Core and Optional Modules

Learning Objectives

Notes

1.1 To recognize and use the basic vocabulary of accounting in classroom discussions and assignments. (COM)

Accounting can be defined as the process of recording, classifying, reporting and interpreting the financial data of an organization.

This learning objective will be applicable throughout Module 1 and throughout most modules.

The students should be reminded of which activities are bookkeeping and which activities are accounting.

Students may do a "concept attainment" sorting for the concepts of bookkeeping and accounting.

The entire class may visit an accounting office in the community to stimulate student interest. For example, students may visit a band office and be introduced to the band accountant or an accountant may come to the classroom.

1.3 To develop and propose why the study of accounting is important. (CCT)

Why keep records? What is the purpose of financial records? Who needs to know information? Students may be asked these questions and others. Students should be aware of the types of work an accountant might do; for example, routine daily activities, periodic accounting activities, GST, PST, creditors, and others.

Emphasis on why records should be kept is important. Students may arrive at the solutions in large or small groups. They may interview individuals within the community to determine the need for records. All discussion should be shared with the entire class. Students may develop questions to ask the individuals. These questions may be prechecked by the teacher for the level of thinking and evidence of process skills.

1.4 To identify and explain the basic differences between financial accounting, cost accounting, and management accounting.

What are financial, cost, and management accounting? There are two purposes of this learning objective: (1) Students should have a basic understanding of each type; and (2) Students should realize that the emphasis on financial accounting in most modules is not the only type of accounting performed in the field.

Financial accounting is concerned with the preparation of financial statements. Cost accounting is concerned with the reporting of costs (assets and expenses) as accurately as possible. Management accounting is concerned with decision making and the preparation of special reports to be used in making those decisions.

All three types of accounting are described within modules 1 to 13. Thirty hours of Module 3 (Accounting 30) is management accounting although there are many management accounting exercises throughout the modules.

Use an example to explain the three types of accounting. For example, if a company buys a new truck, does it record the purchase price with or without tax (cost accounting)? After five years, does it spend $4,000 on repairs, or does it sell the truck (management accounting)? What amount has been reported on the financial statements for the truck in the last five years (depreciation—financial accounting)?

1.5 To distinguish and explain the advantages and disadvantages of each form of business ownership.

Students may research and present to the class the concepts of a sole proprietorship, partnership, corporation (include crown corporation and cooperative), and franchise. Students may consider aboriginal businesses and their forms of organization. The financial accounting process is the same as it would be for any business venture.

Guided inquiry: Students may be given a list of the types of ownership to investigate and may be asked to prepare a report in groups or individually for the teacher or for class presentation and discussion. This assignment may be given while other learning is taking place and may be presented in one or two weeks time. Encourage students to work and discover the information and resources on their own.

1.6 To identify different types of business enterprises: resources, manufacturing, merchandising and service, and suggest where they are most appropriate.

The students will find the difference between each type of enterprise and identify those in their community. From those organizations identified, discuss which are profit or non-profit.

A law firm or a barber shop is always a service business. What type is appropriate for different businesses?

Give examples of each role in your community, province, or in Canada. Use magazines or newspapers if examples are not available in your community. Follow one commodity through the various steps; for example, the production of milk. Who is the producer? Who is the wholesaler or manufacturer? Who are the retailers?

Students may prepare a manual on a commodity of their choice following it through the steps from producer to consumer.

A research assignment may be designed to integrate several learning objectives on the introduction to the area of accounting. The assignment could involve a portfolio folder containing the following: an annual report from a local business; a list of the jobs and careers related to accounting within that business; and descriptions of the types of business enterprises and forms of business ownership within the community.

In groups, students may prepare a bulletin board display or large wall charts identifying the roles of the business(es).

1.8 To develop and explain the concept and acceptance of Generally Accepted Accounting Principles (GAAPs).

The origin of Generally Accepted Accounting Principles (GAAPs) and why their procedures are followed should be explained. The Canadian Institute of Chartered Accountants (CICA) Handbook published by CICA contains specific accounting guidelines for use in Canada.

The Business Entity Concept may be introduced at this time. It provides that the accounting for a business organization must be kept separate from the personal affairs of its owner or from any other organization. In an aboriginal context, emphasize the separation of the business and its records from the Indian Band or other development vehicles.

Learning Objectives

Notes

1.9 To prepare a Balance Sheet using proper format, showing its derivation from the accounting equation, and to identify it as the statement of financial position on a certain date.

Approach this introductory concept from the position of:

What is owned = What is owed + Net worth

(Claim of Creditors)

(Assets) = (Liabilities) + (Owner's Equity)

From the statement of financial position, introduce the concepts of asset, liability, and owner's equity. Students should know the general definitions of these terms and their relation to the accounting equation in a service firm. The words debtor and creditor should be introduced with the Accounts Receivable (A/R) and Accounts Payable (A/P) concepts.

A statement of personal worth can be prepared before the Balance Sheet for a service firm.

While teaching the Balance Sheet in account style, stress that assets are on the left side and liabilities and owner's equity are on the right side just as they are in the accounting equation.

The report-form balance sheet should be shown to the students as the most common style used in business.

Note the three-line heading asks: who? what? and when? Format must include proper spacing, the alignment of figures, no abbreviations, proper placement of figures on columnar paper, proper correction procedures, underlining, correct format, legible writing, and neatness. All these items must be stressed.

Learning Objectives

Notes

1.11 To organize and arrange transactions into revenue and expenses identifying the fact that there are primary and secondary sources of revenue. (CCT)

What are expenses? Introduce expenses as expired costs matched against revenue in the income statement. What is revenue? Students should be aware that revenue is "earned income" whether by providing goods or services or by receiving interest on a savings account. Earned income from providing services is primary revenue. Interest may be secondary revenue.

Revenue and expense accounts are nominal accounts (temporary accounts).

Again, show the double-entry effect of transactions relating to revenue and expenses. The equation always stays in balance whether the transaction occurs on one side or changes both sides. The students may prefer to relate to the accounting equation algebraically:

Assets = Liabilities + (Owner's Equity + (Revenue - Expenses))

A = L + (OE + (R-E))

What are drawings? How do they affect Owners' Equity and the accounting equation? Again students may prefer to solve the accounting equation algebraically:

A = L + (OE + (R-E) - D*)

*Drawings

No salaries can be paid to owners in a sole proprietorship or partnership. All money or goods withdrawn from a business is a decrease to net worth.

Learning Objectives

Notes

1.14 To understand the concept of an account using the T-account form and the balance account form of a ledger account and to associate the left side of any account as the debit side and the right side of any account as the credit side.

Account is a record of all the transactions carried out under one title.

T-account is a simplified record of debit entries on the left and credit entries on the right under one title.

As the various types of accounts are shown to the students, each left side is the debit side and each right side is the credit side. They will be increased and decreased, however, as to their position in the accounting equation.

1.15 To associate and relate the debit and credit of each type of account (assets, liabilities, owner's equity, drawings, revenue and expenses) as being an increase or decrease to that account.

Assets are on the left side of the accounting equation and are increased on the left or debit side of an account. Consequently, they are decreased on the right or credit side. Liabilities and Owner's Equity are on the right side of the accounting equation and are increased on the right or credit side on an account. Subsequently, they are decreased on the left or debit side. Drawings and expenses decrease owner's equity, thus are debited when increased, and revenue increases owner's equity, thus is credited when increased.

Assets = Liabilities + Owner's Equity

A = L + OE

Debit

Credit

Debit

Credit

Debit

Credit

+

-

-

+

-

+

1.16 To analyze all types of transactions placing them in T-accounts and to finally balance ledger accounts recording opening balances and final balances after transactions.

Calculate balances on both the T-accounts and on the balance ledger accounts. Use the idea of pencil footings, normal and abnormal balances, and the correct way of expressing dollars and cents.

Learning Objectives

Notes

1.18 To prepare an elementary income statement for a service firm. (IL)

An income statement is prepared for a period of time: Week, month, quarter, half, or year. Note the three-line heading: Who? What? And for what period? -- including the words "For the Period Ended".

Use of the correct format and procedures for completing an income statement must be stressed.

1.19 To differentiate between fiscal period and accounting period and to explain and discuss the Time Period Concept.

What is a fiscal year? What is a calendar year?

Fiscal year is the business operating year – usually starts on the first day of any month. Calendar year starts January 1 and ends December 31.

Why would a business choose a fiscal period different from a calendar year? Students may give examples of suitable fiscal years for various types of businesses (for example, snowmobile sales, agricultural products, and others).

What is the Time Period Concept? How does it relate to students' learning at this time? Why would it be designated as a GAAP?

1.20 To relate the income statement to the balance sheet on a date at the end of the fiscal period.

Refer back to the accounting equation to show that beginning owner's equity plus or minus the transactions during the period equals the owner's equity on the balance sheet after the net income or net loss is added. Teachers may mention and show an example illustrating the relationship between the balance sheet and income statement.

Concept attainment: Teachers may present students with examples and non-examples of fiscal year and calendar year.

Students may investigate businesses within the community that operate on a fiscal year and a calendar year. Examples and reasons may be discussed in the classroom.

1.21 To discuss who would use financial statements and why. (PSVS)

The use of financial statements by internal users, and external users such as banks, creditors, investors, government agencies, owners, and employees may be discussed.

The focus of this exercise should be that the primary purpose of financial statements is to aid decision makers.

1.22 To analyze a source document and determine its relationship to a Balance Sheet or an Income Statement.

Equate an accounting transaction to a library classification system. When a library receives a new book, it determines the subject and assigns the book to that area. The same happens in accounting. When a source document arrives in a business, a transaction is assigned to it. Incorrectly classified transactions would lead to incorrect financial reports.

Students may collect different source documents from home or community sources. Each source document should be analyzed for date, document number, debit, and credit. The documents may be displayed to allow the class to see all types. The teacher may assess content of the transactions and assess student attitude to participating in the collecting of source documents with anecdotal records.

Students may brainstorm the external and internal use of financial statements.

Learning Objectives

Notes

1.23 To introduce the accounting cycle and explain how each activity to follow will relate to this cycle. (COM)

As the cycle is explained to students, they should be made aware that Canada Customs and Revenue Agency insists that a business go through the accounting cycle at least once a year for the purpose of filing income tax. A visual representation may be introduced here and may be available for students' reference at all times.

Students should be aware that all bookkeeping and accounting activity is part of one of the steps in the accounting cycle. In diagram form, show the accounting cycle as being seven or eight steps depending on whether the teacher interprets the trial balance and worksheet as one or two steps.

Steps in the Accounting Cycle:

1. Originating data
2. Journalizing
3. Posting to the Ledger
4. Trial Balance and/or Worksheet
5. Financial Statements
6. Adjusting and Closing Entries
7. Post-Closing Trial Balance.

Students should be reminded to rule and balance accounts at the end of the cycle.

1.24 Step 1: Originating Data:
To identify and examine the information contained on source documents.

What is the GAAP of Objectivity? It essentially says all accounting data must be supported by a source document. Have students discuss and bring examples of source documents where applicable.

How has technology affected source documents? What are the legal implications of receiving source documents in an electronic format rather than printed copy?

Stress the importance of checking the accuracy of all source documents and the procedure to follow if an error is found.

1.25 Step 2: Journalizing: To organize and record accounting data into a journal or journals. (COM)

A journal is a "book of original entry" and may be in several forms. Examples should be given. Students may also be made aware that the entries in a journal are a chronological record of all transactions within a set of records.

Journals can be used manually or on a computerized accounting system. A printout of some sample screens should be given and compared to manual journal formats.

Although the general journal has traditionally been the first journal taught, it may be appropriate to introduce the synoptic/combination journal at this introductory level. The reason the synoptic/combination journal may be introduced here is that most small business and personal records use the combination journal. Some points to consider:

• the columns may be named to suit the particular business venture
• the debits and credits will still always equal each other and the columns must prove at the end of the page or accounting period
• this type of journal may be used on a spreadsheet application on the computer, etc.

Through Step 2 of the accounting cycle, students may be introduced to opening entries, routine entries, and compound entries in the general journal. Proper procedures and proper correction procedures are essential. Students should be shown how to do a journal proof at the end of a journal page.

It is recommended that the journal be taught manually before students complete transactions on the computer.

1.26 Step 3: Posting to the Ledger: To classify and transfer transactions into accounts in the general ledger.

The ledger may be explained as being the "book of final entry." Students should be aware of the many formats which a ledger may have (book, cards, trays, computerized screens, and others). The system may be manual or computerized. If computerized, students may be able to see the ledger account formats on screen or in hard copy.

Students should be aware of the need for a ledger: to maintain a current balance for the account, to maintain a summary of the transactions for that one account.

The transfer procedure called posting should be clearly demonstrated to the students allowing them to practise as soon as possible. It is desirable for students to experience posting manually before using a computerized system so they can clearly comprehend the process involved. Students should be made aware, however, that this is a repetitious process and is one of the best examples of an efficiency through computer use.

1.27 Explain and correct discrepancies when preparing a series of accounting proofs before financial statement preparation.

Proofs are prepared to ensure that all data is recorded and accurate in the journal and in the ledger. Accounting proofs may be done manually, preferably with a calculator with a paper tape.

The purpose of a journal proof is a check to assure debits equal credits by totalling each column on the journal page and by totalling the money columns to obtain a "balance forward" for the next page.

The totals in the ledger accounts must be proved after posting. After posting is completed, students should run a Zero Proof or Quick Trial Balance on the calculator. If the proof is unsuccessful, time must be spent on procedures to correct errors.

Students should know the procedures to follow in correcting errors. Before a lengthy correction process, students may calculate the trial balance difference and test it. Some quick tests to use are:

• if the difference is a multiple of 10, an addition error has likely been made;
• if the difference divided by two equals a transaction amount, two debits and/or two credits may have been recorded instead of one of each;
• if the difference is divisible by 9, a transposition error has likely occurred.

If the above quick tests do not identify the problem, students may proceed with the following:

• re-add columns preferably comparing the paper calculator tape to amounts in ledger accounts
• check transfer of account balances from ledger to trial balance;
• re-add account column balances
• check postings for incorrect amounts, amounts not posted, amounts posted twice, amounts posted in the wrong column
• check the number of zeros in the amount.

Remind students that this is a very routine operation and that it is done very quickly on the computer.

What is a trial balance and what does it prove? The trial balance is the summary of the general ledger account balances on a certain date. If A = L + OE, then the trial balance will balance proving debits = credits. The trial balance is the first step in preparing financial statements. Prepare a Trial Balance in proper form to assure posting was done correctly.

Learning Objectives

Notes

1.28 Step 4: Worksheet: To organize and plan accounting information for financial statements by employing a worksheet. (NUM)

A worksheet is used to summarize data to make it easier to generate financial statements before formal preparation: plan for adjustments to general ledger accounts; to sort general ledger accounts into financial statements; to calculate adjusting entries; and to calculate the amount of net income or loss.

Students should be made aware that the worksheet is a working paper and may or may not be shown to others. The students should also be made aware that the worksheet is done very easily on a spreadsheet; and if students are familiar with spreadsheet software, this is a very good application. If accounting/general ledger software is available to students, they may never see a worksheet as the process is completed automatically by the computer program.

Observe the heading of the worksheet, indicating the data is for a specific period of time. Transfer balances from the general ledger and balance the trial balance before continuing.

Verify the need for adjustments and relate it to the matching principle. Adjustments used here may include: supplies used and insurance expired (prepaid expenses), late invoices, etc. Indicate in the adjustment columns the debit and credit item to each adjustment. For example, (a) beside the debit figure for Supplies Expense and (a) beside the credit figure for Supplies.

After adjustments are calculated and the total of the adjustment columns verified, extend all account balances to the balance sheet or income statement columns. Figure and record net income/loss on the worksheet following proper procedure.

1.29 Step 5: Preparing Financial Statements: To prepare and interpret financial statements for an accounting period.

From a worksheet, prepare an income statement assuring the net income figure is consistent between the two. Students should be reminded that an income statement reports income for a period of time whereas a balance sheet reports assets, liabilities, and owner's equity on a specific date.

What an income statement shows.

It reports revenue and expenses, tells the net income/loss for an accounting period, states the primary and secondary sources of revenue, explains all expired costs (expenses), what expenses have been incurred, and others.

What an income statement does not show.

It does not predict future income/expenses, does not provide an exact amount of net income/loss, does not give "true" profit, does not tell the amount of available cash.

The students should be able to prepare a classified balance sheet and be able to define and give examples of current assets, fixed assets, current liabilities, long-term liabilities, and be able to arrange the assets and liabilities into their respective classes as the statement is being prepared. The equity section of the balance sheet should be expanded to include the beginning capital balance, the increase or decrease through profit or loss, the decrease through drawings, and the ending balance.

What the balance sheet shows.

When examining a balance sheet one should ask: What does the heading say? What are the current and fixed assets? How stable is the firm? Can it pay its debts? Is it strong enough to carry on business? What is the owner's claim against the assets? Has the investment of the owner increased or decreased?

What the balance sheet does not show.

It does not show details of profit and loss, does not specify the amount of withdrawals, does not show which assets are secured against loans, does not show current/market value of assets, does not show how much of the capital came through investment or how much came through accumulated profits, and others.

Financial statements from the community for students to examine would be helpful resources.

Group project: In small groups, students may be given a set of financial statements to interpret and to present to the class. Students may imagine that they are presenting the financial statements to a board of directors or to potential investors. The students playing the role of directors or potential investors could ask questions of the presenters. (CCT)

1.30 Step 6: Preparing Adjusting and Closing Journal Entries: To generate and relate adjusting and closing entries to the appropriate accounting period in preparing general ledger accounts for the next accounting period.

If students review the Matching Principle, the reasons for preparing adjusting and closing entries should be validated. Some of the more important reasons may be to have up-to-date financial statements or to have net income/loss as accurate as possible.

Prepare adjusting entries for prepaid expenses at this time; for example, supplies, insurance, advertising, or any others which may be expired or consumed during the current accounting period.

Students should realize the unexpired portion represents an asset to be listed on the balance sheet and carried into the next accounting period. The concept of matching should be clearly understood.

Prepare adjusting entries in the general or synoptic/combination journal and post them to update ledger accounts before calculating and preparing closing entries.

Define closing to mean having no balance to begin the new accounting period. Reasons for closing entries may include bringing accounts up to date, transferring net income/loss to the owner's equity account, etc.

A new nominal account, Income Summary, may be introduced at this time. Note it is a summary account to which all revenue and expenses are closed and the resulting balance is the net increase or decrease transferred to Capital. It is only open for a short time on the last day of the fiscal period. The balance of the account after all posting should be the same as the net income/loss calculated on the worksheet.

Students need to know the difference between permanent and temporary accounts.

1.31 Step 7: Post-Closing Trial Balance. To prepare a post-closing trial balance to prove the general ledger is in balance after all work is completed for the accounting period.

A trial balance used after posting is called a post-closing trial balance. Prepare the post-closing trial balance paying attention to the three-line heading, again prepared on one date. If the debit and credits are equal, the general ledger is in balance and ready for the next accounting cycle. If the proof does not work out, the same steps may be followed to find the discrepancy as described in Learning Objective 1.27.

1.32 To interpret and analyze financial information. (CCT)

Students may compare a beginning and ending Balance Sheet to discuss and suggest what changes during the accounting period took place and how they affected real (permanent) accounts and how the worth of the business is conveyed to readers. More comprehensive analysis takes place in Module 3.

The students may be given questions to guide them in interpreting and analyzing the financial statements or they may arrive at differences and explanations on their own. Students should be encouraged to comment on whether the financial situation of the business or organization has improved or deteriorated.

1.33 To explain and discuss relevant GAAPs for nominal accounts; namely, Revenue Recognition, Expense Recognition, and the Matching Principle.

What are these? Emphasize that these concepts apply equally to all businesses.

Learning Objectives

Notes

1.34 To demonstrate the ability to process information through the accounting cycle by completing a practice set/major assignment.

Students should review the steps in the accounting cycle. A practice set/simulation may be the best way to review the cycle. It may be 5 to 10 hours in length and should use simulated source documents as opposed to given statements to originate data. Frequent checks of students' work should be done to monitor the accuracy of the data.

Consideration should be given to having students check each other’s work and discuss problems with the teacher. This will be a closer approximation to a work environment and will provide a different way for students to gain understanding of the processes.