BUSI/COMM 293: Section 922

Introduction to Financial Accounting

May/June 2008

Instructor: Aziz Rajwani

Office: Henry Angus 359
Office Hours: Monday to Thursday, 4:30-6:00 and after class
Phone: 604-822-8533
E-mail: aziz.rajwani@sauder.ubc.ca

Purpose of Course:

Financial Accounting is principally concerned with the construction and interpretation of financial reports
prepared for parties external to the issuing firm or entity. The major objectives of this course are to
develop an understanding of the concepts, principles and conventions upon which financial accounting
is based, and more importantly to provide an analytical basis upon which to intelligently interpret
financial statements. Consideration will be given to accounting techniques and the formulation of
financial reports; however, the course will focus on understanding accounting policies, their rationale
and the implications for users of the financial accounting information. The user orientation approach will
include interpretation and assessment of financial statements from a variety of North American
corporations.

An important learned outcome of Busi/Comm 293 is that students develop their critical-thinking and
problem-solving skills.

Expectation of students:

Consistent with the above noted learning expectation, students are expected and encouraged to:

• attend all classes having completed the initial pre-reading of the textbook materials or any
material supplied by the instructors
• actively participate in class discussions
• deal with classmates in a professional manner
• submit homework on the stipulated days and times
• write midterms and finals on the days and times stipulated in the course outline
• not use their computers except for taking notes during class

UBC Diploma in Accounting Program – BUSI/COMM 293: Section 922 – Page 1

Derivation of the Course Grade:

The course grade will be determined using the following weighting for the different components of the
course:
Final Exam 50%
Midterm 35%
Assignments 15%
100%

You must achieve an aggregate passing grade on the examination components in order to pass
the course. [(MT*35% + FINAL*50%) ≥ 42.5%]
At least 90% of an examination will be common to all students. However, it is quite
possible that 10% will be instructor-specific, reflecting differences in the specifics of the material
covered in class.

Assignments:
The homework assignments are due at the beginning of class. Late assignments will not be accepted
nor will any assignments be remarked. Submit assignments based on the .pdf templates posted on
WebCT and only use one side of the paper. The primary purpose of the assignments is to provide
direct, ongoing feedback and to assist you in preparation for examinations. This course moves quickly
and is cumulative in nature, getting behind can make this course overwhelming.

Required Materials/Resources available:

FINANCIAL ACCOUNTING: A USER PERSPECTIVE, Hoskin, Fizzell and Davidson, Fourth Canadian
Edition, John Wiley & Sons Canada Ltd. Note, this textbook comes with very useful supplementary on-
line learning materials at http://ca.he.wiley.com/WileyCDA/ Select students, then first aid Station,
then the textbook. You are strongly encouraged to use this learning tool to enhance your
understanding of the course content. In particular, there is an outstanding “Accounting Cycle Tutorial”.
In Busi/Comm 293 we spend only two classes on the bookkeeping/accounting cycle process. If you are
uncomfortable or unfamiliar with bookkeeping you are strongly encouraged to use this tutorial to
enhance your skills. A common reason that some students do not perform well in Busi/Comm 293 is
that they do not master the bookkeeping (debit, credit) process at the start of the course. Later, when it
is assumed that students have mastered these concepts, many become overwhelmed by the later
chapter content, which is built on this early understanding and mastery. More generally, throughout the
course you are encouraged to use the “Study by Chapter” materials. The combination of
“Demonstration Problems”, “Multiple Choice Quizzes”, “Power Point Presentations” and other materials
are an excellent supplement to the textbook and lectures.

A $35 materials fee (for class handouts) must be paid to the duplicating services centre (HA 423) or
online at www.sauder.ubc.ca/theStore/store/. This fee must be paid by May 16th please.
Thank you. Keep your receipt (in case of “errors”…). Grades may be withheld if the fee is not
paid. No handouts will be provided to students who have not paid the fee by the beginning of class
on the 21st of May. [FYI, I don’t get a single cent of the fee.]

Review/Supplementary Problems:
Review/Supplementary problems are an integral component of the course requirements. These
problems have been selected to provide examples of procedural and conceptual issues and are
intended to assist students in understanding and responding to technical and discussion/essay type
questions encountered during the course and on examinations.

“Practice” Examinations:
There will be one midterm and one final examination with solutions posted on WebCT. The
assignments, in conjunction with your reading and class discussion, will equip you to successfully

UBC Diploma in Accounting Program – BUSI/COMM 293: Section 922 – Page 2

complete the examinations. The examination questions will be comprehensive in nature requiring you
to thoughtfully integrate your knowledge providing quantitative and qualitative responses.

WebCT:
Periodically, materials will get posted on Web CT (www.webct.ubc.ca). For your campus-wide
login (“CWL”) go to www.it.ubc.ca If you need technical support, please e-mail webct-
students@interchange.ubc.ca WebCT will contain the critical files for the course, including
assignments, assignment solutions, and a midterm and final examination with solutions.
Students are advised to check this site regularly for updates.

E-Mail:
I will also be e-mailing you (as necessary). If you don’t have an e-mail account, you can get one at
www.interchange.ubc.ca Please make sure that your e-mail address is up-to-date: Go to
www.students.ubc.ca Under “Quicklinks”, click on Student Service Centre (SSC). Login to the SSC, and
under “Personal Information”, click on e-mail change.

Examinations:
Cell phones are NOT allowed on the desks during exams. Thus, make sure you have a watch to keep track of
time. At the start of the exams, turn your cell phones OFF and PUT THEM AWAY in your
jacket/pants/bag/purse/”murse”. Programmable calculators are not permitted for examination purposes.

Course Schedule:

Class Date Topic Readings###

1 May 5 Introduction to Financial Accounting Chapter 1
2 May 7 Accounting Cycle/Recording of Transactions Chapters 2/3
3 FRIDAY Recording of Transactions Chapter 3
May 9 Extra class in lieu of May 19th holiday
6:30-9:30pm Location to be announced
4 May 12 Revenue Recognition Chapter 4
5 May 14 Cash, Temporary Investments, Accounts Chapter 6
Receivables
May 19 No class - Statutory Holiday
6 May 21 Inventory Chapter 7
FRIDAY Midterm exam
May 23@@@ (Chapters 1–4, & 6)
6:30-8:30pm Location to be announced
7 May 26 Capital Assets Chapter 8
8 May 28 Current & Long-term Liabilities Chapters 9/10
9 June 2 Long-term Liabilities Chapter 10
10 June 4 Shareholders’ Equity Chapter 11
11 June 9 Statement of Cash Flows Chapter 5
12 June 11 Financial Statement Analysis Chapter 12
Final Exam Date is scheduled by UBC. Location will be announced in
June 16 late May. There is no supplemental exam should you not
6:30-9:30pm write the exam on this date.

### Refer to the “Learning Outcome and Exam Skill Level Expectation” on the following pages
for details as to what you are responsible for.

@@@ Be very careful to ensure that you have no conflicts with this time.

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 Learning Outcome and Exam Skill-Level Expectation

M Master: You are expected to be able to complete relatively technical/analytical problems on this
topic plus discuss its conceptual/theoretical merits.
C Conceptual: You are expected to be able to thoughtfully discuss the conceptual/ theoretical
merits of this topic, and complete simple technical/analytical problems related to it.
I Ignore: You are not responsible for this topic.

Chapter 1 Overview of Corporate Financial Reporting

Learning Objective Skill
1. Define accounting and understand its relationship to economic decision-making. C
2. Understand what an annual report is and what it contains. C
3. Describe the major forms of organization in which accounting is used. I
4. Identify several users of financial statements and begin to understand how they use C
accounting information.
5. Know what the term Generally Accepted Accounting Principles (GAAP) means. C
6. Identify the qualitative characteristics of accounting information. I
7. Describe the three fundamental business activities. C
8. Identify the major financial statements and describe their major components. C
9. Begin to understand the role of ethics in financial accounting. C

Chapter 2 Transaction Analysis and Accounting Entries

Learning Objective Skill
1. Understand the basic accounting equation. M
2. Analyze simple transactions and describe their effect on the basic accounting M
equation.
3. Describe the difference between accrual-basis accounting and cash-basis accounting. C
4. Describe how inventory is accounted for when it is purchased and when it is sold. C
5. Identify operating activities and describe their impact on retained earnings. C
6. Describe the revenue recognition and matching process. M
7. Prepare a balance sheet, income statement, and cash flow statement after a series of M
transactions.
8. Calculate three profitability ratios. C
9. Begin to analyze the information on a cash flow statement. I

Chapter 3 Double Entry Accounting Systems

Learning Objective Skill
1. Understand the relationship of debits and credits in the recording of transactions. M
2. Understand the difference between permanent and temporary accounts. M
3. Identify the steps in the accounting cycle. M
4. Analyze transactions and record them in journal format. M
5. Post transactions to T-accounts and prepare a trial balance M
6. Understand the necessity of adjusting entries and determine how they should be M
recorded.
7. Describe why closing entries are necessary. M
8. Understand the difference between a single and multi-step income statement. C
9. Calculate a gross margin percentage. C
10. Describe the criteria for unusual or infrequent items, discontinued operations, and C
extraordinary items.
11. Understand the criteria for listing items on a balance sheet. C

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 Chapter 4 Revenue Recognition
Learning Objective Skill
1. Describe the cash-to-cash cycle of a retail company. C
2. Explain the relationship between performance and revenue recognition. C
3. List and explain the criteria for revenue recognition. M
4. Describe various applications of the revenue recognition criteria. C
5. Calculate amounts to be recognized under the completed contract method and the M
percentage of completion method.
6. Explain the impact various revenue recognition methods have on earnings recognition. M
7. Understand how return on investment can give you one measure of performance. C
8. Calculate the return on investment under some basic scenarios. C

Chapter 5 Cash Flow Statement

Learning Objective Skill
1. Understand the importance of cash to a company’s financial health. M
2. Describe the relationship between the cash flow statement and the income statement M
in assessing management performance.
3. Describe the cash-to-cash cycle for a retail company through a discussion of the C
lead/lag relationship.
4. Identify some solutions to cash flow problems. C
5. Identify the three major activities disclosed in the cash flow statement and describe C
the components of each activity.
6. Prepare a cash flow statement from a company’s balance sheets and income M
statement (using the Indirect Approach).
7. Provide a basic analysis of a company’s financial health using a cash flow statement. C

Chapter 6 Cash, Temporary Investments, and Accounts and Notes Receivable

Learning Objective Skill
1. Discuss the main control issues related to cash. C
2. Recognize the importance of cash to the success of a business. C
3. Prepare a simple bank reconciliation. I
4. Identify the criteria for the classification of an investment as temporary. C
5. Explain why temporary investments are recorded using market valuations. C
6. Prepare the journal entries associated with the acquisition, holding, and selling of M
temporary investments (using the Allowance Method).
7. Explain why estimating the potential uncollectibility of accounts receivable is required. M
8. Identify two methods for recognizing uncollectibility and describe the circumstances M
under which each is appropriate.
9. Describe the two main types of note receivable and explain the circumstances under I
which each is used.
10. Calculate interest associated with notes receivable and prepare the necessary journal I
entries.
11. Calculate the current ratio, the quick ratio, and the accounts receivable turnover ratio. M
12. Explain how the current ratio, the quick ratio, and the accounts receivable turnover M
ratio help users to understand short-term liquidity issues.

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 Chapter 7 Inventory
Learning Objective Skill
1. Discuss the importance of inventory to the overall success of a company. C
2. Describe the valuation criteria used for inventory in Canada. C
3. Describe how the lower of cost and market rule is applied to inventory. C
4. Explain the difference between the perpetual inventory system and the periodic C
inventory system.
5. Discuss some criteria used by companies when choosing an inventory system. C
6. Describe the three cost flow assumptions and calculate cost of goods sold and ending M
inventory under each.
7. Explain the shortcomings of LIFO and why it is rarely used in Canada. I
8. Describe the impact of inflation on each of the cost flow assumptions. C
9. Estimate a value for ending inventory using the cost-to-sales ratio method. I
10. Calculate the inventory turnover ratio and explain how it can be interpreted by users. M
11. Journal entries for inventory, sales, sales returns and sales discount under a M
perpetual inventory system.
12. Appendix: Calculate cost of goods sold and ending inventory using the three cost M
flow assumptions under a perpetual inventory system.

Chapter 8 Capital Assets – Tangible and Intangible

Learning Objective Skill
1. Describe the valuation methods used for capital assets. C
2. Identify the acquisition costs that are usually added to the capital asset account at M
acquisition.
3. Describe the purpose of amortization and implement the most common methods of M
amortization, including capital cost allowance.
4. Identify the factors that influence the choice of amortization method. C
5. Describe and implement changes in amortization estimates and methods. M
6. Account for the disposal and write down of capital assets. M
7. Describe and implement the amortization method used most frequently for natural I
resources.
8. Explain the accounting difficulties associated with intangible assets. C
9. Amortize intangible assets, where appropriate. M
10. Calculate the return on assets ratio and discuss the potential implications of the M
results.

Chapter 9 Short-Term Liabilities

Learning Objective Skill
1. Describe the valuation methods used for liabilities in Canada. C
2. Explain why companies use working capital loans and lines of credit. C
3. Explain why accounts payable are sometimes thought of as “free debt”. C
4. Prepare journal entries to record a company’s payroll. I
5. Calculate the amount of interest that is owed on a short-term note payable. I
6. Describe how warranty obligations differ from current liabilities such as AP C
7. Describe situations where unearned revenue must be recorded. C
8. Explain why the portion of long-term debt that is due in the next year is recorded as a C
current liability.
9. Explain what a commitment is and how it is recognized by a company. C
10. Explain contingencies and the criteria governing their accounting treatment. M
11. Describe why future income taxes exist. I
12. Calculate future income taxes in amortization and warranty situations. I

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 Chapter 10 Long-Term Liabilities
Learning Objective Skill
1. Describe the basic characteristics of a bond. C
2. Explain how bonds are issued and how the pricing of bonds is affected by risk. C
3. Calculate a bond’s issue price and prepare journal entries for the issuance of the bond M
and interest payments subsequent to the issuance for bonds issued at par, below par,
and above par.
4. Discuss the advantages and disadvantages of leasing. I
5. Distinguish between an operating lease and a capital lease and prepare journal I
entries for a lessee under both conditions.
6. Explain the distinguishing features of a defined contribution pension plan and a I
defined benefit plan.
7. Describe other employment benefits and explain how they are treated in Canada. I
8. Calculate the debt/equity ratio and the times-interest-earned ratio and write a M
statement describing the financial health of a company using the information from
these ratios.

Chapter 11 Shareholders’ Equity

Learning Objective Skill
1. Distinguish among different types of organizations and explain the advantages and C
disadvantages of each form.
2. Describe the different types of shares and explain why corporations choose to issue a C
variety of share types.
3. Prepare journal entries for share transactions, including the issuance and payment of M
dividends.
4. Describe the different types of dividends and explain why companies might opt to C
issue one type of dividend rather than another.
5. Explain the purpose of the statement of retained earnings. C
6. Calculate and interpret the price/earnings ratio and the return on shareholders’ equity M
ratio, which are often used for decision-making.

Chapter 12 Financial Statement Analysis

Learning Objective Skill
1. Explain why knowledge of the business is important when attempting to draw C
conclusions about a company’s future health.
2. Describe the various ways of analyzing a company’s financial statements. M
3. Describe the types of ratios that are best suited to providing insight into specific M
decisions.
4. Calculate specific ratios and explain how the ratios can be interpreted. M
5. Assess the financial health of a company through the use of ratios. M

UBC Diploma in Accounting Program – BUSI/COMM 293: Section 922 – Page 7