Basic Accounting Principles

Why does it need principle?

Measurement of performance

Based on an unique platform

Formation of the rules of games

Impact to the Finance DepartmentHas to follow the rules of games in

recording transactions and reportingFor statutory reportingFor banking relationshipsFor gaining credit from suppliers

Thus internally, needs the collaboration from other departments

The rules of game - restrictionsLaw ( 法 , 实施细则 , 暂行条例 )

Listing rules ( 上市条例 )

Accounting standards ( 会计准则 ) GAAP(Generally Accepted Accounting

Principle) IAS (International Accounting Standards) IFRS (International Financial Reporting

Standards)

Accounting principles ( 会计原则 )

Accounting policies ( 会计政策 )Accounting concept ( 会计概念 )

Accounting concept entity concept ( 企业个体概念 ) quantifiable concept ( 数量表达概念 ) stable monetary measures concept ( 货币稳定概

念 ) historical cost concept ( 历史成本概念 ) going concern principle ( 继续经营原则 ) consistency principle ( 一贯原则 ) prudence concept ( 稳健概念 ) realisation concept ( 实现概念 ) matching concept ( 配比概念 ) accrual concept ( 应计概念 ) materiality concept ( 重点巨数概念 )

Major Accounting ConceptsBusiness entity ( 企业个体 )Going concern ( 持续经营 )Consistency ( 一贯性 )

Matching ( 配比性 )Accrual ( 应计性 )Prudence ( 稳健性 )Revenue recognition 秩序 ( 收入确认 )

Business entity concept

Company is just an individual “legal person”Separate the pocket of the owner and the businessFor the business itself:asset = liabilities + capital

Revenue recognitionCustomer expressed the intention to

Take possessionAt a fixed price

Delivery has occurredTransfer of ownership and riskServices have been rendered

Time of payment is irrelevant

Matching: revenue and costRecord in the same period

Sales of the monthCost for the salesExpenses for the periodProvision

What is the cost and expense

o Goods/Service received?o Invoice received?o Cash paid out?

What is the saleso Money from

customer?o Sales tax considered?

Record as costs or expenses Paid – money paid Payable – invoice received, not

pay Accrual – invoice not receive

Provision – risk of payment for event happened

Accrual and Provisions

Who has the appropriate information

Goods/Services received but not invoicedRisks of being charged in future

•Finance ?•You ?

Collaboration

Help Finance in recording appropriate costs and expensesHelp yourself in measuring your performanceBecause everyone looks at the financial information only