Introduction to Financial Accounting

788 Pages·2017·2.52 MB·English

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Introduction to
Financial Accounting
by Henry Dauderis & David Annand
Edited by Athabasca University
VERSION 2017– REVISION A
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a d v a n c i n g l e a r n i n g
Introduction to Financial Accounting
by Henry Dauderis & David Annand
Edited by Athabasca University
Version2017 — RevisionA
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Table of Contents
TableofContents iii
1 Introduc(cid:415)ontoFinancialAccoun(cid:415)ng 1
Chapter1LearningObjec(cid:415)ves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ConceptSelf-Check . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Accoun(cid:415)ngDefined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.2 BusinessOrganiza(cid:415)ons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.3 GenerallyAcceptedAccoun(cid:415)ngPrinciples(GAAP) . . . . . . . . . . . . . . . . . 5
1.4 FinancialStatements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.5 Transac(cid:415)onAnalysisandDouble-entryAccoun(cid:415)ng . . . . . . . . . . . . . . . . 15
SummaryofChapter1LearningObjec(cid:415)ves . . . . . . . . . . . . . . . . . . . . . . . . 23
DiscussionQues(cid:415)ons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
2 TheAccoun(cid:415)ngProcess 45
Chapter2LearningObjec(cid:415)ves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ConceptSelf-Check . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
2.1 Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
2.2 Transac(cid:415)onAnalysisUsingAccounts . . . . . . . . . . . . . . . . . . . . . . . . 51
2.3 TheTrialBalance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
2.4 UsingFormalAccoun(cid:415)ngRecords . . . . . . . . . . . . . . . . . . . . . . . . . 62
2.5 TheAccoun(cid:415)ngCycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
iii
iv TableofContents
SummaryofChapter2LearningObjec(cid:415)ves . . . . . . . . . . . . . . . . . . . . . . . . 67
DiscussionQues(cid:415)ons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
3 FinancialAccoun(cid:415)ngandAdjus(cid:415)ngEntries 89
Chapter3LearningObjec(cid:415)ves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
ConceptSelf-Check . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
3.1 TheOpera(cid:415)ngCycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
3.2 Adjus(cid:415)ngEntries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
3.3 TheAdjustedTrialBalance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
3.4 UsingtheAdjustedTrialBalancetoPrepareFinancialStatements . . . . . . . . . 109
3.5 TheAccoun(cid:415)ngCycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
3.6 TheClosingProcess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
SummaryofChapter3LearningObjec(cid:415)ves . . . . . . . . . . . . . . . . . . . . . . . . 118
DiscussionQues(cid:415)ons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
4 TheClassifiedBalanceSheetandRelatedDisclosures 143
Chapter4LearningObjec(cid:415)ves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
ConceptSelf-Check . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
4.1 FinancialStatementDisclosureDecisions . . . . . . . . . . . . . . . . . . . . . . 144
4.2 ClassifiedBalanceSheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
4.3 NotestoFinancialStatements . . . . . . . . . . . . . . . . . . . . . . . . . . . 150
4.4 Auditor’sReport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
4.5 Management’sResponsibilityforFinancialStatements . . . . . . . . . . . . . . 155
SummaryofChapter4LearningObjec(cid:415)ves . . . . . . . . . . . . . . . . . . . . . . . . 156
v
DiscussionQues(cid:415)ons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165
5 Accoun(cid:415)ngfortheSaleofGoods 171
Chapter5LearningObjec(cid:415)ves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171
ConceptSelf-Check . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171
5.1 TheBasicsofMerchandising . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173
5.2 ThePurchaseandPaymentofMerchandiseInventory(Perpetual) . . . . . . . . 175
5.3 MerchandiseInventory: SalesandCollec(cid:415)on(Perpetual) . . . . . . . . . . . . . 178
5.4 AdjustmentstoMerchandiseInventory(Perpetual) . . . . . . . . . . . . . . . . 181
5.5 MerchandisingIncomeStatement . . . . . . . . . . . . . . . . . . . . . . . . . 185
5.6 ClosingEntriesforaMerchandiser . . . . . . . . . . . . . . . . . . . . . . . . . 187
5.7 AppendixA:ThePeriodicInventorySystem . . . . . . . . . . . . . . . . . . . . 187
SummaryofChapter5LearningObjec(cid:415)ves . . . . . . . . . . . . . . . . . . . . . . . . 191
DiscussionQues(cid:415)ons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192
Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193
Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198
6 AssigningCoststoMerchandise 207
Chapter6LearningObjec(cid:415)ves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207
ConceptSelf-Check . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207
6.1 InventoryCostFlowAssump(cid:415)ons . . . . . . . . . . . . . . . . . . . . . . . . . . 208
6.2 FinancialStatementImpactofDifferentInventoryCostFlows . . . . . . . . . . . 221
6.3 LowerofCostandNetRealizableValue(LCNRV) . . . . . . . . . . . . . . . . . . 223
6.4 Es(cid:415)ma(cid:415)ngtheBalanceinMerchandiseInventory . . . . . . . . . . . . . . . . . 225
6.5 AppendixA:Ra(cid:415)oAnalysis—MerchandiseInventoryTurnover . . . . . . . . . . 229
6.6 AppendixB:InventoryCostFlowAssump(cid:415)onsUnderthePeriodicSystem . . . . 230
vi TableofContents
SummaryofChapter6LearningObjec(cid:415)ves . . . . . . . . . . . . . . . . . . . . . . . . 232
DiscussionQues(cid:415)ons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234
Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235
Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239
7 CashandReceivables 247
Chapter7LearningObjec(cid:415)ves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247
ConceptSelf-Check . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247
7.1 InternalControl . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248
7.2 Pe(cid:425)yCash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250
7.3 CashCollec(cid:415)onsandPayments . . . . . . . . . . . . . . . . . . . . . . . . . . . 252
7.4 AccountsReceivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261
7.5 Short-TermNotesReceivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269
7.6 AppendixA:Ra(cid:415)oAnalysis—AcidTest . . . . . . . . . . . . . . . . . . . . . . . 271
7.7 AppendixB:Ra(cid:415)oAnalysis—AccountsReceivableTurnover . . . . . . . . . . . . 272
SummaryofChapter7LearningObjec(cid:415)ves . . . . . . . . . . . . . . . . . . . . . . . . 273
DiscussionQues(cid:415)ons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275
Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275
Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280
8 Long-livedAssets 289
Chapter8LearningObjec(cid:415)ves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289
ConceptSelf-Check . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289
8.1 EstablishingtheCostofProperty,Plant,andEquipment(PPE) . . . . . . . . . . . 290
8.2 Deprecia(cid:415)on . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294
8.3 Par(cid:415)alYearDeprecia(cid:415)on . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300
8.4 RevisingDeprecia(cid:415)on . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300
8.5 ImpairmentofLong-livedAssets . . . . . . . . . . . . . . . . . . . . . . . . . . 304