Principles of Accounting

As we release the 3rd edition a Korean·English translation/iii

As we write this book/vii



1. Business Activities and Financial Statements

Section 1 Business enterprises and business activities 2

Section 2 Business activities and accounting system 9

Section 3 Preparing and disclosing financial statements 17



2. Nature of Financial Statements

Section 1 Statement of financial position 32

Section 2 Comprehensive income statement 47

Section 3 Statement of cash flows 64

Section 4 Statement of changes in equity 69

Section 5 Basic assumption and limitations of financial statements 72



3. Recording Transactions and Preparation of Financial Statements

―Cash Transactions

Section 1 Transactions and bookkeeping 84

Section 2 Recording transactions under the double-entry bookkeeping system

87

Section 3 Accounting cycle (cash) 102

4. Accrual Basis and Preparation of Financial Statements

Section 1 Measurement of income: Accrual basis and cash basis 140

Section 2 Recognition of revenue and expense under the accrual basis

145

Section 3 Adjusting journal entries 151

Section 4 Accounting cycle (accrual) 166 Contents

Contents





5. Comprehensive Illustration of Preparing and Using Financial

Statements

Section 1 A comprehensive illustration of preparing financial statements

190

Section 2 A comprehensive illustration of using financial statements 224



Case Financial Statements of Daehan Department Store

I. Financial statements 250

II. Footnotes 254



6. Operating Activities―Sales and Trade Receivables

Section 1 Sales and trade receivables 270

Section 2 Trade receivables and bad debts 272

Section 3 Trade receivables and cash flows 285

Section 4 Related financial ratios 290



7. Operating Activities―Cost of Goods Sold, Inventory, and Trade Payables



Section 1 Cost of goods sold, inventory, and trade payables 306

Section 2 Recording cost of goods sold 308

Section 3 Correction of inventory errors 316

Section 4 Inventory valuation methods 326

Section 5 Estimating cost of ending merchandise inventory 333

Section 6 Inventory shortage loss and valuation loss 338

Section 7 Cost of goods sold and cash flows 342

Section 8 Related financial ratios 346



8. Investing Activities―Non-current Assets

Section 1 Acquisition cost of tangible assets 367

Section 2 Depreciation methods 371

Section 3 Depreciation expense and cash flows 379

Section 4 Capital expenditures and revenue expenditures 380

Section 5 Disposal of tangible assets 382

Section 6 Impairment of tangible assets 387

Section 7 Related financial ratios 391



9. Financing Activities―Liabilities

Section 1 Financial liabilities and non-financial liabilities 412

Section 2 Borrowings 414

Section 3 Bonds payable 418

Section 4 Provisions 443

Section 5 Related financial ratios 448

10. Financing Activities－Equity

Section 1 Issuance of stock 470

Section 2 Dividends 473

Section 3 Treasury stock 477

Section 4 Statement of changes in equity 481

Section 5 Related financial ratios 486



11. Statement of Cash Flows

Section 1 Key issues 510

Section 2 Cash flows from operating activities 517

Section 3 Cash flows from investing and financing activities 525

Section 4 Non-cash transactions 528

Section 5 A comprehensive illustration of preparing a statement of cash flows

529

Section 6 Related financial ratios 552



Appendix 1 Special Issues

Section 1 Other comprehensive income and net income 580

Section 2 Accounting for fair value through other comprehensive income financial assets 582

Section 3 Accounting for revaluation of tangible assets 588

Section 4 Equity method and consolidated financial statements 596



Appendix 2 Key Financial Ratios

I. Evaluating profitability 610

II. Evaluating growth 610

Ⅲ. Evaluating activity 611

Ⅳ. Evaluating safety (financial) 611

Ⅴ. Price multiples 612



Translation of terms and index (English-Korean)/613

Dai-Sun Lee