tut test 4 prep.docx

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University of Toronto Scarborough
Financial Accounting
Mark Fitzpatrick

Communication Question Topics Classified Balance Sheets (not likely to be the question) GAAPs (likely to be incorporated into the question) Accounting Cycle (fairly likely to be the question) Worksheet Conventions (not likely to be the question) Posting (fairly likely to be the question) Users of Financial Statements (VERY likely to be the question) Classified Balance Sheets - conventions, features and categories - liabilities over a long term can be divided into current and long term liabilities - current – within the upcoming year - working capital ratio: current assets – current liabilities - income statement can also be classified – Revenue (sales) and Revenue (services) GAAPs - WHY they are important - Consistency Principle: prevents the manipulation of figures - Consistency Principle: states that accounting for a business be done with the same procedures every time - Materiality Principle: states that anything of material(importance) must be included in financial statements - Materiality Principle: prevents incorrect figures appearing on financial statements - Full Disclosure Principle: states that all data needed for a complete understanding of a company’s financial position must be included in statements - Full Disclosure Principle: shareholders will be able to completely understand how the business is doing Accounting Cycle 1. Transactions occur; source documents provide information 2. Accounting entries recorded in journal 3. Journal entries posted to the ledger accounts 4. Ledger balanced by means of a trial balance 5. Work sheet prepared 6. Income statement and balance sheet prepared Worksheet Conventions - WHY they are important - Balancing figure - Control accounts – loses transparency - Totals and subtotals Posting 1. Turn to the proper account in the ledger 2. Record the date 3. Record the page number of the journal 4. Record the amount 5. Calculate and enter the new account balance 6. Record the account number to which the posting was made Users of Financial Statements - Managers: they use statements to make key business decisions - Owners: used to evaluate the performance of managers and the business - Creditors: to stay informed about a company’s progress and its ability to meet loans - Shareholders: so they aware of the company’s progress and the law requires corporations to provide
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