Questions and Answers of Financial Accounting Tools For Business

Explain how the allowance for doubtful accounts is determined.
Explain what the carrying amount of accounts receivable represents.
What is included in cash and cash equivalents?
Explain why, as part of internal controls, a company might want to use a data analytics tool to review all journal entries that involve both a debit and credit to an expense account. Could there be a
One type of internal control–related data analytics report used by companies is known as a three-way match report. It involves using analytics to ensure that there is a purchase order, receiving
Explain why, when using a periodic inventory system, we need to record an adjusting journal entry at the end of each reporting period to update the Inventory account balance and record cost of goods
Explain why, when a company uses average cost formula with a periodic inventory system, the cost of goods sold and ending inventory cost are different from the amounts calculated when using the
When we use the average cost method with a perpetual system, we calculate the average cost after each inventory purchase. Explain why we do not do this when using a periodic system.
Explain why, when a company uses FIFO with a periodic inventory system, the cost of goods sold and ending inventory costs are the same as they would be if FIFO had been used with a perpetual system.
In a periodic inventory system, a company must count and determine the cost of its ending inventory. Cost of goods sold is then determined by using the cost of the ending inventory. Emad asks, “Why
Your classmate does not understand the difference between the perpetual and periodic inventory systems. “The same cost formulas are used in both systems,” he says, “and a physical inventory
Explain how data analytics can reduce inventory write downs and the impact of this on a company’s gross profit.
Explain how a high fashion retailer can use data analytics to ensure that it has the right mix of goods in inventory.
An analytics report prepared by a fashion retailer showed that sales of one of its product lines were negligible for the last quarter of the year. What effect would this likely have on the valuation
Would an increase in the days in inventory ratio from one year to the next be an improvement or a decline in how efficiently a company manages its inventory?
(a) Describe the journal entry required to record a decline in inventory value under the lower of cost and net realizable value rule. (b) Why is an entry required to record this decline to net
(a) Explain the meaning of cost and net realizable value.(b) Explain when the lower of cost and net realizable value rule should be used to value inventory.
Because of a counting error, Mila Ltd. understated its ending inventory at December 31, 2021, by $43,000. Ignoring income tax effects and assuming that the company did not detect this error, what
If an error in counting ending inventory in one year will have the reverse effect in the following year, do we need to correct this error when we discover it? Explain.
(a) Compare the financial effects (ignore income tax) of using the FIFO and average inventory cost formulas during a period of declining prices on (1) Cash, (2) Ending inventory, (3)
Which inventory cost formula—FIFO or average cost— provides the better measure of cost of goods sold on the statement of income and which provides a better measure of ending inventory on the
What are the guidelines that a company should consider when choosing among the three cost formulas for determining cost for inventories: specific identification, FIFO, and average cost?
Explain why, when using the average cost formula in a perpetual inventory system, we must calculate a new weighted average unit cost after each purchase, but not after each sale.
(a) Distinguish among the three cost formulas for determining cost for inventories: specific identification, FIFO, and average cost. (b) For each cost formula we could use, give an example of a
Shown below are two types of errors pertaining to inventory. For each of these errors, state the impact it has on the financial statement element or ratio in each of the column headings. Explain the
(a) Which of the three inventory cost formulas will a company use if its goods available for sale are identical? (b) Which cost formula assumes that the first goods purchased are the first goods
(a) Explain why cost formulas are necessary. (b) When are cost formulas used in a perpetual inventory system?
The employees of a grocery store have just counted the ending inventory and determined its cost at $10,000. This is less than the $10,400 cost showing in the Inventory account. The $400 is a typical
Describe three control activities that a company will use when managing its inventory. Name three things that a company will consider when taking a physical inventory.
Parkhurst Auto Parts Ltd. sells over 4,000 types of car parts, ranging in cost from just a few dollars to hundreds of dollars each. Six employees work in the warehouse accepting inventory purchases
What is the difference between a consignee and a consignor? Would both parties include the goods in their inventory? If not, explain why and indicate which of the two should include the goods in its
You just hired your friend Tom Wetzel to help take the physical inventory in Kikujiro’s Hardware Store. Explain to Tom how to do this job, giving him specific instructions for determining the
Shown below are a number of events. For each of these, state the impact on the financial statement element or ratio in each of the column headings. Explain the impact using the words Increase,
Under ASPE, when are sales discounts normally recorded? What account is used to record the cost of providing a sales discount to customers? Where is this account reported on the financial statements?
Under ASPE, a Refund Liability account is not used when estimating sales returns. What account is used to record sales returns? Where is this account reported on the financial statements?
What differences would be found on an statement of income prepared for a company using a periodic inventory system, compared with a company using a perpetual inventory system?
Identify the accounts that are added to or deducted from purchases in a periodic inventory system to determine the cost of goods purchased. For each account, indicate (a) Whether its balance is
Why is interest expense reported as a non-operating expense and not as an operating expense on a multiple-step statement of income?
(a) What is the difference between classifying expenses in a statement of income by nature or by function? (b) Does this classification apply only to a single-step statement of income, to a
Which type of statement of income—single-step or multiple- step—does The North West Company use? You can find its financial statements in Appendix A at the back of this textbook.
Edson Ltd. reports under ASPE and has the following account balances: Sales $935,000, Cost of Goods Sold $380,000, Salaries Expense $220,000, Sales Discounts $7,000, Depreciation Expense $20,000,
Distinguish between a single-step and a multiple-step statement of income for a merchandising company
Explain what types of items are included in comprehensive income.
At the end of the year, Tunnel Mountain Resorts Ltd., a company that has a periodic inventory system, had the following account balances on its unadjusted trial balance: Inventory $75,000; Purchases
A company used data analytics and determined that it should reduce the amount of the sales discounts that it currently offers to some customers. The report showed that the sales discount could be
Bassing Corp. uses a periodic inventory system and reports the following information: sales $1,708,000; purchases $880,000; purchase returns and allowances $13,000; purchase discounts $14,000;
Explain what it means if a contract has multiple performance obligations. How would this affect when revenue is recognized?
In Western Canada, Loblaw Companies Limited has numerous competitors in the grocery marketplace. These include The Jim Pattison Group, Canada’s second-largest private company, which owns the
Explain what is meant by variable consideration. If management expects that there will be sales returns and allowances, what impact does this have on the amount of sales revenue that will be
(a) Distinguish between a quantity discount and a purchase discount. (b) Explain how each kind of discount is recorded.
Explain why purchase returns are credited directly to the Inventory account but sales returns result in a debit to the Refund Liability account, rather than the Sales account.
On March 21, OfficeTech signed a contract with Atlantic Tech University to sell it 100 laser printers and 125 additional high-volume toner cartridges. The contract price was $46,000. OfficeTech
Butler’s Roofing Ltd. received an invoice for a purchase of merchandise for $48,000, terms 1/10, n/30. (a) Calculate the cost of missing this purchase discount to Butler’s Roofing. (b)
On May 22, Digger Ltd. sold an excavator and an extra grapple bucket for $230,000. Digger normally sells the excavator for $220,000 and the grapple bucket for $30,000. Digger tracks excavator and
Why are purchases of merchandise for resale not recorded in the same account as purchases of other items, such as supplies or equipment? Would it not be better to use one account to record all these
(a) What is meant by the term operating cycle? (b) Why is the normal operating cycle for a merchandising company likely to be longer than that of a service company?
Identify whether the Income Summary account would be debited, credited, or not affected when making each of the four closing entries, assuming the company has(a) Net income for the year, and (b)
Why is an Income Summary account used in the closing process rather than closing revenues and expenses directly to Retained Earnings? Why does the Income Summary account not appear on the financial
Why is the account Dividends Declared not closed into Income Summary along with the expense accounts?
Explain why an adjusting entry might be required after an inventory count is completed for a company using a perpetual inventory system.
Explain where each of the following items would appear on (a) A single-step statement of income and (b) A multiple-step statement of income: depreciation expense, cost of goods sold,
Inventory was purchased on credit in April and paid for in May by Lebel Ltée. Lebel sold and delivered the merchandise, along with an invoice, to a customer in June. The customer paid Lebel for the
(a) Distinguish between FOB shipping point and FOB destination. (b) What freight term will result in a debit to Inventory by the buyer? A debit to Freight Out by the seller?
The following selected accounts from Kai Corporation’s general ledger are presented below for the year ended December 31, 2021:Instructionsa. Prepare a single-step statement of income.b. Prepare a
Explain how an unadjusted trial balance, adjusted trial balance, and post-closing trial balance are similar, and how they differ. How often, and when, should each one be prepared?
The following selected accounts appear in the adjusted trial balance for Maple Leaf Foods Inc. Identify which accounts would be included in Maple Leaf Foods’ post-closing trial balance.a. Accounts
Which steps in the accounting cycle may be done daily, which steps are done on a periodic basis, and which steps are usually done only at the company’s accounting period end?
Fill in the missing amounts in the following income tax schedule for Ducharme Corporation.Assume that 2019 was the company’s first year of operations. Income tax expense Income tax payable Income
(a) How do original transaction entries differ from adjusting journal entries? (b) How do adjusting journal entries differ from closing journal entries?
We must first examine the journal entry that a company recorded during the year, before preparing an adjusting entry relating to any prepayment. Why is this not also the case for an adjusting entry
Using the T accounts below determine:a. The cost of the supplies used during the periodb. The cost paid to purchase new insurance policies during the periodc. The amount of interest payable that was
Explain the difference between (a) Depreciation expense and accumulated depreciation, and (b) Cost and carrying amount.
Why is it necessary for companies to allocate the transaction price to each performance obligation identified in the contract?
Sain Advertising Ltd.’s opening trial balance on January 1 shows Supplies $1,500. On January 11, the company purchased additional supplies for $1,800 on account. On January 31, there are $1,100 of
Ltd.’s trial balance at September 30, 2021, was as follows:The company’s bookkeeper had failed to record adjusting entries for the following:1. The company’s employees had earned salaries of
After graduating from university in May 2020 and investigating the opportunities available to her, Emily Anthony becomes a shareholder of Anthony Business Company (ABC) and assumes the position of
Explain whether cash flows from operating activities would normally be expected to be positive or negative in the early years of a company’s life. What about cash flows from investing activities?
André is puzzled reading Air Canada’s financial statements. He notices that the numbers have all been rounded to the nearest million. He thought financial statements were supposed to be accurate
What are retained earnings? What increases the balance in retained earnings? What items decrease the balance in retained earnings?
“A company’s net income appears directly on both the statement of income and statement of changes in equity.” Do you agree? Explain.
Give two examples of each kind of business activity: (a) Operating, (b) Investing, and (c) Financing. For each type of activity, identify at least one example that would result in a
What is accounting?
The basic accounting equation is Assets = Liabilities + Shareholders’ Equity. Replacing words with dollar amounts, what is The North West Company’s accounting equation at January 31, 2019? North
(a) What is the purpose of the statement of cash flows?(b) What are the three main categories of activities included in the statement?
Identify the four financial statements used by corporations using (a) IFRS and (b) ASPE.
What information can be obtained from reading the auditor’s report?
Financial Statement Impact Shown below are some typical transactions.InstructionsFor each transaction, state whether the item at the top of each column will increase, decrease, or remain unchanged.
(a) What are current assets? (b) Give four examples of current assets a company might have and identify the order in which a company would list these assets on the statement of financial
What do we mean by the term operating cycle?
A list of financial statement items for Shum Corporation includes the following: accounts receivable $14,500; cash $16,400; inventory $9,000; supplies $4,200; prepaid insurance $3,900; accumulated
Hirjikaka Inc. reports the following current and non-current liabilities: accounts payable $22,500; salaries payable $3,900; interest payable $5,200; deferred revenue $900; income tax payable $6,400;
Using Walmart as an example, (a) Explain what is meant by the term variety in the definition of Big Data and (b) How variety in this context might help Walmart in its decision-making.
Identify two examples of large amounts of data available to businesses to help inform decision-making.
Explain what is meant by the terms data analytics and Big Data.
(a) Identify the two components of shareholders’ equity normally found in a corporation and indicate the purpose of each. (b) On which financial statement(s) can we find these items presented?
Explain the difference between intracompany and intercompany ratio comparisons.
How does prudence relate to neutrality?
What are the elements of financial statements?
(a) Why are some events recorded as accounting transactions but others are not? (b) Give two examples of events that would not be recorded.
For each of the following accounts, indicate (a) Whether it is an asset, liability, or shareholders’ equity account; (b) The normal balance of the account; (c) Whether a debit will

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