BAF3M Grade 11 Accounting Chapter 7 PDF

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BAF3M Grade 11 Accounting Chapter 7 & 8 Test BAF3M Grade 11 College/University Accounting Chapter 7 & 8 Unit Test Study Notes 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. 2. 3. 4. 5. 6.

Transactions occur; source documents provide information Accounting entries recorded in journal Journal entries posted to the ledger accounts Ledger balanced by means of a trial balance Work sheet prepared Income statement and balance sheet prepared

Worksheet Conventions – – – –

WHY they are important Balancing figure Control accounts – loses transparency Totals and subtotals

Posting 1. 2. 3. 4. 5. 6.

Turn to the proper account in the ledger Record the date Record the page number of the journal Record the amount Calculate and enter the new account balance 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 shareholders these statements – Investors and Brokers: to stay informed about companies and make good decisions based on statements – Competitors: get an idea of how well their competition is doing and whether they are falling behind or excelling in their industry Application Questions Know how to: – use a 3 column balance sheet – use a 2 column general journal – post – create a worksheet – take off a trial balance

– – – –

create create create create

a balance sheet an income statement common size statements classified statements

VOCABULARY AND EXTRA INFORMATION Follow the breadcrumbs: relates to Hansel and Gretal and the idea of crossreferencing, trails that can be followed to discover more about a business Quickbooks – allows accounts to be deleted but they later appear on a report Simply Accounting – doesn’t allow for accounts to be deleted Do not place GST recoverable under assets, it is a liability account Transposition errors: occur whenever a trial balance difference is divisible by 9 Decimal point errors are considered transposition errors 6 Column worksheet – combines trial balance, income statement, and balance sheet all onto one page 8 Column worksheet – add “Adjustments” to the 6 column worksheet Caveat: exception/warning Worksheets are NOT financial statements Toilet Seat Analysis: up and down analysis – it doesn’t show any useful information Usually 5 years is the minimum required to make an accurate analysis Wages usually the largest expense Sunoco has large investments in oil sands Esso has large investments in natural oil

Bank debt is NOT always a bad thing Robert Morris Associates (RMA): company that collects data about an industry – relates to the idea of the drunk captain steering a giant oil tanker – relates to the concept of being careful when comparing large companies Attrition rage: leaving rate of a company Materiality: something with value or importance Aberration: something other than the normal Remuneration: relates to total package that you normally earned – e.g. salary, benefits, bonuses Caveat to full disclosure: a competitive point of view – less transparency on financial statements to prevent competitors from taking advantage of your weaknesses Street information: jungle drums – the rumours of a business’ financial position Linux: open text software...