Question

1 ACCT1002 – Introduction to Financial Accounting UWI Open Campus ACCT 1002 INTRODUCTION TO FINANCIAL ACCOUNTING Worksheet 1 Tutorial Worksheet # 1 Accounting and the Business Environment 1. The primary objective of financial reporting is to provide information useful for making investment and lending decisions. To be useful, financial information must possess certain characteristics. State these characteristics and discuss each. 2. Accountants often refer to GAAP. What does the acronym GAAP means and why is it important in accounting? 3. What does the acronym FASB represent and what role does it play in financial accounting? 4. Suppose you are the sole owner of a bicycle sales and repair shop for many years. Which business type would best protect your personal assets from product liability exposure and why. 5. Suppose you and a friend developed a new technology for home computer systems. However, you both need to raise a large amount of capital to build the production and support facilities to market the product successfully. Explain which of the business type would be best suited to help the company raise the necessary capital to begin production. 6. Bill Rogers has three different businesses. He has only one bank account for transactions relating to all of his various businesses. Which of the concepts or principles of accounting is Bill violating and why? 7. Tate Corporation purchased a building for its grocery store for $30,000 in 1970. Based on inflation estimates, the amount of this asset has been adjusted in the accounting records. The building is now reported at $75,000. Which of the following concepts or principles of accounting is being violated and why?

Answer 1

Course Description

This course is an introductory course designed for students of accounting and those in other areas of study. It aims at providing a practical and a theoretical understanding of the principles and concepts involved in the preparation of financial statements. Students are exposed to a conceptual analytical approach with the aim of improving their critical thinking and communicative skills.

In the delivery of this course, theory will be discussed in an instructor led lecture environment. For all topics covered at least one in-class question would be completed. It is hoped that this combination of methods will enable students to apply the theories discussed to solve problems.

Purpose of Course

This course will introduce students to the principles, concepts and applications of financial accounting.

Goals

By the end of the course, students should be able to:

• Understand basic accounting issues for the major types of business entities, namely      the sole                proprietorship, the partnership and the corporation.
• Maintain and update basic accounting records for the above entities.
• Prepare basic accounting reports (financial statements), namely, the Balance Sheet,       Income                Statement and Statement of Owner’s Equity.
• Interpret accounting information.
• Use accounting information in decision-making.

Part One

Lesson One – Introduction to Financial Accounting

After studying this lesson, you should be able to:

• Define accounting and list the users of accounting information.
• Summarize the uses and limitations of accounting information.
• Differentiate between financial and management accounting.
• Explain the use of accounting principles in financial reporting.
• Define assets, liabilities and owner’s equity, and appreciate the relationship of these components on the accounting equation.
• Determine the impact of transactions on the accounting equation.
• Identify the items that make up owner’s equity.
• Use revenues and expenses to prepare a summary income statement.

Lesson Two – Recording Accounting Information

After studying this lesson, you should be able to:

• Explain the double entry principle of accounting.
• Define the term “Account” and demonstrate the use of a chart of accounts.
• Describe the basic accounting records.
• Describe the process of journalizing transactions and posting entries to the General and Subsidiary Ledgers.
• Prepare a Trial Balance.
• Determine the impact of errors on the trial balance and apply various steps necessary to locate an error.

Part Two

Lesson Three – Recording Accounting Information

After studying this lesson, you should be able to:

• Identify the major elements of an Income Statement, Statement of Owner’s Equity and a Balance Sheet.
• Explain the impact of the “periodicity” assumption.
• Apply the revenue recognition principle.
• Apply the matching principle and record expenses in the proper accounting period.
• Explain cash basis accounting.
• Prepare adjusting entries.

Lesson Four – Closing Accounts and Accounting for a Merchandising Business

After studying this lesson, you should be able to:

• Close a set of books and prepare a post-closing trial balance.
• Describe the steps in the accounting cycle.
• Chart the elements of an operating cycle and construct a classified balance sheet.
• Account for typical transactions in a merchandising business.
• Compute cost of goods sold and gross profit to prepare financial statements for a merchandising business.

Part Three

Lesson Five – Accounting Systems, Control Accounts, Internal Controls and Cash Management

After studying this lesson, you should be able to:

• Describe the role and importance of an accounting system.
• Explain the role of and relationship among control accounts, subsidiary ledgers and special journals.
• Explain the nature of internal control and identify the relevant procedures.
• Explain Cash Management and identify cash control procedures.
• Prepare a bank reconciliation.
• Establish and operate a petty cash system.

Lesson Six – Accounting for Receivables and Payables

After studying this lesson, you should be able to:

• Identify the costs related to credit sales.
• Discuss the categories of receivables.
• Compare and contrast the direct write off and the allowance methods of accounting for uncollectible accounts.
• Compare and contrast the income statement and the balance sheet methods of accounting for uncollectible accounts.
• Account for write-offs and subsequent recoveries under the allowance method.
• Use key ratios to evaluate receivables collections.
• Determine internal controls that apply to receivables.
• Calculate and determine journal entries for notes receivable and interest.

Lesson Seven – Inventory

After studying this lesson, you should be able to:

• Describe the nature of inventory.
• Explain ownership issues with goods in transit and on consignment.
• Identify the effects of inventory errors on the financial statements.
• Apply the following methods to cost inventory: Specific Identification Method, FIFO, LIFO, and Weighted Average Cost method.
• Apply the lower of cost or market method.
• Account for inventory purchases using the periodic and perpetual systems.
• Prepare a single step and multiple step income statement for a merchandising business.

Lesson Eight – Property Plant & Equipment, and Natural Resources

After studying this lesson, you should be able to:

• Describe the nature of property, plant and equipment (PP&E).
• Calculate the cost of PP&E.
• Determine whether expenses related to PP&E are capital or operating expenditure.
• Explain the concept of depreciation.
• Compute depreciation using the following methods: Straight Line, Units of Output and declining balance.
• Account for revisions in depreciation rates.
• Determine cost and depletion for natural resources.

Part Three

Lesson Nine – Partnerships

After studying this lesson, you should be able to:

• Compare and contrast a partnership business with a sole trader.
• Account for the formation of a partnership and distribution of profits.
• Account for the addition and withdrawal of a partner.
• Account for the liquidation of a partnership.

Lesson Ten – Corporations

After studying this lesson, you should be able to:

• Identify the features of a corporate entity.
• Distinguish between common and preference stock, and calculate the dividends associated with them.
• Describe the nature of paid-in-capital and share capital.
• Account for par, no-par and stated value stock.
• Prepare and interpret the stockholder’s equity as presented on the balance sheet.
• Account for treasury stock.
• Describe and where relevant account for cash and stock dividends and stock splits.
• Apply rules for accounting for changes in policy, error or major operating changes.
• Compute earnings per share and book value per share.