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Grade 12 Accounting

Systems (40S)
A Course for Independent Study

Field Validation Version


Gr ade 12 Accounting
S y s t e m s (4 0 S )

A Course for Independent Study

Field Validation Version

2017
M a ni t o b a E d u c a t i o n a n d Tr ainin g
Manitoba Education and Training Cataloguing in Publication Data

Grade 12 accounting systems (40S) : a course for independent


study—Field validation version

This resource is available in print and electronic formats.


ISBN: 978-0-7711-7531-2 (print)
ISBN: 978-0-7711-7532-9 (pdf)

1. Accounting—Study and teaching (Secondary).


2. Accounting—Study and teaching (Secondary)—Manitoba.
3. Accounting—Programmed instruction.
4. Distance education—Manitoba.
5. Correspondence schools and courses—Manitoba.
I. Manitoba. Manitoba Education and Training.
657

Copyright © 2017, the Government of Manitoba, represented by the Minister


of Education and Training.

Manitoba Education and Training


Winnipeg, Manitoba, Canada

Every effort has been made to acknowledge original sources and to comply
with copyright law. If cases are identified where this has not been done, please
notify Manitoba Education and Training. Errors or omissions will be corrected
in a future edition. Sincere thanks to the authors, artists, and publishers who
allowed their original material to be used

All images found in this resource are copyright protected and should not
be extracted, accessed, or reproduced for any purpose other than for their
intended educational use in this resource.

Any websites referenced in this resource are subject to change without notice.
Educators are advised to preview and evaluate websites and online resources
before recommending them for student use.

Available in alternate formats upon request.


Contents

Acknowledgements vii

Introduction 1
Overview 3
What Will You Learn in This Course? 3
How Is This Course Organized? 3
What Resources Will You Need for This Course? 5
Who Can Help You with This Course? 6
How Will You Know How Well You Are Learning? 7
How Much Time Will You Need to Complete This Course? 9
When and How Will You Submit Completed Assignments? 11
What Are the Guide Graphics For? 13
Module Cover Sheets 15

Module 1: Accounting Principles Review 1


Introduction 3
Lesson 1: Accounting Concepts Review 5
Lesson 2: The Accounting Cycle (Part 1) 13
Lesson 3: The Accounting Cycle (Part 2) 51
Assignment 1.1: Completing the Accounting Cycle
for a Service Business 63
Module 1 Summary 73
Learning Activity Answer Key 1

Contents iii
Module 2: Merchandising Firms 1
Introduction 3
Lesson 1: Introduction to Accounting for Merchandising Firms 5
Lesson 2: Selling Merchandise 15
Lesson 3: Purchasing Inventory 33
Lesson 4: The Income Statement for a Merchandising Business 43
Lesson 5: Inventory Valuation 51
Assignment 2.1: The Periodic Inventory System 57
Module 2 Summary 63
Learning Activity Answer Key 1

Module 3: Merchandising Firms: The Perpetual Inventory System 1


Introduction 3
Lesson 1: Introduction to the Perpetual Inventory System 5
Lesson 2: Selling Merchandise 13
Lesson 3: Purchasing Inventory 29
Assignment 3.1: The Perpetual Inventory System 43
Module 3 Summary 49
Learning Activity Answer Key 1

Module 4: Special Journals 1


Introduction 3
Lesson 1: The Purchases Journal 5
Lesson 2: The Sales Journal 19
Lesson 3: The Cash Receipts Journal 31
Lesson 4: The Cash Payments Journal 45
Assignment 4.1: Using the Special Journal System 61
Module 4 Summary 65
Learning Activity Answer Key 1

iv Grade 12 Accounting Systems


Module 5: Adjusting Entries 1
Introduction 3
Lesson 1: Basic Adjustments 5
Lesson 2: Adjusting Bad Debts 23
Lesson 3: Adjusting for Accruals 35
Lesson 4: Adjusting for Unearned and Unrecorded Revenue 47
Assignment 5.1: Advanced Adjustments 57
Module 5 Summary 61
Learning Activity Answer Key 1

Module 6: Completing the Accounting Cycle 1


Introduction 3
Lesson 1: Completing the Worksheet and Updating the
Inventory Account 5
Lesson 2: Preparing the Financial Statements 15
Lesson 3: Journalizing Adjusting and Closing Entries 29
Lesson 4: Completing the Accounting Cycle 53
Assignment 6.1: Completing the Accounting Cycle for a
Merchandising Business 69
Module 6 Summary 71
Learning Activity Answer Key 1

Module 7: Accounting in Action 1


Introduction 3
Lesson 1: Introduction to Financial Analysis 5
Lesson 2: Introduction to Corporate Accounting 29
Lesson 3: Careers in Accounting 41
Assignment 7.1: Financial Analysis and Accounting as a Career 49
Module 7 Summary 57
Learning Activity Answer Key 1

Contents v
vi Grade 12 Accounting Systems
Acknowledgements

Manitoba Education and Training gratefully acknowledges the contributions of the following
individuals in the development of Grade 12 Accounting Systems (40S): A Course for Independent
Study, Field Validation Version.
Writer Angela Baraniuk Dakota Collegiate
Louis Riel School Division
Content Reviewer Susana Hawryshko Garden Valley Collegiate
Garden Valley School Division
Development John Froese Daniel McIntyre Collegiate Institute
Team Members Winnipeg School Division
Monica Gadsby West Kildonan Collegiate
Seven Oaks School Division
Will Habing River East Collegiate
Garden Valley School Division
Susana Hawryshko Garden Valley Collegiate
Garden Valley School Division
Sharon McRae Vincent Massey Collegiate
Pembina Trails School Division
Manitoba Education Carole Bilyk Development Unit
and Training Coordinator Instruction, Curriculum and Assessment Branch
Staff (until June 2016)

Louise Boissonneault Document Production Services Unit


Coordinator Educational Resources Branch
Diane Courcelles Document Production Services Unit
Publications Editor Educational Resources Branch
Lynn Harrison Document Production Services Unit
Desktop Publisher Educational Resources Branch
Myrna Klassen Distance Learning Unit
Acting Coordinator Instruction, Curriculum and Assessment Branch
Gilles Landry Learning Support and Technology Unit
Project Manager Instruction, Curriculum and Assessment Branch
Dan Lemieux Learning Support and Technology Unit
Project Leader Instruction, Curriculum and Assessment Branch

Acknowledgements vii
Gr ade 12 Accounting
S y s t e m s (4 0 S )

Introduction
Introduction

Overview

Welcome to Grade 12 Accounting Systems. In this course, you will be


introduced to accounting for a merchandising business where you will learn
how to complete the accounting procedures under both the periodic and
perpetual inventory systems. Students interested in a career in accounting
or finance, or students who may one day own their own business, are
encouraged to take this course.
As a student enrolled in a distance learning course, you have taken on a dual
role—that of a student and a teacher. As a student, you are responsible for
mastering the lessons and completing the learning activities and assignments.
As a teacher, you are responsible for checking your work carefully, noting
areas in which you need to improve and motivating yourself to succeed.

What Will You Learn in This Course?

In this course, you will learn how to process business transactions that deal
with merchandise inventory (items you plan to resell) in order to understand
the unique relationship between sales and cost of goods sold. You will also
learn how to move beyond the General Journal and use a five journal or
Special Journal system. Advanced adjustments and financial analysis will
also be covered. Ultimately, you will learn how to “complete the books” for a
merchandising business.

How Is This Course Organized?

The Grade 12 Accounting Systems course consists of the following


seven modules:
QQ Module 1: Accounting Principles Review
QQ Module 2: Merchandising Firms
QQ Module 3: Merchandising Firms: The Perpetual Inventory System
QQ Module 4: Special Journals
QQ Module 5: Adjusting Entries
QQ Module 6: Completing the Accounting Cycle
QQ Module 7: Accounting in Action

Introduction 3
Each module in this course consists of several lessons, which contain the
following components:
QQ Lesson Focus: The Lesson Focus at the beginning of each lesson identifies
one or more specific learning outcomes (SLOs) that are addressed in
the lesson. The SLOs identify the knowledge and skills you should have
achieved by the end of the lesson.
QQ Introduction: The Introduction gives an explanation of what you will be
learning in that lesson.
QQ Lesson: The main body of the lesson is made up of the content that you need
to learn. It contains text, explanations, images, and diagrams.
QQ Learning Activities: Most lessons include one or more learning activities
that will help you learn about the lesson topics and prepare you for the
assignments and the final examination. Once you complete a learning
activity, check your responses against those provided in the Learning
Activity Answer Key found at the end of each module. You will not submit
the completed learning activities to your tutor/marker.
QQ Assignments: Assignments are found at the end of each module. You will
mail or electronically submit all your completed assignments to your tutor/
marker for assessment at the end of each module. In total, all assignments
are worth 75 percent of your final course mark.
QQ Summary: Each lesson ends with a brief review of what you just learned.

4 Grade 12 Accounting Systems


What Resources Will You Need for This Course?

You do not need a textbook for this course. All the content is provided directly
within the course. You will, however, need access to a variety of resources.
You will require access to an email account if you plan to
QQ communicate with your tutor/marker by email
QQ use Blackboard Learn to submit completed assignments
A valid email account is required for your Blackboard Learn profile. The
website address for Blackboard Learn is https://bblearn.merlin.mb.ca. You
were issued a username and password when you registered for this course.
The required and optional resources for this course are identified below.

Required Resources
For this course, you will need the following electronic resource(s). If you do
not have access to the Internet, or if you need a copy of the resource(s), contact
the Distance Learning Unit at 1-800-465-9915.
n Microsoft Excel Files: Throughout this course, you will need Excel data
files to complete the learning activities, the assignments, and the final
examination. These files are available on Blackboard Learn at
https://bblearn.merlin.mb.ca. If you do not have access to the Internet, or if
you need a copy of the files, contact the Distance Learning Unit at
1-800-465-9915.

Optional Resources
It would be helpful if you had access to the following resources.
n Printer: With access to a printer, you could make a copy of your assignments
before submitting them so that if your tutor/marker wants to discuss an
assignment with you over the phone, each of you will have a copy. It would
also allow you to continue studying or to complete further lessons while
your original work is with the tutor/marker. Printing your assignments will
also ensure that you keep a copy in case the originals are lost.
n Calculator: Access to a calculator would be beneficial.

Introduction 5
Who Can Help You with This Course?

Taking an independent study course is different from taking a course in a


classroom. Instead of relying on the teacher to tell you to complete a learning
activity or an assignment, you must tell yourself to be responsible for your
learning and for meeting deadlines. There are, however, two people who can
help you be successful in this course: your tutor/marker and your learning
partner.

Your Tutor/Marker
Tutor/markers are experienced educators who tutor ISO students and
mark assignments and examinations. When you are having difficulty with
something in this course, contact your tutor/marker, who is there to help you.
Your tutor/marker’s name and contact information were sent to you with this
course. You can also obtain this information in the Who Is My Tutor/Marker?
section of the distance learning website at www.edu.gov.mb.ca/k12/dl/iso/
assistance.html.

Your Learning Partner


A learning partner is someone you choose who will help you learn. It may be
someone who knows something about accounting, but it doesn’t have to be. A
learning partner could be someone else who is taking this course, a teacher,
a parent or guardian, a sibling, a friend, or anybody else who can help you.
Most importantly, a learning partner should be someone with whom you feel
comfortable and who will support you as you work through this course.
Your learning partner can help you keep on schedule with your coursework,
read the course with you, check your work, look at and respond to your
learning activities, or help you make sense of assignments. You may even
study for your examination(s) with your learning partner. If you and your
learning partner are taking the same course, however, your assignment work
should not be identical.

6 Grade 12 Accounting Systems


How Will You Know How Well You Are Learning?

You will know how well you are learning in this course by how well you
complete the learning activities, assignments, and examination.

Learning Activities
The learning activities in this course will help you to review and practise
what you have learned in the lessons. You will not submit the completed
learning activities to your tutor/marker. Instead, you will complete the
learning activities and compare your responses to those provided in the
Learning Activity Answer Key found at the end of each module.
Make sure you complete the learning activities. Doing so will not only help
you to practise what you have learned, but will also prepare you to complete
your assignments and the examination successfully. Many of the questions
on the examination will be similar to the questions in the learning activities.
Remember that you will not submit learning activities to your tutor/marker.

Assignments
Each module in this course contains assignments, which you will complete
and submit to your tutor/marker for assessment. The assignments are worth a
total of 75 percent of your final course mark.
The tutor/marker will mark your assignments and return them to you.
Remember to keep all marked assignments until you have finished the course
so that you can use them to study for your examination.

Final Examination
This course contains a final examination.
QQ The final examination is based on Modules 1 to 7, and is worth 25 percent
of your final mark in this course. You will write the final examination when
you have completed Module 7.
You will write the final examination under supervision.

Introduction 7
How to Study for Your Examination
To do well on your examination, you should review all the work you
have completed from the modules, including all learning activities and
assignments.
The questions on the examination are set up exactly like the learning
activities and the assignments. In other words, you will be asked to do the
same tasks on three separate occasions—on the learning activities, on the
assignments, and on the examination.

Requesting Your Examination


You are responsible for making arrangements to have the examination sent
to your proctor from the Distance Learning Unit. Please make arrangements
before you finish Module 7 to write the final examination.
To write your examination, you need to make the following arrangements:
n If you are attending school, your examination will be sent to your school
as soon as all the applicable assignments have been submitted. You should
make arrangements with your school’s ISO school facilitator to determine a
date, time, and location to write the examination. For more information on
examination procedures, please contact your ISO school facilitator or visit
the Grading and Evaluation section of the distance learning website at
www.edu.gov.mb.ca/k12/dl/iso/assignments.html.
n If you are not attending school, check the Examination Request Form
for options available to you. The form was mailed to you with this course.
Three weeks before you are ready to write the examination, fill in the
Examination Request Form and mail, fax, or email it to
Distance Learning Unit
500–555 Main Street
PO Box 2020
Winkler MB R6W 4B8
Fax: 1-204-325-1719
Toll-Free Telephone: 1-800-465-9915
Email: distance.learning@gov.mb.ca

8 Grade 12 Accounting Systems


How Much Time Will You Need to Complete This Course?

Learning through independent study has several advantages over learning


in the classroom. You are in charge of how you learn and you can choose
how quickly you will complete the course. You can complete as many lessons
as you wish in a single session. You do not have to wait for your teacher or
classmates.
From the date of your registration, you have a maximum of 12 months to
complete this course, but the pace at which you proceed is up to you. Read the
following suggestions on how to pace yourself.

Chart A: Semester 1
If you want to start the course in September and complete it in January, you
can follow the timeline suggested below.
Module Completion Date
Module 1 Middle of September
Module 2 End of September
Module 3 Middle of October
Module 4 End of October
Module 5 End of November
Module 6 Middle of December
Module 7 End of December
Final Examination End of January

Chart B: Semester 2
If you want to start the course in January and complete it in May, you can
follow the timeline suggested below.
Module Completion Date
Module 1 Middle of January
Module 2 End of January
Module 3 Middle of February
Module 4 End of February
Module 5 End of March
Module 6 Middle of April
Module 7 End of April
Final Examination End of May

Introduction 9
Chart C: Full School Year (Not Semestered)
If you want to start the course in September and complete it in May, you can
follow the timeline suggested below.
Module Completion Date
Module 1 End of September
Module 2 End of October
Module 3 End of November
Module 4 End of December
Module 5 End of January
Module 6 Middle of February
Module 7 End of February
Final Examination End of May

Timelines
Do not wait until the last minute to complete your work, since your tutor/
marker may not be available to mark it immediately. It may take a few weeks
for your tutor/marker to assess your work and return it to you or your school.

If you need this course to graduate this school year, remember to schedule and complete your final
examination by May 31.

10 Grade 12 Accounting Systems


When and How Will You Submit Completed Assignments?

When to Submit Assignments


While working on this course, you will submit completed assignments to
your tutor/marker seven times. The following chart shows exactly what
assignments you will be submitting at the end of each module.

Submission of Assignments
Submission Assignments You Will Submit
1 Module 1: Accounting Principles Review
Module 1 Cover Sheet
Assignment 1.1: Completing the Accounting Cycle for a Service
Business
2 Module 2: Merchandising Firms
Module 2 Cover Sheet
Assignment 2.1: The Periodic Inventory System
3 Module 3: Merchandising Firms: The Perpetual Inventory
System
Module 3 Cover Sheet
Assignment 3.1: The Perpetual Inventory System
4 Module 4: Special Journals
Module 4 Cover Sheet
Assignment 4.1: Using the Special Journal System

5 Module 5: Adjusting Entries


Module 5 Cover Sheet
Assignment 5.1: Advanced Adjustments

6 Module 6: Completing the Accounting Cycle


Module 6 Cover Sheet
Assignment 6.1: Completing the Accounting Cycle for a
Merchandising Business
7 Module 7: Accounting in Action
Module 7 Cover Sheet
Assignment 7.1: Financial Analysis and Accounting as a Career

Introduction 11
How to Submit Assignments
In this course, you have the choice of submitting your assignments either by
mail or electronically.
QQ Mail: Each time you mail something, you must include the print version of
the applicable Cover Sheet (found at the end of this Introduction).
QQ Electronic submission: Each time you submit something electronically,
you must include the electronic version of the applicable Cover Sheet. You
can use the Cover Sheets available on Blackboard Learn at https://bblearn.
merlin.mb.ca or you can scan the Cover Sheets located at the end of this
Introduction.
Complete the information at the top of each Cover Sheet before submitting it
along with your assignments.

Submitting Your Assignments by Mail


If you choose to mail your completed assignments, please photocopy/scan
all the materials first so that you will have a copy of your work in case your
package goes missing. You will need to place the applicable module Cover
Sheet and assignment(s) in an envelope, and address it to
Distance Learning Unit
500–555 Main Street
PO Box 2020
Winkler MB R6W 4B8
Your tutor/marker will mark your work and return it to you by mail.

Submitting Your Assignments Electronically


Assignment submission options vary by course. Sometimes assignments can
be submitted electronically and sometimes they must be submitted by mail.
Specific instructions on how to submit assignments were sent to you with this
course. You can also obtain this information in the Grading and Evaluation
section of the distance learning website at www.edu.gov.mb.ca/k12/dl/iso/
assignments.html.
If you are submitting assignments electronically, make sure you have
saved copies of them before you send them. That way, you can refer to your
assignments when you discuss them with your tutor/marker. Also, if the
original hand-in assignments are lost, you are able to resubmit them.
Your tutor/marker will mark your work and return it to you electronically.

The Independent Study Option office does not provide technical support for hardware-related
issues. If troubleshooting is required, consult a professional computer technician.

12 Grade 12 Accounting Systems


What Are the Guide Graphics For?

Guide graphics are used throughout this course to identify and guide you in
specific tasks. Each graphic has a specific purpose, as described below.

Accounting Standard: These accounting standards are known across


Canada and must be remembered.

Assignment/Written Assignment: Complete an assignment. You will


submit your completed assignments to your tutor/marker for assessment at
the end of every module.

Examination: Write your final examination at this time.

Key Word: Note that a new important term is being explained.

Learning Activity: Complete a learning activity. This will help you to


review or practise what you have learned and to prepare for an assignment
or an examination. You will not submit learning activities to your tutor/
marker. Instead, you will compare your responses to those provided in the
Learning Activity Answer Key found at the end of the applicable module.

Learning Partner: Ask your learning partner to help you with this task.

Mail or Electronic Submission: Mail or electronically submit your


completed assignment(s) to your tutor/marker for assessment at this time.

Note: Take note of and remember this important information or reminder.

Phone Your Tutor/Marker: Telephone your tutor/marker.

Remember: If you have questions or need help at any point during this
course, contact your tutor/marker or ask your learning partner for help.
Good luck with the course!

Introduction 13
Notes

14 Grade 12 Accounting Systems


Gr ade 12 Accounting
S y s t e m s (4 0 S )

Module 1
Accounting Principles Review
M o d u l e 1:
Accounting Principles Review

Introduction

This module is essentially a review of the Grade 11 course. Accounting is a


skill-based course. As such, foundational skills are needed in order to move
on to the next level and continue to build your skill set. In this module, you
will review the accounting procedures for each of the steps of the accounting
cycle as they relate to service firms (a business that performs a service for
a fee). Module 1 is designed to ensure you have the foundational skills, and
you understand the basic concepts and principles of financial accounting
before moving on to your next challenge: learning the accounting procedures
required to complete the accounting cycle for a merchandising firm (a
business that produces or sells goods in order to earn a profit).
This module is comprised of three lessons. There will be one learning activity
at the end of each lesson and one assignment at the end of the module. The
learning activities will help you prepare for the assignment. Remember, every
module builds on the last, so it is important that you understand the concepts
before moving on! If you are having trouble with a concept, review the course
notes again, take another look at your learning activities, and seek help from
a learning partner or your tutor/marker.

Assignments in Module 1
You will complete the following assignment, which you will send to your
tutor/marker when you have completed Module 1.

Lesson Assignment Marks


3 Assignment 1.1: Completing the Accounting Cycle 70
for a Service Business

M o dul e 1: A c c o unt in g P r in c ip l e s Rev i ew 3


Notes

4 Grade 12 Accounting Systems


L e ss o n 1 : A c c o u n t i n g C o n c e p t s R e v i e w

Lesson Focus

By the end of this lesson, you should be able to


q define accounting
q identify the role of accounting in business
q classify assets, liabilities, and owner’s equity accounts
q demonstrate an understanding of the accounting equation
q demonstrate an understanding of accounting standards and their
impact on accounting

Introduction

This lesson will review the basic accounting concepts covered in the Grade 11
Accounting course and will focus on accounting concepts related to a service
business.

What Is Accounting?

A business is an organization that offers a product (good or service) to


customers. There are many different types of businesses: small, medium, and
large businesses; for-profit and not-for-profit businesses; businesses that offer
services, businesses that sell merchandise, and businesses that manufacture
items. No matter the type of business, they all require accounting.
Accounting is sometimes called “the language of business.” It involves
identifying, measuring, recording, interpreting, and communicating the
results of business activities. It is used as the basis of controlling resources,
determining profits, and measuring accomplishments.

M o dul e 1: A c c o unt in g P r in c ip l e s Rev i ew 5


The Role of Accounting

The purpose of accounting is to provide decision makers with useful


information to assist them in making business and economic decisions.
Decision making is carried out by individuals, businesses, communities,
organizations, and governments.

Account Classifications

As you just read, the accounting process involves a lot of activities so


organization is important. One way this is done is by classifying accounts.
Accounts are individual items that appear on the balance sheet; there is one
account for each item affecting the financial position of a business. All of the
accounts together form what is called the ledger. (You will review the ledger
in Lesson 2.) For now, let’s take a look at the different account classifications
for a service business.

Assets
Anything of value owned by a business is considered an asset. Assets are the
economic resources of a business. Assets can be further classified as current
assets or fixed assets.
Current assets are assets expected to be converted into cash within one year
of the balance sheet (e.g., Cash, Accounts Receivable, Supplies).
Fixed assets are long-term, operating assets used within the business to
generate revenue for several years beyond the balance sheet date (e.g., Office
Equipment, Building, Land).

Liabilities
Money that is owed by a business is considered a liability. Liabilities are
the claims of the creditors against the total assets. Liabilities can be further
classified as current liabilities or long-term liabilities.
Current liabilities are debts owing which will be due within one year of the
balance sheet date (e.g., Accounts Payable, Bank Loan Payable—when due
within one year and also referred to as a demand loan).
Long-term liabilities are debts that normally are not due to be paid within
one year of the balance sheet date (e.g., Mortgage Payable, Bank Loan
Payable—when due in a period longer than one year).

6 Grade 12 Accounting Systems


Owner’s Equity
Owner’s Equity is the amount of money that an owner brings into the
business. It is called capital or net worth and is the claim of the owner(s)
against the total assets. Within the Owner’s Equity category there are two
temporary account classifications: revenue and expense.
QQ Revenues are an increase in equity resulting from the proceeds of the sale
of goods or services.
QQ Expenses are a decrease in equity resulting from the costs of the materials
and services used to produce revenue.

The Accounting Equation

The accounting equation is a fundamental accounting concept and is the


foundation of all financial accounting procedures. The accounting equation is
Assets = Liabilities + Owner’s Equity
Example: Doug’s Doggy Daycare
ASSETS
Cash $18,000.00
Accounts Receivable—F. Montgomery 1,500.00
Supplies 20,000.00
Equipment 30,000.00
Total Assets $69,500.00

LIABILITIES
Accounts Payable—Dog Treats, Inc. $5,000.00
Accounts Payable—Puppy Playsets 2,000.00
Bank Loan 20,000.00
Total Liabilities $27,000.00

Let’s complete the accounting equation.


Assets = Liabilities + Owner’s Equity
$69,500.00 = $27,000.00 + ?
Using the accounting equation to solve for the unknown, you get
$69,500.00 - $27,000.00 = $42,500.00
$42,500.00 represents the Owner’s Equity or claim against the total assets.

M o dul e 1: A c c o unt in g P r in c ip l e s Rev i ew 7


The accounting equation basically explains how Doug’s Doggy Daycare’s
assets were accumulated: credit was granted and money was borrowed to
acquire them (liabilities) and the owner invested some of his own personal
assets (owner’s equity). Another way of saying this is that the owner currently
has $69,500.00 in assets. In order to accumulate those assets, he acquired debts
totaling $27,000.00. He has also invested $42,500 of personal assets into this
business.
Note: If the accounting equation does not balance, then a financial error has
been made. It is important that the accounting equation balance after every
financial transaction!

Accounting Standards

Accounting standards are standards that must be followed by all accountants


so that there is consistency (standardization) in the industry. In the Grade 11
course, you learned about the following accounting standards:
QQ Business Entity Principle—Businesses must keep their finances separate
from the personal finances of the owners.
QQ Time Period Principle—Businesses must consistently use the same time
period for their financial records.
QQ Matching Principle—Businesses must match revenue against expenses for
a specific accounting period.
QQ Revenue Recognition Principle—Revenue must be recognized and
recorded at the time of the sales of goods and services.
QQ Expense Recognition Principle—Expenses must be recognized and
recorded when they are incurred while making revenue.
QQ Objectivity Principle—A transaction is only recorded when there is
written proof (source document) that the transaction occurred.
QQ Cost Principle—Assets must be listed on the balance sheet in the amount
of their original cost.
Standardization is important in accounting; anyone looking at financial
records and statements must be able to expect that accounting standards
have been followed so that they can make informed financial decisions.
Accountants must follow these accounting standards in their practice.
Throughout this course, you will continue to apply these and several new
accounting standards to all of your accounting work.

8 Grade 12 Accounting Systems


Learning Activity 1.1

Accounting is a skill-based course so it is important that you complete all


learning activities to ensure you understand the concepts in the lesson. The
next lesson will build on this knowledge.
1. Answer the following questions:
a) What are the five activities involved in the function of accounting?
b) What is the purpose of accounting?
c) List at least three different groups of people who may make decisions
based on accounting information.
2. Accounts are classified for organizational purposes. Review the following
list of accounts or financial items and identify the correct account
classification from the following choices:
a) Current Asset Account or Classification
b) Fixed Asset Financial Item
Cash
c) Current Liability
Telephone Bill
d) Long-Term Liability Fees Earned
e) Owner’s Equity GST Payable
Equipment
f) Revenue
Drawings
g) Expense
Truck
Accounts Receivable
Mortgage Payable
Bank Loan (on demand)
Capital
Advertising Cost
Supplies

continued

M o dul e 1: A c c o unt in g P r in c ip l e s Rev i ew 9


Learning Activity 1.1 (continued)
3. The accounting equation is Assets = Liabilities + Owner’s Equity. Use the
accounting equation to calculate the missing figures in the table below.
Assets Liabilities Owner’s Equity
$560,000.00 $390,500.00
$18,000.00 $67,450.00
$36,700.00 $4,300.00
$12,425.50 $8,200.00
$199,546.25 $65,489.00

4. Consistency and standardization are important in accounting; therefore,


all accountants must follow the Accounting Standards. Read each
scenario below and match it with the applicable accounting standard
being questioned or described. Your choices are listed below. Hint: Each
accounting standard is used only once; however, one of the scenarios
applies to two standards.
a) Business Entity Principle
b) Time Period Principle
c) Matching Principle
d) Revenue Recognition Principle
e) Expense Recognition Principle
f) Objectivity Principle
g) Cost Principle
Scenario Accounting
Standard
Jill got a great deal on a delivery truck for her new business.
She paid $17,000.00 for it but has been told it is really valued
at $25,000.00. She is not sure what amount she should record.
Nick is meeting with some potential investors next week
and they would like to see his July Income Statement. He
did not have a great month in July, so he is thinking of just
substituting the revenue he earned in June on the July
statement.
Sara purchased airline tickets for her family to take a vacation.
She is wondering if she can include this as a Travel Expense on
her floral business’ books.
Jon’s accountant is going to be away at their typical year-end
so he is thinking of changing the fiscal period for this year to
14 months instead of 12 months.
Syeda purchased advertising for her new hair salon. The total
bill is not due for six months so she is planning on waiting until
she actually pays the bill before she records anything.
Manvir purchased office supplies for his business. He threw out
the receipt as he sees no need to keep it.

10 Grade 12 Accounting Systems


End-of-Lesson Checklist
QQ Now that you have completed Learning Activity 1.1, use the Module 1
Learning Activity Answer Key to ensure that your answers are correct. It
is found at the end of Module 1.
QQ Go back to the lesson focus at the beginning of this lesson. Are you able
to do everything on the list? If not, you may need to go back and review
a few things. Remember, the next lesson builds on the outcomes you just
finished.

M o dul e 1: A c c o unt in g P r in c ip l e s Rev i ew 11


Notes

12 Grade 12 Accounting Systems


Released 2017

Printed in Canada
Imprimé au Canada