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Understanding Financial Accounting INDEX

This document provides a table of contents for a textbook on corporate financial reporting. The table of contents lists 12 chapters that cover topics such as analyzing transactions, the accounting cycle, financial statements, cash flows, accounts receivable, inventory, and financial statement analysis. It also lists 4 appendices on specimen financial statements, revenue recognition, long-term assets, and investments. The document provides an overview of the content included in the textbook.

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Daniela Galvis
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© © All Rights Reserved
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Download as PDF, TXT or read online on Scribd
0% found this document useful (0 votes)
36 views7 pages

Understanding Financial Accounting INDEX

This document provides a table of contents for a textbook on corporate financial reporting. The table of contents lists 12 chapters that cover topics such as analyzing transactions, the accounting cycle, financial statements, cash flows, accounts receivable, inventory, and financial statement analysis. It also lists 4 appendices on specimen financial statements, revenue recognition, long-term assets, and investments. The document provides an overview of the content included in the textbook.

Uploaded by

Daniela Galvis
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 7

Brief Contents

PRE FAC E   vi

1 Overview of Corporate Financial Reporting  1-1

2 
Analyzing Transactions and Their Effects on Financial
Statements  2-1

3 Double-Entry Accounting and the Accounting Cycle  3-1

4 Revenue Recognition and the Statement of Income  4-1

AL
5 The Statement of Cash Flows  5-1

RI
6 Cash and Accounts Receivable  6-1

TE
7 Inventory  7-1

8 Long-Term Assets  8-1 MA


9 Current Liabilities  9-1

10 Long-Term Liabilities  10-1


D
TE

11 Shareholders’ Equity  11-1

12 Financial Statement Analysis  12-1


GH

APPE N D I X A  Specimen Financial Statements: Dollarama Inc.  A-1


RI

APPE N D I X B   Revenue Recognition and Long-Term Contracts  B-1


PY

APPE N D I X C  Long-Term Assets  C-1


CO

APPE N D I X D  Investments   D-1

GLOSS ARY   G-1/ CO MPA N Y IN D EX  C-1/ S U BJ E CT INDE X  S-1

xii
Contents
1 Overview of Corporate Financial How Do the Standard Setters Determine What
Constitutes Useful Financial Information?  2-5
Reporting  1-1 2.3 Accrual Versus Cash Basis of Accounting  2-9
What Is the Difference between the Cash Basis of
Dollar Store Business Is No Small Change  1-1 Accounting and the Accrual Basis of Accounting?  2-9
1.1 Introduction to Financial Accounting  1-2 2.4 The Accounting Equation Template
What Is Financial Accounting?  1-3 Approach   2-11
1.2 Users and Uses of Financial Accounting  1-3 What Is the Accounting Equation Template Approach
Who Needs an Understanding of Financial to Recording Transactions?  2-11
Accounting and Why?  1-4 2.5 Using the Accounting Equation Template Approach
1.3 Forms of Business Organization  1-8 to Analyze and Record Transactions  2-13
What Is a Corporation?  1-8 How Is the Accounting Equation Used to Analyze and
What Differentiates a Corporation from Other Forms Record Transactions?  2-13
of Business?  1-9 What Are the Limitations of the Accounting Equation
1.4 Activities of a Business  1-10 Template Approach?  2-25
What Are the Three Categories of Business 2.6 Financial Statements  2-26
Activities?  1-10 How Do We Know If the Company Was Profitable
What Are Examples of Financing Activities?  1-11 during the Accounting Period?  2-26
What Are Examples of Investing Activities?  1-12 How Can We Tell If the Equity Position of
What Are Examples of Operating Activities?  1-12 Shareholders Changed during the Accounting
1.5 Financial Reporting  1-13 Period?  2-27
What Information Is Included in a Set of Financial How Do We Determine the Company’s Financial
Statements?  1-13 Position at the End of the Accounting Period?  2-28
What Is the Reporting Objective of the Statement of How Can We Tell If the Company’s Cash Position
Income? What Does It Include?  1-14 Changed during the Accounting Period?  2-28
What Is the Reporting Objective of the Statement of 2.7 Using Ratios to Analyze Financial Statements  2-32
Changes in Equity? What Does It Include?  1-17 How Do We Determine the Company’s Profit
What Is the Reporting Objective of the Statement of Margin?  2-32
Financial Position? What Does It Include?  1-18 How Do We Determine How Effective the Company
What Is the Reporting Objective of the Statement of Has Been at Generating a Return on Shareholders’
Cash Flows? What Does It Include?  1-23 Equity?  2-33
What Type of Information Is in the Notes to a How Do We Determine How Effective the
Company’s Financial Statements?  1-25 Company Has Been at Generating Profits Using Its
Assets?  2-34
2 Analyzing Transactions and Their
Effects on Financial Statements  2-1 3 Double-Entry Accounting and the
Accounting Cycle  3-1
A Growing Appetite for Financial
Transparency  2-1 Balancing the Books When Bartering  3-1
Introduction  2-3 3.1 The Double-Entry System  3-3
2.1 Accounting Standards  2-3 How Does the Double-Entry Accounting System Work
What Are Accounting Standards?  2-3 and How Does It Overcome the Limitations of the
Do All Canadian Companies Use the Same Template Method?  3-3
Accounting Standards?  2-3 3.2 The Normal Balance Concept  3-4
Who Sets the Accounting Standards Used in What Is the Normal Balance Concept and How Is It
Canada?  2-4 Used?  3-4
2.2 Qualitative Characteristics of Financial 3.3 Understanding the Accounting Cycle  3-8
Information  2-5 What Are the Steps in the Accounting Cycle?  3-8
xiii
xiv Contents

3.4 The Chart of Accounts  3-9 What Is Meant by Earnings per Share, and How Is It
What Is the Chart of Accounts?  3-9 Calculated?  4-23
Can Companies Change Their Chart of Accounts and

3.5
What Are the Implications If They Do?  3-10
Opening Balances  3-11
5 The Statement of Cash Flows  5-1
What Is the Difference between Permanent and
The Dash for Cash  5-1
Temporary Accounts?  3-11
5.1 Introduction  5-3
3.6 Transaction Analysis and Recording  3-11
How Is “Cash” Defined?  5-3
How Are Transactions Identified?  3-11
Why Is the Statement of Cash Flows of Significance to
How Are Transactions Recorded in the General
Users?  5-4
Journal?  3-12
5.2 Differences between the Statement of Cash Flows
Why Are Transactions Also Recorded in the General
and the Statement of Income  5-5
Ledger?  3-19
How Does the Statement of Cash Flows Differ from
What Is the Purpose of Preparing a Trial Balance?  3-21
the Statement of Income?  5-6
3.7 Adjusting Entries  3-22
5.3 Understanding the Statement of Cash Flows  5-7
What Are Adjusting Entries and Why Are They
What Are the Categories of Cash Flows Presented in
Necessary?  3-22
the Statement of Cash Flows and What Are Typical
What Is the Purpose of Preparing an Adjusted Trial
Transactions Included in Each Category?  5-7
Balance?  3-28
Why Is So Much Significance Placed on Cash Flows
3.8 Preparing Financial Statements and Closing
from Operating Activities?  5-8
Entries  3-29
What Is the Difference between the Direct and
What Are Closing Entries and Why Are They
Indirect Methods of Preparing Cash Flows from
Necessary?  3-29
Operating Activities?  5-9
What Do We Know If a Company Has Retained
What Are the Options for Classifying Cash Flows
Earnings?  3-34
Related to Interest and Dividends Paid and
Received?  5-11
4 Revenue Recognition and the Are There Investing and Financing Activities That Do
Statement of Income  4-1 Not Appear on the Statement of Cash Flows?  5-12
5.4 Preparing the Statement of Cash Flows Using the
Competing in the Revenue Game  4-1 Indirect Method  5-12
4.1 Revenue and Its Significance  4-2 How Is a Statement of Cash Flows Prepared
What Is Revenue and Why Is It of Significance to Using the Indirect Method for Operating
Users?  4-3 Activities?  5-13
Why Is Understanding How a Company Recognizes 5.5 Preparing the Statement of Cash Flows Using the
Revenue of Significance to Users?  4-4 Direct Method  5-24
4.2 Revenue Recognition  4-5 How Is a Statement of Cash Flows Prepared Using
When Are Revenues Recognized?  4-5 the Direct Method for Operating Activities?  5-24
4.3 Other Revenue Recognition Issues  4-13 5.6 Interpreting Cash Flow Information  5-26
How Do Rights of Return, Warranties, Consignment, How Can the Information Presented in a
and Third-Party Sale Arrangements Affect Revenue Statement of Cash Flows Be Used to Manage a
Recognition?  4-13 Company?  5-26
4.4 Statement of Income Formats  4-16 What Can Cash Flow Patterns Tell Us?  5-28
How Does a Single-Step Statement of Income Differ 5.7 Financial Statement Analysis  5-30
from a Multi-Step Statement of Income?  4-16 How Do We Determine What Portion of a Company’s
4.5 Statement of Comprehensive Income  4-19 Current Liabilities Could Be Met with Cash Flows
What Is Comprehensive Income and How Does It from Operating Activities?  5-30
Differ from Net Income?  4-19 How Do We Determine How Much Net Free Cash Flow
4.6 Presentation of Expenses by Nature or by a Company Generates?  5-31
Function  4-20
How Does a Statement of Income Presenting 6 Cash and Accounts Receivable  6-1
Expenses by Function Differ from One Presenting
Expenses by Nature of the Items?  4-20 Will That Be Cash or Credit?  6-1
4.7 Financial Statement Analysis  4-22 6.1 Introduction  6-3
Contents  xv

Why Are Cash and Accounts Receivable of What Goods Are Included in a Company’s
Significance to Users?  6-3 Inventory?  7-7
6.2 Cash  6-4 7.3 Inventory Systems  7-8
What Is Included in the Definition of “Cash”?  6-4 What Is a Periodic Inventory System?  7-8
At What Amount Is Cash Reflected on the Statement What Is a Perpetual Inventory System?  7-10
of Financial Position?  6-4 What Are the Key Distinctions between Periodic and
6.3 Internal Control  6-4 Perpetual Inventory Systems?  7-11
Who Is Responsible for an Organization’s Internal How Does Management Decide Which Inventory
Controls?  6-4 System to Use?  7-12
What Are the Main Principles of Internal Control?  6-5 7.4 Cost Formulas  7-13
What Are the Limitations of Internal Control?  6-7 What Costs Are Included in Inventory?  7-13
6.4 Bank Reconciliation  6-7 What Are Cost Formulas and Why Are They
What Is the Purpose of a Bank Reconciliation and Necessary?  7-14
Why Must It Be Prepared?  6-7 How Are Cost of Goods Sold and Ending Inventory
How Is a Bank Reconciliation Prepared?  6-8 Determined Using the Specific Identification,
6.5 Accounts Receivable  6-12 Weighted-Average, and First-In, First-Out Cost
What Are Accounts Receivable?  6-12 Formulas under a Perpetual Inventory System?  7-17
Why Do Companies Sell on Account?  6-12 How Do Companies Determine Which Cost Formula
Are There Any Additional Costs from Selling on to Use?  7-19
Account?  6-13 7.5 Inventory Valuation  7-20
6.6 The Carrying Amount of Accounts Receivable   6-14 At What Value Is Inventory Reflected on the
At What Amount Are Accounts Receivable Reflected Statement of Financial Position?  7-21
on the Statement of Financial Position?  6-14 How Is the Lower of Cost or Net Realizable Value
6.7 The Allowance Method  6-16 Applied to Inventory?  7-22
What Is the Allowance Method of Accounting for What Types of Inventory Valuation Errors Can
Credit Losses?  6-16 Happen and What Impact Do They Have on the
6.8 Estimating Expected Credit Losses under the Financial Statements?  7-23
Allowance Method  6-20 7.6 Gross Margin  7-24
What Are the Various Risk Characteristics That Could What Is Gross Margin and Why Is It a Key
Be Used to Group Receivables?  6-20 Measure?  7-25
How Does Management Determine the Company’s 7.7 Internal Controls and Inventory  7-26
Expected Rate of Credit Losses?  6-21 What Principles of Internal Control Can Be Applied to
How Does a Company Quantify Its Allowance for Inventory?  7-26
Expected Credit Losses?  6-22 7.8 Financial Statement Analysis  7-27
6.9 The Direct Writeoff Method  6-24 How Often Does the Company Sell through Its
What Is the Direct Writeoff Method and When Is It Inventory?  7-27
Acceptable to Use It?  6-24 How Many Days Did It Take to Sell through the
6.10 Cash-to-Cash Cycle  6-25 Company’s Inventory?  7-28
How Do Companies Shorten Their Cash-to-Cash How Can Inventory Amounts Be Estimated?  7-30
Cycle?  6-25 7.9 Appendix: Inventory Cost Formulas under the
6.11 Financial Statement Analysis  6-27 Periodic Inventory System  7-31
What Is Liquidity and How Is It Assessed?  6-27 How Are Cost of Goods Sold and Ending Inventory
How Effective Has the Company Been at Collecting Determined Using the Specific Identification,
Its Accounts Receivable?  6-29 Weighted-Average, and First-In, First-Out Cost
Formulas under a Periodic Inventory System?  7-31

7 Inventory  7-1
8 Long-Term Assets  8-1
Pivoting in a Pandemic  7-1
7.1 Introduction  7-3 A Canadian Icon’s Long-Term Assets  8-1
What Is Inventory?  7-3 8.1 Introduction  8-3
Why Is Inventory of Significance to Users?  7-3 What Are the Various Types of Long-Term Assets?  8-3
7.2 Types of Inventory  7-5 Why Are Long-Term Assets of Significance to
What Are the Major Classifications of Inventory?  7-5 Users?  8-4
xvi Contents

8.2 Valuation of Property, Plant, and Equipment  8-5 At What Amount Are Biological Assets Reflected on
At What Amount Are Property, Plant, and the Statement of Financial Position?  8-36
Equipment Reflected on the Statement of Financial 8.11 Financial Statement Analysis  8-37
Position?  8-5 How Do We Determine the Relative Age of the
What Is Included in “Cost”?  8-6 Company’s Long-Term Assets?  8-37
What Happens When a Company Purchases Multiple How Do We Assess How Effectively the Company Has
Assets for a Single Price?  8-7 Used Its Long-Term Assets?  8-37
How Do We Account for Costs Subsequent to
Purchase?  8-8
Can a Company Carry Property, Plant, and 9 Current Liabilities  9-1
Equipment at Their Fair Values?  8-8
Booking Revenue for Gift Cards  9-1
8.3 Depreciation  8-9
9.1 Introduction  9-3
Why Do We Depreciate Property, Plant, and
Why Is the Distinction between Current and Non-
Equipment?  8-9
Current Liabilities of Significance to Users?  9-3
8.4 Depreciation Methods  8-10
9.2 Valuation Methods  9-4
What Are the Methods Used to Depreciate Property,
At What Amount Are Current Liabilities Reflected on
Plant, and Equipment?  8-10
the Statement of Financial Position?  9-4
How Do We Choose a Depreciation Method?  8-19
9.3 Current Liabilities Arising from Transactions with
How Do We Record Depreciation Expense?  8-19
Lenders  9-4
Does an Asset’s Carrying Amount Tell Me What It Is
What Current Liabilities Arise from Transactions with
Worth?  8-20
Lenders?  9-5
How Do We Determine Depreciation for Partial
9.4 Current Liabilities Arising from Transactions with
Periods?  8-20
Suppliers  9-8
Is Depreciation Expense Recorded Every Period for
What Current Liabilities Arise from Transactions with
Each PP&E Asset?  8-20
Suppliers?  9-8
Does the Choice of Depreciation Method Affect
Why Are Accounts Payable Sometimes Considered
Corporate Income Taxes?  8-21
“Free Debt”?  9-8
8.5 Changes in Depreciation Methods  8-21
9.5 Current Liabilities Arising from Transactions with
Can We Change Depreciation Estimates and
Customers  9-9
Methods?  8-21
What Current Liabilities Arise from Transactions with
8.6 Impairment  8-25
Customers?  9-9
What Does It Mean If an Asset Is Impaired?   8-25
How Are Deferred Revenues Accounted For?  9-9
8.7 Disposal of Property, Plant, and Equipment  8-27
How Are the Liabilities Related to Gift Cards
How Do We Account for Disposals of Property, Plant,
Accounted For?  9-10
and Equipment?  8-27
How Are the Liabilities Related to Loyalty Programs
8.8 Intangible Assets  8-29
Accounted For?  9-12
What Are Intangible Assets?  8-29
How Are Warranties Accounted For?  9-13
At What Amount Are Intangible Assets Reflected on
9.6 Current Liabilities Arising from Transactions with
the Statement of Financial Position?  8-31
Employees  9-16
How Is Accounting for Intangible Assets Different
What Current Liabilities Arise from Transactions with
from Accounting for Property, Plant, and
Employees?  9-16
Equipment?  8-32
How Are Payroll Costs Accounted For?  9-17
8.9 Goodwill  8-32
Why Are a Company’s Wage Costs Greater Than What
What Is Goodwill?  8-32
It Pays Its Employees?  9-19
At What Amount Is Goodwill Reflected on the
9.7 Current Liabilities Arising from Transactions with
Statement of Financial Position?  8-34
the Government  9-20
How Is Goodwill Treated Differently from Other Long-
What Current Liabilities Arise from Transactions with
Term Assets?  8-35
Government?  9-20
8.10 Other Long-Term Assets  8-35
When Are a Company’s Taxes Due?  9-21
What Are Right-of-Use Assets?  8-35
9.8 Current Liabilities Arising from Transactions with
At What Amount Are Right-of-Use Assets Reflected on
Shareholders  9-21
the Statement of Financial Position?  8-35
What Current Liabilities Arise from Transactions with
What Are Biological Assets?  8-36
Shareholders?  9-21
Contents  xvii

9.9 Financial Statement Analysis  9-22


How Do We Determine How Long a Company Takes
11 Shareholders’ Equity  11-1

to Pay Its Suppliers?  9-22 Investors Warm up to Owning Shares in Canada


Goose  11-1
10 Long-Term Liabilities  10-1 11.1 Introduction  11-3
Why Is Shareholders’ Equity of Significance to
Avoiding Pension Turbulence  10-1 Users?  11-3
10.1 Introduction  10-3 11.2 The Shareholders’ Equity Section  11-3
Why Are Long-Term Liabilities of Significance to What Is Included in the Shareholders’ Equity Section
Users?  10-3 of the Statement of Financial Position?  11-3
10.2 Long-Term Liabilities Arising from Transactions 11.3 Types of Shares  11-6
with Lenders  10-4 What Types of Shares Is a Company Allowed to
What Long-Term Liabilities Arise from Transactions Issue?  11-6
with Lenders?  10-4 What Is the Difference between Authorized, Issued,
How Are Long-Term Loans and Mortgages Accounted and Outstanding Shares?  11-7
For?  10-4 Why Would a Company Repurchase Its Own
What Are Bonds and How Do They Differ from Long- Shares?  11-7
Term Loans?  10-7 What Are the Differences between Common Shares
How Are Bonds Priced in the Marketplace?  10-10 and Preferred Shares?  11-8
How Does the Pricing of Bonds Affect a Company’s 11.4 Dividends  11-18
Interest Expense?   10-11 Do Companies Have to Pay Dividends?  11-18
10.3 Long-Term Liabilities Arising from Transactions What Are the Different Dates Involved in Declaring
with Other Creditors  10-14 and Paying a Dividend?  11-19
What Long-Term Liabilities Arise from Transactions How Are the Declaration and Payment of Dividends
with Other Creditors?  10-14 Recorded?  11-20
Why Do Companies Lease Capital Assets?  10-14 What Is the Difference between a Cash Dividend and
How Are Leases Accounted For?  10-14 a Stock Dividend?  11-21
10.4 Long-Term Liabilities Arising from Transactions 11.5 Stock Splits  11-24
with Employees  10-16 What Is a Stock Split?  11-24
What Long-Term Liabilities Arise from Transactions Why Would a Company Split Its Shares?  11-25
with Employees?  10-16 11.6 Financial Statement Analysis  11-26
What Are the Differences between Defined What Is the Price/Earnings Ratio?  11-27
Contribution, Defined Benefit, and Hybrid Pension What Other Ratios Measure the Return the
Plans?  10-17 Shareholders Are Earning?  11-28
What Are Other Post-Employment 11.7 Financing with Equity  11-30
Benefits?  10-20 What Are the Advantages and Disadvantages of
10.5 Long-Term Liabilities Arising from Differences Financing with Equity?  11-30
between Accounting Standards and the Income
Tax Act  10-21
What Long-Term Liabilities Arise as a Result of
12 Financial Statement Analysis  12-1
Differences between Accounting Standards and the
Student Stock Analysts Try to “Beat the
Income Tax Act?  10-21
Street”  12-1
10.6 Commitments and Guarantees  10-22
12.1 Introduction  12-3
How Are Contractual Commitments and Guarantees
What Is Financial Statement Analysis?  12-3
Reflected in the Financial Statements?  10-22
What Is the Process for Analyzing Financial
10.7 Contingencies  10-23
Statements?  12-4
What Are Contingent Liabilities and How Are They
12.2 The Contexts for Financial Statement
Accounted For?  10-23
Analysis  12-5
10.8 Financial Statement Analysis  10-25
What Are the Common Contexts for Financial
How Do Users Assess a Company’s Degree of
Statement Analysis?  12-5
Leverage?  10-25
Why Is an Understanding of Context Essential to the
How Do Users Assess a Company’s Ability to Service
Analysis?  12-5
Its Long-Term Debt Obligations?  10-28
12.3 Understanding the Business   12-6
xviii Contents

Why Is It Essential to Understand the Business Being 12.8 Limitations of Ratio Analysis  12-37
Analyzed?  12-6 What Are the Limitations of Ratio Analysis?  12-37
12.4 Business Information  12-7 12.9 Use of Non-IFRS Financial Measures and Other
What Information Is the Financial Statement Analysis Performance Measures  12-39
Based On and Where Is It Found?  12-7 What Non-IFRS Financial Measures and Other
12.5 Financial Statement Analysis Perspectives  12-11 Performance Measures Are Commonly Used by
What Is the Difference between Retrospective and Investors?  12-39
Prospective Analysis?  12-11 Why Should We Be Cautious When Using Non-IFRS
What Is the Difference between Trend Analysis and Financial Measures and Other Performance
Cross-Sectional Analysis?  12-11 Measures?  12-40
12.6 Financial Statement Analysis Techniques  12-16
What Is Common-Size Analysis?  12-16 Specimen Financial Statements:
A P P E NDIX A  
How Is Ratio Analysis Used to Analyze Financial Dollarama Inc.  A-1
Statements?  12-18
What Are the Common Categories of Ratios?  12-19 Revenue Recognition and Long-
A P P E NDIX B  
12.7 Ratio Analysis  12-22 Term Contracts  B-1
What Liquidity Ratios Are Commonly Used?  12-22
What Activity Ratios Are Commonly Used?  12-24 A P P E NDIX C  Long-Term Assets  C-1
What Solvency Ratios Are Commonly Used?  12-28
What Profitability Ratios Are Commonly A P P E NDIX D   Investments   D-1
Used?  12-30
What Equity Analysis Ratios Are Commonly G LO SS A RY  G-1/ CO M PA NY INDE X  C-1/ SUBJECT
Used?  12-33 INDE X   S-1

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