Accounting Principles: Rapid Review
Accounting Principles: Rapid Review
Accounting Principles: Rapid Review
Weygandt, Kieso, Kimmel, Trenholm, Kinnear, Barlow: Sixth Canadian Edition, Part 1: Chapters 1-7
2. Unearned Dr. Cash Dr. Liability account Post to ledger accounts (Chapter 2)
revenues Cr. Liability account Cr. Revenue account 7
Accruals 1. Accrued No entry Dr. Asset account Prepare financial statements: income 4
revenues Cr. Revenue account statement/statement of owner’s equity/ Prepare a trial balance (Chapter 2)
balance sheet (Chapter 3)
2. Accrued No entry Dr. Expense account
5
expenses Cr. Liability account
6 Journalize and post adjusting entries:
Note: 1. Each adjusting entry affects one income statement account and Prepare an adjusted trial balance (Chapter 3) prepayments/accruals (Chapter 3)
one balance sheet account.
2. Adjusting entries never include the Cash account. Optional steps: 1. Prepare a work sheet. 2. Prepare reversing entries
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FINANCIAL STATEMENTS (CHAPTERS 1-5) Note: Alternative presentation formats are possible under international
Order of Preparation Date financial reporting standards, which may report noncurrent items
1. Income statement Period ended before current items and list items within each category in order of
2. Statement of owner’s equity Period ended reverse liquidity.
3. Balance sheet End of the period
INVENTORY (CHAPTERS 5 AND 6)
Income Statement (perpetual inventory system)
Freight Terms Freight Costs Paid / Recorded By
NAME OF COMPANY
Income Statement Shipping point Buyer
Month Ended April 30, 2014 Destination Seller
Sales revenues Perpetual vs. Periodic Journal Entries (buyer)
Sales $X
Less: Sales returns, allowances, and discounts X Event Perpetual Periodic
Net sales $X Purchase of goods Dr. Merchandise Inventory Dr. Purchases
Cost of goods sold X Cr. Cash or A/P Cr. Cash or A/P
Gross profit X Freight on purchases Dr. Merchandise Inventory Dr. Freight In
Operating expenses (shipping point) Cr. Cash or A/P Cr. Cash or A/P
(Examples: salaries, advertising, freight out, Return of purchased Dr. Cash or A/P Dr. Cash or A/P
depreciation, amortization, utilities, insurance) X goods Cr. Merchandise Inventory Cr. Purchase Returns
Profit from operations X and Allowances
Other revenues
(Example: interest) $X Payment on account Dr. Accounts Payable Dr. Accounts Payable
Other expenses with a discount Cr. Merchandise Inventory Cr. Purchase Discounts
(Example: interest) X X Cr. Cash Cr. Cash
Profit (loss) $X Adjustment of Dr. Cost of Goods Sold No entry
inventory in Cr. Merchandise Inventory
accounting records to
lower physical count
Statement of Owner’s Equity amount
NAME OF COMPANY
Statement of Owner’s Equity
Month Ended April 30, 2014 Perpetual vs. Periodic Journal Entries (seller)
Owner’s capital, beginning of period $X Event Perpetual Periodic
Add: Investments by owner $X Sale of goods Dr. Cash or A/R Dr. Cash or A/R
Profit (or deduct loss) X X Cr. Sales Cr. Sales
X Dr. Cost of Goods Sold No entry
Deduct: Drawings X Cr. Merchandise Inventory
Owner’s capital, end of period $X Freight on sales Dr. Freight Out Dr. Freight Out
(destination) Cr. Cash or A/P Cr. Cash or A/P
Return of sold Dr. Sales Returns and Dr. Sales Returns and
Balance Sheet goods (assuming Allowances Allowances
NAME OF COMPANY resaleable) Cr. Cash or A/R Cr. Cash or A/R
Balance Sheet Dr. Merchandise Inventory No entry
April 30, 2014 Cr. Cost of Goods Sold
Assets Cash received Dr. Cash Dr. Cash
Current assets on account with Dr. Sales Discounts Dr. Sales Discounts
(Examples: cash, short-term investments, accounts a discount Cr. Accounts Receivable Cr. Accounts Receivable
receivable, merchandise inventory, prepaid expenses) $X
Long-term investments
(Examples: equity investments, debt investments) X Formula for Cost of Goods Sold (periodic inventory system)
Property, plant, and equipment Cost of Goods
Beginning Cost of Goods Ending Cost of Goods
(Examples: land, land improvements, buildings, equipment) $X Inventory
+
Purchased
= Available –
Inventory
=
Sold
Less: Accumulated depreciation X X for Sale
Natural resources Inventory Cost Determination Methods
(Examples: oil wells, mines, timberland) $X
Less: Accumulated depreciation X X Perpetual Periodic
Intangible assets Specific identification
Limited life intangibles (Examples: patents, copyrights) $X First-in, first-out (FIFO) First-in, first-out (FIFO)
Less: Accumulated amortization X Average Average
X Calculation Cost of goods available for sale
Indefinite life intangibles (Examples: trademarks, franchise) X X Weighted average unit cost =
Goodwill X Total units available for sale
Total assets $X
Liabilities and Owner’s Equity Effects of Cost Determination Methods (assuming rising prices)
Liabilities PURCHASES COST OF GOODS SOLD BALANCE
Current liabilities Date Units Cost Total Units Cost Total Units Cost Total
(Examples: notes payable, accounts payable, accruals, Jan. 1 100 $10 $1,000
unearned revenues, current portion of mortgage/notes payable) $X Apr. 15 200 $11 $2,200 100 10 3,200
Non-current liabilities 200 11
(Examples: notes payable, mortgage payable) X
Total liabilities X CASH (CHAPTER 7)
Owner’s equity
Owner’s capital (end of period) X Physical and IT Control Activities
Total liabilities and owner’s equity $X • Establishment of responsibility • Physical controls
• Segregation of duties • Independent checks of performance
• Documentation procedures • Human resource controls
STOP AND CHECK: Do total assets on the balance sheet equal total liabilities
and owner’s equity? Does the ending owner’s capital on the balance sheet EP-2
equal the ending owner’s capital on the statement of owner’s equity?
Bank Reconciliation USING THE INFORMATION IN THE FINANCIAL STATEMENTS
Bank Books (CHAPTERS 1-7)
Cash balance per bank statement Cash balance per books Liquidity Ratios
Add: Deposits in transit Add: Unrecorded credit Desired
Deduct: Outstanding cheques memoranda and other depos Chapter Ratio Formula Purpose Result
Add (deduct): Bank errors its from bank statement 4 Working Current assets – Measures short-term Higher
=Adjusted cash balance per bank Deduct: Unrecorded debit memo- capital Current liabilities debt-paying ability.
randa and other payments
from bank statement 4 Current Current assets Measures short-term Higher
Add (deduct): Company errors ratio Current liabilities debt-paying ability.
=Adjusted cash balance per books 4 Acid-test Cash + Short-term Measures immediate Higher
investments + short-term debt-
Note: 1. Errors should be offset (added or deducted) on the side that made the error. Accounts receivable paying ability.
2. Adjusting journal entries are made for all of the reconciling items on the Current liabilities
books side.
6 Inventory Cost of goods sold Measures liquidity Higher
STOP AND CHECK: Does the adjusted cash balance per the bank equal the adjusted turnover Average inventory of inventory.
cash balance per books? Does the balance in the general ledger cash account equal 6 Days Days in year Measures number of Lower
the adjusted cash balance after all adjusting journal entries are posted? sales in Inventory turnover days inventory is on
inventory hand.
Debit and Credit Card Transactions
Debit Card Bank Card Profitability Ratios
Dr. Cash Dr. Cash Desired
Chapter Ratio Formula Purpose
Dr. Debit Card Expense Dr. Credit Card Expense Result
Cr. Sales Cr. Sales 5 Gross profit Gross profit Measures margin Higher
margin Net sales between selling price
and cost of goods sold.
5 Profit Profit Measures amount of Higher
margin Net sales profit generated by
each dollar of sales.
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