Principles of Financial Accounting: Rapid Review

Rapid Review Pt 1-3.
indd Page EP-1 05/05/14 2:31 PM user1
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PRINCIPLES OF FINANCIAL ACCOUNTING: RAPID REVIEW

Weygandt, Kieso, Kimmel, Trenholm, Kinnear, Barlow, and Atkins: Canadian Edition: Chapters 1-17 and Appendix B
Calculations
Depreciation = Cost Useful life (in years) Time (Number of months 12)
Interest = Face value Annual interest rate Time (Number of months 12)
FORMS OF BUSINESS ORGANIZATION (CHAPTER 1)

Proprietorship
Partnership
Corporation
Owners
Proprietor: one
Owners liability
Private or public
Taxation of profits
Unlimited
Private
Paid by the
owner
Limited
Owners equity
Partners:
two or more
Unlimited
Usually private
Paid by the
partners
Limited
Partners equity
Owners capital
Partners capital
Shareholders:
one or more
Limited
Private or public
Paid by the
corporation
Indefinite
Shareholders
equity
Share capital
Owners capital
Drawings
Partners capital
Drawings
Retained earnings
Dividends
Owners capital
Partners capital
Retained earnings
Statement of
Owners Equity
Statement of
Partners Equity
Not allowed
Not allowed
Statement of
Retained Earnings
(ASPE) Statement
of Shareholders
Equity(IFRS)
Not allowed
under ASPE
Required under
IFRS
Life of organization
Equity section
called
Investments by
owners added to
Profits added to
Withdrawals by/
distributions to
owners called
Withdrawals/
dividends
deducted from
Name of statement
Statement of
Comprehensive
Income
ACCOUNTING EQUATION WITH DEBIT/CREDIT RULES (CHAPTER 2)

Assets
5 Liabilities +
Assets
Dr.
+
Cr.
Liabilities
Dr.
Owners Equity
Owners
Capital
Drawings + Revenues
Expenses
Dr.
Dr.
+
Dr.
+
Cr.
+
Cr.
+
Cr.
Dr.
Cr.
+
Cr.
Accruals
TEMPORARY
These accounts are closed.
PERMANENT
These accounts are not closed.
All revenue accounts
All asset accounts
All expense accounts
All liability accounts
Owners drawings account
Owners capital account
Purpose
1. Update the owners capital account by transferring profit (loss) and drawings to the account.
2. Prepare the temporary accounts (revenue, expense, drawings) for the
next periods postings by reducing their balances to zero.
Process
1. To close revenue accounts: Debit each individual revenue account for
its balance and credit Income Summary for total revenues.
2. To close expense accounts: Debit Income Summary for total expenses
and credit each individual expense account for its balance.
3. To close income summary: Debit Income Summary for the balance in
the account (or credit if a loss) and credit (debit) the owners capital
account for the same amount.
4. To close drawings: Debit the owners capital account for the balance in
the Drawings account and credit Drawings for the same amount.
STOP AND CHECK: Is the balance in the Income Summary account, before
transfer to the owners capital account, equal to the profit (loss) reported in the income statement? Does the balance in the owners capital
account equal the ending balance reported in the balance sheet and
statement of owners equity? Are all of the temporary account balances
zero?
ACCOUNTING CYCLE (CHAPTERS 2-4)

1
Analyze business transactions (Chapter 2)
ADJUSTING ENTRIES (CHAPTER 3)

Prepayments
CLOSING ENTRIES (CHAPTER 4)
Type
Original Entry
Adjusting Entry
1. Prepaid
expenses
Dr. Asset account

Cr. Cash or liability
account
Dr. Expense account

Cr. Asset account
2. Unearned
revenues
Dr. Cash
Cr. Liability account
Dr. Liability account

Cr. Revenue account
1. Accrued
revenues
No entry
Dr. Asset account

Cr. Revenue account
2. Accrued
expenses
No entry
Dr. Expense account

Cr. Liability account
Note: 1. Each adjusting entry affects one income statement account and
one balance sheet account.
2. Adjusting entries never include the Cash account.
9
Prepare a post-closing trial balance (Chapter 4)
8
Journalize and post closing entries (Chapter 4)
7
Prepare financial statements: income
statement/statement of owners equity/
balance sheet (Chapter 3)
6
Prepare an adjusted trial balance (Chapter 3)
2
Journalize the transactions (Chapter 2)
3
Post to ledger accounts (Chapter 2)
4
Prepare a trial balance (Chapter 2)
5
Journalize and post adjusting entries:
prepayments/accruals (Chapter 3)
Optional steps: 1. Prepare a work sheet. 2. Prepare reversing entries
Rapid Review Pt 1-3.indd Page EP-2 05/05/14 2:31 PM user1
Note: Alternative presentation formats are possible under international

financial reporting standards, which may report noncurrent items
before current items and list items within each category in order
of reverse liquidity.
FINANCIAL STATEMENTS (CHAPTERS 1-5)

Order of Preparation
1. Income statement
2. Statement of owners equity
3. Balance sheet
Date
Period ended
Period ended
End of the period
INVENTORY (CHAPTERS 5 AND 6)
Income Statement (perpetual inventory system)

NAME OF COMPANY
Income Statement
Month Ended April 30, 2014
Sales revenues
Sales
Less: Sales returns, allowances, and discounts
Net sales
Cost of goods sold
Gross profit
Operating expenses
(Examples: salaries, advertising, freight out,
depreciation, amortization, utilities, insurance)
Profit from operations
Other revenues
(Example: interest)
Other expenses
(Example: interest)
Profit (loss)
X
X
Perpetual
Purchase of goods
Periodic
Dr. Merchandise Inventory

Cr. Cash or A/P
Dr. Purchases
Cr. Cash or A/P
Freight on
purchases (shipping
Cr. Cash or A/P
point)
Dr. Freight In
Cr. Cash or A/P
Return of
purchased goods
Dr. Cash or A/P

Cr. Merchandise Inventory
Dr. Cash or A/P

Cr. Purchase Returns
and Allowances
Payment on
account with a
discount
Dr. Accounts Payable

Cr. Cash
Dr. Accounts Payable

Cr. Purchase Discounts
Cr. Cash
Adjustment of
inventory in
accounting records
to lower physical
count amount
Dr. Cost of Goods Sold

No entry
$X
X
X
$X
$X
$X
X
Perpetual vs. Periodic Journal Entries (seller)

X
X
X
$X
Balance Sheet
NAME OF COMPANY
Balance Sheet
April 30, 2014
Liabilities and Owners Equity

Liabilities
Current liabilities
(Examples: notes payable, accounts payable, accruals,
unearned revenues, current portion of mortgage/notes payable)
Non-current liabilities
(Examples: notes payable, mortgage payable)
Total liabilities
Owners equity
Owners capital (end of period)
Total liabilities and owners equity
Buyer
Seller
Event
$X
X
X
Deduct: Drawings
Owners capital, end of period
Indefinite life intangibles (Examples: trademarks, franchise)

Goodwill
Total assets
Shipping point
Destination
Perpetual vs. Periodic Journal Entries (buyer)
NAME OF COMPANY
Statement of Owners Equity
Month Ended April 30, 2014
Assets
Current assets
(Examples: cash, short-term investments, accounts
receivable, merchandise inventory, prepaid expenses)
Long-term investments
(Examples: equity investments, debt investments)
Property, plant, and equipment
(Examples: land, land improvements, buildings, equipment)
Less: Accumulated depreciation
Natural resources
(Examples: oil wells, mines, timberland)
Intangible assets
Limited life intangibles (Examples: patents, copyrights)
Less: Accumulated amortization
Freight Costs Paid / Recorded By
$X
X
Statement of Owners Equity
Owners capital, beginning of period

Add: Investments by owner
Profit (or deduct loss)
Freight Terms
$X
X
$X
X
$X
X
$X
X
X
X
Event
Perpetual
Periodic
Sale of goods
Dr. Cash or A/R

Cr. Sales
Dr. Cost of Goods Sold
Dr. Cash or A/R

Cr. Sales
No entry
Freight on sales
(destination)
Dr. Freight Out

Cr. Cash or A/P
Dr. Freight Out

Cr. Cash or A/P
Return of sold
goods (assuming
resaleable)
Dr. Sales Returns and

Allowances
Cr. Cash or A/R
Cr. Cost of Goods Sold
Dr. Sales Returns and

Allowances
Cr. Cash or A/R
No entry
Cash received on
account with a
discount
Dr. Cash
Dr. Sales Discounts
Cr. Accounts Receivable
Dr. Cash
Dr. Sales Discounts
Formula for Cost of Goods Sold (periodic inventory system)

X
Beginning
Inventory
X
X
$X
$X
X
X
X
$X
Cost of Goods
5
Purchased
Ending
Inventory
Inventory Cost Determination Methods

Perpetual
Cost of Goods
Sold
Periodic
Specific identification
First-in, first-out (FIFO)
First-in, first-out (FIFO)
Average
Average
Calculation
Cost of goods available for sale
Weighted average unit cost =
Total units available for sale
Effects of Cost Determination Methods (assuming rising prices)
PURCHASES
Date
Units
Cost
COST OF GOODS SOLD

Total
Jan. 1
STOP AND CHECK: Do total assets on the balance sheet equal total liabilities
and owners equity? Does the ending owners capital on the balance sheet
equal the ending owners capital on the statement of owners equity?
Cost of Goods
2
Available
for Sale
Apr. 15
200
$11
$2,200
Units
Cost
BALANCE
Total
Units
Cost
100
$10
100
10
200
11
Total
$1,000
3,200
CASH (CHAPTER 7)
Physical and IT Control Activities
Establishment of responsibility Physical controls
Segregation of duties
Independent checks of performance
Documentation procedures
Human resource controls
USING THE INFORMATION IN THE FINANCIAL STATEMENTS
(CHAPTERS 1-7)
Honouring notes receivable
Dr. Cash
Cr. Notes Receivable
Cr. Interest Revenue or Receivable (if any)
Dishonouring notes receivable

(if eventual collection assumed)
Dr. Accounts Receivable

Cr. Interest Revenue or Receivable (if any)
Dishonouring notes receivable

(if eventual collection not
assumed)
Dr. Allowance for Doubtful Notes/Accounts

Cr. Interest Receivable (if any)
Liquidity Ratios
Chapter
Ratio
Formula
Desired
Result
Purpose
Working
capital
Current assets
Current liabilities
Measures short-term
debt-paying ability.
Higher
Current
ratio
Current assets
Current liabilities
Measures short-term
Higher
Acid-test
Cash + Short-term
investments +
Accounts receivable
Current liabilities
Measures immediate
short-term debt-paying
ability.
Higher
Higher
Inventory
turnover
Cost of goods sold

Average inventory
Measures liquidity
of inventory.
Days sales
in inventory
Days in year
Inventory turnover
Measures number of days Lower

inventory is on hand.
Profitability Ratios
Ratio
Gross profit
margin
Profit margin
Desired
Result
Formula
Purpose
Gross profit
Net sales
Measures margin
between selling price
and cost of goods
sold.
Higher
Profit
Net sales
Measures amount of
profit generated by
each dollar of sales.
Higher
RECEIVABLES (CHAPTER 8)
Estimating Bad Debts
Balance sheet approach

(% of total receivables or aging)
Determines balance in Allowance for

Doubtful Accounts
Recording Bad Debts

Event
Journal Entry
Record credit sales

Cr. Sales
Estimate bad debts
Dr. Bad Debts Expense

Cr. Allowance for Doubtful Accounts
Write-off uncollectible account
Dr. Allowance for Doubtful Accounts

Subsequent recovery

Cr. Allowance for Doubtful Accounts
Dr. Cash
Recording Notes Receivable

Event
Tangible
Natural resources
Journal Entry
Issuing notes receivable
Dr. Notes Receivable

Cr. Cash or Accounts Receivable
Recognizing interest
Dr. Interest Receivable or Cash

Cr. Interest Revenue
Valuing notes receivable
Dr. Bad Debt Expense

Cr. Allowance for Doubtful Notes/Accounts
Intangible and Goodwill

Intangible assets, finite lives
Intangible assets, indefinite lives
Goodwill
Recording Depreciation and Amortization

Type of LongLived Asset
Chapter
LONG-LIVED ASSETS (CHAPTER 9)
Methods
Journal Entry
Property, plant,
and equipment
Straight-line,
diminishing-balance,
or units-of-production
Dr. Depreciation Expense

Cr. Accumulated Depreciation
Natural
resources
Units-of-production
Dr. Inventory
Intangible assets,
finite lives
Straight-line
Dr. Amortization Expense

Cr. Accumulated Amortization
Calculation of Annual Depreciation/Amortization Expense

Depreciation/
Amortization Method
Calculation
Straight-line
Cost Residual value
Estimated useful life (in years)
DiminishingCarrying amount at beginning of year Straight-line rate
balance
Straight-line rate = 1 Estimated useful life (in years)
Units-ofCost Residual value
Units of production
production
Estimated total units of production during year
Note: 1. If depreciation or amortization are calculated for a partial period,
the straight-line and diminishing-balance methods must be
adjusted for herelevant proportion of the year. Multiply the annual depreciation/amortization expense by the number of months
expired in the year divided by 12 months. Alternatively, simply use
one-half year for all acquisitions.
2. The total depreciation for any method is limited to the depreciable cost
(cost residual value).
Revision of Depreciation (straight-line method)
Carrying
amount at time of +
change
Revised
residual
value
Remaining depreciable
Remaining
5 amount at time of change 2 estimated 5

in estimate
useful life
Revised annual
depreciation
expense
Disposal of Property, Plant, and Equipment

Step
Journal Entry of Calculation
1. Update the depreciation from

when depreciation was last
recorded to date of disposal
Dr. Depreciation Expense

2. Calculate the carrying

amount
Cost Accumulated Depreciation =

Carrying Amount
3. Calculate the gain or loss
Proceeds Carrying Amount = Gain (Loss)
4. Record the disposal
Dr. Cash (or Receivable)

Dr. Accumulated Depreciation
Dr. Loss (or Cr. Gain)
Cr. Long-Lived Asset Account
CURRENT LIABILITIES (CHAPTER 10)

Current Liabilities
Determinable (Certain) Liabilities
Operating line of credit and bank overdrafts
Short-term notes payable
Sales taxes
Unearned revenue
Accounts Payable
Current maturities of long-term debt
Uncertain Liabilities
Estimated liabilities
Product warranties
Customer loyalty programs
Gift cards
Lawsuits
Contingencies
USING THE INFORMATION IN THE FINANCIAL STATEMENTS

(CHAPTERS 1-10)
Liquidity Ratios
Purpose
Desired
Result
Chapter
Ratio
Formula
Receivables
turnover
Net credit sales

Average gross
accounts receivable
Measures liquidity
of receivables.
Higher
Collection
period
Days in year
Receivables turnover
Measures number
of days receivables
are outstanding.
Lower
Operating
cycle
Days sales in inventory + Measures number

Collection period
of days to purchase
inventory, sell it
on account, and
collect the cash.
Lower
Revenue Recognition
When there has been an increase in an asset or a decrease in a liability due
to ordinary profit generating activities.
Expense Recognition
When there is a decrease in an asset or increase in a liability excluding
transactions with owners that result in a decrease in owners equity.
ACCOUNTING FOR PARTNERSHIPS (CHAPTER 12)

Profit and Loss Ratios (to allocate profit or loss/bonuses/liquidation
gains or losses)
A fixed ratio, expressed as a proportion (2:1), a percentage (67% and
33%), or a fraction (2/3 and 1/3)
A ratio based either on capital balances at the beginning or end of the
year, or on average capital balances during the year
Salaries to partners and the remainder in a fixed ratio
Interest on partners capital balances and the remainder in a fixed
ratio
Salaries to partners, interest on partners capital balances, and the
remainder in a fixed ratio
Admission of a Partner (ABC Partnership)
Transaction
No investment of assets in partnership
Purchase of a portion of partners A and Bs interests by C
Chapter
Accounting Standards for Private Enterprises (ASPE)

Private companies can choose to follow a more simplified conceptual
framework, designed specifically for private enterprises.
Ratio
Formula
Purpose
Desired
Result
Asset
turnover
Net sales
Average total assets
Measures how
efficiently assets are
used to generate sales.
Higher
Return on
assets
Profit
Measures overall
profitability of assets.
Higher
Investment of assets (Cash) in partnership

(1) New partner Cs investment 5 capital acquired
(2) New partner Cs investment capital acquired
(a) Bonus to old partners A and B
(b) Bonus to new partner C
FINANCIAL REPORTING CONCEPTS (CHAPTER 11)

Conceptual Framework
Sample Journal Entry

Dr. A, Capital
Dr. B, Capital
Cr. C, Capital
Dr. Cash
Cr. C, Capital
Dr. Cash
Cr. A, Capital
Cr. B, Capital
Cr. C, Capital
Dr. Cash
Dr. A, Capital
Dr. B, Capital
Cr. C, Capital
OBJECTIVE OF FINANCIAL REPORTING
Withdrawal of a Partner (DEF Partnership)

Constraint
Cost
Fundamental Characteristics
Relevance
Faithful Representation
Enhancing Characteristics
Comparability
Veriability
Timeliness
Understandability
Transaction
No payment from partnership assets
Payment from partners E and Fs personal assets to D
Elements
Assets
Liabilities
Equity
Revenue
Expenses
Other Comprehensive Income
Payment from partnership assets

(1) Payment to D 5 capital retired
(2) Payment to D capital retired
(a) Bonus to D from partners E and F
(b) Bonus to remaining partners E and F from D
Recognition Criteria
Measurement Criteria
Underlying Assumptions and Concepts

Economic Entity Full Disclosure Going Concern
International Financial Reporting Standards (IFRS)

Public companies must follow IFRS.

Dr. D, Capital
Cr. E, Capital
Cr. F, Capital
Dr. D, Capital
Cr. Cash
Dr. D, Capital
Dr. E, Capital
Dr. F, Capital
Cr. Cash
Dr. D, Capital
Cr. E, Capital
Cr. F, Capital
Cr. Cash
Liquidation of Partnership
1. Sell noncash assets for cash and recognize any gain or loss on realization
2. Allocate any gain or loss on realization to the partners, based on their
profit and loss ratios
3. Pay partnership liabilities in cash
4. Remove any capital deficiency either by repayment or allocation to the

other partners
5. Distribute the remaining cash to partners, based on their capital balances
FORMS OF BUSINESS ORGANIZATION (CHAPTERS 12 AND 13)
Owners
Owners liability
Private or public
Taxation of profits
Life of organization
Equity section called
Withdrawals by/
distributions to
owners called
Withdrawals/
dividends
deducted from
Investments by
owners added to
Profit added to
Proprietorship
Partnership
Corporation
Proprietor:
one
Unlimited
Private
Paid by the
owner
Limited
Owners equity
Drawings
Partners:
two or more
Unlimited
Usually private
Paid by the
partners
Limited
Partners equity
Drawings
Shareholders:
one or more
Limited
Private or public
Paid by the
corporation
Indefinite
Shareholders equity
Dividends
Owners capital
Partners capital
Retained earnings
Owners capital
Partners capital
Share capital
Owners capital
Partners capital
Retained earnings
INTRODUCTION TO CORPORATIONS (CHAPTER 13)

Calculation of Preferred Dividend
Assume $6 preferred, 10,000 shares issued for $100 per share. Annual
dividend is $6 per share; quarterly dividend is $1.50 ($6 4 4) per share.
Total annual dividend is $60,000 ($6 3 10,000)
CORPORATIONS: ADDITIONAL TOPICS AND IFRS (CHAPTER 14)
Reacquisition of Common (or Preferred) Shares
Average cost of shares 5 Dollar amount in share account 4 Number of shares
Below Average Cost
Above Average Cost
Dr. Common Shares (@ average cost)

Cr. Contributed Surplus
Reacquisition of Shares
Cr. Cash
Dr. Common Shares (@ average cost)

Dr. Contributed Surplus
Reacquisition of Shares (if any)
Dr. Retained Earnings
Cr. Cash
Comparison of Dividend Journal Entries (Chapters 13 and 14)

Date
Cash Dividend
Stock Dividend
Declaration
Dr. Cash Dividends

Cr. Dividends Payable
(liability account)
No entry
Dr. Dividends Payable
Cr. Cash
Dr. Stock Dividends

Cr. Stock Dividends Distributable
(shareholders equity account)
No entry
Dr. Stock Dividends Distributable
Cr. Common/Preferred Shares
Record
Payment/
distribution
Transactions Affecting Shareholders Equity (Chapters 13 & 14)

Transaction
1. Issue of share capital
2. Reacquisition of
share capital
3. Correction of a prior
period error that
affected the prior years
ending retained earnings
4. Cumulative effect of
a change in accounting
policy on the prior years
ending retained earnings
5. Profit (loss)
6. Other comprehensive
income (loss)
7. Cash dividends
are declared
8. Stock dividends
are declared
9. Stock dividend
is distributed
10. Stock splits
Impact on Shareholder Equity Accounts

1. Common or Preferred Shares is increased
2. Common or Preferred Shares is decreased
Contributed Surplus may be increased or
decreased
Retained Earnings may be decreased
3. Opening Retained Earnings is either
increased or decreased as required to
make the correction
4. Opening Retained Earnings is either
increased or decreased as required to
make the adjustment
5. Retained Earnings is increased (decreased)
6. Accumulated Other Comprehensive
Income is increased (decreased)
7. Retained Earnings is decreased
8. Retained Earnings is decreased and Stock
Dividends Distributable is increased
9. Stock Dividend Distributable is decreased
and Common Shares is increased
10. Number of shares issued increases;
there is no effect on account balances
Accounting Standards for Private Enterprises (ASPE)

Accounting for equity transactions under ASPE differs from IFRS in
several areas, including the following:
1. No other comprehensive income or loss, nor a statement of comprehensive income, is reported.
2. A statement of retained earnings is prepared. Under IFRS a statement
of changes in shareholders equity is prepared.
3. Earnings per share are not reported.
NON-CURRENT LIABILITIES (CHAPTER 15)
Bonds Payable
Impact of Interest Rates on Bond Issue Price
Premium
Face Value
Discount
Market interest rate , Contractual interest rate

Market interest rate 5 Contractual interest rate
Market interest rate . Contractual interest rate
Calculation of Bond Interest Expense, Interest Paid, and Amortization of

Bond Discount or Premium
(1)
(2)
(3)
Bond Interest Paid
Bond Interest Expense
F ace Value Contractual
Amortized Cost of Bonds
Market
Amortization
3
2 at Beginning of Period 3 Interest Rate 5
of Bonds
Interest Rate
Amount
Notes Payable (Instalment Payment Schedule)

A
Interest
Cash
Payments Period Payment
Fixed
principal
Blended
Month
Month
Variable
B1C
Fixed
B1C
B
Interest
Expense
C
Reduction
of Principal
D* x Annual
interest rate 4 12
D* x Annual
interest rate 4 12
D
Principal
Balance
Principal balance D* 2 C
4 # of months
A2B
D* 2 C
*From the prior period
THE CASH FLOW STATEMENT (CHAPTER 16)

Operating, Investing, and Financing Activities
Cash Receipts
Activity
From the sale of goods or services

From returns on debt investments
(interest) and on equity investments
(dividends)
Operating
From the sale of property, plant, and

equipment and intangible assets
From the sale of non trading debt
or equity investments
From the collection of principal on
loans to other companies
Investing
From the sale of shares (preferred

and common)
From the issue of debt (notes
and bonds)
Financing
Cash Payments
To suppliers for inventory
To employees for services
To governments for taxes
To lenders for interest
To others for expenses
To purchase property, plant, and
equipment and intangible assets
To purchase non trading debt or
equity investments
To make loans to other companies
To shareholders as dividends
To redeem long-term debt or
reacquire shares
Steps in Preparing the Cash Flow Statement

Steps
Details
1
Prepare operating activities section: Determine the net cash provided (used) by operating activities by converting profit from an
accrual basis to a cash basis.
2
Prepare investing activities section: Determine the net cash
provided (used) by investing activities by analyzing changes in
the long-term asset accounts.
3
Prepare financing activities section: Determine the net cash provided (used) by financing activities by analyzing changes in non
current liability and equity accounts.
4
Complete the cash flow statement: Prepare the cash flow
statement and determine the net increase (decrease) in cash.
CORPORATE FINANCIAL STATEMENTS (CHAPTERS 13-17)

ASPE
(not separately illustrated)
IFRS
(illustrated below)
1(a). Income statement

1(b). No equivalent statement under ASPE
2. Statement of
retained earnings
3. Balance sheet
1(a). Income statement

1(b). Statement of
comprehensive income
2. Statement of changes in
shareholders equity
3. Statement of financial
position or balance sheet
5. Cash flow statement
4. Cash flow statement
Date
Period ended
Period ended
Period ended
End of the period

Period ended
Balance, beginning of period, as adjusted

Profit
Reacquired common shares
Stock dividends
Cash dividends
Total retained earnings, end of period
Accumulated other comprehensive income (loss)
Balance, beginning of period
Other comprehensive income
Total accumulated other comprehensive income (loss),
end of period
Total shareholders equity, end of period
X
X
(X)
(X)
(X)
X
$X
X
X
$X
Statement of Financial Position
Income Statement
NAME OF COMPANY
Statement of Financial Position
End of the Period
NAME OF COMPANY
Income Statement
Period Ended
Sales revenues
Sales
Less: Sales returns, allowances, and discounts
Net Sales
Cost of goods sold (assuming perpetual inventory system)
Gross Profit
Operating expenses
(Examples: salaries, advertising, freight out, depreciation,
amortization, utilities, insurance)
Profit from operations
Other revenues
(Example: interest)
Other expenses
(Example: interest)
Profit before income taxes
Income tax expense
Profit
Statement
of Comprehensive Income
$X
X
$X
X
X
X
X
$X
X
X
X
X
$X
Statement of Comprehensive Income

NAME OF COMPANY
Statement of Comprehensive Income
Period Ended
Profit
Other comprehensive income
(Example: Gains and losses on fair value adjustments of long-term
strategic investments with no significant influence, net of income tax)
Comprehensive income
$X
X
$X
Statement of Changes in Shareholders Equity

NAME OF COMPANY
Statement of Changes in Shareholders Equity
Period Ended
Contributed capital
Share capital, preferred shares
Balance, beginning of period, X shares issued
Issued for cash, X shares
Balance, end of period, X shares issued
Share capital, common shares
Balance, beginning of period, X shares issued
Reacquired X shares
Stock dividend issued, X shares
Issued for cash, X shares
Balance, end of period, X shares issued
Stock dividends distributable
Common stock dividend declared
Common stock dividend distributed
Balance, end of period
Contributed surplusreacquired shares
Reacquired common shares
Balance, end of period
Total contributed capital, end of period
Retained earnings
Balance, beginning of period, as previously reported
Correction for prior period error, net of income tax expense
$X
X
X
Indefinite life intangibles (Examples: trademarks, franchise)

Goodwill
Total assets
Liabilities and Shareholders Equity
Liabilities
Current liabilities
(Examples: notes payable, accounts payable, accruals,
unearned revenues, current portion of long-term liabilities)
Non-current liabilities
(Examples: notes payable, bonds payable)
Total liabilities
Shareholders equity
Contributed capital
Share capital
Preferred shares
Common shares
Total share capital
Contributed surplusreacquisition of common shares
Retained earnings
Accumulated other comprehensive income
Total shareholders equity
Total liabilities and shareholders equity
$X
X
$X
X
$X
X
$X
X
X
X
X
X
$X
$X
X
X
$X
X
X
X
X
X
X
X
$X
STOP AND CHECK: (1) Total assets on the balance sheet must equal total
liabilities and shareholders equity. (2) Each component of shareholders
equity on the balance sheet must equal its respective ending balance on
the statement of changes in shareholders equity.
Note: The classifications and the ordering within the classifications may be
presented in a reverse order of liquidity in some IFRS statements.
Cash Flow Statement
X
(X)
X
X
X
0
X
(X)
0
NAME OF COMPANY
Cash Flow Statement
Period Ended
X
(X)
X
$X
$X
X
Assets
Current assets
(Examples: cash, short-term investments, accounts
receivable, merchandise inventory, prepaid expenses)
Long-term investments
(Examples: equity investments, debt investments)
(Examples: land, land improvements, buildings, equipment)
Natural resources
(Examples: oil wells, mines, timberland)
Intangible assets
Finite life intangibles (Examples: patents, copyrights)
Less: Accumulated amortization
Operating activities (assuming use of direct method)

Cash receipts
(Examples: from sales of goods and services to customers, from
receipts of interest and dividends on loans and investments)
Cash payments
(Examples: to suppliers, for operating expenses, for interest,
for taxes)
Cash provided (used) by operating activities
$X
(X)
$X
Investing activities
(Examples: purchase/sale of long-term assets)
Cash provided (used) by investing activities
Financing activities
(Examples: issue/repayment of long-term liabilities,
issue of shares, reacquisition of shares, payment of dividends)
Cash provided (used) by financing activities
Net increase (decrease) in cash
Cash, beginning of the period
Cash, end of the period
X
X
X
$X
STOP AND CHECK: Cash, end of the period, on the cash flow statement must
equal cash presented on the balance sheet.
Increases in noncash current liability accounts that affect

operating activities
Deduct:
Gains (e.g., on disposals of assets, fair value adjustments of
trading investments)
Increases in noncash current asset accounts that affect
Decreases in noncash current liability accounts that affect
Cash provided by (used in) operating activities
Operating Activities
Profit
Add:
Noncash expenses (e.g., depreciation)
Losses (e.g., on disposals of assets, fair value adjustments of
trading investments)
Decreases in noncash current asset accounts that affect
(X)
(X)
(X)
X
FINANCIAL STATEMENT ANALYSIS (CHAPTER 17)

Horizontal (Trend) Analysis
Horizontal Percentage Base-Period Amount Formula
Horizontal Percentage
of Base-Period Amount
Note: The operating activities section may also be prepared using the
indirect method:
Analysis-Period Amount
Prior Period Amount
Horizontal Percentage Change for Period Formula

Horizontal Percentage
Change for Period
Analysis-Period Amount
Prior Period Amount
5
Prior Period Amount
$X
X
Vertical (Common-Size) Analysis

Vertical Percentage Formula
Vertical Percentage
Analysis Amount
Base Amount
Liquidity Ratios
Ratio
Working capital
Current ratio
Acid-test
Collection period
Inventory turnover
Days sales
in inventory
Operating cycle
Formula
Current assets 2 Current liabilities
Current assets
Current liabilities
Cash 1 Short-term investments 1 Accounts receivable
Current liabilities
Net credit sales
Average gross accounts receivable
Days in year
Cost of goods sold
Average inventory
Days in year
Inventory turnover
Days sales in inventory 1 Collection period
Purpose
Measures short-term
Measures short-term
Measures immediate shortterm debt-paying ability.
Measures liquidity
of receivables.
Measures number of days
receivables are outstanding.
Measures liquidity
of inventory.
Measures number of days
inventory is on hand.
Measures number of days to
purchase inventory, sell it on
account, and collect the cash.
Desired Result
Higher
Purpose
Measures percentage of total
assets provided by creditors.
Measures ability to meet
interest payments.
Measures cash available
operating activities that
management can use after
paying capital expenditures.
Desired Result
Lower
Purpose
Measures margin between selling price
and cost of goods sold.
Measures amount of profit
generated by each dollar of sales.
Measures how efficiently assets
are used to generate sales.
Measures overall profitability of assets.
Desired Result
Higher
Higher
Higher
Higher
Lower
Higher
Lower
Lower
Solvency Ratios
Ratio
Debt to total assets
Interest coverage
Free cash flow
Formula
Total liabilities
Total assets
Proft 1 Interest expense 1 Income tax expense(EBIT)
Interest expense
Cash provided (used) by operating activities 2
Cash used (provided) by investing activities
Higher
Higher
Ratio
Gross profit margin
Profit margin
Asset turnover
Return on assets
Return on equity
Earnings per share
Price-earnings ratio
Payout ratio
Formula
Gross profit
Net sales
Profit
Net sales
Net sales
Profit
Profit
Average shareholders equity
Profit 2 Preferred dividends
Weighted average number of common shares
Market price per share
Earnings per share
Cash dividends
Profit
Measures profitability of
shareholders investment.
Measures amount of profit
earned on each common share.
Measures relationship between market price
per share and earnings per share.
Measures percentage of profit
distributed as cash dividends.
Higher
Higher
Higher
Higher
Higher
Higher
Higher
Short-term Debt or Equity Investments (held for trading purposes)
APPENDIX B: INVESTMENTS
Classification and Measurement of Investments
Reason
Type
Debt
Non
Strategic
Equity
Balance Sheet
Classication
Current
assets
Noncurrent
assets
Current
assets
Purpose of
Investment
Transaction
Reporting of
Measurement Fair Value
Basis
Adjustment
Acquisition
Fair value
Income
statement
Amortized
cost
n/a
Recording dividends
(equity) or
interest (debt)
Fair value adjustment
Held to earn
interest income
Amortized
cost
n/a
Sale
Trading
Fair value
Income
statement
Trading
Held to earn
interest income

Dr. Trading Investments
Cr. Cash
Dr. Cash
Cr. Dividend/Interest Revenue
Dr. Trading Investments
Cr. Gain on Fair Value Adjustment
(or Dr. Loss and Cr. Trading Securities)
Dr. Cash
Cr. Trading Investments
Cr. Gain on Sale (or Dr. Loss)
Note: Both the gain or loss on fair value adjustment and the gain or loss on
sale are reported as other revenue or expense in the income statement for short-term non-strategic trading investments.

Principles of Financial Accounting: Rapid Review

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Rapid Review Pt 1-3.

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PRINCIPLES OF FINANCIAL ACCOUNTING: RAPID REVIEW

FORMS OF BUSINESS ORGANIZATION (CHAPTER 1)

ACCOUNTING EQUATION WITH DEBIT/CREDIT RULES (CHAPTER 2)

All revenue accounts

All asset accounts

All expense accounts

All liability accounts

Owners drawings account

Owners capital account

ACCOUNTING CYCLE (CHAPTERS 2-4)

ADJUSTING ENTRIES (CHAPTER 3)

CLOSING ENTRIES (CHAPTER 4)

Dr. Asset account

Dr. Expense account

Dr. Liability account

Dr. Asset account

Dr. Expense account

Optional steps: 1. Prepare a work sheet. 2. Prepare reversing entries

Rapid Review Pt 1-3.indd Page EP-2 05/05/14 2:31 PM user1

Note: Alternative presentation formats are possible under international

FINANCIAL STATEMENTS (CHAPTERS 1-5)

INVENTORY (CHAPTERS 5 AND 6)

Income Statement (perpetual inventory system)

Dr. Merchandise Inventory

Dr. Cash or A/P

Dr. Cash or A/P

Dr. Accounts Payable

Dr. Accounts Payable

Dr. Cost of Goods Sold

Perpetual vs. Periodic Journal Entries (seller)

Liabilities and Owners Equity

Indefinite life intangibles (Examples: trademarks, franchise)

Perpetual vs. Periodic Journal Entries (buyer)

Freight Costs Paid / Recorded By

Statement of Owners Equity

Owners capital, beginning of period

Dr. Cash or A/R

Dr. Cash or A/R

Dr. Freight Out

Dr. Freight Out

Dr. Sales Returns and

Dr. Sales Returns and

Formula for Cost of Goods Sold (periodic inventory system)

Inventory Cost Determination Methods

COST OF GOODS SOLD

Rapid Review Pt 1-3.indd Page EP-3 05/05/14 2:31 PM user1

Honouring notes receivable

Dishonouring notes receivable

Dr. Accounts Receivable

Dishonouring notes receivable

Dr. Allowance for Doubtful Notes/Accounts

Cost of goods sold

Measures number of days Lower

Balance sheet approach

Determines balance in Allowance for

Recording Bad Debts

Record credit sales

Dr. Accounts Receivable

Estimate bad debts

Dr. Bad Debts Expense

Write-off uncollectible account