1. Certified General Accountants
Module 1
Certified General Accountants
Financial Accounting Fundamentals
(FA1)
Module 1
Cheryl Hudson, CGA HBCom

2. Resources Textbook (mid chapter problems)
Module 1
Resources
Textbook (mid chapter problems)
Lesson notes (test yourself, knowledge levels)
CGA Manitoba Website, Blackboard (online lectures, examination blueprints)
Old exams, marker comments
Review class

3. Strategy Know course schedule (required readings and assignments)
Module 1
Strategy
Know course schedule (required readings and assignments)
Focus on learning objectives and knowledge levels
Read textbook and lesson notes in advance of class
Dedicate time (weekly course materials, quizzes and assignments)
Review old exams
Additional help before or after class .

4. Assignment Structure 5 Quizzes (2% each) ; online, immediate feedback
Module 1
Assignment Structure
5 Quizzes (2% each) ; online, immediate feedback
3 Integrative Assignments
- Assignment 1 (Modules 1-5) 5%; 50 marks
- Assignment 2 (Modules 1-6) 10%; 100 marks
- Assignment 3 (Modules 1-9) 5%; 50 marks
All submissions by 12:00 noon of given day CST

5. Module 1 Introduction to Accounting Concepts

6. Module 1
Learning Objectives
Describe the function of accounting, the nature and purpose of the information it provides and identify users of accounting information (level 1)
Distinguish among sole proprietorships, partnerships and corporations (level 2)
Explain the importance of ethics in accounting and outline the key ethical standards expected of professional accountants.(level 1)
Compare the fields of accounting and the kinds of work performed in each field. (level 2)
Differentiate among the different kinds of financial statements (level 1)
Explain the purpose of GAAP and describe each of the principles introduced (level 2)

7. Module 1
Learning Objectives
7. Analyze business transactions and their effects on the accounting equation (level 1)
Describe the major areas of the conceptual framework of accounting (level 2)
Describe the objective of general purpose financial reporting. (level 2)
Describe the qualitative characteristics of useful financial information (level 2)
Describe the cost constraints of useful financial reporting. (level 2)
Describe the assumptions of accounting. (level 2)
Describe the elements of financial statements (level 2)

8. Module 1
Learning Objectives
14. List the two criteria that determine when to recognize a transaction as an element of the financial statements. (level 2)
List the methods of measuring the elements of financial statements. (level 2)

9. © 2009 McGraw-Hill Ryerson Limited.
Module 1
What is Accounting?
Accounting is a process that involves collecting information, recording it, and then reporting it to various decision makers.
It’s objective is to help people make better decisions.
© 2009 McGraw-Hill Ryerson Limited.

10. © 2009 McGraw-Hill Ryerson Limited.
Module 1
Forms of Organization
Sole Proprietorship
Partnership
Corporation
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11. © 2009 McGraw-Hill Ryerson Limited.
Module 1
Sole Proprietorships
One owner
Separate entity for accounting purposes
Not a separate legal entity from the owner
Unlimited liability
Limited life
Owner taxed on profits
© 2009 McGraw-Hill Ryerson Limited.

12. © 2009 McGraw-Hill Ryerson Limited.
Module 1
Partnerships
Two or more owners
Separate entity for accounting purposes
Not a separate legal entity from the owners
Unlimited liability
Limited life
Owners taxed on profits
© 2009 McGraw-Hill Ryerson Limited.

13. © 2009 McGraw-Hill Ryerson Limited.
Module 1
Corporations
One or more owners
Separate entity for accounting purposes
Separate legal entity from the owner(s)
Limited liability
Unlimited life
Corporation taxed on profits
© 2009 McGraw-Hill Ryerson Limited.

14. Non-Business Organizations
Module 1
Non-Business Organizations
Not-for-profit and government organizations
No identifiable owner
Examples: schools, charities, libraries, hospitals, police, shelters
© 2009 McGraw-Hill Ryerson Limited.

15. Users of Accounting Information
Module 1
Users of Accounting Information
Accounting is a service activity that provides information to help internal and external users make decisions.
© 2009 McGraw-Hill Ryerson Limited.

16. Examples of External Users and Some of Their Decisions
Module 1
Examples of External Users and Some of Their Decisions
User Group Decisions to be made
Lenders To lend money or not.
Shareholders To invest or not.
External auditors To determine the reasonableness of the client’s statements.
Unions To determine if wages are fair.
CRA To determine if payroll deductions are calculated properly.
© 2009 McGraw-Hill Ryerson Limited.

17. © 2009 McGraw-Hill Ryerson Limited.
Module 1
External Reporting
Reports for external users are usually in the form of financial statements.
The information in the statements needs to be relevant, reliable, and comparable.
Generally accepted accounting principles (GAAP)are important in making the statements useful to users.
Canadian GAAP are undergoing significant changes because of the adoption of International Financial Reporting Standards(IFRS).
© 2009 McGraw-Hill Ryerson Limited.

18. © 2009 McGraw-Hill Ryerson Limited.
Module 1
Internal users
Internal users are involved in managing and operating an organization.
Accounting provides information to these users to help them improve the efficiency and effectiveness of the organization.
© 2009 McGraw-Hill Ryerson Limited.

19. Ethics and Ethical Behaviour
Module 1
Ethics and Ethical Behaviour
Ethics are beliefs that differentiate right from wrong.
Ethics and ethical behaviour are important to the accounting profession and to those who use accounting information.
Ethical practices build trust, which promotes loyalty and long-term relationships with customers, suppliers, employees, and investors.
© 2009 McGraw-Hill Ryerson Limited.

20. © 2009 McGraw-Hill Ryerson Limited.
Module 1
Ethics in Accounting
One of the primary goals of accounting is to provide useful information for decision making.
In order for the information to be useful, it must be trusted.
Accountants must act in an ethical manner in order for the information they produce to be trusted.
© 2009 McGraw-Hill Ryerson Limited.

21. Ethical Obligations of Accountants
Module 1
Ethical Obligations of Accountants
Maintain a high level of professional competence.
Treat sensitive information as confidential.
Exercise due care and professional judgement.
Must not be associated with deceptive information.
© 2009 McGraw-Hill Ryerson Limited.

22. Accounting Opportunities
Module 1
Accounting Opportunities
Broad fields of accounting include:
Financial accounting
Managerial accounting
Taxation
Accounting-related fields
© 2009 McGraw-Hill Ryerson Limited.

23. Accounting Opportunities
Module 1
Accounting Opportunities
Accountants may work as:
Private accountants
Public accountants
Government accountants
© 2009 McGraw-Hill Ryerson Limited.

24. Focus on IFRS
New accounting rules or GAAP applicable to public companies in Canada effective Jan 2011.
International Financial Reporting Standards (IFRS)
- new standards for financial recording and reporting for Publicly Accountable Enterprises
Privately held Enterprises have the option of using GAAP or IFRS

25. IFRS Framework Reading 1-1: IFRS Framework (online)
Conceptual framework
Identifies fundamental concepts used to prepare and present financial statements for external users.
Objective of financial statements
Underlying assumptions
Qualitative characteristics
Elements of financial statements
Concepts of capital and capital maintenance

26. Communicating Through Financial Statements
Accounting provides useful information that helps users make decisions.
This information is often provided in the form of financial statements.
The major statements are the:
Income statement
Statement of Changes in Equity
Balance sheet
Statement of Cash Flows
© 2009 McGraw-Hill Ryerson Limited.

27. © 2010 McGraw-Hill Ryerson Limited.
Income Statement
The income statement reports:
Revenues of the organization.
Expenses (costs incurred in earning the revenues).
Net income or loss.
The income statement covers a period of time.
© 2010 McGraw-Hill Ryerson Limited.

28. © 2010 McGraw-Hill Ryerson Limited.
Income Statement
Inflows of assets
in exchange for
products and services
provided to customers.
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29. or the using up of assets from generating
Income Statement
Costs incurred
or the using up of assets from generating
revenue
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30. Statement of Changes in Equity
Reports on changes in equity over a period of time.
Equity is affected by:
Owner investments and withdrawals
Net income or net losses
Linked to the income statement
© 2010 McGraw-Hill Ryerson Limited.

31. Statement Of Changes in Equity
Covers a
period
of time.
From the
Income
statement.
© 2010 McGraw-Hill Ryerson Limited.

32. © 2010 McGraw-Hill Ryerson Limited.
Balance Sheet
The balance sheet reports the:
Assets
Liabilities
Equity
of an organization at a point in time.
Linked to the Statement of Changes in Equity
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33. © 2010 McGraw-Hill Ryerson Limited.
Balance Sheet
Properties or
economic
resources
owned by a
business
© 2010 McGraw-Hill Ryerson Limited.

34. © 2010 McGraw-Hill Ryerson Limited.
Balance Sheet
Debts or
Obligations
of the
business
© 2010 McGraw-Hill Ryerson Limited.

35. © 2010 McGraw-Hill Ryerson Limited.
Balance Sheet
Owner’s
claim on the
assets of a
business
From the
Statement of
Changes in
Equity
© 2010 McGraw-Hill Ryerson Limited.

36. Statement of Cash Flows
Reports the sources and uses of cash for a period of time.
Organized by the company’s major activities:
Operating
Investing
Financing
© 2010 McGraw-Hill Ryerson Limited.

37. Statement of Cash Flows
From
the
balance
sheet
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38. Generally Accepted Accounting Principles (GAAP)
GAAP are rules that make up acceptable accounting practices.
The primary purpose of GAAP is to make information in financial statements:
Understandable
Relevant
Reliable
Comparable
© 2010 McGraw-Hill Ryerson Limited.

39. Generally Accepted Accounting Principles (GAAP)
Canadian GAAP are being replaced by International Financial Reporting Standards (IFRS).
The long-term goal is to have all countries using the same set of standards-IFRS.
Adoption of IFRS will improve comparability of accounting information so users can make more informed decisions.
© 2010 McGraw-Hill Ryerson Limited.

40. Fundamental Building Blocks
Accounting Principles
- Business entity principle
- Cost principle
- Going-concern principle
- Monetary unit
- Revenue recognition principle
© 2010 McGraw-Hill Ryerson Limited.

41. = + The Accounting Equation
Liabilities
Equity
Assets = +
The accounting equation is used to keep track of changes in a company’s assets, liabilities, and equity.
© 2009 McGraw-Hill Ryerson Limited.

42. © 2010 McGraw-Hill Ryerson Limited.
Transaction Analysis
We need to determine:
Which accounts are being affected.
If the accounts are increasing or decreasing.
© 2010 McGraw-Hill Ryerson Limited.

43. © 2010 McGraw-Hill Ryerson Limited.
Transaction Analysis
(1) Virgil Klimb invests $10,000 cash in the business.
Analysis: Cash increases by $10,000.
Owner’s capital increases by $10,000.
© 2010 McGraw-Hill Ryerson Limited.

44. © 2010 McGraw-Hill Ryerson Limited.
Transaction Analysis
(2) Purchased supplies for $2,500 cash.
Analysis: Supplies increase by $2,500.
Cash decreases by $2,500.
© 2010 McGraw-Hill Ryerson Limited.

45. © 2010 McGraw-Hill Ryerson Limited.
Transaction Analysis
(3a) Purchased $1,100 of supplies on credit.
Analysis: Supplies increase by $1,100.
Accounts Payable increases by $1,100
© 2010 McGraw-Hill Ryerson Limited.

46. © 2010 McGraw-Hill Ryerson Limited.
Transaction Analysis
(3b) Purchased $6,000 of equipment on credit A promissory note was signed.
Analysis: Equipment increases by $6,000.
Notes payable increases by $6,000.
© 2010 McGraw-Hill Ryerson Limited.

47. © 2010 McGraw-Hill Ryerson Limited.
Transaction Analysis
(4) Services rendered for $2,200 cash.
Analysis: Cash increases $2,200
Equity increases $2,200
© 2010 McGraw-Hill Ryerson Limited.

48. © 2010 McGraw-Hill Ryerson Limited.
Transaction Analysis
(5) Payment of $1,000 rent expense in cash.
Analysis: Cash decreases $1,000
Equity decreases $1,000
© 2010 McGraw-Hill Ryerson Limited.

49. © 2010 McGraw-Hill Ryerson Limited.
Transaction Analysis
(6) Payment of $700 salaries expense in cash.
Analysis: Cash decreases $700
Equity decreases $700
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50. © 2010 McGraw-Hill Ryerson Limited.
Transaction Analysis
(7) Service contract signed for February and March.
Analysis: No economic exchange has taken place
All accounts remain unaffected
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51. © 2010 McGraw-Hill Ryerson Limited.
Transaction Analysis
(8)Services and rental revenues of $1,900 rendered for credit.
Analysis: Accounts receivable increases $1,900
Owner’s capital increases $1,900
© 2010 McGraw-Hill Ryerson Limited.

52. © 2010 McGraw-Hill Ryerson Limited.
Transaction Analysis
(9) Receipt of $1,900 cash on account.
Analysis: Cash increases $1,900
Accounts receivable decreases $1,900
© 2010 McGraw-Hill Ryerson Limited.

53. © 2010 McGraw-Hill Ryerson Limited.
Transaction Analysis
(10) Payment of $900 accounts payable.
Analysis: Cash decreases $900
Accounts payable decreases $900
© 2010 McGraw-Hill Ryerson Limited.

54. © 2010 McGraw-Hill Ryerson Limited.
Transaction Analysis
(11) Withdrawal of $600 cash by owner.
Analysis: Cash decreases $600
Owner’s capital decreases $600
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55. © 2010 McGraw-Hill Ryerson Limited.
Financial Statements
Financial statements are prepared to reflect the transactions we have recorded.
© 2010 McGraw-Hill Ryerson Limited.

56. © 2010 McGraw-Hill Ryerson Limited.
Income Statement
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57. Statement of Changes in Equity
© 2010 McGraw-Hill Ryerson Limited.

58. © 2010 McGraw-Hill Ryerson Limited.
Balance Sheet
© 2010 McGraw-Hill Ryerson Limited.

59. Module 1
End of Module 1