ACCOUNTING PRINCIPLES: RAPID REVIEW

Weygandt, Kieso, Kimmel, Trenholm, Kinnear, Barlow: Sixth Canadian Edition, Part 2: Chapters 8-10
RECEIVABLES (CHAPTER 8) the relevant proportion of the year. Multiply the annual depreciation/
Estimating Bad Debts amortization expense by the number of months expired in the year divided
by 12 months. Alternatively, simply use one-half year for all acquisitions.
2. The total depreciation for any method is limited to the depreciable
Balance sheet approach Determines balance in Allowance for
(% of total receivables or aging) Doubtful Accounts cost (cost – residual value).

Recording Bad Debts Revision of Depreciation (straight-line method)

Event Journal Entry Carrying Revised Remaining depreciable Remaining Revised annual
amount at time + residual = amount at time of – estimated = depreciation
Record credit sales Dr. Accounts Receivable of change value change in estimate useful life expense
Cr. Sales
Estimate bad debts Dr. Bad Debts Expense Disposal of Property, Plant, and Equipment
Cr. Allowance for Doubtful Accounts Step Journal Entry of Calculation
Write-off uncollectible account Dr. Allowance for Doubtful Accounts 1. Update the depreciation from Dr. Depreciation Expense
Cr. Accounts Receivable when depreciation was last Cr. Accumulated Depreciation
Subsequent recovery Dr. Accounts Receivable recorded to date of disposal
Cr. Allowance for Doubtful Accounts
Dr. Cash 2. Calculate the carrying amount Cost – Accumulated Depreciation =
Cr. Accounts Receivable Carrying Amount
3. Calculate the gain or loss Proceeds – Carrying Amount = Gain (Loss)
Recording Notes Receivable
4. Record the disposal Dr. Cash (or Receivable)
Event Journal Entry Dr. Accumulated Depreciation
Issuing notes receivable Dr. Notes Receivable Dr. Loss (or Cr. Gain)
Cr. Cash or Accounts Receivable Cr. Long-Lived Asset Account
Recognizing interest Dr. Interest Receivable or Cash
Cr. Interest Revenue CURRENT LIABILITIES AND PAYROLL (CHAPTER 10)
Valuing notes receivable Dr. Bad Debt Expense Current Liabilities
Cr. Allowance for Doubtful Notes/Accounts   Determinable (Certain) Liabilities      Uncertain Liabilities   
Honouring notes receivable Dr. Cash Operating line of credit and bank overdrafts Estimated liabilities
Cr. Notes Receivable
Cr. Interest Revenue or Receivable (if any) Short-term notes payable • Product warranties
Sales taxes • Customer loyalty programs
Dishonouring notes receiv- Dr. Accounts Receivable
able (if eventual collection Cr. Notes Receivable Property taxes • Gift cards
assumed) Cr. Interest Revenue or Receivable (if any) Current maturities of long-term debt • Lawsuits
Contingencies
Dishonouring notes receiv- Dr. Allowance for Doubtful Notes/Accounts
able (if eventual collection Cr. Notes Receivable Payroll
not assumed) Cr. Interest Receivable (if any)      Employee Payroll Costs        Employer Payroll Costs   
Gross pay (salaries expense) Employee benefits expense
LONG-LIVED ASSETS (CHAPTER 9) Less: Payroll deductions • CPP (employer’s share)
       Tangible            Intangible and Goodwill      • CPP (mandatory) • EI (employer’s share)
Property, plant, and equipment Intangible assets, finite lives • EI (mandatory) • Workplace health, safety, and
Natural resources Intangible assets, indefinite lives • Income tax (mandatory) compensation
Goodwill • Other (voluntary) • Vacation pay
Recording Depreciation and Amortization = Net pay (cash paid) • Other
Type of Long- USING THE INFORMATION IN THE FINANCIAL STATEMENTS
Methods Journal Entry
Lived Asset (CHAPTERS 1-10)
Property, plant, Straight-line, Dr. Depreciation Expense
and equipment diminishing-balance, Cr. Accumulated Depreciation Liquidity Ratios
or units-of-production Chapter Ratio Formula Purpose Desired
Natural Units-of-production Dr. Inventory Result
resources Cr. Accumulated Depreciation 8 Receivables Net credit sales Measures liquidity of Higher
Intangible assets, Straight-line Dr. Amortization Expense turnover Average gross receivables.
finite lives Cr. Accumulated Amortization accounts receivable
8 Collection Measures number
Days in year Lower
Calculation of Annual Depreciation/Amortization Expense period of days receivables
Receivables turnover
are outstanding.
Depreciation/
8 Operating Days sales in inventory + Measures number Lower
Amortization Method Calculation cycle Collection period of days to purchase
Straight-line Cost – Residual value inventory, sell it on
Estimated useful life (in years) account, and collect
the cash.
Diminishing- Carrying amount at beginning of year × Straight-line rate
balance Straight-line rate = 1 ÷ Estimated useful life (in years) Profitability Ratios
Desired
Units-of- Cost – Residual value Chapter Ratio Formula Purpose
× Units of production Result
production Estimated total units of production during year 9 Asset Net sales Measures how Higher
turnover Average total assets efficiently assets are
used to generate sales.
9 Return on Profit Measures overall Higher
assets Average total assets profitability of assets.
Note: 1. If depreciation or amortization are calculated for a partial period, the
straight-line and diminishing-balance methods must be adjusted for

EP-1