면 Confirmatory Value c. Materiality ( 중요성 ) - Misstated Information must not influence decisions that users make ii. Faithful Representation a. Completeness (full-discloser) - 의도적으로부채숨긴게있는지없는지 b. Neutral c. Free from error! - 중요한에러가없어야함 i. Comparability ( 비교가능 ; 당기 & 전년 ) - enable users to identify & understand similarities & differences in items - Consistency helps achieve this ii. Verifiability ( 검증가능 ) - 누구나비슷한결론에도달할수있어야함 iii. Timeliness ( 적절한때나와야함, 3 개월이내 ) iv. Understandability

6 Elements of F/S a Assets - Probable future economic benefits - Obtained or controlled by entity - as a result of past transaction / events Transaction Controlled Economic Benefit Transaction Obligation Future Sacrifices of Economic Benefit STOCK Past Present Future Past Present Future b Liabilities - Probable future sacrifices of economic benefits - Present Obligation to transfer assets or provide service to other in future - as a result of past transaction / events c Equity or Net Assets - Residual interest in Assets that remains after deducting Liabilities - E 는잔여지분 = 스스로측정할수없다 d Investments by Owners ( 유상증자 ) e Distributions by Owners ( 배당 ) f Revenue ( 수익 ) - Increase in Assets or Decrease in Liabilities i.e. Increase in Net Assets - Ongoing major or central operations g Expenses ( 비용 ) - Decrease in Assets or Increase in Liabilities i.e. Decrease in Net Assets - Ongoing major or central operations FLOW h Gains ( 차익 ) - Increase in Assets or Decrease in Liabilities i.e. Increase in Net Assets - Peripheral or incidental transactions (NOT from main business activities) i Losses ( 차손 ) - Decrease in Assets or Increase in Liabilities i.e. Decrease in Net Assets - Peripheral or incidental transactions (NOT from main business activities) j Comprehensive Income ( 포괄이익 ) - Δ equity of a business during a period - from transactions & other events and circumstances from non-owner sources - ( 소유주와의거래를제외한모든거래나사건으로부터발생하는순자산의증감 )

7 Assets a B/S Liabilities b Equities c Paid-in-Capital Retained Earnings AOCI (Accumulated Other Comprehensive Income) Distribution e Investment d I/S Shareholders (Activities from Owners) (Activities from 3rd Parties) Revenue f + Gain h Expense g+ Loss i Net Income OCI (other comprehensive income) Comprehensive Income j Recognition & Measurement 1. Basic Assumptions a) Economic Entity Assumption Activities of business are separate from activities of owners (or independent from owners) Shareholder s Property Company s Property b) Going-concern (Continuity) Assumption Entity will not go out of business in near future 특별히망할징조가보이지않는이상계속간다 (Historical Cost & Depreciation 컨셉을사용하기위한가정 ) c) Monetary Unit Assumption Accounting measurements will be in National Monetary Unit with no inflation (i.e. no change in Purchasing Power) <During Hyperinflation the Assumption breaks & Different accounting method is required> d) Periodicity Assumption Since the start-up of the business & closure are business are taking too long time. Accountants are dividing the lifespan of the business into several time periods known as accounting period (eg. quarterly, half-yearly, annually) for preparing financial statements. Hence, F/S are prepared for an accounting period 해당기간의 Performance 를적절히보고하기위해서...

8 Recognition & Measurement 2. Basic Principles of Accounting a) Historical Cost [All About Measurement] 1 Historical Cost Principle (US-GAAP 의기준 ) report assets & liabilities on the basis of acquisition price (i.e. Past Price) 2 Current Cost (=Replacement Cost) Amount to be paid if the same asset were acquired currently ( 같은물건을다시산다면?) 3 Current Market Value Amount to be obtained by selling currently ( 같은물건을지금다시판다면? 세금등등고려했을때...) 4 Net Realisable Value Amount into which an asset is expected to be converted less necessary direct cost Future Market Value - Direct Cost - Selling Expense (Work-In-Progress, 공장에서생산중인물품평가시사용 ) 5 Present Value - (For Bond Pricing) Current worth of future sum of money or cash flows given a specified rate of return Past Present 1/Jan 31/Dec Future Land = $100 Land = $? 1 H/C = $100 2 Current Cost 3 CMV 5 PV r=? & n=? Future Market Value - Direct Cost - Selling Expense NRV FV

9 Recognition & Measurement 2. Basic Principles of Accounting b) Revenue Recognition Revenue is generally recognised when 1 Realised or Realisable, and 2 earned ( 내할도리를다함 ) A Goods Earned $ Realised B c) Matching Principle (= Expense Recognition Principle) Efforts (Expenses) should be matched with accomplishment (Revenues) Methods: 1 Associating Cause & Effect: CGS (Cost of Goods Sold) 2 Rational & Systematic Allocation: Depreciation, Depletion, Amortisation 3 Immediately: Overhead Cost, 애매하면다 d) Full Disclosure (Use of NOTE) Provide Information that has sufficient importance to influence the judgement and decisions of an informed user i.e. No Fair Disclosure ( 특정그룹이득 X) & No Adequate Disclosure ( 보이고싶은것만보이는것 X)

10 Constraints a) Cost-benefit Relationship When procedure is too complicated, cost of producing F/S is too high. Hence, Cost > Benefit (i.e. usefulness) Hence, Simplify Procedure and therefore, Net Benefit is maximised 정보의제공에소요되는비용보다효익이커야한다 b) Materiality 합리적의사결정에영향을주는정보는중요하며그것은보고되어야한다. c) Industry Practices ( 산업관행 ) 어떤산업에서는다른산업들이준수하는것과는다른특수한회계원칙과절차에따라최계처리 (IFRS 에선절대사용하지않음 ) d) Conservatism A Prudent reaction to uncertainty to try to ensure that uncertainty and risks inherent in business situations are adequately considered <Choose Minimum Benefit & Maximum Cost when reporting> 7/1 12/31 AR=100 Case B: Given probability is the same, report as Case B (Max. Cost) Probability Possible Money Return Case A Case B 50% 80 50% 20

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