Compilation of notes from lectures as well as the textbook. Included all important concepts and notes for the exam. Do note that the FA exam is common across the cohort so notes are relevant to all students under any prof.
Solution Manual For Financial Accounting for Managers 1st Edition By Wayne Thomas
Solution Manual For Financial Accounting for Managers 1st Edition By Wayne Thomas
Solution Manual For Financial Accounting for Managers 1st Edition By Wayne Thomas
All for this textbook (13)
Written for
Singapore Management University
Financial Accounting (ACCT101)
All documents for this subject (1)
Seller
Follow
russellphua
Content preview
Chapter 1 – A Framework for Financial Accounting
Defining Accounting
• Accounting is the language of business
o A system for maintaining records of a company’s operations & communicating that info to
decision-makers (internal and external)
o A central part of a company’s management information system
• Financial Accounting measures the business activities of a company in monetary terms & communicates
these measurements to external parties for decision-making purposes
o Summarised information only
o General Purpose Financial Statements (generic)
Entity Types that Generate FA Information
• Company Structure *examinable
o Private Limited (Pte Ltd) – most common entity type in Singapore
o Limited (by shares) – a public company (+/- SGX listing)
o Limited (by guarantee)
o Board of Directors, CEO, Company Secretary (+/- CFO, COO depending on size)
o Owners (shareholders) and management are often separate
o Companies that issue shares of stock often form corporations; company is a separate legal
entity from its owners (company can sue & be sued), i.e. owners have limited liability (can lose
investment but not but not personal assets if company fails)
o Sue up to the value of the share capital and retained earnings
o Greater compliance costs; has a constitution and more highly regulated
o External audit required; must keep financial information
o At least 1 individual/corporate entity shareholder, 1 resident director (SC/PR/EP), 1 company
secretary (SC), min. $1 initial paid-up share capital, physical office in Singapore
Key Users of FA Information
• People make decisions about companies based on available financial information
• FA information is also used internally, for instance the availability of surplus cash will influence how
much bonus the company can afford to pay its employees
• E.g. The Board of Directors needs to know how the company has performed financially during Covid-19
Business Activities
• Cash Flow Items
o Financing Activities – transactions the company has with investors & creditors, such as issuing
stock and borrowing money from a local bank
o Investing Activities – transactions involving purchase & sale of resources that are expected
benefit the company for > 1 year
o Operating Activities – include transactions relating to the primary operations of the company,
such as providing products & services to customers and the associated costs of doing so, like
rent, salaries, utilities, taxes, and advertising *research & development costs
• Balance Sheet Items
o Assets – total resources of a company; current & non-current; tangible & intangible
o Liabilities – amounts owed to creditors; current & non-current
o Owner’s Equity – represents the owners’ claim to resources
, § Stockholder’s Equity = Total Assets - Total Liabilities
• Income Statement Items
o Revenue – amounts gained when company sells products or services to customers
o Expenses – cost of providing products & services; other business activities
o Net Income – difference between revenue & expenses; expense > revenue = net loss
§ Revenue - Expenses = Net Income
§ +ve Net Income = OE (Owner/Stockholder’s Equity)
§ Can be known as Earnings, Profit, EBIT (Earnings before Interests & Taxes)
Financial Statements
• Income Statement – aka Statement of Profit or Loss (P&L), Statement of Financial Performance (SFPe),
Statement of Comprehensive Income
o Accrual Basis – revenue or expenses are recorded when a transaction occurs rather than when
payment is received or made
o Covers a period of time, e.g. one year (For the period ending DD Month YYYY)
o P&L accounts are temporary; closed off at end of period, new period opening balance = 0
• Balance Sheet – aka Statement of Financial Position (SFPo)
o Accrual Basis
o Snapshot of a company at a point in time (As at DD Month YYYY)
o Balance Sheet accounts are permanent; perpetual as in rolled over at the end of period, new
period opening balance = closing balance of prior period
• Statement of Stockholder’s Equity – aka Statement of Changes in Equity
o Accrual Basis
o Covers a period of time (For the period ending DD Month YYYY)
o Common Stock (external source) v Retained Earnings (internal source)
§ Stockholder’s Equity = Common Stock + Retained Earnings
§ Retained Earnings = All Net Income - All Dividends
= R - E - Dividends Paid
• Statement of Cash Flows
o Cash Basis – recognizes revenues & expenses at the time cash is received or paid out
o Covers a period of time (For the period ending DD Month YYYY)
§ Change in Cash = Operating + Investing + Financing Cash Flows
*A complete set of financial statements includes notes to the accounts and comparative information
Definitions – SFRS (1) Glossary & CF
• Expense: decrease in assets/increase in liabilities, that result in decreases in equity, other than those
relating to distributions to holders of equity claims (dividends?) – NO future benefit
o Debit = Increase; Credit = Decrease
• Income: increases in assets/decreases in liabilities, that result in decreases in equity, other than those
relating to contributions from holders of equity claims (IOU)
o Debit = Decrease; Credit = Increase
o Revenue: Income from the course of an entity’s ordinary activities, i.e. sales, fees, turnover
• Asset: a present economic resource controlled by the entity as a result of past events – HAS future
benefit
o Debit = Increase; Credit = Decrease
, • Liability: a present obligation of the entity to transfer an economic resource as a result of past events
o Debit = Decrease; Credit = Increase
• Owners’ Equity: the residual interest in the assets of the entity after deducting all its liabilities
o Debit = Decrease; Credit = Increase
Textbook Terms
• Deferred Revenue = Revenue in Advance = Contract Liability
• Sales Tax Payable = GST Payable in SG
• FICA Tax Payable = CPF Payable in SG
• Revenue = Income = Proceeds = Takings = Turnover
• Common Stock = Share Capital = Ordinary Shares
General Purpose Financial Reports – SFRS (1) CF
• Objective: Provide financial information about a ‘reporting entity’ that is useful to existing & potential
investors, lenders & other creditors in making decisions relating to providing resources to the entity
• For whom? Intended to meet the needs of users who are not in a position to require an entity to prepare
reports tailored to their particular information needs
• How often? Minimally annually (in accordance with the Companies Act); half-yearly for SGX companies
• Accrual Basis: Matches revenues with expenses from same period; revenues, expenses, assets,
liabilities and owner’s equity recorded when they occur, not when they are paid
• Perspective: Viewed from the perspective of the entity as a whole, not from any specific users’
viewpoint
• Going concern assumption: Can pay debts as and when they fall due; exists in perpetuity (at least for
the foreseeable future > 12 months); implies that entity has neither the intention nor need to liquidate
or curtail materially its scale of operations
Conceptual Framework
• Like a blueprint/standard operating procedure (not an accounting standard itself)
• Purpose of the CF:
o Assists standard setters to develop accounting standards based on consistent concepts
o Assists preparers to develop consistent accounting policies
o Guides preparers when an accounting standard allows choice
o Assists all parties, including users, to interpret the accounting standards
, Fundamental Qualitative Characteristics
• Relevance – information is relevant if it is capable of making a difference to the decisions made by users
o Predictive value: can be used as an input to help users predict future outcomes; and/or
o Confirmatory value: confirms or changes previous evaluations
o Materiality: information is material if omitting, misstating or obscuring it could reasonably be
expected to influence decisions that the primary users of GPFR make
• Faithful Representation – information must faithfully represent the substance of what it appears to
represent
o Complete: all information necessary for a user to understand the phenomenon being
reported; monetary plus textual information (narrative in the notes)
o Neutral: no bias in the selection & presentation of financial information; not slanted, weighted,
emphasized/de-emphasized or manipulated; supported by the application of prudence
o Free from error: does not mean accurate in all respects; no errors/omissions in description;
process used to produce reported information has been selected and applied with no errors
o Prudence: exercise of caution under conditions of uncertainty, does not allow overstatement
or understatement of assets, liabilities, income or expenses; supports neutrality
o Measurement uncertainty: arises when monetary amounts cannot be observed directly and
need to be estimated, does not prevent information from being useful, might affect whether
a sufficiently faithful representation can be achieved if too high
o Substance over form: economic substance of underlying phenomenon is usually the same as
the legal form, otherwise, we need to represent the substance to provide faithful
representation.
Enhancing Qualitative Characteristics
• Comparability
o Refers to the ability of users to see similarities & differences in the same company over time
o Useful if it can be compared with similar information about other entities
o Useful if it can be compared with similar information from the same entity over time
o Consistency is similar, but the difference is that comparability is the goal while consistency
helps to achieve that goal
• Verifiability
o Implies a consensus among different measurers
o Direct or indirect observation
o Describe the underlying assumption; paper trail/audit trail
• Timeliness
o Refers to information being available to users early enough to allow them to use it in the
decision process
o Already historical information when reported (based on past events)
o Takes time to prepare & verify; generally the older the information, the less useful it is
• Understandability
o Refers to users being able to understand the information within the context of the decision
they are making
o Clear & concise reporting enhances understandability; assumed users of GPFR have
reasonable knowledge, and apply this knowledge diligently and with skepticism
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller russellphua. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $7.49. You're not tied to anything after your purchase.
