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TEST BANK for Accounting Principles, Volume 1, 9th Canadian Edition by Jerry J. Weygandt, Donald E. Kieso and Paul D. Kimmel ISBN-. All Chapter 1-10 Solutions. 1269 Pages. CA$44.99   Add to cart
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TEST BANK for Accounting Principles, Volume 1, 9th Canadian Edition by Jerry J. Weygandt, Donald E. Kieso and Paul D. Kimmel ISBN-. All Chapter 1-10 Solutions. 1269 Pages.

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TEST BANK for Accounting Principles, Volume 1, 9th Canadian Edition by Jerry J. Weygandt, Donald E. Kieso and Paul D. Kimmel ISBN-13 978-1. All Chapter 1-10 Solutions. 1269 Pages. Tabl e of contents Volume 1 1 Accounting in Action 2 The Recording Process 3 Adjusting the Accounts 4 Completion ...

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  • January 30, 2023
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,Test Bank for Accounting Principles, Ninth Canadian Edition




CHAPTER 1
ACCOUNTING IN ACTION
CHAPTER LEARNING OBJECTIVES


1. Identify the uses and users of accounting and the objective of financial reporting. Accounting is
the information system that identifies, records, and communicates the economic events of an
organization to a wide variety of interested users. Good accounting is important to people both inside
and outside the organization. Internal users, such as management, use accounting information to
plan, control, and evaluate business operations. External users include investors and creditors,
among others. Accounting data are used by investors (owners or potential owners) to decide whether
to buy, hold, or sell their financial interests. Creditors (suppliers and bankers) evaluate the risks of
granting credit or lending money based on the accounting information. The objective of financial
reporting is to provide useful information to investors and creditors to make these decisions. Users
need information about the business’s ability to earn a profit and generate cash. For our economic
system to function smoothly, reliable and ethical accounting and financial reporting are critical.


2. Compare the different forms of business organization. The most common examples of business
organization are proprietorships, partnerships, and corporations. Proprietorships and partnerships
are not separate legal entities but are separate entities for accounting purposes; income taxes are
paid by the owners and owners have unlimited liability. Corporations are separate legal entities as
well as separate entities for accounting purposes; income taxes are paid by the corporation and
owners of the corporation have limited liability.


3. Explain the building blocks of accounting: ethics and the concepts included in the conceptual
framework. Generally accepted accounting principles are a common set of guidelines that are used to
prepare and report accounting information. The conceptual framework outlines some of the body of
theory used by accountants to fulfill their goal of providing useful accounting information to users.
Ethical behaviour is fundamental to fulfilling the objective of financial accounting. The reporting
entity concept requires the business activities of each reporting entity to be kept separate from the
activities of its owner and other economic entities. The going concern assumption presumes that a
business will continue operations for enough time to use its assets for their intended purpose and to
fulfill its commitments. The periodicity concept requires businesses to divide up economic activities
into distinct periods of time. Qualitative characteristics include fundamental and enhancing
characteristics that help to ensure accounting information is useful.
Only events that cause changes in the business’s economic resources or changes to the claims on
those resources are recorded. Recognition is the process of recording transactions and measurement
is the process of determining the amount that should be recognized. The historical cost concept
states that economic resources should be recorded at their historical (original) cost. Fair value may be

,Test Bank for Accounting Principles, Ninth Canadian Edition



a more appropriate measure for certain types of resources. Generally, fair value is the amount the
resource could be sold for in the market. The monetary unit concept requires that only transactions
that can be expressed as an amount of money be included in the accounting records, and it assumes
that the monetary unit is stable.
The revenue recognition principle requires companies to recognize revenue when a performance
obligation(s) is satisfied. The matching concept requires that costs be recognized as expenses in the
same period as revenue is recognized when there is a direct association between the cost incurred
and revenue recognized.
In Canada, there are two sets of standards for profit-oriented businesses. Publicly accountable
enterprises must follow International Financial Reporting Standards (IFRS) and private enterprises
have the choice of following IFRS or Accounting Standards for Private Enterprises (ASPE).


4. Describe the elements of the financial statements and explain the accounting equation. Assets,
liabilities, and owner’s equity are reported on the balance sheet. Assets are present economic
resources controlled by the business as a result of past events and have the potential to produce
economic benefits. Liabilities are present obligations of a business to transfer an economic resource
as a result of past events. Owner’s equity is the owner’s claim on the company’s assets and is equal to
total assets minus total liabilities. The balance sheet is based on the accounting equation: Assets =
Liabilities + Owner’s equity.
The Income statement reports the profit or loss for a specified period of time. Profit is equal to
revenues minus expenses. Revenues are the increases in assets, or decreases in liabilities, that result
from business activities that are undertaken to earn profit. Expenses are the cost of assets consumed
or services used in a company’s business activities. They are decreases in assets or increases in
liabilities, excluding withdrawals made by the owners, and result in a decrease to owner’s equity.
The statement of owner’s equity summarizes the changes in owner’s equity during the period.
Owner’s equity is increased by investments by the owner and profits. It is decreased by drawings and
losses. Investments are contributions of cash or other assets by owners. Drawings are withdrawals of
cash or other assets from the business for the owner’s personal use. Owner’s equity in a partnership is
referred to as partners’ equity and in a corporation as shareholders’ equity.
A cash flow statement summarizes information about the cash inflows (receipts) and outflows
(payments) for a specific period of time.


5. Analyze the effects of business transactions on the accounting equation. Each business
transaction must have a dual effect on the accounting equation. For example, if an individual asset is
increased, there must be a corresponding (1) decrease in another asset, (2) increase in a liability,
and/or (3) increase in owner’s equity.


6. Prepare financial statements. The income statement is prepared first. Expenses are deducted from
revenues to calculate the profit or loss for a specific period of time. Then the statement of owner’s
equity is prepared using the profit or loss reported in the income statement. The profit is added to
(losses are deducted from) the owner’s equity at the beginning of the period. Drawings are then
deducted to calculate owner’s equity at the end of the period. A balance sheet reports the assets,
liabilities, and owner’s equity of a business as at the end of the accounting period. The owner’s equity

, Test Bank for Accounting Principles, Ninth Canadian Edition



at the end of the period, as calculated in the statement of owner’s equity, is reported on the balance
sheet in the owner’s equity section.

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