COMM 111 Study Guide - Midterm Guide: John Forzani, Fgl Sports, Financial Accounting

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20 Nov 2012
Department
Course
Professor
Financial Accounting Midterm Exam Review
Chapter 1
Financial accounting the language of business: ‘the process of identifying
measuring, and communicating economic information’
GAAP generally accepted accounting principles used for companies, private
corporations, governments etc
CICA Canadian institute of chartered accountants
CGAAC certified general accountants association of Canada
SMAC society of management accountants of Canada
IFRS international financial reporting statements, is a principals based system
AcSB accounting standards board, makes rules
AcSOC accounting standards oversight committee, oversees and provides insight
to the deliberations of the AcSB
PSAB public sector accounting board, sets standards for public sector
IASB international accounting standards board
PAEs, publicly accountable enterprises corporations that have issued or plan to
issue shares or debt in public markets, required to follow IFRS standards
PEs, private enterprises do not need to follow IFRS but do need to follow
standards developed by AcSB
ASPE accounting standards for private enterprises, standards developed by AcSB
for PEs
Underlying assumptions in accounting:
Entity assumption (Forzani Group Ltd. Is one entity and John Forzani is a separate
entity; the companies cash, computers, and equipment belong to the company, not
to John Forzani)
Going concern assumption (the company is not wrapping up tomorrow)
Cost assumption (reporting things at initial costs)
Stable monetary unit assumption (the dollar is somewhat stable)
Financial statements business documents companies use to report results of
activities to various user groups
People make decisions -> business transactions occur -> businesses report results
-taxes authorities require accounting data
Proprietorship
Partnership
Corporation
Owner(s)
Proprietor one owner
Partners two or
more owners
Shareholders
generally many
owners
Life of Entity
Limited by owner’s choice or
death
Limited by owner’s
choice or death
Indefinite
Personal liability
of owner(s) for
business debts
Proprietor is personally liable
Partners are usually
personally liable
Shareholders are not
personally liable
Accounting
status
Accounting entity is separate
from proprietor
Accounting entity is
separate from
partners
Accounting entity is
separate from
shareholders
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Accounting equation
Assets = liabilities + shareholder’s equity
Assets economic resources of a business
Liabilities debts payable to creditors
Owner’s equity – the insider claims of a business; the owner’s interest in the assets
of a corporation
Accounts receivable the money due from customers that pay by credit
Inventory raw materials
Capital/fixed/plant assets property, plant and equipment
Accounts payable liability for goods and services purchased on credit
Owners equity = contributed capital + retained earnings
So assets = liabilities + contributed capital + retained earnings
Contributed capital amount shareholders have invested (common shares)
Revenues inflows of resources that increase retained earnings
Expenses decreases in retained earnings from operations
Dividends distributions to shareholders of assets (do not go under expenses!!)
Revenues expense = net income
Net income dividends = ending balance of retained earnings
Current Liabilities debts payable within one year or one normal operating cycle
Long term liabilities liabilities due beyond one year after balance sheet date
Audits performed by independent accountants to ensure that financial statements
are correct and relevant with faithful representation
Chapter 2
Transaction any event that has a financial impact on a business and can be
measured. Has two sides (give and receive) and needs a dollar amount
Account record of all the changes in a particular asset, liability or shareholder’s
equity during a period
ASSETS
Cash & cash equivalents
Accounts receivable when a company sells goods and receives a promise for
future collection of cash
Notes receivable similar to accounts receivable but more binding cause the
customer signs the notes and an interest rate is specified
income
statement
statement
of retained
earnings
statement
of financial
position
statement
of cash
flows
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Inventory the products the company sells to customers
Prepaid expenses such as prepaid rent, insurance, office supplies. These are
assets because they provide future benefit to business
Land land used in operations
Building
Equipment, furniture and fixtures
LIABILITIES
Accounts payable opposite of accounts receivable
Notes payable opposite of notes receivable
Accrued liabilities liability for an expense you have not yet paid I.e. interest
payable, salary payable, income taxes payable
SHAREHOLDER’S EQUITY
Contributed capital (common shares or share capital) owner’s investment in
the corporation; a corporation receives cash and issues common shares to
investor
Retained earnings shows the cumulative net income earned by the
corporation over its lifetime, minus its cumulative net losses and dividends
Dividends are optional; after profitable operations, board of directors may
or may not declare and pay a cash dividend to shareholders
Note: paying a dividend decreases cash and retained earnings
Tara Inc.
Income Statement
For the month ended April 30, 2011
Revenue
Service Revenue ($7000 + $3000)………………………………$10 000
Expenses
Salary………………………………………………………$1200
Rent…………………………………………………………..1100
Utilities………………………………………………………400
Total Expenses……………………………………………………………2700
Net Income……………………………………………………………………….$ 7300
Tara Inc.
Statement of Retained Earnings
For the month ended April 30, 2011
Retained earnings, April 1, 2011……………………………………..$0
Add: Net Income for the month…………………………………………7300
7300
Less: Dividends……………………………………………………………….(2100)
Retained earnings, April 30, 2011…………………………………….$ 5200
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