Module 1: What is accounting?

Checking that goods have been received prior to payment for them. Financial accounting, management accounting personnel, neither

Financial accounting

Collecting amounts due from credit customers. Financial accounting, management accounting personnel, neither

Financial accounting

Keeping records of hours worked by hourly paid employees. Financial accounting, management accounting personnel, neither

Financial accounting

Paying wages to sales staff. Financial accounting, management accounting personnel, neither

Financial accounting

Recording amounts due from credit customers. Financial accounting, management accounting personnel, neither

Financial accounting

Loblaws has its annual financial statements audited by a firm of professional auditors. Scorekeeping, attention directing, decision making

Scorekeeping

Loblaws pays Ocean Fruit Inc. and records the payment in its financial records. Scorekeeping, attention directing, decision making

Scorekeeping

Loblaws receives a shipment of canned fruit from Ocean Fruit Inc. for sale in its stores, and records the amount owed to Ocean Fruit in its financial records. Scorekeeping, attention directing, decision making

Scorekeeping

Loblaws sells the canned fruit and records the cash received going into the bank. Scorekeeping, attention directing, decision making

Scorekeeping

The balance sheet

A list, at a point in time, of a company's assets and liabilities, and hence, owner's equity.

The income statement

A list, for a period of time, of a company's revenues and expenses, and hence, net income for the period.

Loblaws calculates the inventory of canned goods on hand and compares the actual inventory turnover ratio with the budgeted inventory turnover ratio. Scorekeeping, attention directing, decision making

Attention directing

Loblaws circulates a monthly profit report to its department managers. Scorekeeping, attention directing, decision making

Attention directing

Loblaws publishes its annual financial statements and circulates them to shareholders. Scorekeeping, attention directing, decision making

Attention directing

Checking the existence, ownership, and basis of valuation of long-term assets, such as production machinery. Financial accounting, management accounting personnel, neither

Auditor

Loblaws compares the profit markup on canned fruit from Ocean Fruit Inc. with that of Caribbean Canned Goods Co., and chooses to switch supplies. Scorekeeping, attention directing, decision making

Decision making

Loblaws uses the budgeted profit for the year to justify expansion of the range of goods offered. Scorekeeping, attention directing, decision making

Decision making

Loblaws uses the monthly departmental profit report to justify giving three of its managers a performance-related bonus. Scorekeeping, attention directing, decision making

Decision making

Harriet, an architect, pays her helper, Judy, one month's wages of $2,500. Increases owners' equity, decreases owners' equity, leaves owners' equity unchanged

Decrease owners' equity - $2,500

Dick, a retailer of foods, has goods for resale marked at $9,000 selling price. The goods had cost him $5,000. Due to some discolouration he had to sell them for $4,500. Increases owners' equity, decreases owners' equity, leaves owners' equity unchanged

Decrease owners' equity - $500

"A set of principles that should be applied when accounting transactions are recorded and reported" is a description of: a) the desirable characteristics of accounting information; b) accounting concepts; c) business entity and historic cost; d) auditing; e) none of the above.

accounting concepts

Accounting is a necessary skill for: a) only professional accountants; b) professional accountants and economists; c) managers of organizations that have a profit objective; d) all managers; e) none of the above.

all managers

Constant dollar

an accounting concept that assumes dollars are directly comparable, whatever time they arose

The accounting equation is: a) assets = liabilities + equity; b) assets + liabilities = equity; c) assets + equity = liabilities; d) liabilities = assets + equity; e) none of the above.

assets = liabilities + equity

Sydney's Sprouts bought inventory for $10,000 on one month's credit terms: a) long-term assets increased by $10,000, current assets decreased by $10,000, liabilities and equity were unchanged; b) assets increased by $10,000, liabilities increased by $10,000, equity was unchanged; c) assets decreased by $10,000, equity decreased by $10,000; d) no net change to assets, liabilities or equity; e) none of the above.

assets increased by $10,000, liabilities increased by $10,000, equity was unchanged

Sydney's Sprouts is a retail establishment, which was established on 1st January 2011 to sell organic sprouts in the North York area. They engaged in the following transactions: in each case check the response that best describes the outcome from the perspective of the company. They are all independent situations. Sydney put $25,000 cash from her personal account into the Sydney's Sprouts bank account: a) assets increased by $25,000, liabilities increased by $25,000; b) assets increased by $25,000, revenues increased by $25,000; c) assets increased by $25,000, assets decreased by $25,000; d) assets increased by $25,000, equity increased by $25,000; e) none of the above.

assets increased by $25,000, equity increased by $25,000

The balance sheet reports: a) assets, expenses and equity; b) revenues, expenses and net income; c) assets, liabilities and equity; d) costs and expenses only; e) none of the above.

assets, liabilities and equity

Sydney's Sprouts sold sprouts that had cost $15,000 for $30,000 cash: a) no change to assets, liabilities or equity; b) current assets increased by $15,000 net, liabilities and equity were unchanged; c) current assets increased by $15,000 net, liabilities increased by $15,000, equity was unchanged; d) current assets increased by $15,000 net, liabilities were unchanged, equity increased by $15,000; e) none of the above.

current assets increased by $15,000 net, liabilities were unchanged, equity increased by $15,000

Materiality

the convention that trivial items need not be reported

The financial statement that reports revenues, expenses and net income is called: a) the balance sheet; b) the income statement; c) the cash flow statement; d) the statement of changes in financial position; e) none of the above.

the income statement

Accounting is referred to as: a) the dismal science; b) the triumph of hope over experience; c) an alternative to lion taming; d) the language of business; e) none of the above.

the language of business

The conservatism principle requires the following to be reported as the value of a current asset; a) the higher of the cost or the realizable value; b) the cost; c) the lower of the cost or the realizable value; d) the external selling price; e) none of the above.

the lower of the cost or the realizable value

Historic Cost

the original cost of an asset to the company

Accounting

the process of recording, organizing, and communicating financial information

Accrual

the recording of revenues and expenses in the time period when the economic flow occurs, rather than when the cash is received or paid

Matching

the relating of sales revenues to the economic effort expended in achieving them: the relationship of expenses to time periods

Neutrality

to present information free from any bias

Objectives of financial reporting

1. are prepared for the use of actual and potential investors and creditors 2. are for the use of those who make investing and lending decisions 3. should assist users to predict future cash flows

The four main financial statements

1. balance sheet 2. income statement 3. statement of retained earnings 4. cash flow statement

Equity can be defined as: a) the owners' residual interest in the organization; b) assets - liabilities; c) the net worth of the organization; d) all of the above; e) none of the above.

1. the owners' residual interest in the organization 2. assets - liabilities 3. the net worth of the organization

The statement of cash flows

A statement that lists the various sources of cash inflow (such as operations and financing) and the uses of cash flow (such as investing activities), and hence the change in cash over a period of time.

The statement of retained earnings

A statement that shows the accumulated retained earnings at a point in time, its increase due to net income, its decrease due to the payment of dividends, and hence, the accumulated retained earnings at the end of the period.

Thomasina, a computer consultant, carries out a system upgrade for a client. She charges the client $15,000; she had to buy software for $8,000 and employ a helper for $2,000. Increases owners' equity, decreases owners' equity, leaves owners' equity unchanged

Increase owners' equity - $5,000

Harriet, an architect, designs a building for a client and bills the client $55,000. Increases owners' equity, decreases owners' equity, leaves owners' equity unchanged

Increase owners' equity - $55,000

Advising on performance-related bonus payments to employees Financial accounting, management accounting personnel, neither

Management accounting

Comparing monthly results with operating budgets. Financial accounting, management accounting personnel, neither

Management accounting

Investigating deviations from budgets. Financial accounting, management accounting personnel, neither

Management accounting

Preparing operating budgets. Financial accounting, management accounting personnel, neither

Management accounting

Dick, a retailer of foods, buys inventory for resale for $5,000. His normal markup is to add 80% to cost to get his target selling price. Increases owners' equity, decreases owners' equity, leaves owners' equity unchanged

No change in owners' equity

Shareholder rights in respect of financial statements

Right to have a copy of the financial statements sent to you Right to ask the directors questions about the financial statements at the annual general meeting Right to approve the financial statements at the annual general meeting

A professional accountant who is allowed to audit companies throughout Canada would be: a) a member of the Society of Management Accountants; b) a Chartered Accountant; c) B.Comm (Accounting); d) M.B.A.; e) none of the above.

a Chartered Accountant

The auditor: a) is employed on behalf of the shareholders; b )is paid by the company; c) reports on compliance with GAAP; d) all of the above; e) none of the above.

is employed on behalf of the shareholders; is paid by the company; reports on compliance with GAAP

Hyperion Co ordered a new sales statistics system from its software supplier. The system was installed during November 2002 and debugged during December 2002, finally going live in January 2003. The $100,000 cost was paid in February 2003. As at the 31st December: a) it would not be recorded, as the transaction was not complete, and the recognition concept applies; b) it would be shown as an asset: $100,000 and a liability: $100,000, because of the recognition principle; c) it would be shown as a liability of $100,000, but not as an asset because of the conservatism principle; d) it would be shown as an asset of $100,000 because of the going concern principle; e) none of the above.

it would be shown as an asset: $100,000 and a liability: $100,000, because of the recognition principle

Sydney's Sprouts bought inventory for $10,000 cash: a) long-term assets increased by $10,000, current assets decreased by $10,000, liabilities and equity were unchanged; b) assets increased by $10,000, liabilities increased by $10,000, equity was unchanged; c) assets decreased by $10,000, equity decreased by $10,000; d) no net change to assets, liabilities or equity; e) none of the above.

long-term assets increased by $10,000, current assets decreased by $10,000, liabilities and equity were unchanged

Sydney's Sprouts bought store equipment for $10,000 cash: a) long-term assets increased by $10,000, current assets decreased by $10,000, liabilities and equity were unchanged; b) assets increased by $10,000, liabilities increased by $10,000, equity was unchanged; c) assets decreased by $10,000, equity decreased by $10,000; d) no change to assets, liabilities or equity; e) none of the above.

long-term assets increased by $10,000, current assets decreased by $10,000, liabilities and equity were unchanged

The objectives of accounting are: a) calculating rational expectations; b) providing information useful to investors and creditors; c) delaying tax payments; d) maximizing owners' wealth; e) none of the above.

providing information useful to investors and creditors

Two desirable characteristics of accounting information are: a) relevance and reliability; b) historic cost and conservatism; c) dollar-based measurement and low debt ratios; d) liquidity and profitability; e) none of the above.

relevance and reliability

Assets are normally valued based on their historic cost to the business. Basing accounting records on managers' estimates of the value of assets will increase the: a) relevance and reliability; b) relevance, but probably not the reliability; c) reliability, but probably not the relevance; d) neither relevance nor reliability; e) none, or all of the above.

relevance, but probably not the reliability

The three roles of accounting are: a) attention directing, control and decision making; b) score -keeping, attention directing and decision support; c) auditing, financial accounting and managerial accounting; d) finance and personal financial planning; e) none of the above

score -keeping, attention directing and decision support;

Types of accounting

scorekeeping, attention-directing, decision-making roles | financial, management accounting