WEEK 1 – 3
Reconciling Items per Bank:
1. Deposits in transit (+)
Deposits in transits at beginning of period + Deposits recorded in company’s
books this period – deposits recorded on this period’s bank statement = Deposits
in transit at end of period
2. Outstanding cheques (–)
Outstanding cheques at beginning of period + Cheques recorded in company’s
books this period – Cheques recorded on this period’s bank statement =
Outstanding cheques at end of period
3. Bank Errors (+/)
Reconciling Items per Books:
1. Credit memoranda and other deposits (+)
2. Debit memoranda and other payments (–)
3. Book Errors (+/)
1. Prepaid Expenses
2. Unearned Revenue
1. Accrued Revenues
2. Accrued Expenses
Journal Entries for HST
CR. HST Payable
DR. HST Recoverable
CR. Liability Remitting the HST:
DR. HST Payable
CR. HST Recoverable
Journal Entries for Payroll
DR. Salaries Expense
CR. CPP Payable
CR. EI Payable
CR. Income Tax Payable
CR. Salaries Payable
Recording Employer’s Expense and Liability:
DR. Employee Benefits Expense
CR. CPP Payable
CR. EI Payable
Recording Payment of Salaries:
DR. Salaries Payable
Preface to the CICA Handbook – Accounting
Part I – International Financial Reporting Standards
Part II – Accounting Standards for Private Enterprises
Part III – Accounting Standards for NotforProfit Organizations
Part IV – Accounting Standards for Pension Plans
Part V – prechangeover accounting standards
Options for Different Enterprises
• Publicly accountable enterprises, other than pension plans and other entities
within the scope of Part IV of the Handbook (see paragraph 8), apply the
International Financial Reporting Standards (IFRS) in Part I of the Handbook.
• Private enterprises apply either accounting standards for private enterprises in Part
II of the Handbook or the IFRS in Part I of the Handbook.
• Not‐for‐profit organizations apply either accounting standards for not‐for‐profit
organizations in Part III of the Handbook or the IFRS in Part I of the Handbook.
• Pension plans, and benefit plans that have characteristics similar to pension plans
and provide benefits other than pensions, apply accounting standards for pension
plans in Part IV of the Handbook. They do not apply IAS 26 Accounting and
Reporting by Retirement Benefit Plans, included in Part I of the Handbook.
• When an entity can choose the standards in more than one Part of the Handbook
as selected unless that Part specifies otherwise. Information Asymmetry
Adverse selection: a type of information asymmetry whereby one party to a
contract has an information advantage over another party
– Buying a used car
– One party’s actions that are not available to the other
Moral hazard: A type of information asymmetry whereby one part to a contract
observe some actions relating to the fulfilment of contractual terms by the other
– Buying insurance for the car
– Hidden actions that will happen in the future
Demand and Supply For Accounting Information
Demand – people making decisions under uncertainty demand information to
alleviate that uncertainty
Supply Management of companies, prepare and communicate
Conceptual Framework for Financial Reporting
Think of the Conceptual Framework as a strategic plan that identifies demands of users
and how to supply product that meets those demands.
DEMAND for information: who are the users, what are their information needs and what
are the desirable characteristics of the information (qualitative characteristics)
Supply for information What to recognize (the elements), how to measure, when to
recognize assumptions and constraints.
IFRS Conceptual Framework
Why have a Conceptual Framework?
Guides implementation and evaluation of more specific accounting standards
– “Assist preparers of financial statements in applying IFRSs and in dealing
with topics that have yet to form the subject of an IFRS”
From a student perspective: Helps you to understand ‘why’ existing standards are
what they are.
ASPE Conceptual Framework
Very similar to IFRS
Accounting standards board plans to converge with IFRS
This course will focus on the conceptual framework under IFRS
Objective of Financial Reporting
Focus is on existing and potential investors, lenders and other creditors rather than
management’s information needs. Why?
“General purpose financial reports are not designed to show the value of a
reporting entity; but they provide information to help [users] estimate the value of
the reporting entity.” Why is this the case? WEEK 6
Relevance: Info that makes a difference in a decision
• Predictive: Helps users make informed predictions about future events. (Example:
Will the company generate sufficient cash flow to pay its current liabilities)
• Feedback/Confirmatory: Users can confirm or dispel previous predictions.
(Example: Confirm that the company was able to generate sufficient cash flows to
pay is current liabilities)
• Materiality: the items impact the company’s financial statements would not
change a user’s decision.
Representational Faithfulness: Info reflects economic substance (faithfully represents)
of the transaction. (Reflects the true nature of events)
• Complete: all information necessary to record events and transactions have been
included. (Example: Liabilities that can be estimated are included on the financial
• Neutrality: info is factual, truthful, without bias. Info cannot be selected to favor
one user over the other. (Example: liabilities are not materially overstated)
• Free from Material Error: there are no errors or emissions in the description of the
phenomenon and the process used to produce the reported info has been selected
and applies with no errors in the process. (Doesn’t mean perfectly accurate.
*To meet the objective of financial reporting must have both “relevant and
Enhancing Quantitative Characteristics:
Comparability: Info is presented in the same way from year to year from company to
Verifiability: An independent user would record the transaction the same way.
(Example: an auditor recalculated depreciation and achieved the same as management)
Timeliness: Information should be available to users before it loses its ability to
influence their decisions.
Understandability: Classifying characterizing and presenting information clearly and
concisely. Assume that need to have a reasonable knowledge of the business in financial
• Users incur costs to interpret and analyze • Cost Benefit: info has a cost and the cost must outweigh the benefits enjoyed by
users of the information
*Not always possible to have enhancing characteristics*
Substance vs. Form
• When preparing a journal entry for a transaction, consider the following:
• Does the entry provide predictive and confirmatory values?
• Does the entry accurately reflect the transaction?
• What motivated recording the transaction in a specific way?
• How would an independent person record the entry?
• Have all disclosures been made?
Historical Cost vs. Fair Market Value
Recoverable historical cost
Amount of cash that was paid or received or the fair value that was ascribed to the
transaction when it took place
Issues in measuring cost?
– Laiddown cost – any cost that is incurred to get the asset ready
– Manufactured inventories
– Selfconstructed assets
Fair market value
The price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date
Issues in measuring fair value?
– Lack of active markets (ABCP)
– Reliability (appraisals)
Elements of Financial Statements:
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.
Liabilities: a present obligation of the entity arising from past events, the settlement of
which is expected to result in the outflow from the entity of resources embodying
Equity: equity is the residual interest in the assets of the entity after deducting all its
Income: increases in economic benefits during the accounting period in the form of
inflows or enhancements of assets or decreases of liabilities that results in increases in
equity other than those relating to contributions form equity participants. Expenses: decrease in economic benefits during the accounting period in the form of
outflows or depletions of assets or incurrences of liabilities that result in decreases in
equity, other than those relating to distributions to equity participants.
*Income and expenses are defined in terms o assets and liabilities*
Criteria for Classifying Transactions/Activities as Elements (or not)
Recognition: An item that meets the definition of an element should be recognized if:
1. It’s probable that any future economic benefit associated with the item will flow
to or from the entity.
2. The item has a cost/value that can be measured with reliability”
• Different ways to measure with reliability
o Historical Cost
o Current Cost
o Realizable (settlement) Value
o Present Value
Recognizing Elements (Further Defined):
Assets: recognized in the balance sheet when it is probable that the future economic
benefit will flow to the entity and the asset has cost or value that can be measured
2. Past Event
3. Future Economic Benefit
Liabilities: Recognized in the balance sheet when it’s probable that an outf