Financial Accounting: Tools for Business Decision-Making, 7th Canadian Edition
Book Preface
WHAT’S NEW?
Helping Students Learn Accounting Concepts
We have carefully scrutinized all chapter material to find new ways to engage students and help them learn accounting concepts. A new learning objective structure helps students learn concepts in more manageable “chunks,” with 20% more Do It! exercises added to help students test their understanding before moving on to the next topic. Of these, more than 60% are new or updated. As well, we added and/or revised a significant number of explanations, examples, illustrations, and summaries throughout the text to better facilitate student learning.
Real-World Context
One of the goals of the fi nancial accounting course is to orient students to the application of accounting principles and techniques in practice. Accordingly, we have expanded our practice of using current examples from real companies throughout the textbook by adding more high-interest companies that we hope will increase student engagement. Th is edition includes more than 300 references to real-world companies of interest to students. Nearly a quarter of the chapter-opening feature stories were replaced with new stories, while the remainder were updated. New feature companies for this edition are The North West Company and Sobeys, two well-known companies in the grocery industry. References to these companies have been included throughout the textbook in a variety of ways—in simplified financial statements in the chapter material, ratio analyses, Using the Decision Toolkit, end-of-chapter cases, and financial statements in
Appendices A and B at the
end of the textbook. In addition, our author team is active in delivering the CPA Professional Education Program and incorporated this real world perspective as each chapter, including the end-of-chapter material, was written. International Financial Reporting Standards (IFRS) and Accounting Standards for Private Enterprises (ASPE) were also revised to reflect current and pending changes to standards.
Focus on the Accounting Cycle
For many students, success in an introductory accounting course hinges on developing a sound understanding of the accounting cycle and seeing how the material they are working with in a particular chapter fi ts in the accounting cycle. To help students improve their understanding, we have added new, recurring illustrations that show students the big picture of the accounting cycle and doubled the number of comprehensive cases that incorporate the accounting cycle.
All of these changes provide students with more opportunities to learn and retain accounting fundamentals integrated across multiple chapters.
Review and Practice
A new review and practice section added to each chapter includes, in one place, an overview of the learning objectives, key terms, diff erences (if any) between IFRS and ASPE, and decision tools in addition to practice opportunities using the Decision Toolkit and a comprehensive Do It! Th e review and practice section also includes objective-format questions that allow students to self-assess their understanding of the topics in each chapter. Th ese questions are comprehensive in their coverage, with detailed feedback provided at the end of the chapter to assist students in analyzing their results. Additional practice objective-format questions are available in the test bank for instructor use. End-of-Chapter Material
The end-of-chapter material underwent a comprehensive updating to ensure that it continues to be relevant and fresh.
Well over half of the questions, brief exercises, exercises, problems, and cases in the end-of-chapter material are either new or signifi cantly updated. Th e cases in the Expand Your Critical Thinking section of each chapter have been reorganized into new categories, including financial reporting, financial analysis, ethics, student view, professional judgement, and serial cases. The serial case, which has been an important continuing feature in each chapter in past editions, has been completely revised in this edition to follow the evolution of a computer consulting company from a small private company to a large publicly traded company.
Key Features of Each Chapter Chapter 1: The Purpose and Use of Financial Statements
• Feature story is about Th e North West Company and how accounting aids decision-making
• Identifies the users and uses of financial accounting information and forms of business organization— proprietorship, partnership, private corporation, and public corporation
• Describes the business activities—financing, investing, and operating activities—that affect companies
• Explains the content, purpose, and interrelationships of each of the financial statements—income statement, statement of changes in equity, statement of fi nancial position, and statement of cash flows
• Uses financial statements of a hypothetical company (to keep it simple), followed by those for a real company, The North West Company (to make it relevant)
• Key changes: Clarifi ed concept of internal users of fi nancial information. Added discussion on why ASPE exists and why a private company may choose to use IFRS. Switched order of discussion of debt and equity fi nancing and added context to discussion of dividends. Revised discussion of investing activities related to investments in shares and debt securities and added information about asset disposals. Content added related to management discussion and analysis.
Chapter 2: A Further Look at Financial Statements
• Feature story is about CT Real Estate Investment Trust, its users, and use of accounting standards
• Presents the classifi ed statement of fi nancial position and the items typically found in each section
• Explains how ratio analysis is used to analyze a company’s liquidity, solvency, and profi tability
• Applies ratio analysis to CT REIT, Choice Properties REIT, and their industry (working capital, current debt to total assets, basic earnings per share, and price-earnings ratios)
• Describes the conceptual framework of accounting
• Key changes: Updated terminology relating to current value and income. Added explanation of future economic benefits. Added illustration of operating cycle. Expanded illustration of statement of financial position classifi cations. Expanded discussion of using price earnings ratio to assess the price of a company’s shares relative to the company’s earnings. Added material on acceptance of IFRS-based financial statements by U.S. securities regulators. Included management stewardship of assets in objectives of financial reporting. Added discussion of users identifi ed in conceptual framework and explanation of the difference between fundamental and enhancing qualitative characteristics. Revised conceptual framework illustration.
Chapter 3: Th e Accounting Information System
• Feature story is about BeaverTails’ experiences with an accounting information system
• Covers transaction analysis, explaining how accounts, debits, and credits are used to record transactions
• Explains the fi rst four steps in the accounting cycle, including analyzing, journalizing, and posting transactions and preparing the trial balance
• Key changes: Updated receivable transactions in the Sierra Corporation accounting cycle example. Expanded the discussion of when to record and not to record transactions in reference to the elements of financial statements. Clarified a number of concepts incorporated in this chapter, including the use of negatives in the accounting equation, the use of the chart of accounts, and the distinction between formal general ledger accounts and T accounts. Reformatted the accounting equation analysis to the same format used in Chapter 4 so that students can more easily compare information in different parts of the accounting cycle from one chapter to the next. Added a section on how opening balances aff ect accounting equation analyses. Repositioned the discussion of normal balances earlier in the chapter.
Added a review of fi nancial statement relationships to help students better understand the directional impact of shareholders’ equity and how the statements fi t together. Expanded the discussion about the preparation of a trial balance, including how to fi nd errors. Chapter 4: Accrual Accounting Concepts
• Feature story is about Western University’s application of accrual accounting
• Explains revenue and expense recognition
• Emphasizes the diff erence between cash and accrual accounting
• Completes the accounting cycle, from adjusting entries to the closing process
• Key changes: Updated the revenue recognition section to incorporate new criteria consistent with anticipated changes to the revenue recognition standard and conceptual framework. Clarifi ed and reordered discussion of accrued revenues and expenses. Added original transaction entries throughout adjusting entry section. Reorganized summary tables and added eff ects on net income and shareholders’ equity. Expanded discussion and illustration of closing entries, using same format employed in Chapters 3 and 4. Chapter 5: Merchandising Operations
• Feature story is about Loblaw Companies Limited’s initiatives to improve its process of getting products from its suppliers to its shelves
• Identifi es the key diff erences between service and merchandising companies
• Introduces inventory systems using perpetual inventory system (the periodic inventory system is presented in an appendix)
• Explains how to record purchases and sales of merchandise
• Presents single-step and multiple-step income statements
• Applies ratio analysis to Loblaw, Metro, and their industry (gross profi t margin and profi t margin)
• Key changes: Restructured multiple illustrations throughout the chapter, including income measurements, fl ow of costs, freight terms, cost of goods purchased, cost of goods available for sale, cost of goods sold, and net sales. Added table outlining the advantages of each type of inventory system. Included discussion on professional judgement required when classifying expenses by function.
Chapter 6: Reporting and Analyzing Inventory
• Feature story is about lululemon athletica inc.’s inventory management
• Explains how inventory quantities and ownership are determined
• Covers cost formulas and their fi nancial statement eff ects using perpetual inventory system (the periodic inventory system is presented in an appendix)
• Discusses eff ects of inventory errors on fi nancial statements
• Outlines how to value and record inventory at the lower of cost and net realizable value
• Applies ratio analysis to lululemon, Limited Brands, and their industry (inventory turnover and days in inventory)
• Key changes: Deleted section on detailed inventory count procedures. Revised discussion of errors to focus on two types of errors: errors made when determining the cost of inventory and errors made recording goods in transit. Expanded discussion of goods in transit and clarified more specifi cally the nature of misstatements arising from errors in recording purchases of merchandise inventory as well as errors made when determining the cost of this inventory.
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