business entity concept-the accounting for a business should be kept separate from personal

affairs of the owner and of other businesses

–continuing (or going) concern concept-a business will continue to operate unless stated
otherwise
–principle of conservatism-accounting should be fair and reasonable
–objectivity principle-accounting will be recorded based on objective evidence (i.e. source
documents)
–revenue recognition convention-revenue must be recorded at the time a transaction is
complete
–time period concept-accounting takes place over periods of time called fiscal periods
–matching principle-expense items must be recorded at the same time as the revenue they
helped earn
–cost principle-accounting for purchases must be at the cost price to the purchaser
–consistency principle-a business must use the same accounting methods and procedures from
period to period
–materiality principle-accountants must include any information that might be considered
important to users of financial information
–full disclosure principle-all information needed to fully understand a company’s financial
statements must be included with those financial statements
2 Books

–book of accounts-ledger
–book of original entry-journal
SRO-self regulated organization

Fundamental Accounting Equation- A=L+OE

B/S and I/S

–B/S– photo (Ansel Adams)

–I/S– movie (James Cameron)
Source Documents-objective evidence

Arm’s Length Transaction

-buyers and sellers of a product act independently and have no relationship with each other

-manipulating price unfairly

LIFO/FIFO
–LIFO-last in first out
–FIFO-first in first out (canada uses this)
Dr/Cr

Account Increase Decrease

Assets Debit Credit

Liabilities Credit Debit

Capital Credit Debit

Revenue Credit Debit

Expense Debit Credit

Drawings Debit Credit

Correcting Trial Balance

–transposition error-changing the order of digits from one place to another (135.4—>134.5)
–decimal point error-putting the decimal in the wrong spot (1.91—>19.1)
Shotgun Clause

-partner 1 asks to buy company, partner 2 can say yes or no

-if they say yes then partner 2 sells the company to partner 1

-if they say no then partner 1 sells the company to partner 2

Window Dressing, Cooking the Books, Fudge

–window dressing-making something look better, legal

–cooking the books-makes books look better, illegal
–fudge-solve for missing variable by putting in fake number, illegal
Haircut-sell something with a loss because you want to get rid of it

Transparency-detailed
Alberta Kills Ducks-oil sands

Double Taxation-being taxed twice (i.e. buy goods pay tax, sell goods pay tax)

Contra Account-balances things out

Working Capital-WC=CA-CL

Non-Cash Expense-an expense not bought with cash

Logistics-moving things, used by military

DAD (Deprecation, Amortization, Depletion)

–depreciation-usually supplies
–amortization-intangible (loan)
–depletion-tangible (natural resource)
Just-in Time-supplies delivered right before they are shipped, no need for big warehouse

Hansel and Grettle Bread Crumbs-cross referencing

Salvage Value-amount you can get for an asset at the end of its useful life

Market Value-how much you sell something for

Term-amount of time (i.e. 30 days)

So what have you done for me lately-start over next month

Your only as good as your last month-achievements quickly forgotten

Float-how long money takes to come out of account or small bills and change

Tim Hortons Chase Bank-only cash and master card accepted

Two Name Paper-certified check, your name and banks

Solvency-like liquidity
Non-Financial Risk-losing customers

Proxy-permission, looks like or acts like

Profit Margin-how much you can earn from selling goods

Compound Entry-multiple entries

Fire Sale/Distress Sale-failing business, lower value

Bank Debit-decrease bank account

Bank Credit-increase bank account

Consumption Tax-GST,PST,HST

Bouncing Check-insufficient funds so check is not put through

Cash in the Till-cash in the till of a cash register

Reach out and touch somebody-tangible

Periodic/Perpetual Inventory

–periodic-check once a year

–perpetual-checked every time you sell
SAP-software for big business

Fiscal Period-year in which business conducts business

Ratios

current ratio (current assets/current liabilities)-ability to pay its debts

quick ratio (current assets without inventory and prepaid expenses/current liabilities)-ability to
pay debts quickly
debt ratio (liabilities/assets)-how much assets are financed with borrowed money
equity ratio (equity/assets)-how much assets are financed with shareholders money
rate of return on net sales (net income/net sales*100%)-how much remains after expenses are
deducted
rate of return on shareholders equity (net income/owner’s average equity*100%)-how well a
business is doing compared to other businesses
collection period (accounts receivable/average charge sales per day)-how many dales sales are
represented by A/R
inventory turnover (COGS/average merchandise inventory)-number of times a business can buy
an replace its inventory
Adjusting Entries-finalizing accounts

Closing Entries-closes out nominal accounts (temporary)

Subsidiary Ledgers-

Worksheet-not needed but helps with organizing adjusting and closing entries

IFRS-International Financial Reporting Standards

Costco-DNI (do not inventory)