PowerPoint Presentation

COMM 111Introduction to Financial Accounting

Patrick Legresley, CPA, CA

September 9, 20131AgendaCourse informationToolkit, format, grading, support and objectivesIntroduction to accountingWhat is accounting?Characteristics of accounting informationAccounting principlesForms of organizationsAccounting standardsFinancial statements & accounting equationRelationship between the financial statements

2Comm 111 Tool KitSyllabusCourse description, objective, format, resources, grading scheme, tentative schedule.

TextbookFinancial Accounting (Fourth Canadian Edition). 2011. Harrison, Horngren, Lemon, Seguin and Lemon. Pearson Canada.

Course Websitehttps://qsblearning.caSlides, class problem solutions, announcements, forums, course information

Homework Website - MyAccountingLabhttp://www.MyAccountinglab.comOnline homework assignments

Calculator Your calculator needs to be approved by the Commerce Office. They will add a sticker to it.

3Class format

4Course gradingHomework assignments (best 5 of 6)10%In-class quizzes (3)15%Midterm exam25%Final exam50%

5SupportIn-class questions

My office hours (Rm 436) Tuesdays 9:00 10:30By appointment only send me an email

Tutorial sessionsWednesday 5:30 7:00 Rm 141Wednesday 7:00 8:30 Rm 141Thursday 1:00- 2:30 Rm 305 TA office hours (Rm 436)Wednesday 12:00 1:30pmThursdays 12:30 2:00pm

Your classmates6COMM 111 ObjectivesUnderstand financial accounting terminologyUnderstand accounting principles Learn to record transactionsPrepare financial statementsInterpret financial statements for decision making

7What is Accounting?Accounting is the language we use to communicate financial information for decision making

Financial AccountingExternal focus: investors, creditorsReport on entire organization, aggregateHistoricalStandards based: IFRS/GAAPEx. Financial StatementsManagement AccountingInternal focus: management, employeesInform local decisions, pieces of the organizationCurrent, future orientedEx. Departmental Budget, Scenario analysis

Course focus8Characteristics of accounting informationUnderstandable RelevantUseful to the decision makerTimelyReliableRepresentational FaithfulnessVerifiableConservativeComparable

9Accounting PrinciplesCOST: assets and liabilities measured at their cost when acquired

CONSERVATISM: when doubt exists, choose the value that results in lower income and/or assets -- avoid overstatement

CONSISTENCY: use the same accounting policies & choices each period

MATCHING: link revenues and expenses together each period

GOING CONCERN: assume firm will exist for many years

MATERIALITY: report only significant items

FULL DISCLOSURE: tell it all

10Forms of organizationsProprietorshipNo separation of management and ownershipUnlimited liabilityTaxed at personal levelPartnershipNo separation of management and ownershipUnlimited liability for general partnersTaxed at personal levelEx. Accounting FirmCorporationSeparation of management and ownershipLimited liabilityTaxed at the corporate and personal levelPrivate or publicEx. WestJetCourse focus11Accounting standardsDifferent standards depending on geographical locationCanadian GAAPUS GAAPUK GAAP

Different standard depending on type of organization (in Canada)GAAP for private companies (ASPE)GAAP for public sector (MUSH)GAAP for not-for-profits (Charities)IFRS for public companies (PAEs)

International financial reporting standardsA common languageAllows for comparability regardless of geographyIn Canada, required for public companies after January 1, 2011

12Course FocusFinancial accountingforPublic companiesReporting underIFRS

13Financial Statements (International Accounting Standard (IAS) 1)The objective of financial statements is to provide information about the financial position, financial performance and cash flows of an entity that is useful to wide range of users in making economic decisions.

Types of users: investors, creditors, managers, educators, donors, etc.

Complete set of financial statements:Statement of Financial Position (aka Balance Sheet)Statement of Comprehensive income (Income Statement + other comprehensive income)Statement of Cash FlowsStatement of Changes in Equity (including former statement of retained earnings)Notes to the financial statements14Statement of Financial PositionReports the Assets, Liabilities and Equity of a company at a point in time

AssetsResources controlled by a company from which future economic benefit may be obtained contributes to cash flowPresented as current (< 1 year) and long-term (> 1 year)Ex. cash, account receivable, inventory, investments, equipment

LiabilitiesObligations of the company Presented as current and long-termEx. accounts payables, accrued liabilities, current and long term debt

EquityOwnership of assets less liabilitiesEx. common shares, preferred shares, retained earnings15The Accounting EquationAssets = Liabilities + Equity

The equation must remain in balance

The Statement of Financial Position must remain in balance16Income StatementReports the revenue, expenses, gains and losses of a company for a period of time

Net Income (loss) = Revenue Expenses

RevenueAmounts earned by a company from the sale of goods or provision of servicesRevenue is not the same as cash receiptsWe record revenue when it is EARNED. Not when cash is collected

ExpensesResources used in the production of revenueExpenses are not the same as cash paymentsWe record expensed when they are INCURRED. Not when they are paid.Ex. Cost of goods sold, administrative expenses, interest, depreciation, salaries

Statement of Comprehensive Income (chapter 11)17Statement of Changes in EquityReports the changes in equity between the beginning and the end of the reporting period

The components of equity include:Common sharesPreferred sharesContributed surplusAccumulated other comprehensive incomeRetained earnings

Note that retained earnings is A component of equity; andA separate column in the statement of changes in equity18Statement of Cash Flows (IAS 7)Provides users of financial statements with a basis to assess the ability of the company to generate cash and the needs of the company to utilize those cash flows

Cash flows reported under three types of business activities:Operating activities (ex. cash from customers)Investing activities (ex. purchase of land)Financing activities (ex. repayment of debt)19Relationship Between StatementsIncome StatementRevenue XXXExpensesXXXNet income(loss)XXXStatement of Changes in EquityCommon Retained SharesEarningsBeginning balanceXXXXXXCommon shares issuedXXXNet income (loss) XXXEnding balanceXXXXXXStatement of Financial PositionCashXXXOther assetsXXXTotal assetsXXX

LiabilitiesXXXEquityCommon sharesXXXRetained earningsXXXTotal liabilities & equityXXXStatement of Cash FlowsCash from operationsXXXCash from investingXXXCash from financingXXXNet increase in cashXXXBeginning cash balanceXXXEnding cash balanceXXX20Notes to the Financial Statements (IAS 1)Primary purpose is to enhance the understanding of the information in the financial statements for the users.

Inform the user of the accounting policy choices used by the company.

Provide the user with more information that is not presented elsewhere in the financial statements, but is relevant to their understanding.

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