ACCT112

Chapter 1

Bookkeeping recording day-to-day transactions; repetitive, routine, no decision-makin

Examples: recording daily cheques in the cash book.
Accounting – is bookkeeping PLUS much more:
Is analyzing, recording, summarizing, reporting, and communicating data.

Accounting helps users make key decisions. It is the language of business.

Users:
Internal: all levels of management; finance department, marketing department, HR
department, production dept.
External: banks, government, investors, union leaders, customers.

Financial Reports/Statements – page 29

Income Statement – measures performance, it’s a report card.
Revenue – earned
Less: Expenses – used up, consumed
= Profit (Earnings, Net Income)
Statement of Owner’s Equity
Beginning Owner’s Capital balance + Owner’s Investment + Profit – Drawings = Ending
Capital balance

Balance sheet – shows economic resource or shows what the company has.

Assets: show what the company OWNS such as: Cash, accounts Receivable, Merchand
Inventory, supplies, Prepaid Insurance, Equipment, Vehicle, and Building, Furniture, Fix

Liabilities: show what the company OWES such as: Accounts Payable, Notes Payable, M
Payable, Salaries Payable, Taxes Payable, and Bank Loan.
Owner’s Equity: shows what the company REALLY HAS. Also called Capital. Owner’s E
Assets less liabilities. In the financial media Owner’s Equity is called: Net Assets. Net W

Accounting Equation: ASSETS = LIABILITIES + EQUITY or Assets – Liabilities = Owner’s E

Assets = Liabilities + Equity [Beg Capital + Investment + (Profit=Revenue – Expe
Drawings]
ACCOUNTING STANDARDS
The accounting profession has developed a set of standards that are generally
accepted and universal. These standards called: Generally Accepted Accounting
Principles (GAAP) indicate how to report economic events. GAAP is either IFRS
or ASPE.

The Accounting Standards Board (AcSB) appointed by the Canadian Institute of

Chartered Accountants (CICA) is Canada’s standard setting body. AcSB’s most
important criteria in setting standards should lead to external users having the
most useful information possible when they are making business decisions.

IFRS – International Financial Reporting Standards must be followed by Canadian

public companies, securities brokers and dealers, banks, credit unions whose role
is to hold assets for the public as part of their primary business.

ASPE – Accounting Standards for Private Enterprise is used by Canadian private

companies.

1. Economic entity assumption – means an economic activity can by identified

with a particular company, division or individual

2. Control – IFRS having power over an investee ASPE continuing power to make
strategic decisions and demonstrably distinct

3. Revenue recognition and realization principles ASPE Risks and rewards have
passed or the earnings process is substantial complete, revenue is Collectable
(realized or realizable), revenue is measurable. IFRS 5 step approach.
Performance is achieved

4. Matching principle – expenses are matched with revenue they produce in the
same accounting period.

5. Periodicity assumption – economic activities of an entity can be divided into

artificial time periods i.e. month, quarter and year
6. Monetary unit assumption – money is the common unit of measure of
economic transactions i.e. Canadian dollar

7. Going concern assumption – assumption that the business will continue into
the future in the foreseeable future

8. Historical cost principle – transactions are recorded at the amount of cash

paid

9. Fair value principle and value in use – the price that would be received to sell
an asset or paid to transfer a liability between market participants

10. Full disclosure principle – provide information that is important enough to

influence an informed user’s judgement and decisions

Fundamental qualitative characteristics of Accounting

1. Relevance – information that makes a difference in a decision, has

predictive and feedback value
-materiality includes all material information (i.e. information that
makes a difference to the decision maker)

2. Representational faithfulness – economic substance over legal form

-transparency – represents economic reality
-completeness – includes all pertinent information
-neutrality – does not favour one party over another party
-freedom from error

Enhancing qualitative Characteristics

1. Comparability – information is measured and reported in a similar
way (company to company and year to year)
2. Verifiability – knowledgeable, independent users achieve similar
results
3. Timeliness
4. Understandability – allows user with reasonable knowledge to
understand the information
Brief Exercise 1-1 page 1-38 Groups
A list of kinds of decisions
1. Decide whether the company pays for salaries
2. Decide whether the company can pay its
obligations
3. Decide whether a marketing proposal will be cost-
effective
4. Decide whether a company's profit will permit an
increase in drawings
5. Decide how the company should finance its
operations
Kind of
User Decision
Owner
Marketing manager
Creditor
Chief Financial Officer
Internal or
External User
Exercise 1-4 page 1-42

1. Relevance
2. Faithful representation
3. Comparability
4. Verifiability
5. Neutrality
6. Understandability

a. ______________________________

b. ______________________________

c. ______________________________

d. _____________________________

e. ______________________________

f. ______________________________
Together with the class

a. An economic event is reported so it represents

what actually happened
b. Users find the information in the financial
statements helps them make decisions
c. The accounting information shows the profit of a
business without consideration of what the owner
may want to report
d. Financial statements make sense to business
people
e. Henry is able to confirm the information
presented in the financial statements
f. Tres Chic Boutique uses the same accounting
methods as other similar businesses
Brief Exercise 1-6 page 1-39

1. Historical cost
2. Revenue recognition
3. Going concern assumption
4. Reporting entity concept
5. Monetary unit concept

a. ______________________________

b. ______________________________

c. ______________________________
d. ______________________________

e. ______________________________
Groups

a. Transactions are recorded in terms of units of

money
b. Transactions are recorded based on the actual
amount of money received or paid
c. Indicates that personal and business record
keeping be kept separate
d. Performance obligation has been satisfied
e. Businesses are expected to continue to operate
indefitnitely
Problem 1-4A page 1-47 and 1-48

a.Identify whether the items are an asset A, liability L, capital C, drawings D,

revenue R or expense E

b. Identify which financial statement account is in: income statement IS,

statement of owners' equity OE or balance sheet BS
c. caculate the profit or loss
a. b.
1 A/P
2 A/R
3 Cash
4 Consulting revenue
5 Equipment
6 Intetest expense
7 Rent expense
8 S.Parker, capital Jan 1st
9 S. Parker, drawings
10 Salary expense
11 Utilities expense

c.
L, capital C, drawings D,

ncome statement IS,

810
900
3,500
15,730
5,700
790
4,800
6,600
3,900
3,200
350
BE1-8 page 1-40
Determine the missing amounts

Assets =Liabilities +Owners Equity

75,000 24000
150000 91000
89000 52000

BE1-9
Determine the missing amounts

Assets =Liabilities +Owners Equity

120000 232000
190000 91000
800000 400000
BE1-15 page 1-41

2019 2020 2021

J. Kerkan, capital, Jan 1st 0 68000
Investment in the year 50000 0 20000
Profit/(loss) for the year 25000 17000
Drawings in the year 33000 12000
J. Kerkan, capital, Dec 31st 68000 65000
BE1-12 page 1-40

a. Purchased $250 of supplies on account

b. Performed $500 of services on account
c. Paid $300 of operating expenses

d. Paid $250 cash on account for the supplies purchased in items (a) above
e. Invested $1,000 cash in the business
f. Owner withdrew $400 cash
g. Hired an employee to start working the following month

h. Received $500 from a customer who had been billed previously in item (b)
i. Purchased $450 of equipment in exchange for a note payable

Owner's Equity
Trans Assets Liabilities Capital Drawings
a.
b.
c.
d.
e.
f.
g.
h.
i.
hased in items (a) above

g month

billed previously in item (b) above

note payable

Revenue Expenses
Exerciese 1 -12 page 1-45

Beg. Balances Cash $12,000, A/R $18,000, A/P $4,000 and Capital $26,000

1. Purchased equipment for $23,000. Paid $3,000 cash and signed note for balance
2. Received $12,000 from customers for contracts billed in February
3. Paid $3,000 for March rent of office space
4. Paid $2,500 of the amount owing to suppliers at the beginning of March
5. Provided software services to Kwon Corporation Company for $7,000 cash
6. Paid BC Hydro $1,000 for energy used in March
7. G. Brister withdrew $5,000 cash from the business
8. Paid Digital Equipment $2,100 on account of the note payable issued fro the equip. p
trans 1. Of this $100 was for interest expense
9. Hired an employee to start working in April
10. Incurred advertising expense on account for March, $1,500

Trans Assets =Liabilities +Owner's Equity

Accounts Notes +G.Brister,

Cash Receivable Equip. A/P Payable Capital
Bal
1
2
3
4
5
6
7
8
 9
10
Total
pital $26,000

gned note for balance

ebruary

ning of March
for $7,000 cash

able issued fro the equip. purchased in

00

wner's Equity

-G.Brister,
Drawings +Revenue -Expenses
Problem 1-9A

Pavlov Home Renovations

December 31, 2021

A/P 7,850 Operating expenses

A/R 10,080 Prepaid insurance
Cash 8,250 Salaries expense
Equipment 29,400 Service revenue
Insurance expense 3,375 Supplies
Interest expense 1,195 Supplies expense
J.Pavlov, drawings 44,800 Unearned revenue
Notes payable 30,800 Vehicles

Prepare an Income Statement, Statement of Owner's Equity and

Balance Sheet
 3,545
1,685
88,230
153,750
595
20,095
15,000
42,000
Problem 1-9B page 1-55

Johansen Designs
December 31, 2021

A/P 6,590 Prepaid insurance

A/R 6,745 Rent expense
Cash 11,895 Salaries expense
Equipment 9,850 Service revenue
Furntiture 15,750 Supplies
Insurance expense 1,800 Supplies expense
Interest expense 350 Telephone expense
J.Johansen, drawings 40,000 Unearned revenue
Notes payable 7,000 Utilities expense

Prepare an Income Statement, Statement of Owner's Equity and

Balance Sheet
 600
18,000
70,300
132,900
675
3225
3,000
2,500
2,400

Equity and
Problem 1-8A page 1-49

Sept 4 Collected $800 of A/R

5 Provided services of $10,500 of which $7,700 was collected and the remainder on acc
7 Paid $2,900 on A/P
12 Purchased equipment for $2,300, paying $800 cash and balance on account
15 Paid salaries $2,800, rent for Sept $1,900 and advertising expenses $275
18 Collected the balance of the account receivable from August 31
20 Withdrew $1,000 for personal use
26 Borrowed $3,000 from the Bank on a note payable
28 Signed a contract to provide medical services for $5,700
29 Received the telephone bill for Sept $325
30 Billed the government $10,000 for services provided to patients in September

TransAssets =Liabilities +Owner's Equity

-I.
Notes Jach,
Payabl +I. Jach, Drawi
Cash A/R Supplies Equip. A/P e Capital ngs
Bal 3000 1500 600 7500 5500 3000 4100
4
5
7
12
15
15
15
18
20
26
29
 30
Total
and the remainder on account

ance on account
xpenses $275
st 31

tients in September

+Revenue -Expenses
Exercise 1-9 page 1-44

1. Land with a cost of $415,000 was recorded at is fair value of $465,000

2. A lease agreement to rent equipment starting next year was signed. The rent
Is $500 per month and the lease is for two years. Payments are due at the start
of each month. Nothing was recorded when the lease was signed.
3. James paid the rent for an apartment for the owners' personal use and
charged it to Rent Expense

4. James prepaid for a one-year insurance policy for $1,200. The amount was
charged to Insurance Expense
5. James included a note in it financial statements stating the company is a going
concern
6. James included a note in it financial statements stating the company is
following ASPE
Correct or not and why. If incorrect what should have been done?

6
65,000

ned. The rent

e at the start

use and

mount was

pany is a going

pany is