Chapter 1 12 Notes

Contents
Case Writing 5
General 5
Role 5
Users/Objectives 5
Constraints 6
Issues / Alternatives / Recommendations 6
Conclusion 7
CHAPTER 1 –THE ACCOUNTING ENVIRONMENT 8
Introduction 8
Reasons for Accounting 8
The Accounting Environment 8
CHAPTER 2 – FINANCIAL STATEMENTS 9
Summary of Financial Statement Package 9
Balance Sheet 9
Income Statement 10
Statement of Comprehensive Income 11
Statement of Shareholders’ Equity / Retained Earnings 11
Statement of Cash Flows 11
Notes to the Financial Statements 11
Common Users of Financial Statements 11
CHAPTER 3 – THE ACCOUNTING CYCLE 11
Introduction 12
The Accounting Equation: Assets = Liabilities + Owners’ Equity 12
Adjusting Entries 15
Overall Accounting Cycle 16
Example of an Income Cycle of Journal Entries 16
CHAPTER 4 – INCOME MEASUREMENT AND THE OBJECTIVES OF FINANCIAL REPORTING 17
Revenue Recognition 17
Expense Recognition 18
Objectives of Financial Reporting 18
Constraints 19
CHAPTER 5 – CASH FLOW, PROFITABILITY AND THE CASH FLOW STATEMENT 19
Introduction and Cash Cycle 19
Different Cycles 19
Cash From Operations 20
Cash from Financing Activities 21
Cash from Investing Activities 21
CHAPTER 6 – CASH, RECEIVABLES AND THE TIME VALUE OF MONEY 21
Time Value of Money 21
Receivables 22
Returns 24
Long Term Receivables 24
Financial Statement Analysis Issues 25
CHAPTER 7 – INVENTORY 25
Inventory Defined 25
Perpetual vs Periodic Inventory Control Systems 26
Valuation Methods 26
Lower of Cost and Market Rule 27
Valuing Inventory Other Than at Cost (Non IFRS) 27
Inventory Disclosures in Financial Statements 28
Inventory in the Service Industry 28
Inventory Accounting and Income Taxes 28
Financial Statement Analysis Regarding Inventory 29
CHAPTER 8 – CAPITAL ASSETS 30
Capital Assets Defined 30
Measuring Capital Assets 30
Intangible Capital Assets 31
Sale Capital Assets 31
Impairments 32
Effects of Accounting Choices Regarding Capital Assets 32
CHAPTER 9 – LIABILITIES 33
What is a Liability? 33
Calculating Bonds  Assuming