Accounting 30 - Module 5

130 Pages·1991·8.2 MB·English

by  Alberta. Alberta Education. Alberta Distance Learning Centre

UniversityofAlbertaLibrai
MAY 21 1992
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EDUCATION
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Note
ThisAccountingLearningFacilitator'sManualcontainsanswerstoteacher-assessedassignmentsandthe
finaltest; therefore, it shouldbekeptsecurebytheteacher. Studentsshouldnothaveaccessto these
assignmentsorthefinal testuntil theyareassignedinasupervisedsituation. Theanswersshouldbestored
securelybytheteacheratalltimes.
Accounting30
Learning Facilitator'sManual
Module 5
FinancialAnalysis
Alberta DistanceLearningCentre
ISBN No. 0-7741-0450-3
ALLRIGHTS RESERVED
Copyright*1992,theCrowninRightofAlberta,asrepresentedbytheMinisterofEducation,AlbertaEducation,11160JasperAvenue,
Edmonton,Alberta,T5K0L2.
Allrightsreserved. AdditionalcopiesmaybeobtainedfromtheLearningResourcesDistributingCentre.
Nopartofthiscoursewaremaybereproducedinanyformincludingphotocopying(unlessotherwiseindicated)withoutthewritten
permissionofAlbertaEducation.
Everyefforthasbeenmadebothtoprovideproperacknowledgementoftheoriginalsourceandtocomplywithcopyrightlaw. Ifcases
areidentifiedwherethishasnotbeendone,pleasenotifyAlbertaEducationsoappropriatecorrectiveactioncanbetaken.
UNIVERSITY LIBRARY
Module5
Module 5 Overview
Therearebasicaccountingconceptsthatmustbeaddressedindeterminingthehealthofabusiness.
Thishealthisofinteresttovariousgroupsofcreditors,investors,governmentagencies, and,more
importantly,tothedecisionmakerswithinthebusinessitself.
Inthismodulethestudentwilllearnthatcomparisonsoffinancialstatements andratios showingthe
relationshipbetweenvariousaccountsbecomeveryimportantforproperandresponsibleaccounting
proceduresinmakingtop-leveldecisions. Thestudentwillnotonlylearnhowtodraftfinancial
statementsbutwillalsolearnwhyratiosandcomparisonsareusedtodeterminefinancialstrength.
Theconceptstaughtinthismoduleareoutlinedinthefollowingdiagram:
Evaluation
Thestudent'smarkinthismodulewillbedeterminedbytheworkinthe AssignmentBooklet. All
assignmentsmustbecompleted. Inthismodulethestudentisexpectedtocompletetwosection
assignments. Thesuggestedassignmentbreakdownisasfollows:
Section 1 Assigrmient 20%
Section2Assignment 20%
Section3Assignment 30%
Section4Assignment 30%
Total 100%
Accou^mNG30 1 LearningFacilitator'sManual
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Module5
Possible Classroom Openers
• Inviteaguestspeakertoexplainthepurposeoffinancialanalysisineffectivedecisionmaking.
• Discusshowthehealthofabusinesscanbedetenninedbyanalysingfinancialdata.
• Showavideoonthecomparisonsbetweenahealthybusinessandanunhealthybusiness.
Section 1: Bad Debts
Thebasicgoalsofthissectionaretoensurethatstudents
• learnhowtojournalizeentriesthatwriteoffanuncollectibleaccountusingthedirectwrite-off
method
• canestimateandrecordbaddebtsexpenses
areabletoprepareanagingscheduletoestimatetheamountofuncollectibleaccounts
PossibleActivities
• Prepareabulletinboarddisplayofwhatfactorscouldcauseahealthybusinesstobecomeunhealthy.
Withtheuseofanoverheadprojector,demonstratehowtoprepareascheduleofaccountsreceivable
byage.
• Analyseanddemonstratetheuseoftheaccountsreceivableturnoverrate.
Section 1 Activity 1
1. InpreviousmodulesyouwereaskedtoadjusttheamountofAccountsReceivableontheeight-
columnworksheet. WhydoesthevalueofAccountsReceivableshownonthebooksofthecompany
havetobeadjusted? Listatleastthreereasons.
ThevalueofAccountsReceivablemustbeadjustedforthefollowingreasons:
• toshowthetruevalueofanassetonthebalancesheet
• toinformpotentialbuyersofthetruevalueoftheasset
• toallowforuncollectibleaccountstobedeletedfromcurrentrecordsandtreatedasa
deductionfromOwners' Equity
Accounting30 2 LearningFacilitator'sManual
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Module5
2. Thescheduleofaccountsreceivablebyageshownhasbeenpartiallycompleted. Calculatethetotals
ofeachcolumn. BesuretocrossaddColumns2to5. ThetotalfiguresofColumns2to5mustequal
thetotalamountinColumn1
Mau^31. 19xx
NUMBER OF DAYS OVERDUE
ACCOUNT
CUSTOMER BALANCE 1-30 31-60 61-90 OVER 90
; 2 5 00 1 2 500
J 50 00 1 00 00 2 5 000
^ierc, J/ata/icv 232 50 232 50
2 5 60 2 560
2 4 6 00 2 4 6 00
1 2 0 00 / 2 0 00
0 9 9 10 22 500 232 50 4 96 00 1 4 560
3. PrepareascheduleofaccountsreceivablebyageasofDecember31, 19xx,usingthefollowingdata.
Besuretolisttheaccountsinalphabeticalorderbysurname. Allaccountsarenet30.
Customer InvoiceDate Amount
Amott,L. Aug. 1, 19xx $ 80.00
Campbell,B. Nov. 25, 19xx 169.50
Dawson,P. Nov. 28, 19xx 175.80
Brewster,H. Oct. 25, 19xx 50.00
Hansen,V. Sept. 3, 19xx 436.79
VanBurden,F. Aug. 31, 19xx 155.00
Service,R. Dec. 5, 19xx 213.45
Olsen,B. Oct. 3, 19xx 10.90
Stevenson,P. Sept 25, 19xx 149.60
Maddison,W. Aug. 28, 19xx 200.00
AcCOUhJTING30 3 LearningFacilitator'sManual
McxJule5
Q^axm^er-31. 19xx
NUMBER OF DAYS OVERDUE
ACCOUNT
PIICTOMCR BALANCE 1-30 31-60 61-90 OVER 90
8 Q 00 g Q 00
nu uu Dc U UU
i O Q I1 O o DU
if 7Dc I1 7 c fin
AJ7 0 7/0y HA -> o 7/0y
Z U U uu Z U U UU
(9^, ^. 11 U ovnU 1 U on
~
1 4 9 60 1 4 9 60
1 5 500 1 5 5 00
4 2 759 54 530 6 0 90 5 86 39 4 3 5 00
Section 1 Activity2
1. Ifthisyear'schargesalesforHandyAndy'sHardwareamountedto$2 136.00,whatistheestimated
amountofuncollectiblechargeaccounts?
Theestimatedamountofuncollectiblechargeaccountsis$213.60,
Amount = $2 136.00 x 10%
= $213.60
2. Usetheprecedingpercentagetabletodeterminethetotalestimatedamountofbaddebts.
• Calculatetheamountofuncollectiblesbymultiplyingtheoverdue amountbytherate.
• Total theestimateduncollectibleamountsfrom eachofColumns 2to5,andwritethetotalin
theAccountBalancecolumn.
Accounting30 4 LearningFacilitator'sManual
Mcxiule5
3i/ne^Z0. 19xx
NUMBER OF DAYS OVERDUE
ACCOUNT
^Uo UlVlcn BALANCE 1-30 31-60 61-90 OVER 90
1
1 2 500 1 2 500
3 50 00 1 0 0 00 2 50 00
232 50 232 50
2 5 60 2 5 60
'i/oi/noy, ^leatAer^ 2 4 6 00 2 4 6 00
1 2 0 00 1 2 0 00
/ 0 9 9 10 22 500 232 50 4 96 00 1 4 5 60
1% 10% 15% 60%
2.25 :^^.25 74.40 87.36
^
^otal^adQ^e/^is^ (cu/d^cdu/nrw2 to- 187.26
3. UsingyouranswerfromQuestion2,identifytheaccountingentryrequiredtoadjusttheAccounts
Receivableassetaccount.
Dr Cr
BadDebtsExpense $18726
AllowanceforDoubtfulAccounts $18726
Section 1 Activity3
1. WhataccountingentryshouldbemadeifHandyAndy'susesthedirectmethodofwritingoffbad
debts?
Dr Cr
BadDebtsExpense $395W
AccountsReceivablelSwanson $350.00
AccountsReceivable/Anderssen 45.00
2. WhataccountingentryshouldbemadeifHandyAndy'susestheallowancemethodofwritingoff
baddebts?
Dr Cr
AllowanceforDoubtfulAccounts $395.00
AccountsReceivable/Swanson $350.00
AccountsReceivable/Anderssen 45.00
Accounting30 5 LearningFacilitator'sManual
Module5
Section 1 Activity4
Usethedirectwrite-offmethodtoanswerQuestions 1 to6.
1. RecordtheentriesfromyouranswertoQuestion 1,Activity3intheTaccountsshown.
AccountsReceivablelSwanson BadDebtsExpense
Bal.350.00 Bal. -e-
350.00 395.00
AccountsReceivable/Anderssen Cash
Bal.45.00
45.00
2. Assumethatachequefor$200.00hasbeenreceivedfromSwanson,whoseaccounthasalreadybeen
writtenoff. WhataccountingentryisrequiredtoreestablishSwanson'saccountreceivable?
Dr Cr
AccountsReceivable/Swanson $350.00
BadDebtsExpense $350.00
Accounting30 6 LearningFacilitator'sManual
Module5
3. RecordyouranswersfromQuestion2intheTaccounts.
AccountsRecei\ablelSwanson BadDebtsExpense
Bal.350.00 Bal. -e^
350.00 395.00
350.00 350.00
AccountsReceivablelAnderssen Cash
Bal.45.00
45.00
4. Whataccountingentryisrequiredtorecordthe$200.00cashreceivedfromSwanson?
Dr Cr
Cash $200.00
AccountsReceivable/Swanson $200.00
Accounting30 7 LeamingFacilitator'sManual
Module5
5. RecordyouranswersfromQuestion4intheTaccounts.
AccountsReceivablelSwanson BadDebtsExpense
^
Bal.350.00 Bal.
350.00 395.00
350.00 350.00
200.00
AccountsReceivablelAnderssen Cash
Bal.45.00
45.00
6. Whatisthebalanceofthefollowingaccounts?
a. AccountsReceivable/Swanson $150.00
b. BadDebtsExpense $45.00
AccourjTiNG30 8 LearningFacilitator'sManual