Podcast
Questions and Answers
What is the fundamental accounting principle emphasized when it's stated that every time an account changes, another account must change?
What is the fundamental accounting principle emphasized when it's stated that every time an account changes, another account must change?
- The matching principle.
- The principle of revenue recognition.
- The principle of duality. (correct)
- The principle of conservatism.
When analyzing transactions, which of the following is considered an asset?
When analyzing transactions, which of the following is considered an asset?
- Equipment owned by the business. (correct)
- Owner's investment in the business.
- Money owed to suppliers.
- A bank loan received.
In the context of transaction analysis, which of the following best describes a liability?
In the context of transaction analysis, which of the following best describes a liability?
- The owner's personal savings.
- Cash in the company's bank account.
- Money the company owes to its suppliers. (correct)
- The value of equipment owned.
What does the term 'capital' represent in the basic accounting context?
What does the term 'capital' represent in the basic accounting context?
If Rohan invests $100,000 of his own money into his landscaping business, what is the correct effect on the accounting equation?
If Rohan invests $100,000 of his own money into his landscaping business, what is the correct effect on the accounting equation?
Rohan purchases equipment for $75,000 using cash. What is the impact on Rohan's Landscaping Business's assets?
Rohan purchases equipment for $75,000 using cash. What is the impact on Rohan's Landscaping Business's assets?
Rohan buys inventory for $10,000 cash. How does this transaction affect the accounting equation?
Rohan buys inventory for $10,000 cash. How does this transaction affect the accounting equation?
Rohan gets a $150,000 loan from the bank. Which two accounts are affected by this transaction?
Rohan gets a $150,000 loan from the bank. Which two accounts are affected by this transaction?
Rohan uses the $150,000 loan to buy a car for his landscaping business. What is the effect of this transaction?
Rohan uses the $150,000 loan to buy a car for his landscaping business. What is the effect of this transaction?
Rohan pays $1,000 off the bank loan from his bank account. What accounts are affected and how?
Rohan pays $1,000 off the bank loan from his bank account. What accounts are affected and how?
Rohan takes $3,000 of equipment from the business for his personal use. What is the impact?
Rohan takes $3,000 of equipment from the business for his personal use. What is the impact?
Rohan gives the business $3,000 of inventory from home. What’s the impact on the business accounts?
Rohan gives the business $3,000 of inventory from home. What’s the impact on the business accounts?
In the context of accounting, what is the best description of revenue?
In the context of accounting, what is the best description of revenue?
Where are revenue accounts typically located on the transactional analysis sheet?
Where are revenue accounts typically located on the transactional analysis sheet?
Which of the following best describes expenses in accounting?
Which of the following best describes expenses in accounting?
The owner invested $20,000 in cash into the pizza business. What are the effects on the accounting equation?
The owner invested $20,000 in cash into the pizza business. What are the effects on the accounting equation?
The restaurant purchases equipment for $10,000, paying for it in cash. What's the effect on total assets?
The restaurant purchases equipment for $10,000, paying for it in cash. What's the effect on total assets?
An initial inventory of ingredients was purchased for $5,000 on credit from Accounts Payable. What is the impact on the accounting equation?
An initial inventory of ingredients was purchased for $5,000 on credit from Accounts Payable. What is the impact on the accounting equation?
The first month’s rent of $2,000 was paid in cash. Choose the correct effect.
The first month’s rent of $2,000 was paid in cash. Choose the correct effect.
A utilities deposit of $500 was made, reducing the cash balance. Which accounts are affected?
A utilities deposit of $500 was made, reducing the cash balance. Which accounts are affected?
On Monday, the restaurant made $1,200 in cash sales. How does this affect the accounting equation?
On Monday, the restaurant made $1,200 in cash sales. How does this affect the accounting equation?
The owner paid an advertising expense of $2,500 in cash. What is the impact on the accounting equation?
The owner paid an advertising expense of $2,500 in cash. What is the impact on the accounting equation?
Wages for the week totaling $1,500 were paid in cash. Which accounts are affected?
Wages for the week totaling $1,500 were paid in cash. Which accounts are affected?
Utilities expenses for the week added up to $300, which was also paid in cash. What is the journal entry?
Utilities expenses for the week added up to $300, which was also paid in cash. What is the journal entry?
What is the primary function of accounting?
What is the primary function of accounting?
Which activity is a core function within the realm of accounting?
Which activity is a core function within the realm of accounting?
What is the most significant reason for individuals to have a foundational understanding of accounting?
What is the most significant reason for individuals to have a foundational understanding of accounting?
How can understanding accounting principles specifically benefit someone who owns their own business?
How can understanding accounting principles specifically benefit someone who owns their own business?
Which of the following is considered a ‘type of business’ rather than a ‘form of business ownership’?
Which of the following is considered a ‘type of business’ rather than a ‘form of business ownership’?
Which of the following is an example of a merchandising business?
Which of the following is an example of a merchandising business?
A company that creates goods from raw materials is categorized as which type of business?
A company that creates goods from raw materials is categorized as which type of business?
Which characteristic primarily differentiates a non-profit organization from other types of businesses?
Which characteristic primarily differentiates a non-profit organization from other types of businesses?
What legal factor primarily distinguishes a sole proprietorship from a corporation?
What legal factor primarily distinguishes a sole proprietorship from a corporation?
In which form of business ownership do two or more individuals agree to share in the profits or losses of a business?
In which form of business ownership do two or more individuals agree to share in the profits or losses of a business?
How does the legal structure of a corporation primarily differ from that of a partnership or sole proprietorship?
How does the legal structure of a corporation primarily differ from that of a partnership or sole proprietorship?
Which of the following activities falls into the category of routine daily accounting tasks?
Which of the following activities falls into the category of routine daily accounting tasks?
Which task would be categorized as periodic accounting activity rather than a routine daily task?
Which task would be categorized as periodic accounting activity rather than a routine daily task?
If a company is hiring employees, which category of accounting work would this fall under?
If a company is hiring employees, which category of accounting work would this fall under?
Why is it important to understand the accounting cycle?
Why is it important to understand the accounting cycle?
What is the correct order of the first three steps in the accounting cycle?
What is the correct order of the first three steps in the accounting cycle?
What is the purpose of preparing a worksheet in the accounting cycle?
What is the purpose of preparing a worksheet in the accounting cycle?
Which financial statement is typically prepared after the post-closing trial balance?
Which financial statement is typically prepared after the post-closing trial balance?
What primarily differentiates the role of an accounting clerk from that of an accountant?
What primarily differentiates the role of an accounting clerk from that of an accountant?
Which of the following tasks is typically performed by an accounting clerk rather than an accountant?
Which of the following tasks is typically performed by an accounting clerk rather than an accountant?
An accountant is responsible for ensuring all accounting rules (GAAP) are followed, but what does GAAP stand for?
An accountant is responsible for ensuring all accounting rules (GAAP) are followed, but what does GAAP stand for?
Which activity aligns most closely with the responsibilities of an accountant?
Which activity aligns most closely with the responsibilities of an accountant?
What is the most accurate comparison of accounting and bookkeeping?
What is the most accurate comparison of accounting and bookkeeping?
Which career path aligns most closely with expertise in accounting principles and financial analysis?
Which career path aligns most closely with expertise in accounting principles and financial analysis?
How does an understanding of accounting benefit managers within a company?
How does an understanding of accounting benefit managers within a company?
Which of these options best describes a career path that commonly requires a strong accounting background?
Which of these options best describes a career path that commonly requires a strong accounting background?
Which of the following benefits is most directly gained from studying accounting?
Which of the following benefits is most directly gained from studying accounting?
Which of the following is the best reason to study accounting?
Which of the following is the best reason to study accounting?
How can knowledge of accounting principles assist in daily life?
How can knowledge of accounting principles assist in daily life?
What is the primary purpose of preparing a balance sheet?
What is the primary purpose of preparing a balance sheet?
Which element is not a fundamental component of the accounting equation?
Which element is not a fundamental component of the accounting equation?
In the process of calculating financial position, what is the initial step after listing all assets and liabilities?
In the process of calculating financial position, what is the initial step after listing all assets and liabilities?
If a company's assets increased by $50,000 and its liabilities decreased by $20,000 during the year, what impact does this have on the owner's equity?
If a company's assets increased by $50,000 and its liabilities decreased by $20,000 during the year, what impact does this have on the owner's equity?
How would a business determine its equity if its total assets are $200,000 and its total liabilities are $80,000?
How would a business determine its equity if its total assets are $200,000 and its total liabilities are $80,000?
Paul Silva has a bank balance of $856.25, a house and lot worth $185,000, and household furniture valued at $4,800. He also has a bank loan of $5,000 and a mortgage of $90,000 on his house. What is Paul Silva's total assets?
Paul Silva has a bank balance of $856.25, a house and lot worth $185,000, and household furniture valued at $4,800. He also has a bank loan of $5,000 and a mortgage of $90,000 on his house. What is Paul Silva's total assets?
Which accounting principle dictates that the accounting for a business be kept separate from the personal affairs of its owner?
Which accounting principle dictates that the accounting for a business be kept separate from the personal affairs of its owner?
What is the primary implication of the 'Cost Principle' under GAAP?
What is the primary implication of the 'Cost Principle' under GAAP?
What fundamental assumption underlies the 'Continuing Concern Concept' in accounting?
What fundamental assumption underlies the 'Continuing Concern Concept' in accounting?
Under what circumstances would the 'Revaluation Model' be applied?
Under what circumstances would the 'Revaluation Model' be applied?
What is the correct arrangement for preparing a balance sheet?
What is the correct arrangement for preparing a balance sheet?
What are the three parts of the heading of a balance sheet?
What are the three parts of the heading of a balance sheet?
Easy Rent-Alls has cash of $6,750.20, accounts receivable of $6,581.50. What is the total value of their assets?
Easy Rent-Alls has cash of $6,750.20, accounts receivable of $6,581.50. What is the total value of their assets?
Easy Rent-Alls has accounts payable of $3,950.40, mortgage payable of $95,200.00. What is the total value of their liabilities?
Easy Rent-Alls has accounts payable of $3,950.40, mortgage payable of $95,200.00. What is the total value of their liabilities?
According to accounting standards, how do claims of creditors relate to the assets of a business relative to the owner's claim?
According to accounting standards, how do claims of creditors relate to the assets of a business relative to the owner's claim?
Joseph Litz is closing his business. After selling all assets and paying the liquidator, what is the next step with the remaining cash?
Joseph Litz is closing his business. After selling all assets and paying the liquidator, what is the next step with the remaining cash?
What distinguishes current assets from long-term assets on a classified balance sheet?
What distinguishes current assets from long-term assets on a classified balance sheet?
Which of the following is most likely to be classified as a 'long-term asset'?
Which of the following is most likely to be classified as a 'long-term asset'?
What is the primary difference between current and long-term liabilities?
What is the primary difference between current and long-term liabilities?
Which item is classified as a 'current liability'?
Which item is classified as a 'current liability'?
Which item is most likely to be recorded in the Liability section?
Which item is most likely to be recorded in the Liability section?
Which of the following is NOT an intangible asset?
Which of the following is NOT an intangible asset?
Which item is most likely to be recorded in the Asset section?
Which item is most likely to be recorded in the Asset section?
Which of the following is something the business owes?
Which of the following is something the business owes?
Joe has $1636 of cash. He owes Able Supply Company $4740. How do we classify these items?
Joe has $1636 of cash. He owes Able Supply Company $4740. How do we classify these items?
Under GAAP and IFRS, financial statements must have certain requirements. Which one does the balance sheet adhere to?
Under GAAP and IFRS, financial statements must have certain requirements. Which one does the balance sheet adhere to?
The financial position of any business is...
The financial position of any business is...
Company A's assets are $300,000 and liabilities are $100,000. What is the company's equity?
Company A's assets are $300,000 and liabilities are $100,000. What is the company's equity?
Which scenario indicates a financially stronger position for a business, assuming all other factors are constant?
Which scenario indicates a financially stronger position for a business, assuming all other factors are constant?
A company decides to write off an uncollectible account. What effect does this have on the accounting equation?
A company decides to write off an uncollectible account. What effect does this have on the accounting equation?
What is the impact on the accounting equation of purchasing a building with a mortgage?
What is the impact on the accounting equation of purchasing a building with a mortgage?
A balance sheet includes furniture at its original cost. Which accounting principle is being followed?
A balance sheet includes furniture at its original cost. Which accounting principle is being followed?
A company has total assets worth $250,000, total liabilities of $80,000, and retained earnings of $70,000. What is the total contributed capital?
A company has total assets worth $250,000, total liabilities of $80,000, and retained earnings of $70,000. What is the total contributed capital?
At the start of the year, a company has $50,000 in assets and $20,000 in liabilities. During the year, assets increase by $30,000 and owner's equity increases by $10,000. By how much did liabilities change during the year?
At the start of the year, a company has $50,000 in assets and $20,000 in liabilities. During the year, assets increase by $30,000 and owner's equity increases by $10,000. By how much did liabilities change during the year?
If someone loans a friend money, which financial statement recognizes this event?
If someone loans a friend money, which financial statement recognizes this event?
When would something labelled as liabilities be a bad thing for a company?
When would something labelled as liabilities be a bad thing for a company?
From an accounting equation perspective, what occurs as a business purchases equipment using cash?
From an accounting equation perspective, what occurs as a business purchases equipment using cash?
Which type of account is bank loan considered?
Which type of account is bank loan considered?
In the formula Assets = Liabilities + Equity, what is the purpose of ensuring balance?
In the formula Assets = Liabilities + Equity, what is the purpose of ensuring balance?
When preparing financial statements for a service business, what primary accounting principle guides the process to ensure statements are reliable and comparable?
When preparing financial statements for a service business, what primary accounting principle guides the process to ensure statements are reliable and comparable?
Which of the following reflects the definition of 'financial position'?
Which of the following reflects the definition of 'financial position'?
In calculating a company's financial position, what is the correct sequence of steps?
In calculating a company's financial position, what is the correct sequence of steps?
In accounting, what is the effect on the assets if a business secures a loan, according to the accounting equation?
In accounting, what is the effect on the assets if a business secures a loan, according to the accounting equation?
A business has assets totaling $300,000 and liabilities of $120,000. If the assets increase by $50,000 and liabilities decrease by $10,000, what is the resulting owner's equity?
A business has assets totaling $300,000 and liabilities of $120,000. If the assets increase by $50,000 and liabilities decrease by $10,000, what is the resulting owner's equity?
Under which scenario would the 'Revaluation Model' be MOST appropriately applied?
Under which scenario would the 'Revaluation Model' be MOST appropriately applied?
What determines the classification of an asset as either 'current' or 'long-term' on a classified balance sheet?
What determines the classification of an asset as either 'current' or 'long-term' on a classified balance sheet?
Which of the following should be classified as a current asset?
Which of the following should be classified as a current asset?
Which of the following factors distinguishes between current and long-term liabilities?
Which of the following factors distinguishes between current and long-term liabilities?
What is the correct ordering of sections in a traditional classified balance sheet?
What is the correct ordering of sections in a traditional classified balance sheet?
Why do creditors' claims come before the owner's claims when assets are available to be distributed?
Why do creditors' claims come before the owner's claims when assets are available to be distributed?
Paul Silva's balance sheet includes a bank loan and a personal loan he made to Phil Silva, what is the correct classification?
Paul Silva's balance sheet includes a bank loan and a personal loan he made to Phil Silva, what is the correct classification?
Why is it important for a business to adhere to Generally Accepted Accounting Principles (GAAP)?
Why is it important for a business to adhere to Generally Accepted Accounting Principles (GAAP)?
What is the underlying assumption behind the 'Continuing Concern Concept' in accounting?
What is the underlying assumption behind the 'Continuing Concern Concept' in accounting?
What is the primary purpose of classifying assets and liabilities as either current or noncurrent (long-term) on the balance sheet?
What is the primary purpose of classifying assets and liabilities as either current or noncurrent (long-term) on the balance sheet?
Flashcards
What are assets?
What are assets?
Resources a company owns or controls that are expected to provide future economic benefits.
What are liabilities?
What are liabilities?
Obligations of a company to transfer assets or provide services to others in the future.
What is owner's equity?
What is owner's equity?
The owner's stake in the company; total assets less total liabilities.
What is an account?
What is an account?
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What is a transaction?
What is a transaction?
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What is double-entry accounting?
What is double-entry accounting?
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What is revenue?
What is revenue?
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What are expenses?
What are expenses?
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What is accounting?
What is accounting?
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Accounting activities
Accounting activities
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Why study accounting?
Why study accounting?
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Four types of businesses
Four types of businesses
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Categories of accounting work
Categories of accounting work
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Fiscal periods
Fiscal periods
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Accounting cycle
Accounting cycle
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Accounting Clerk's Roles
Accounting Clerk's Roles
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The Accountant's Role
The Accountant's Role
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Sole Proprietorship
Sole Proprietorship
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Partnership
Partnership
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Corporation
Corporation
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Routine Daily Activities
Routine Daily Activities
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Periodic Accounting Activities
Periodic Accounting Activities
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Miscellaneous Activities
Miscellaneous Activities
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Balance Sheet?
Balance Sheet?
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Financial Position
Financial Position
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What is Equity?
What is Equity?
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Accounting Equation?
Accounting Equation?
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Generally Accepted Accounting Principles (GAAP)
Generally Accepted Accounting Principles (GAAP)
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What is Liquidity?
What is Liquidity?
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Long-term Asset
Long-term Asset
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Long-term Liability
Long-term Liability
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Whose claims are settled first?
Whose claims are settled first?
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Continuing Concern Concept
Continuing Concern Concept
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What is The Cost Principle?
What is The Cost Principle?
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What is a Classified Balance Sheet?
What is a Classified Balance Sheet?
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Current Assets
Current Assets
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Current Liabilities
Current Liabilities
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Study Notes
-
The following curriculum expectations are turned into student friendly learning goals:
-
Prepare a trial balance and the financial statements for a service business.
-
Apply the Generally Accepted Accounting Principles (GAAP) at each stage of the accounting cycle for a service business.
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The agenda for this chapter includes:
-
What is financial position
-
How to prepare a balance sheet.
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Claims against the Assets
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Learn basic Accounting Standards
-
How to prepare the balance sheet
Key Vocabulary:
- Accounts payable.
- Accounts receivable.
- Assets.
- Balance sheet.
- GAAP.
- Financial position.
- Accounting equation.
- Liability.
- Liquidity.
- Long-term asset/liability.
- Owner's equity.
- Capital.
- Classified balance sheet.
- Current asset/liability.
- Equity.
Success Criteria
- Understand what is meant by financial position.
- Prepare a simple and classified balance sheet.
- Define account receivable and account payable.
- Rearrange the fundamental accounting equation.
- Explain claims against assets.
- define liquidity.
What is Accounting?
- Accounting is a system of dealing with financial information that provides information for decision-making.
Accounting Activities Include:
- Gathering financial information.
- Preparing and collecting permanent records.
- Rearranging, summarizing, and classifying financial information.
- Preparing information reports and summaries.
- Establishing controls to promote accuracy and honesty among employees.
Why Study Accounting?
- Studying accounting can be very useful for students.
- Accounting on the Job
- Accounting in Daily Life
- Owning Your Own Business
- Accounting as a Profession
- complexity of Business
Types of Businesses
- Most businesses fall within one of four categories:
- Service Business.
- Merchandising Business.
- Manufacturing Business.
- Non-Profit Organization.
Forms of Business Ownership
- The three main forms of business ownership are:
- Sole Proprietorship.
- Partnership.
- Corporation (companies).
Categories of Accounting Work
- Accounting is divided into three categories:
- Routine Daily Activities - Processing bills, preparing cheques, daily banking, recording transactions.
- Periodic Accounting Activities - Payroll cheques, bank reconciliation, prepare financial reports, paying of taxes.
- Miscellaneous Activities - Helping customers, hiring employees, banking matters.
- Accounting activities are performed in relation to equal periods of time known as fiscal periods.
- The accounting cycle can be thought of as the recurring set of accounting procedures carried out during each fiscal period.
- Accounting includes an outer and an inner ring of activities.
Roles in Accounting
- Accounting Clerk (Bookkeeper) jobs include:
- Ensuring that transactions are properly recorded with supporting documents.
- Recording the accounting entries and balancing the books.
- Making payroll calculations and preparing cheques.
- Carrying out all necessary banking transactions.
- Accountant jobs include:
- Developing a strategy to ensure that correct data are entered into the accounting system.
- Ensuring all accounting rules (GAAP) are followed.
- Interpreting financial data.
- Preparing reports based on financial data.
- Participating in managerial decisions.
- Supervising the work of all accounting employees.
Financial Position
- Accounting data use shows the financial position of a person, business or other organization.
- The financial position of a business is the status of the business based on its assets, liabilities, and owner's equity.
Calculating Financial Position
- A 3 step process determines financial position:
- List and total all assets (things owned with dollar value).
- List and total all liabilities (debts).
- Calculate the difference between total assets and total liabilities to find equity.
Formal Definitions
- The reporting Framework IAS provides formal definitions:
- Asset - a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.
- Liability - a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.
- Equity - the residual interest in the assets of the entity after deducting all its liabilities.
The Fundamental Accounting Equation
- The fundamental accounting equation is the basis on which accounting theory is built: Assets = Liabilities + Equity
Balance Sheet
- A balance sheet is a statement showing the financial position of a person, business, or other organization.
- The balance sheet is set up in the form of the fundamental accounting equation: Assets = Liabilities + Owner's Equity
- Assets appear on the left side, while liabilities and owner's equity are on the right side.
Preparing a Balance Sheet
- Preparing a balance sheet involves a series of steps including writing headings, subheadings and entering dollar amounts for each category
- Step 1: put the statement heading on columnar paper including who, what and when
- Step 2: Write the subheading “Assets” at the top of the left-side column, then individual asset accounts.
- Step 3: Write the subheading “Liabilities” at the top of the right-side column, then individual liability accounts.
- Step 4: Beneath the liabilities, write in the subheading “Owner's Equity”
- Step 5: Complete the balance sheet by writing in the final totals
- Step 6: Place the dollar sign is with the first amount in every column and for each total.
- Assets should be listed in order of their liquidity
- Liabilities should be listed in the order in which they are normally paid
Claims Against Assets
- A business lists assets on the left side of the balance sheet
- The right side of the balance sheet shows who is entitled to those assets.
- Creditors and the owner both have claims on the assets
- Creditors have claim because they either provided the funds used to acquire the assets, or they have provided the assets themselves
- Creditor's claims are always settled first
Accounting Standards
- Accountants follow sets of rules or standards
- Standards are available in the CICA Handbook
- The most significant sections of the handbook contain the Generally Accepted Accounting Principles (GAAP)
- In 2006 a process to change Canadian GAAP with the International Financial Reporting Standards was announced
- Over 100 countries currently use IFRS with more joining this globalization trend
Generally Accepted Accounting Principles
- Functional awareness of accounting standards is built through principles in the text
The four concepts
- Business Entity Concept - keeps the accounting for a business separate from the personal affairs of the owner.
- The Cost Principle - requires accountants to record the value of assets at their historical cost price.
- The Continuing Concern Concept - assumes that a business will continue to operate unless it is know that it will not.
- The Revaluation Model - outlines an accounting procedure that allows accountants to change the value of particular assets based on market conditions.
Balance Sheet Formats
The Classified Balance Sheet
- Current Assets - Cash and assets that convert to cash within one year, or assets used up within one year.
- Long-term Assets - Assets lasting longer than one year.
- Current Liabilities - Debts due within one year.
- Long-term Liabilities - Debts that take longer than one year to pay off.
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