BAT4M - Review Period

Minds On

• In this clip from Storage Wars, what accounting principles does Darrell violate?
• What about in this clip?

Reminder

There is an in-class assignment on next Monday about the Accounting Cycle and Financial Statements.

Review Exercises

Accounting Cycle

• Instructions
• Worksheets
• Solutions (don't peek)

Financial Statements

• Trial Balance and Blank Spreadsheets (for Income Statement and Balance Sheet)
• Solutions (don't peek)

BAT4M - Accounting Principles from Chapters 1 & 2

Next Assessment of Learning

• Date: In class on Monday February 24th
• Topic: Some variation of the accounting cycle and financial statements

Last Class

We worked on Income Statements and Balance Sheets for R. Brown accounting. Here are the solutions. I want to stress that checking your work after you do the practice activities is an important part of self-evaluation and preparing for tests and assignments.

Accounting Concepts

• Textbook Pages: 52-56
• Canada hass followed International Financial Reporting Standards since July 2011
• Last year, you studied key concepts and principles for Canadian accountants. Four significant concepts that you should know and be able to explain in your own words are:
  1. The Business Entity Concept
  2. Going Concern Assumption
  3. Time Period Concept
  4. Monetary Unit Assumption

Accounting Principles

• Textbook: Look up each principle in the index at the back of the text.
• Generally Accepted Accounting Principles (GAAP) are the general guidelines (rules) for recording accounting transactions and the preparation of financial statements.
• Essential accounting principles that you should be able to understand and apply to case studies:
  1. Principle of Conservatism
  2. Objectivity Principle
  3. Revenue Recognition Convention
  4. Expense Recognition Convention
  5. Matching Principle
  6. Cost Principle
  7. Consistency Principle
  8. Materiality Principle
  9. Full Disclosure Principle.

Case Studies

What accounting concept or principle(s) is involved and what is the correct way to handle the situation?

1. A company purchases machinery for $10,000 but an employee thinks that it's worth more and lists the asset for $15,000 on the books. Cost Principle, Conservatism, Objectivity
2. Jacobs Ltd. buys a car but owner Brad Jacobs only uses it for his personal use. Business Entity
3. A company files its 2012 financial statements using the straight-line depreciation method but decides to switch to the declining-balance method for 2013. Consistency
4. Jennifer Jones receives $20,000 in services on February 15th on account. Jones pays the account balance March 12th so the accountant records the sales in the March income statement Revenue Recognition Principle, Time Period Concept
5. After a storm, a warehouse is flooded. It seems like about half of the merchandise has been ruined so that's what the accountant writes off the books. Objectivity, Conservatism, Cost Principle
6. The depreciation of a $50 lamp, with an estimated useful life of twenty years, is included in the income statement for every month. Materiality
7. A Canadian mining company has a gold mine in a another country that is a key source of income. However, after a change in government, that country may make foreign ownership of the mine illegal. Nevertheless, nothing is mentioned in the financial statements. Going Concern, Full Disclosure, Materiality
8. Chum Lee works at the Gold and Silver Pawn shop, where $25,000 in sales occurred in January. The sales were included in January's statements but since Chum Lee had asked Rick for an advance, his pay was added to December's salary expense account. Matching Principle, Expense Recognition
9. A company with $250,000 in assets realizes that they forgot to list a $50,000 debt repayment on the statements for the previous quarter. They decide to list it in the statements when the error is discovered. Materiality
10. An accounting firm reaches an agreement with a corporate client on February 20th to provide $200,000 in services per year for five years, starting in 2014. They record $200,000 in sales on the Income Statement for 2013. Revenue Recognition, Time Period 

BAT4M: Financial Statements Review

HST Payable/Recoverable

This information is not in the textbook. Please be aware of this change in Ontario accounting procedures.

• The Harmonized Sales Tax (HST) is a value added tax that took effect in Ontario in July 2010 replacing the federal Goods and Services Tax (GST) and the Provincial Sales Tax (PST).
• Businesses charge and collect HST on sales of goods and services. They also pay HST when they purchase goods and services needed to operate their business. Each month, businesses remit the difference between the HST collected (payable) and the HST paid (recoverable) to the government.
• A business has two accounts to record HST transactions: (1) HST Recoverable. This is a contra-liability account where businesses record the HST they paid. This will be deducted from the HST Payable at the time the business makes a remittance to the government. (2) HST Payable. This is a current liability account where the business records the HST it has charged its customers. This is a liability because the business owes the HST collected to the government.
• H.S.T. in Ontario is 13%. Read problems carefully to determine if the 13% was included in the amount listed or not.

Last Class

• Last class, we reviewed the Accounting Cycle.
• Terms to know: Source Documents, General Journal and General Ledger
• We looked at the General Journal entries and did the practice exercise for Ken's Barber Shop (Solutions - students are at different stages of the activity - don't look at the solutions until you have finished).
• This information can be found in the textbook on pages 98 to 109.

Today's Class

• We will review balance sheets and income statements.
• This information can be found in the textbook on pages 62 to 65.
• Terms to know: Current Assets and Current Liabilities, Fixed Assets and Long-Term Liabilities, Revenue, Expenses, Contra-Asset and Contra-Liability accounts.
• Exercise: Based on the Trial Balance for R. Brown Accounting, create an Income Statement and a Balance Sheet in M.S. Excel.

Additional Resources

Balance Sheet

Income Statement