Weygandt, Kieso, Kimmel, Trenholm Accounting Principles Second Canadian Edition "Rapid Review"
VOLUME 1
ASSUMPTIONS AND PRINCIPLES
Assumptions
Principles
Going concern
Monetary unit
Economic entity
Time period
ACCOUNTING CYCLE (Chapter 4)
Cost
Revenue recognition
Matching
full d isdosure
BASIC ACCOUNTING EQUATION (Chapter 2)
Debits
Credits
IT
•'••,;•*',
Debit/Cre*
Bute
ADJUSTING ENTRIES {Chapter 3)
Ty^e
Prepa ymenb 1. Prepaid expenses
2, Unearned revenues
Accruals
] - Accrued revenues
2. Accrued expenses
Estimates
I. Amortization
Adjusting Entrv
Expense account
Asset account
Liabiiity account
Revenue account
Asset account
Revenue account
Expense account
Liability account
Expense account (amortization expense)
Contra asset account {accumulated
amortization)
Opttooal xtcptt S » wort sheet ta prepwed. «epi 4.5. and 6 are ineorporwi in die woric ilw« art adjusting
INVENTORY (Chapters 5 and 6)
Ownership
Freight Terms
Shipping point
Destination
Perpetual vs. Periodic Journal Entries
A;O,'L<: 1. Each adjusting entry will affect one or more income statement
accounts and one or more balance sheet accounts.
2. Adjusting entries never include the Cash account.
Event
Purchase of goods
Interest Calculation
Freight (shipping point)
Interest = Face Value of Note X Annual Interest Rate x Time in Terms of
One Year
Return of purchased goods
Sale of goods
CLOSING ENTRIES (Chapter 4)
Purpose
1.
2.
Update the owner's capita.! account in the ledger by transferring net
income (loss) and owner's drawings to owner's capital.
Prepare the temporary accounts (revenue, expense, drawings) for the
next period's postings by reducing their balances to zero.
Freight Costs Paid / Recorded By
Buyer
Seller
Rerurn of sold goods
Adjustment of inventory to
lower physics! count amount
End of period
Perpetual
Inventory
Cash ( A/P}
Inventory
Cash (A/P)
Cash (A/R)
Inventory
Cash (A/R)
Sales
Cost of goods sold
Inventory
Sales returns and cillovvances
Cash (A/R)
invontorv (or Loss)
Cost oS goods sold
Periodic
PurchasesCash (A/P)
Freight In
Cash (A/P)
Cash (A/R)
Purchase returns
Cash (A/ 10
Sales
No entry
Cost of goods sold
Inventory
No entry
No en try
Sales returns and allowances
Cash (A/R)
No entry
Closing or a d j u s t i n g entry required
Process
1.
2.
3.
Debit each revenue account for its balance (assuming normal balances),
and credit the owner's capital account for total revenues.
Debit the owner's capital account for total expenses, and credit each
expense account for its balance (assuming normal balances).
Debit owner's capital for the balance in the owner's drawings account and
credit owner's drawings for the same amount.
STOP AND CHECK: Does the balance in your Owner's Capital account
equal the ending capital balance reported in the Balance Sheet and
Statement of Owner's Equity? Are all of your temporary account balances
zero?
Inventory Cost Flow Methods
Perpetual
Specific identification
First-in, first-out (FIFO)
Moving average
Last-in, first-out (LIFO)
Periodic
First-in, first-out (FIFO)
"Weighted average
Last-in,, first-out (LIFO)
SUBSIDIARY LEDGERS AND SPECIAL JOURNALS (Chapter 7}
Subsidiary Ledgers
Accounts receivable-customers' ledger
Accounts payable-creditors' ledger
Merchandise inventory-inventory ledger
Special journals
Type
Sales (S)
Cash receipts (CR)
Purchases (P)
Cash payments (CP)
General (J)
Record
all sales on account
Jill c?ish received
all purchases of merchandise on account
all cash paid
all .other transactions, including adjusting, correcting, and dosing entries
Income Statement (perpetual inventory system)
CASH (Chapter 8)
Principles of Internal Control
* Authorization
* Segregation of duties
* Independent verification
1
Name
Income Statement
Period Ended Date
Safeguard of assets and records
Documentation procedures
Bank Reconciliation
Bank
Balance pt;r bonk statement
Add: Deposits in transit
Deduct: Outstanding cheque
Adjusted cash balance
Books
Balance* por books
Add: Unrecorded credit memoraftcia from bauk statement
Deduct: Uimxwded det>if nseniorimda from bynk statement
Adjusted ca^b balance
Note: 1. Errors should be offset (added or deducted) on the side that made
tile error.
2. Adjusting journal entries should only be made for the books side.
STOP AND CHECK: Does the balance in the general ledger cash account
equal the adjusted cash balance?
BAD DEBTS (Chapter 9)
Allowance Method
Event
Record credit sales
Estimate bacl debts
Write-off uncollectible account
Subsequent recovery
Journal Entry
Account receivable
Sales
Bad debts expense
Allowance for doubtful accounts
Allowance for doubtful accounts
Accounts receivable
Accounts receivable
Allowance for doubful accounts
Cash
Accounts receivable
!
Estimating Bad Debts
Result
Method
Balance sheet method (% of total Determines balance in allowance for doubtful
receivables or aging)
accounts
Income statement method
Determines bad debt expense
(% of soles)
CAPITAL ASSETS (Chapter 10)
Tangible
Property, plant, and equipment
NatuiYti resources
Intangible
Intangible resets
Calculation of Annual Amortization Expense
Sirai°ht--iine
Dec lining- bal a nce
Unite'Oi-acbvity
Cost — Residiuil va ue
OflefuTlifeTinyeart)
Nel book value si beginning of year x straight--! =ne rate*
* Strai gru-linc rate = 1 -:- Useful life (in years)
Cost — Residual va
v J : •*f
H 'h.- 1
UseriM lite (in umis{
J
UC
Note: If amortization is calculated for partial periods, the straight-line and
declining-balance methods must be adjusted for the relevant proportion of
the year. Multiply the annual amortization expense by the number of
months expired in the year divided by 12 months.
CURRENT LIABILITIES (Chapter 11)
Types
• Definitely determinable
• Estimable
1
Contingent
REPORTS
Order of Preparation
1 . income statement
2. Statement of owner's equity
3. Balance sheet
4. Cash flow statement
Date
Period (e.g., year, quarter, month) ended date
Period (e.g., year, quarter, month) ended date
As at end of period date
Period (e.g., year, quarter, month) ended date
Sales revenues
Sales
Less: Sales returns and allowances
Net sales
Cost of goods sold
Gross profit
Operating expenses
Selling expenses
(Examples: store salaries, advertising,
freight out)
Administrative expenses
(Examples: rent, amortization, utilities,
insurance)
income from operations
Other revenues and gains
(Examples: interest, gains)
Other expenses and losses
(Examples: interest, losses)
Net income
SX
X
$X
X
X
$X
_Jl
$X
X
X
$X
Income Statement (periodic inventory system)
Name
Income Statement
Period Ended Date
Sales revenues
Sales
Less: Sales returns and allowances
Net sales
Cost of goods sold
Beginning inventory
Purchases
Less: Purchase returns and allowances
Net purchases
Add: Freight in
Cost of goods purchased
Cost of goods available for sale
Less: Ending inventory
Cost of goods sold
Gross profit
Operating expenses
Selling expenses
(Examples: store salaries,
advertising, freight out)
Administrative expenses
(Examples: rent, amortization,
utilities, insurance)
Income from operations
Other revenues and gains
(Examples: interest, gains)
Other expenses and losses
(Examples: interest, losses)
Net income
$X
X
$X
$X
X
X
_X
X
X
X
X
_x
$X
X
$X
_X
Statement of Owner's Equity
Name
Statement of Owner's Equity
Period Ended Date
Owner, capital, beginning of period
Add:
Investments by owner
Net income (or deduct net loss)
USING THE INFORMATION IN THE FINANCIAL STATEMENTS
(Chapters 1-11)
Rntids
$x
JC.
$x
x
~x
_X
$_x.
Deduct: Drawings
Owner, capital, end of period
Balance Sheet
Name
Balance Sheet
As At Date
Assets
Current assets
(Examples: cash, temporary investments, accounts
receivable, merchandise inventory, prepaids)
Long-term investments
{Examples: equity investments, debt investments)
Capital assets
(Examples: property, plant, and equipment,
natural resources, intangible assets)
Less: Accumulated amortization
Total assets
$x
X
SX
X
Liabilities and Owner's Equity
Liabilities
Current liabilities
(Examples: notes payable, accounts payable,
accruals, unearned revenues, current portion
of notes payable)
Long-term liabilities
(Examples: notes payable, bonds payable)
Total liabilities
Owner's Equity
Owner, capital (end of period)
Total liabilities and owner's equity
_x
X
sx
Note:The equity section of the balance sheet would be presented as partners'
equity in a partnership and shareholders' equity, with share capital and
retained earnings separately detailed, in a corporation.
Cash Flow Statement
Name
Cash How Statement
Period Ended Date
Cash flows from operating activities
Note: May be prepared using the direct or indirect method
Cash provided (used) by operating activities
Cash flows from investing activities
(Examples: purchase / sale of long-term assets)
Cash provided (used) by investing activities
Cash flows from financing activities
(Examples: issue / repayment of long-term liabilities,
issue of stock, payment of dividends)
Cash provided (used) by financing activities
Net increase (decrease) in cash
Cash, beginning of period
Cash, end of period
$X
X
X
X
X
$X
STOP AND CHECK:
Statement of Owner's Equity- net income (loss) must equal net income (loss)
presented on Income Statement.
Balance Sheet—ending owner's equity must equal ending owner's equity
presented on Statement of Owner's Equity; total assets must equal total
liabilities and owner's equity.
Cash Flow Statement: Cash, end of period must equal cash presented on the
Balance Sheet
CHAPTER 4
Working capital
Current ratio
CHAPTER 5
Profit margin
Formula
Current assetsCurrent liabilities
Current assets
C'urrcnt liabilities
Net income
Net sales
Gross profit margin
Gross profit
Net sales
Inventory turnover
Cost of goods sold
Average inventory
Days sales in inventory
365 days
Inventory turnover
CHAPTER 9
Acid test (quick ratio)
Cash +
temporary investments
+ receivables (net)
Current liabilities
Receivables turnover
Net credit sate
Average net receivables
365 days
Collection period
Receivables turnover
CHAPTER 10
Net sales
Asset turnover
Average total assets
Net income
Return on assets
Average total assets
Purport: or Us?
Measures short-term debt paying ability
Measures short-term debt paying ability
Measures net income generated by
each dollar of sales
Measures gross profit generated by
each dollar of sales
Measures liquidity of inventory
Measures number of days stock is on
hand
Measures immediate
short-term liquidity
Measures liquidity of receivables
Measures number of days
receivables are outstanding
Measures how efficiently assets are used
to generate sales
Measures overall profitability of assets