Task Team of FUNDAMENTAL ACCOUNTING School of Business, Sun Ya !

sen Uni"e#si $

Lesson notes Lesson 2: Economic Transactions and Accounting Equation Learning objectives This lesson %e&ins 'i h a (iscussion of he )u#)ose of a %usiness, inclu(in& a (iscussion of fo#ms of o#&ani*a ions+ Ne, , he na u#e of %usiness o)e#a ions is (iscusse(+ The fou# $)es of %usinesses a#e (iscusse(- se#"ice, me#chan(isin&, manufac u#in&, an( financial se#"ices+ I also conclu(es 'i h a (iscussion of he &ene#al fo#ms of %usiness o'ne#shi)- sole )#o)#ie o#shi)s, )a# ne#shi)s, an( co#)o#a ions+ Then he lesson ca##ies on 'i h a (iscussion of %usiness ac i"i ies an( he e"en s, #esou#ces, an( elemen s affec in& %usiness #ansac ions+ The focus of accoun in& [Link] ion / ha is, A L OE0 is e,)laine( in (e ail+ The Beau $ 1ho o S o#e, a local case 'e c#ea e, is )#esen e( o illus #a e ou# )oin s in his lesson

Teaching hours S u(en s ma2o# in accoun in&- 3 hou#s O he#s3 hou#s

Teaching contents: Opening Story This lesson s a# s 'i h an o)enin& case of some'ha connec ion o he #eal life of s u(en s, ha is, he fun(in& an( s)en(in& a colle&e+ Su&&es e( i ems #ela in& o he accoun in& o)ics a#eAsse s of a colle&e s u(en , fo# e,am)le, cash, CD )la$e#, com)u e#, an( he 'a$s of fun(in& hese asse s- s)onso#e( %$ )a#en s, s)onso#e( %$ #ela i"es, %o##o'e( f#om #ela i"es an( [Link] ance+ 4e coul( (eal 'i h he a%o"e!men ione( financial issues f#om he follo'in& )e#s)ec i"es 5o' (o 'e fun( ou# (ail$ e,)en(i u#es an( )ossessions 5o' (o 'e s)en( he 6fun(s7 'hich 'e ha"e sou#ce( 4ha a%ou he #ela ionshi) %e 'een he 6fun(s7 'hich 'e ha"e sou#ce( an( ou# (ail$ e,)en(i u#es an( )ossessions

Enterprises S u(en s a#e aske( o su&&es e,am)les of each $)e of %usiness- se#"ice, me#chan(ise#, manufac u#e#, an( financial se#"ices+ 1oin ou ha man$ %usinesses a#e com%ina ions of one o# mo#e $)e+ S u(en s a#e &oin& o un(e#s an(- Conce) of En e#)#ise, Defini ion of 6en e#)#ise7, Func ions of an en e#)#ise, Cha#ac e#is ics of an en e#)#ise+

Task Team of FUNDAMENTAL ACCOUNTING School of Business, Sun Ya !sen Uni"e#si $

The#e a#e h#ee ma2o# fo#ms of en e#)#ise- Sole!)#o)#ie o#shi), 1a# ne#shi), Co#)o#a ions+ An( he#e a#e fou# $)es of en e#)#ise- Se#"ice o#&ani*a ion )#o"i(es se#"ices /(oes some hin& fo# $ou0 #a he# han sellin& some hin&8 me#chan(isin& %usiness %u$s &oo(s, a((s "alue o hem, hen sells hem o cus ome#s8 manufac u#e# 9 makes he )#o(uc s i sells8 financial se#"ices com)an$ (oes no make an&i%le )#o(uc s an( (oes no sell )#o(uc s ma(e %$ o he# com)anies8 (eals in se#"ices #ela e( o mone$ Resources in an Enterprise Ma2o# #esou#ces in an en e#)#ise:+ 5uman #esou#ces- )#o)e# ies, )lan an( [Link])men , su))lies, #a' ma e#ials, finishe( )#o(uc s o# in"en o#ies ;+ Financin& /financial #esou#ces0- Fo# ins ance hose in cash o# %ank (e)osi s 3+ <esou#ces in ma e#ial fo#ms

Mo"emen s of Ma e#ial <esou#ces in an En e#)#ise /An e,am)le!Beau $ 1ho o S o#e0

Mo"emen s of Ma e#ial <esou#ces in an En e#)#ise :0 Mo"emen s in a manufac u#in& en e#)#ise cash=%ank (e)osi >#a' ma e#ials >'o#k!in!)#ocess>finishe( )#o(uc s>fin>cash=%ank (e)osi ;0 Mo"emen s in a me#chan(isin& en e#)#ise cash=%ank (e)osi >in"en o#$> cash=%ank (e)osi

Activities of Enterprise Th#ee ma2o# )hases of %usiness ac i"i ies:0 Ince) ion ;0 O)e#a in& 30 [Link](a ion

Ince) ion of En e#)#ise :0 Ince) ion an( in"es men of fun(s ? E, e#nal fun(in&

Task Team of FUNDAMENTAL ACCOUNTING School of Business, Sun Ya !sen Uni"e#si $

? S a e, le&al )e#sons, )#i"a es o# fo#ei&n in"es o#s ? Financin& f#om %ankin& ins i u ions, o he# le&al )e#sons o# )#i"a es ? O'ne#s@ [Link] $ an( lia%ili ies ;0 Fo#ms of In"es men ? Mone a#$ /cash=%ank (e)osi s0 ? 1#o)e# $, )lan s an( [Link])men ? <a' ma e#ials an( &oo(s,e c+ 30 Sou#ces an( chan&es of fun(s ? Inc#ease of o'ne#s@[Link] $ o# lia%ili ies ? Inc#ease of asse s

O)e#a in& Ac i"i ies O)e#a in& ac i"i ies an( chan&es of asse ? Chan&es of asse s in Beau $ 1ho o S o#e ? Connec ions %e 'een Beau $ 1ho o S o#e an( Su))lie#s, clien s, e c+

[Link](a ion of En e#)#ise :0 [Link](a ion of en e#)#ise an( )a$off of fun(s ? 1a$men of a,es ? Dis #i%u ion of )#ofi s ? Decla#a ion of (i"i(en(s ? 1a$off of %o##o'in&s ;0 4i h(#a'als an( chan&es of fun(s ? Dec#ease of asse s ? Dec#ease of lia%ili ies o# o'ne#s@ [Link] $

Accounting Transactions Fi#s of all, 'e (efine a %usiness #ansac ion as an e"en ha affec s he financial )osi ion of a %usiness an( ma$ %e #elia%l$ #eco#(e(+ Fu# he#, 'e 'ill e,)lo#e he #ela ionshi) %e 'een he Economic Ac i"i ies an( Accoun in& Elemen s+ Accoun in& elemen s inclu(e asse s, lia%ili ies, o'ne#@s [Link] $, #e"enues, e,)enses an( )#ofi /loss0+ 4e shoul( also kno' a%ou he connec ion %e 'een he uses of fun(s an( asse s- he e#ms of cash, [Link])men an( o he#s a#e men ione(8 an( he connec ion %e 'een he #esou#ces of fun(s an( [Link] $- fo# ins ance, %o##o'in&s an( [Link] $ of c#e(i o#s lia%ili ies, in"es men s an( o'ne#@s [Link] $+ Uses an( chan&es of fun(s a#e s u(ie( he#e oo+ Beau $ 1ho o S o#e case is #e"ie'e( he#e+ f#om cash o [Link])men 8 usin& [Link])men o

Task Team of FUNDAMENTAL ACCOUNTING School of Business, Sun Ya !sen Uni"e#si $

)#o(uce )ho os8 f#om )ho os o cash+ Ci#cula ion of fun(s- Uses of fun(s an( asse s, an( )a$off of fun(s fo# he Beau $ 1ho o S o#e- Cos of [Link])men , cos of su))lies, human cos s /4ha a#e he o)e#a in& )u#)oses fo# Beau $ 1ho o S o#e 0 Cash #ece) ions an( #e"enues %$ Beau $ 1ho o S o#e, ne inc#ease of fun(s an( )#ofi , (iffe#ence %e 'een uses an( )a$off of cash/Na u#e of )#ofi A0

Accounting Transactions
Accoun in& #ansac ions!Economic e,chan&e %e 'een 'o (iffe#en accoun in& en i iesMu ual e,chan&e- A )u#chases an asse , )a$in& cash o# %ea#in& he #es)onsi%ili $ of )a$in& cash in fu u#e8 B sells he asse , ea#nin& he #i&h s of #ecei"in& o# collec in& cash8 One!'a$ #ansac ionIn"es men s o# (ona ions o ano he# accoun in& en i $ Accoun in& E"en s- Accoun in& e"en s!in e#nal #ansfe##in& of #esou#ces amon& (e)a# men s of a same en i $8 allo men s of #a' ma e#ials fo# )lan s8 Dama&es cause( %$ ea# [Link]+ E, e#nal "e#sus in e#nal e"en s- Be 'een (iffe#en en i ies o# 'i hin a same en i $ Accoun in& Ci#cums ances- Accoun in& ci#cums ances!usuall$ an ou come of colla%o#a ion of mul i)le e"en s+ Ci#cums ances an( hei# im)ac s- Chan&es in )#ices, e,chan&e #a es8 5o' o (e e#mine hese chan&es E+&+ uncollec a%ili $ of #ecei"a%les (ue o he [Link](a ion of he (e% o#8 Un)#e(ic a%ili $

E aboration on Accounting E ements Asse s!Lia%ili ies!O'ne#@s [Link] $!<e"enues!E,)enses!1#ofi s Asse s- Asse s a#e economic #esou#ces o'ne( %$ a %usiness ha a#e e,)ec e( o %e of %enefi in he fu u#e+ Fu# he# Thou&h s on Asse s- 5uman #esou#ces as an asse fo# e,am)le, "alue an( la%o# of Mana&e# of Beau $ 1ho o S o#e Came#amen an( sho) assis an s Na u#al #esou#ces as an asse A Lia%ili ies- Lia%ili ies a#e c#e(i o#BCs claims o he asse s+ Lia%ili ies a#e o%li&a ions o ou si(e#s O'ne#@s [Link] $- O'ne#@s [Link] $ is he o'ne#@s claim o he asse s+ I is he amoun of asse s ha #emains af e# su% #ac in& he lia%ili ies+ Chan&es in O'ne#@s [Link] $8 In"es men s %$ o'ne#s an( #e"enues, amoun s ea#ne( %$ (eli"e#in& &oo(s o# se#"ices o cus ome#s, inc#ease o'ne#@s [Link] $+ 4i h(#a'als of asse s f#om he %usiness %$ o'ne#s an( e,)enses (ec#ease o'ne#@s [Link] $+ E,)enses occu# 'hen asse s a#e use( o# lia%ili ies inc#ease as a #esul of ea#nin& #e"enues+ <e"enue- <e"enues /sales0 a#e inc#eases in o'ne#sD [Link] $ a#isin& f#om inc#eases in asse s #ecei"e( in e,chan&e fo# he (eli"e#$ of &oo(s o# se#"ices o cus ome#s+ <e"enues a#e inc#eases in economic #esou#ces, ei he# h#ou&h inc#eases o asse s o# #e(uc ions o lia%ili ies

Task Team of FUNDAMENTAL ACCOUNTING School of Business, Sun Ya !sen Uni"e#si $

<e"enue <eco&ni ion- <e"enue shoul( %e #eco&ni*e( in he financial s a emen 'hen- :0 he )e#fo#mance has %een achie"e(8 ;0 he#e is #easona%le assu#ance #e&a#(in& he measu#emen an( collec a%ili $ of he consi(e#a ion E,)ense- E,)enses a#e (ec#eases in o'ne#sD [Link] $ ha a#ise %ecause &oo(s o# se#"ices a#e (eli"e#e( o cus ome#s+ E,)enses a#e (ec#eases in economic #esou#ces, ei he# h#ou&h ou flo's o# he usin&!u) of asse s o# incu##ence of lia%ili ies f#om (eli"e#in& o# )#o(ucin& &oo(s, #en(e#in& se#"ices, o# ca##$in& ou o he# ac i"i ies ha cons i u e he en i $@s no#mal %usiness+ E,)ense <eco&ni ion- Cos , e,)en(i u#e, an( e,)ense8 &ene#al #eco&ni ion c#i e#ia+ A))#oaches o e,)ense #eco&ni ion a#e Cos , E,)en(i u#e, an( E,)ense+ 4hen 'e a&#ee o )a$ ou cash /o# o he# asse s0 fo# &oo(s o# se#"ices #ecei"e(, 'e ha"e incu##e( a cos + 4hen 'e ac uall$ )a$ he cash, 'e ha"e e,)en(i u#e+ 4hen he %enefi s of he cos ha"e %een use( an( 'e )u ha cos /o# a )o# ion he#eof0 on he income s a emen , 'e ha"e #eco&ni*e( an e,)ense

Gene#al <eco&ni ion C#i e#ia <eco&ni*e( i ems mus mee he (efini ion of a financial s a emen elemen an( ha"e a "ali( measu#emen %asis an( amoun + Financial s a emen elemen s a#e %ase( on fu u#e economic %enefi s o# sac#ifices8 hese mus %e )#o%a%le fo# #eco&ni ion o %e a))#o)#ia e+ E,)enses a#e (ec#eases in economic #esou#ces, ei he# %$ 'a$ of ou flo's o# #e(uc ions of asse s o# incu##ences of lia%ili ies, #esul in& f#om an en i $BCs o#(ina#$ #e"enue &ene#a in& o# se#"ice (eli"e#$ ac i"i ies+ Asse o# e,)enseA if he asse #eco&ni ion c#i e#ia a#e me , an asse is #eco#(e(+ If no , an e,)ense is #eco#(e( A))#oaches o E,)ense <eco&ni ion Defini ional a))#oach- e,)enses a#e c#ea e( ei he# h#ou&h he #e(uc ion of an asse o# he inc#ease in a lia%ili $ Ma chin& a))#oach- once #e"enues a#e (e e#mine( in confo#mi $ 'i h he #e"enue )#inci)le fo# an$ #e)o# in& )e#io(, he e,)enses incu##e( in &ene#a in& he #e"enue shoul( %e #eco&ni*e( in ha )e#io( 1#ofi =Loss Income /)#ofi o# ea#nin&s0 is he e,cess of #e"enues o"e# e,)enses

Accounting Equation Asse s E Lia%ili ies F O'ne#s [Link] $ Ne Asse s F O'ne#@s [Link] $ E"e#$ accoun in& #ansac ion has an [Link] affec on %o h si(es of he [Link] ion+ 1u#chase a G;H,HHH ca# fo# cash+

Task Team of FUNDAMENTAL ACCOUNTING School of Business, Sun Ya !sen Uni"e#si $

Inc#ease asse ca# an( (ec#ease asse cash %$ G;H,HHH+ No ne chan&e o asse s+ 1u#chase a G;H,HHH ca# on c#e(i + Inc#ease asse ca# an( inc#ease lia%ili ies %$ G;H,HHH+ Dual As)ec of Accoun in& [Link] ion Asse s F Lia%ili ies E O'ne#@s [Link] $+ L5S F <5S+ Fi#s "ie'<esou#ces F O%li&a ions o c#e(i o#s o# claims on #esou#ces E <esi(ual claim+ Secon( "ie'Amoun s in"es e( in #esou#ces F ho' hese amoun s 'e#e finance(+ <esou#ces F finance( %$ c#e(i o#s E finance( %$ o'ne#s+

An ! ustration: "eauty #hoto Store Chan&es o he accoun in& [Link] ion of Beau $ 1ho o S o#e /see he )o'e#)oin s0

$ase for %iscussion Ma#ks an( S)ence# In :II;, a <ussian #efu&ee name( Michael Ma#ks came o he No# h Eas of En&lan(+ Nee(in& 'o#k, he )u a #a$ #oun( his neck an( s a# e( sellin& ha%e#(ashe#$ in he "illa&es a#oun( Lee(s+ T'o $ea#s la e# he %o##o'e( J f#om his f#ien( Isaac De'hi#s o %u$ s ock, an( 'as a%le o o)en a s all in Lee(s ma#ke + 4i hin en $ea#s Ma#ks@s success as a #a(e# ha( ena%le( him o es a%lish a chain of s alls in ma#ke s h#ou&hou No# h Eas En&lan(+ In :IKL, Ma#ks #eali*e( ha his %usiness 'as &e in& oo la#&e fo# him o mana&e effec i"el$ on his o'n+ 5e (eci(e( o fo#m a )a# ne#shi) 'i h Tom S)ence# 9 an( Ma#ks M S)ence# 'as %o#n+ The %usiness con inue( o h#i"e an( &#o', so in :KH3 Ma#ks an( S)ence# #e&is e#e( hei# )a# ne#shi) as a )#i"a e limi e( com)an$+ This allo'e( mo#e )eo)le o %ecome in"ol"e( 'i h mana&in& he &#o'in& com)an$ an( inc#ease i s finances %$ %u$in& sha#es in he com)an$+ One sha#ehol(e# 'as Is#ael Sieff, 'ho %ecame chai#man of he com)an$ in :K:N+ Sieff can %e c#e(i e( 'i h sha)in& he fu u#e of Ma#ks M S)ence#+ B$ :K;O, Ma#ks M S)ence# ha( o)ene( :;J s o#es+ In o#(e# o con inue i s successful (e"elo)men he com)an$ finall$ #e&is e#e( as a )u%lic limi e( com)an$ /)lc0 in o#(e# o o% ain as much ca)i al as )ossi%le o finance i s con inue( &#o' h+ An( he #es , as he$ sa$, is his o#$+

Su&&es e( Pues ions

Task Team of FUNDAMENTAL ACCOUNTING School of Business, Sun Ya !sen Uni"e#si $

:0 5o' man$ )eo)le s a# e( he o#i&inal %usiness ha e"en uall$ %ecame Ma#ks M S)ence#A ;0 4ho o'ne( he o#i&inal %usinessA 30 4ho o'ns Ma#ks M S)ence# )lcA L0 4h$ (o $ou hink Ma#ks M S)ence# %ecame a )u%lic limi e( com)an$A J0 Do $ou hink he %usiness 'oul( ha"e (e"elo)e( in he 'a$ i has if i 'as s ill o'ne( %$ one )e#sonA