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Chapter 5 – Lesson Notes

Copyright © 2013 Pearson Canada Inc. DRAFT MANUSCRIPT 1

[H1] Chapter 5 The Expanded Ledger: Revenue, Expenses, and Drawings

In Chapter 4, students gained experience handling equity transactions, but they recorded

each change in one account only: the Capital account. This is technically sound, but if it

were the usual practice, a great deal of necessary information would become hidden in

this one account. To reveal this information, new equity accounts are introduced in

Chapter 5.

[H2] 5.1 The Expanded Ledger and Income Statement

This section introduces the expanded ledger, adds depth to students’ understanding of the

income statement, and introduces the chart of accounts.

Textbook

p. 132 1 As shown in the textbook, the mnemonic RED can be used to help remember the three

new types of accounts: R-evenue, E-xpense, D-rawings.

Hint: The Drawings account is easy to remember because it is the account that tracks

money the owner is withdrawing from the business.

2 After reviewing the opening paragraphs, ask students to examine Figure 5.1 on page 132.

The capital account and trial balance are shown. Point out that they are no different from

the ones students worked with in Chapter 4.

3 Ask students to focus on page 132, while making sure not to look at page 134. Then ask

them the questions that appear at the top of page 133. Students should clearly understand

that even though the amounts in the capital account are correct, they fail to deliver the

information a business owner needs.

p. 135 4 Direct the students’ attention to Figure 5.3. Make a transparency of Master 5-1 to help

you emphasize the key features of Figure 5.3. The expanded equity section contains all

the amounts that were in the capital account in Figure 5.1, but they are organized into

different accounts. The data is the same; they have just been reclassified. To verify this,

show students that the value of the capital account from the Chapter 4 trial balance is the

same as total owner’s equity from Chapter 5—$26 137.

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Textbook

p. 136 5 The expanded ledger can now be used to answer the questions at the top of page 133.

Show students the income statement in Figure 5.4. Ask them what amount is most crucial

on this statement (Answer: the net income, which is the “bottom line”). Ask them to point

out which equity accounts from the expanded ledger are missing from the income

statement. (Answer: Capital and Drawings). Ask them if they are now better able to

answer the questions on page 133.

6 Make a transparency of Master 5-2, prepared from Figure 5.4, to illustrate a properly

formatted income statement. This illustration clearly shows that only revenue and

expenses are shown in the income statement – the other equity accounts (Capital and

Drawings) do not appear.

Hint: To illustrate the uses of the income statement, tell students to write a paragraph about the consequences owners, managers, bankers, and tax authorities would face if the income statements for a business were not prepared for three years.

Hint: Give students practice creating an income statement by getting them to make one for a celebrity or other famous figure. Challenge them to come up with a creative person or business, and use realistic sales figures and expense accounts. Ensure they use proper formatting. Allow the class to share their income statements with each other. You can also refer to the Personalize It exercise at the end of the chapter for a more in-depth personalized exercise.

p. 137 7 Tell students to record the definition of revenue and expenses in their notebooks.

Hint: Stress the fact that different account titles can be used for revenue, depending

on the nature of the business, so that students do not get locked into using just one

title. (The Sales Revenue account of a merchandising business will be introduced in

Chapter 10).

8 The calculation for net income or net loss is straightforward. Refer students back to the

income statement on page 136 to see how net income is presented.

Textbook

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p. 139 9 The presentation of the chart of accounts should be straightforward. A mnemonic to help

remember the order of accounts is “All lions can draw red elephants”: Assets, Liabilities,

Capital, Drawings, Revenue, Expenses.

10 The numbers 100, 200, 300, 400, and 500 are not usually used to designate a specific

account. Computer accounting programs sometimes reserve these numbers to designate

headings, such as Assets, Liabilities, and so on. Also, most accounting software programs

use four-digit numbers for accounts (e.g., 1000 to 1999, 2000 to 2999, and so on.) In this

textbook, three-digit numbers are used, except for Sage Simply Accounting exercises.

Hint: As an alternative or a complement to the preceding lesson notes, you might want to use the whiteboard to work through a Chapter 4 exercise with the class (e.g., Chapter Exercise 6 on page 125). This time, however, make appropriate entries in the new equity accounts instead of the Capital account alone.

[H2] 5.1 Exercises

p. 141 1 This exercise uses errors to reinforce proper income statement formatting as indicated on

pages 136 and 137.

2 Here, students are to arrange the accounts in the usual ledger order and then prepare a

chart of accounts using the numbering system from the textbook.

p. 142 3 Students are required to prepare a trial balance from the expanded ledger. Have them

refer to page 139 of the textbook for the numbering system of the chart of accounts.

pp. 142–143 4 This is a comprehensive exercise that covers all of the important parts of

Section 5.1. It even introduces a small amount of analysis. Consider assigning this

exercise as homework or as a class assignment to see if students understand the expanded

ledger and the income statement, the two main concepts introduced in this section.

[H2] 5.2 Equity Transactions and Accounting Principles

This section reveals how equity transactions work with the expanded ledger, and

introduces several related accounting principles.

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1 Try to get students to use the fundamental accounting equation to determine which

entries require debits or credits, instead of using memorization. As a pre-test review, or

pop quiz, ask students why revenues are normally credited but expenses and drawings are

normally debited. Why is it not the same process for revenue, expenses, and drawings,

given that they are all equity? (Answer: Because revenue increases equity, and expenses

and drawings decrease equity.)

Textbook

p. 145 2 For the revenue transaction, ask students to use their knowledge from Chapter 4 to record

Eve Boa’s revenue transaction in T-accounts. (Answer: debit Bank $450; credit E. Boa,

Capital $450.) Then get them to cross out the title “E. Boa, Capital” and replace it with

“Fees Earned.” This should help students connect the new revenue accounts with the

work they did in the last chapter.

p. 146 3 Have students write the definition of the Revenue Recognition Principle in their notes.

Hint: Students sometimes have trouble with revenue recognition when credit

customers send in payments to clear or reduce their accounts. Remind students that

accounting clerks credit the Revenue account when the sale is made. When the cash

finally comes in, it would be a mistake to credit Revenue again.

4 As in point 2 above, have the students use their knowledge from Chapter 4 to do the rent

expense transaction (i.e., debit the Capital account). Remind them that Capital was

debited in Chapter 4 because a business was worse off as a result of this type of

transaction. When they cross out E. Boa, Capital and replace the title with Rent Expense,

they should see why an expense is normally debited.

Textbook

pp. 147–148 5 Present drawings in the same way as you did expenses, but accentuate the fact

that drawings are not an expense. Reassure students that they have done these types of

transactions before.

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Hint: Students can get confused as to whether the Drawings account appears on the income statement. Only revenue and expenses appear, because the income statement only includes accounts that affect revenue generation – either in the form of revenue itself, or costs incurred to generate that revenue (expenses). Drawings are withdrawals of money from the company to the owner that are completely independent from revenue; therefore, the Drawings account does not appear on the income statement.

p. 148 6 Define fiscal period. Ask students how long they would want their fiscal periods to be if

they owned a business. Ask them how long the government would want their fiscal

periods to be. Students will quickly see the need for fiscal periods of different lengths.

Hint: Stress the fact a fiscal year does not have to be the same as the calendar year.

Many businesses choose their fiscal years so that the accounting year-end does not

coincide with a calendar year-end seasonal business rush.

7 The time period concept creates an issue that the matching principle attempts to solve.

Show the time period concept by drawing a simple time line like the one below.

20–1 20–2

Revenues Revenues

– Expenses – Expenses

= Net Income = Net Income

It should be obvious that every revenue and expense item will not fit neatly into each

chunk of time; some will be recorded in one period when they should be recorded in

another. Define the matching principle then use the time line above to explain the Boxing

Day issue described on page 149. Students should see that net income is not merely the

result of a simple calculation (revenues minus expenses). Rather, it is an amount that is

best determined by the application of accounting principles over a specific time period.

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[H2] 5.2 Exercises

Textbook

p. 150 1 This exercise uses students’ existing knowledge of T-accounts and transactions to get

them thinking about which equity account to use for a variety of transactions. The

placement of the T-accounts in the student workbook shows the relationship between

equity accounts and the debit/credit theory (debit entries decrease equity, credit entries

increase equity).

pp. 150–151 2 Have students refer to the chart of accounts when they analyze transactions for

this exercise.

p. 151 3 This exercise reviews what students have already mastered in Chapter 4 and gets them to

apply it to the expanded ledger introduced in this chapter.

p. 152 4 This is a fill-in-the-blank activity that reinforces students’ knowledge of debit and credit

theory. It also makes a good pop quiz.

5 This final exercise can be done quickly and may serve as an oral review.

[H2] 5.3 Equity Relationships and the Balance Sheet

At this point, some students may be uncomfortable with the new ledger accounts. This

section confirms that the fundamental accounting equation has not changed. Students

explore equity relationships mathematically, and then learn how to present the math on

the balance sheet.

p. 153 1 If you wish to use an overhead projector, you may make a transparency of Master 5-3

(Figure 5.7).

Have students read page 154 and refer back to Figure 5.7. Ask a student to explain how

the capital equation is illustrated in Figure 5.7. It is crucial that students understand the

mathematical relationships in the capital equation (Beginning Capital + Net Income –

Drawings = Ending Capital). Ask them what happens to revenues and expenses in this

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calculation. They should respond that revenues and expenses have been matched or

totalled together, and are represented by the net income amount.

Hint: The equation Beginning Capital + Net Income – Drawings = Ending Capital

may seem complicated, but it should make sense to students when they look at it in the

context of the expanded ledger – the equation incorporates all of the equity accounts.

Show students a simple example of an income statement and balance sheet, and

emphasize the link between the two – the net income (or loss) from the income

statement appears in the balance sheet. This is an important distinction to make, as it

ties in many of the key concepts from this chapter; the resulting net income from the

most recent fiscal period appears on the balance sheet that is generated at the end of

the same fiscal period. Students should strive to understand the equation instead of

memorizing it.

Textbook

p. 155 2 Show students Master 5-4 or refer them to Figure 5.8. Inform them that this vertical

arrangement of the balance is called the report form. Draw their attention to the equity

section and take them through the mathematical steps of the capital equation as seen

earlier on page 154.

[H2] 5.3 Exercises

p. 157 1-2 It is important for students to complete these exercises before preparing the equity

sections required in Exercise 3. Tell the class that items a. through i. in Exercise 1

represent equity data for different businesses.

p. 158 3 Ask students to refer to the samples shown on pages 155 and 156 when preparing these

equity sections.

[H2] 5.4 A Spreadsheet for the Expanded Ledger

Some students struggle with the expanded ledger, so this computer section gives them an

opportunity to re-examine the concepts through a different medium. If students are not

fully confident with the Chapter 5 material, consider giving them another chance to

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practice manually working with the expanded ledger before proceeding with this section.

They can follow this section by reading the textbook, but if possible, try to give students

access to computers so they can perform the task for themselves.

Textbook

1 Formatting can be tricky with the exercise in this section. Make sure students know that if

they try to copy and paste cells, they could disrupt the spreadsheet ledger formatting.

Most current spreadsheet software allows you to paste only the values of a cell, keeping

the formatting the same – this is the Paste Special command, originally introduced in

Section 3.3.

pp. 162–163 2 Show a simple demonstration of relative cell references in action before using

them as part of the more complicated section exercise. For example, use relative cell

references to multiply a column of numbers by 2 – fill column A with sequential

numbers, then type =A1*2 into cell B1, and drag the formula down column B. This is a

simple way to show how you can quickly and powerfully reference relative data from

other cells.

3 Demonstrate how to reference cells in different worksheets.

[H2] 5.4 Exercises

p. 163 1 This exercise gives students practice preparing a balance sheet using spreadsheets. For

students who are ahead, suggest that they format the balance sheet to emphasize

professionalism and readability.

2 Instead of writing the paragraph in a spreadsheet, consider asking students to write this

paragraph in the form of a business letter to Anna Antonelli.

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[H2] Chapter 5 Review Exercises

Textbook

pp. 164–165 1 This exercise reviews the rules of debit and credit for assets, liabilities, capital,

drawings, revenues, and expenses. When the exercise is taken up, ask students why each

account is debited or credited.

p. 165 2 As an extra challenge, ask the class to do the correcting accounting entries that would be

made in the books. Use T-accounts on the whiteboard to help students understand how to

make these correcting entries.

pp. 165–166 3 In this exercise, students prepare four correcting accounting entries and then

determine the correct net income figure. Ask them to explain what is wrong with each

entry. Most students will be able to prepare the correct entry if they can explain what is

wrong with the incorrect one.

p. 166 4 This exercise reviews the matching principle.

5 This exercise tests knowledge of the expanded ledger. Review why revenues increase

capital, and expenses and drawings decrease capital.

p. 167 6 This is a short but challenging exercise for students. Students may have problems

determining the missing figures in the fundamental accounting equation. Suggest that to

find the Capital balance at the end of 20–1, they need to consider revenues, expenses, and

drawings for 20–2. This is another exercise that shows the relationship between the

income statement and the balance sheet.

pp. 167–168 7 This comprehensive exercise covers recording transactions in accounts, balancing

the ledger, and preparing an income statement. Continue to remind students that the total

debits must equal the total credits in every accounting entry.

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[H2] Personalize It

Textbook pp. 168–169 Students will enjoy continuing this personalized exercise. In this chapter, students

build on their existing business by expanding the equity section and creating financial

statements. Using Antonelli’s Accounting Services as a framework is the easiest and

most flexible way to tackle this exercise. Consider making this a computer exercise to

give students more practice with spreadsheets.

[H2] Share It

p. 169 Like in previous chapters, students will have fun learning from (and learning about) a

classmate’s business. Consider giving awards for the most interesting new transaction

that involves the expanded ledger.

[H2] Questions For Further Thought

p. 170 These 13 questions review the accounting concepts covered in the chapter, emphasizing

revenues and expenses. Some questions ask students for an opinion and for reasons to

support it. If students can handle these questions, they have a good understanding of the

accounting concepts covered up to this point in the course.DRAFT



[H1] Chapter 6 The Journal and Source Documents

Chapter 6 revises the method that students have been using to record accounting entries

by introducing them to the two-column general journal. For students who have been

struggling with debit and credit theory, this chapter is the last chance to understand the

theory. If they do not master journal entries by the end of this chapter, they should

probably complete selected exercises from Chapters 4, 5, and 6 again.

[H2] 6.1 The Journal

Textbook

1 To show why a journal is necessary, make copies of Master 6-1 and 6-2 for students.

Have students record the eight transactions in the T-accounts provided.

2 Direct the students’ attention to the completed T-accounts. Ask them to reconstruct the

accounting entries without looking at the list of transactions. They will have difficulty

matching the correct debit and credit for each entry because some of the amounts are

(intentionally) identical.

3 Guided by your questioning, students will see the disadvantages of entering transactions

directly in the T-accounts. Write these disadvantages on the board: a) debits and credits

are scattered throughout the accounts, b) finding the complete transaction for each entry

is difficult, and c) a great deal of time is required to look through accounts.

p. 176 4 Students should now realize the need for a daily record of all business transactions. Tell

them to turn to page 176 and record the definition of a journal in their notes. Then have

them turn the page and examine Figure 6.1. Present the format for the journal, covering

the points to the right of Figure 6.1.

p. 178 5 Make copies of Master 6-3—a blank journal form. Demonstrate how to journalize the

first transaction from Master 6-1.

Hint: As you demonstrate, you may want to choose a student to read aloud the steps for recording journal entries as listed on pages 178 to 180.

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6 Start the second transaction from Master 6-1 so that students know that they should not

write the month again. Have students journalize the remaining transactions from this

master.

Hint: Stress neatness and correct format. High quality journal entries will benefit both the students and you throughout the remainder of this course.

Textbook

p. 179 7 Instruct students to read Usefulness of the General Journal and The Opening Entry

features on page 179. Remind them that the opening entry is an example of a compound

entry.

8 If students are having trouble with the journal, create an exercise that removes the

transaction analysis from journalizing. Have students create a page of a journal for a

celebrity or other famous figure. Challenge them to come up with an opening entry and

realistic transaction accounts and values that still follow the fundamental accounting

equation. Make copies of Master 6-3 for students to use. Once they have practiced the

new format, they can go back to analyzing transactions to determine how to properly

journalize them.

[H2] 6.1 Exercises

pp. 180–182 1-2 Both of these exercises involve preparing journal entries. Instruct students to put a

bookmark at page 177. They should refer to Figure 6.1 often to check the format of their

journal entries.

Remind them to use only those titles listed on the chart of accounts given for each

exercise.

p. 182 3 Students should be able to locate at least nine errors in the journal entries.

p. 183 4 Here, students prepare brief explanations of transactions. One method of taking this

exercise up is to have various students write their explanations on the chalkboard and

then ask their classmates to prepare journal entries from the information on the board.

Textbooks should be closed if you choose to try this procedure.

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5 Some students omit the Capital account when writing the opening journal entry required

by this short exercise. Stress again that debits must equal credits in every entry.

Textbook

pp. 183–184 6 You may wish to collect this exercise for marking. It is important to ensure that

students are producing high quality journal entries before leaving this section. The last

entry of this exercise may challenge students.

[H2] 6.2 Source Documents

Source documents were introduced in Chapter 3 and now take a more prominent role in

describing each transaction in the textbook. Students will realize that source documents

are the starting point for the flow of accounting information. In the remaining chapters,

most information about transactions contains references to source documents. It is

therefore essential that students be able to read and interpret this information correctly.

Hint: For effective learning aids, students can obtain actual source documents from

home and from local businesses to prepare visual displays. Most retail receipts will

have identifiable information such as the date, invoice number, and reference

number. To enhance their presentations, students can write examples of related

journal entries beside each document.

Textbook

p. 184 1 Have students read page 184, define source documents in their notes, and list the

important features of these business papers.

p. 185 2 Prepare transparencies from Master 6-4 through 6-11, which correspond to Figures 6.4 to

6.11, and have students close their textbooks. Question students to bring out the

important information contained in each source document. For example, have students

identify the name of the customer, name of the vendor, number of document copies,

reasons for prenumbering, purpose of issuing the document, total sales, terms of sale, and

so on. You will find that some students will have difficulty identifying the correct

numbers on each document.

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3 Choose a student to give the accounting entry for each source document presented. Write

the entry on the whiteboard or a transparency.

Ask students if a cash sales slip would be appropriate for a hardware store or a

grocery store. They will likely relate the choice of source document to the nature and

volume of transactions.

For the POS Card Summary, ask students which account they would debit for the Visa

and MasterCard amounts shown on Master 6-6. Survey how many will erroneously

choose accounts receivable.

For the invoices, ask students the following: If the supplier calls the invoice a sales

invoice, does the customer who receives it also call it a sales invoice? (Answer: No, a

customer would call it a purchase invoice). This might help them to understand that one’s

perspective (supplier or customer) determines whether a source document is a sales

invoice or a purchase invoice.

Since some students may have chequing accounts, compare cheque copies to

chequebook registers when discussing Master 6-9. Ask if they think there are any

advantages to having actual copies of the cheque rather than entries in a chequebook

register.

For the bank memos, you may need to explain why a bank debit advice decreases a

business’s bank account. (Answer: From the bank’s perspective, the business’s bank

account is a liability and liabilities decrease on the debit side.)

Textbook

p. 191 4 To help explain the reversed titles of bank debit and credit memos, pretend to set up your

own bank – you could give it a humourous name like “The [Your Name Here] Bank of

Canada”. Invite students to open pretend bank accounts and deposit and withdrawal

money. Go through what the process looks like from the bank’s point of view to show

why bank debit and credit memos make sense when viewed from the bank’s perspective

(but are the opposite for the customer).

5 Instruct the students to open their textbooks and review pages 185 through 192. This

should reassure them that they have reference material for source document information.

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Textbook

p. 192 6 Point out that students can use the summary on page 192 to help them become

accustomed to making accounting entries from source documents.

7 Have students create their own source document. If they previously created their own

company, they could base the source document on that. They can be creative with the

design of the source document while ensuring that all important information is contained

in the document. Get students to trade their source documents with partners, and ask them

to journalize the transaction listed in their partner’s source document.

[H2] 6.2 Exercises

p. 193 1-5 These exercises test students’ knowledge of the five source documents covered in this

lesson. Students are asked to identify and explain the purpose of the documents, and then

to prepare the accounting entry for each.

In Exercise 3, students must give the accounting entries that would be made in the

books of the sender and of the receiver. They may have difficulty identifying the account

to debit in the books of the receiver. Some students need to be reminded to read the

information written on the invoice.

For Exercise 4, show the class an actual cheque with a tear-off section for the

accounting department. The majority of students will probably not be familiar with this

type of cheque.

[H2] 6.3 Sales Taxes

The details of taxation are complex and changeable, so the aim of this section is to

communicate the basics. Primarily, students should know that the taxes presented here

are collected by businesses on behalf of governments. Since businesses are holding

money that belongs to the government, liability accounts are created, and the amounts in

them must be remitted on a regular basis. The chapter explains both retail sales tax (PST)

and value-added tax (GST and HST). There are examples in this chapter for both

GST/PST and HST; further examples throughout the textbook generally use HST.

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1 Ask students what they know about retail sales tax. Ask them who ultimately gets the tax

they pay at a store. Ask them who is responsible for keeping track of the sales tax: the

consumer or the store? Finally, ask them what the store will do with the tax it collects.

(Answer: Deposit the tax and then remit it.)

From the discussion, students will realize that they already know many of the basic

facts about sales tax.

Textbook

p. 197 2 Have students open their textbooks and take brief notes from the material on pages 197 to

204. Emphasize that sales tax is charged by many provincial governments and that, as

most provinces use the HST value-added tax, it is applied to both business inputs and

goods bought by the final consumer.

(Note: For retail sales tax like PST, in the case of a purchase such as office supplies, the

consumer may be a business. Stress that where provincial sales tax is concerned, the

consumer is the one who uses the goods, so a consumer can be either a business or a

private person.)

pp. 199–202 3 To highlight who charges value-added tax and who pays it, draw a typical chain

of distribution on the board: manufacturer to wholesaler to retailer to consumer. You

could also use the chain shown in Figure 6.12. Use the diagram to show which party

charges HST and which party pays the HST. All of them both charge and pay, except for

the consumer (who does not charge) and for the producer taking raw materials from

company-owned land (who does not pay.) Emphasize that while a business pays value-

added tax on inputs, it also collects tax whenever it sells its finished product. In effect,

the customer pays the value-added tax. This is illustrated in Figure 6.12 by the value of

$52.00, which is both the HST charged on the finished good and the total amount

remitted to the CRA.

Explain that there is another important difference between the value-added tax

(HST/GST) and retail sales tax (PST). That is, where the final consumer is a business, it

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can recover the HST/GST paid. (Only individual consumers cannot recover the

HST/GST.) Because a business is entitled to a refund, it keeps track for the HST/GST it

pays as well as for the HST/GST it collects.

Hint: You may have to define wholesaler and retailer. Students should be familiar

with the concepts once you have defined the terms.

4 Draw a PST Payable T-account on the board and place $800 on the credit side. Ask the

students to interpret the balance. (Answer: It represents $800 of retail sales tax charged to

customers and owed to the provincial government.)

5 Draw a HST Payable T-account on the board and place $700 on the credit side. Ask

students to interpret the balance. (Answer: It represents $700 of goods and services tax

charged to customers and owed to the federal government.) Students should benefit from

comparing the two accounts.

6 Tell students that both payable accounts are from the ledger of ABC Company, and that

ABC Company, being a retailer, is entitled to recover all the HST it pays.

Ask how ABC Company would keep track of the HST it pays. (Answer: Create an

account.) Ask what they would call such an account. (Answer: HST Receivable and HST

Paid are likely responses. Try to agree on HST Recoverable.) Ask about the classification

of such an account. (Answer: Since it has value and is, roughly, a receivable, students

will narrow it down to an asset. Accept this theoretically correct answer for now.)

Hint: You could use a personalized company name instead of ABC Company.

7 Tell students that the HST Recoverable account can be thought of as an asset in theory.

But since its balance is deducted from the HST Payable balance when remitting to the

federal government, it is more convenient to group it with liabilities. HST Recoverable is

called a contra liability account because it reduces another liability account (HST

Recoverable reduces the HST Payable account.)

8 Students often confuse the Recoverable and Payable tax accounts, generally because the

Payable account seems related to payments made to the business. Stress that these

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account names are based on the perspective of the tax itself – tax that is recoverable from

business inputs goes in the Recoverable account, and tax on sales that must be remitted

(or paid) to the government goes in the Payable account.

9 It is helpful to give students some historical context for sales tax, as it continues to be a

complex issue in Canada. Many students may dislike the HST because, unlike PST, the

HST applies to restaurant purchases and other forms of discretionary spending, which is

where most of students’ money goes. Ask students to engage in a debate, with one side

defending the GST/PST system, and another side defending the HST system. Ask them to

look at the big picture of each tax – not just their own personal preference. You could

also look at each tax system is good or bad for from the perspective of consumers vs.

businesses. There is a considerable amount of information available online that supports

each viewpoint – including information from the government, special interest groups, and

the media (particularly based in BC and Ontario.) Students may find that their perspective

changes after the debate.

Textbook

p. 203 10 When discussing sales tax remittance, it is helpful to explain what clearing a balance

means.

Hint: Students often have difficulty with the journal entry that remits tax to the

government; they get so focused on the fact that certain accounts are associated with

debit or credit entries that it is confusing when the reverse needs to happen to clear

the balance. Go through an example on the board to illustrate why the usual debit

and credit entries must be reversed.

[H2] 6.3 Exercises

p. 205 1 In this exercise, students calculate sales tax at 8%, determine the total amount owed by

the customer, and prepare accounting entries for the five transactions.

pp. 205–206 2 In Exercise 2, students prepare the accounting entries for both the vendor and the

purchaser. Remind them that purchaser, J. McCuaig, does no sales tax accounting. (He is

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just like a student who buys clothes at a store.) Sales tax simply represents an increase in

the cost of his purchases.

Ask students if the source document is both a sales invoice and a purchase invoice.

Ask them to explain their answer.

pp. 206–207 3 Students make their first attempt at journalizing transactions that include HST. This is

also the first time that each transaction has an italicized reference to a source document. Tell your

class that this will be the usual practice of the textbook and advise them to use the source

document references to help analyze transactions.

pp. 207–208 4 This exercise lets students compare the PST/GST and HST systems by journalizing the

same transactions using both formats. Students will find HST simpler because they do not have to

worry about a second tax!

[H2] 6.4 Building a Spreadsheet Model for Sales Tax Decisions

This section is really an exercise with step-by-step instructions. The topic of the

spreadsheet exercise is a table of sales tax projections, so it relates to Section 6.3. While

the exercise does highlight the differences between GST/PST and HST, the goal is not

only to add to students’ understanding of tax. Students will also gain the ability to

efficiently prepare spreadsheet models. To do this, they need a thorough understanding of

how to copy data and formulas. And to copy formulas properly, they need to distinguish

between relative and absolute cell references.

Much of the textbook so far has been focused on precise creation of accounting

documents like financial statements and general journals. At this point it is useful to

allow for liberties – students need to know that not all aspects of accounting are bound by

hard-and-fast rules. For example, students should understand that there can be more than

one acceptable way to name accounts or to classify transactions. Similarly, there is more

than one way to properly format a spreadsheet file. Try giving students some leeway or

mark their spreadsheet formatting holistically, giving marks for general design, usability,

and ease of use, but allowing students to make their own design choices – they may find

it difficult to do without step-by-step instructions.

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Textbook

p. 209 1 Draw students’ attention to Figure 6.15 and tell them that this is the answer key. If they

follow instructions well, their work will look similar (but not necessarily identical) to this

illustration. The instructions are written with Excel in mind, but only a few adaptations

are necessary for other popular spreadsheet software.

2 Students can work through this section by following the steps listed on pages 209 to 213;

however, if you give them a quick demonstration you will speed their progress.

pp. 210–211 3 When building formulas with absolute cell references in Excel, pressing the F4

function key will insert the dollar signs for you. (Press F4 right after entering the cell

reference or when it is highlighted. For Apple users, press Command-T).

Hint: It can be helpful to explain absolute cell referencing as locking a cell. The

example cell of $B$3 will be absolutely referenced because of the dollar signs

preceding the row (B) and column (3). The $B3 reference will only hold the row

constant (it is locked by the preceding dollar sign) and the B$3 reference will only

hold the column constant (it too is locked by the preceding dollar sign).

p. 213 4 To reinforce what the students did in this section, you may want to make sure they do

Review Questions 1-4.

[H2] 6.4 Exercises

1 In this quick exercise, students are introduced to the power and flexibility of spreadsheet

models.

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p. 215 1-2 These two exercises test students’ knowledge of source documents. Exercise 1 is

important because it relates source documents to debits and credits. Students should refer

to the summary on page 192 if they have problems answering any of these questions.

Textbook

pp. 216 3 These 22 true-or-false statements review the chapter’s contents and would make a good

quiz.

pp. 216–217 4 This question tackles the important distinction between the HST Payable and HST

Recoverable accounts. It also goes over remittance, a tricky concept for many students.

pp. 217–222 5-7 Students prepare accounting entries for transactions, which are introduced by

italicized references to source documents. For Exercises 6 and 7, there are two versions

of each exercise, one using HST and one using GST/PST. They may want to bookmark

page 192; the summary presented will help them interpret source documents. Instruct

students to choose account titles from the chart of accounts given at the beginning of each

exercise.


p. 223 Most of these questions concentrate on source documents and how they are used. Some

can be covered orally.

For Question 5, ask students why prenumbered cash sales slips are necessary. In order

to lead students to the correct answer for Question 7, ask them why a company

prenumbers its sales invoices. Question 8 will be difficult for students since they have not

yet been exposed to internal controls. You may have already explained the answer for

Question 9 when you show the class the bank debit memo. In answering Question 10,

students who are in favour of paying PST on unpaid invoices should cite the problem and

cost of extra paper work that would occur if remittance were delayed until overdue

invoice payments were received.

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[H2] Cases For Further Thought

p. 223 These five mini-cases will challenge students and give them experience in applying their

knowledge of accounting standards.

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[H1] Chapter 7 Posting

Posting can be problematic for students because it is a mechanical, step-by-step

procedure that provides few mental challenges. For this reason, beginning students tend

to take it for granted. Even worse, they often invent their own shortcuts. It is little wonder

that the majority of manual bookkeeping errors occur during posting.

Textbook

p. 228 1 Show the class that the balance column account is nothing more than an extension of the

T-account. One method is to instruct students to work along with you as you draw a

T-account on the board and write in the headings of the two sides, debit and credit. Then

add the additional columns and headings until you produce the balance column account.

Alternatively, make a transparency of Master 7-1 or refer students to Figure 7.1.

Hint: When you discuss the additional features of the new account format, stress that a notation in the Dr/Cr column refers to the balance to the right, not the amount to the left. Students often make the mistake of thinking the Dr/Cr column refers to whether the latest entry was a debit or a credit.

Hint: To calculate account balances, instruct students to add like amounts (debits to debits; credits to credits) and subtract opposite amounts (debits from credits; credits from debits).

p. 229 2 After you define posting and warn students of its hazards, lead students through the six

steps of posting on page 229. Make handouts of Master 7-2, which will allow you to

guide students as they post the journal entry in Figure 7.2 on p. 230. For review, ask

students what this type of journal entry is called. (Answer: a compound journal entry, one

affecting more than two accounts.)

Insist on strict adherence to the six steps of posting.

Hint: To help students remember Steps 2 to 5, tell them to work from left to right.

Hint: Emphasize Step 6. Writing an account number in the journal provides evidence that an amount has been posted; so it should always be done last. Students often neglect this step, or do it first instead.

Using the board to teach posting may be preferable to using transparencies. This method

allows students to see a great deal of information at one time and enables them to look

from the journal to the ledger.

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3 Stage an interactive activity where half of the class is given a paper copy of one or two

transactions from the general journal, and the other half of the class is given ledger

accounts. Students need to find the other students in the class who have their

corresponding transaction or account(s). Then, get students to follow the posting

procedure to correctly fill in the P.R. field in the journal, or the columns in their ledger

account. This activity gets students moving around the classroom while they learn more

about the posting process.

Textbook

pp. 229–231 4 Ask students to open their textbooks and review pages 229 to 231 with them.

Examine Figures 7.3 and 7.4 to show that the page numbers and account numbers

students entered while posting created links between the journal and ledger. Have

students read the list of advantages of cross-referencing on page 231.

5 Emphasize that forwarding is not posting. Explain this by stating that forwarding does

nothing to change the financial position of the company (in other words, no account

balances are affected). Forwarding just continues the account on the next page, so there is

nothing recorded in the debit, credit, or P.R. columns.

[H2] 7.1 Exercises

pp. 233–34 1 When you take up this exercise, ensure that students have indicated whether each

balance is a debit or a credit. At this time, you might teach them how to verify the final

balance of an account (i.e., enter all the debit entries in as “pluses” on a calculator, then

enter all the credits in as “minuses.” The difference should match the final balance.)

p. 234 2 This exercise tests students’ ability to follow the six steps of posting. You might want to

lead them through the first few entries.

3 Some students will forget to carry the date forward and to write “Forwarded” in this

simple exercise.

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[H2] 7.2 Overcoming Errors

Since the frequency of accounting errors increases during posting, the methods of finding

errors need to be emphasized. Impress upon students that out-of-balance errors can

always be found by working methodically and adhering to a set of rules.

Textbook

pp. 234–236 1 You may wish to assign pages 234 to 236 as reading material. The content at the

beginning of this section is straightforward.

2 Test students’ understanding of posting by asking them if a correcting entry counts as posting. Answer: Despite the fact that a correcting entry is not the direct result of a business transaction, it does count as posting because it changes the financial position of the organization.

3 You could use the four mini-exercises in Section Exercise 3 to stage a race to see which pair of students can discover an error the fastest using the four quick tests for detecting a single error. Get students to come to the front of the room when they think they have the answer.

Hint: Make students tell you both the answer and the quick-test they used to find the answer (some students will try to use short-cuts to find errors instead of working methodically).

4 Be sure students understand the different actions required to correct an error when it is

discovered immediately, or later.

p. 238 5 The steps given to find out-of-balance errors involved working backwards. Show a

transparency of Master 7-3 (or have them refer to Figure 7.12) to demonstrate that the

sequence of balancing steps at the bottom right of the flow chart is basically the working

backwards method they already know.

p. 239 6 Go through the flow chart from the beginning. Mention that the quick tests should be

done first. If they are unsuccessful, the more time-consuming sequence of balancing steps

is used. Tell the class that the quick tests can save a good deal of time, but add that they

don not work if more than one error has been made.

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Hint: To give students some context, mention that it is rare to have a single error

when doing accounting in the real world because most businesses are much more

complicated than the examples given in this textbook. However, most businesses also

use accounting software (introduced in Section 7.3), which makes it easier to detect

mathematical errors.

Textbook

p. 240 7 On the board, write the Bank account and trial balance data from Section Exercise 2 on

page 240. Refer to the answer key for the data. Make a single error and then demonstrate

how one of the shortcuts reveals the mistake. Repeat the process for each of the four

shortcuts.

[H2] 7.2 Exercises

p. 240 1 This exercise lets students practice correcting entries.

2 You may wish to lead the class in applying the quick tests” for this exercise. Ask why

none of them work. (Answer: Multiple errors exist.) Point out the stage the class is at in

the flow chart on page 239. Then have them complete the exercise.

3 This time, the quick tests do work. To make sure students methodically work through the

quick tests, have them write the process they followed to solve each mini-exercise. Doing

so will hinder them from finding out the answer from a classmate or from discovering the

problem by merely scanning the journal, ledger, and trial balance for an error that stands

out.

[H2] 7.3 Comparing Accounting Software to Manual Accounting

This is the first chance for students to use Sage Simply Accounting software to process

transactions. (Instructions are also available for Quickbooks software.)

This is the first of four computer accounting exercises following the With Strings

Attached company. Each exercise becomes more complex as students progress through

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the textbook. (Another exercise is found in Chapter 11 and there are two additional

summary exercises in the appendices). It is recommended that students complete these

exercises as they occur in the textbook. For example, this initial exercise does not

incorporate concepts like the subsidiary ledgers – if you were to assign all software

exercises at the end of the course, students might get confused when shifting back to a

more simplified version of accounting that was presented earlier in the course.

Textbook

p. 246–428 1 In a computer lab, guide the students through the step-by-step instructions in this

section. The instructions take students through the first four transactions. It is best to keep

students together; they can proceed at their own speed when they get to Transaction 5. A

portable projection unit, along with the instructions from textbook, works well for pacing.

Hint: When no source document number is given (in memos, for example), ask students to enter their initials in the Source field (see Figure 7.15). These initials will appear in the printouts of the journal entries. Since the initials cannot be erased, they guarantee that students have not borrowed answers electronically.

2 You could create a scavenger hunt to get students familiar with the Sage Simply

Accounting interface. Have students navigate through the software to find out how to update options and perform basic accounting activities. This will give students a better conceptual understanding of the software, instead of only following the step-by-step instructions in the textbook.

p. 249 3 Be sure to experiment with the “drilldown” feature, which enables students to trace the

effects of the journal entry that they just posted.

p. 249–250 4 Transactions 2 and 3 give students practice correcting errors, a skill you will want

them to have before letting them proceed on their own.

p. 250–252 5 Transaction 4 is important to emphasize because HST Recoverable will always

default to the credit side (its account number, 2300, groups it in the liability section).

Students can use the mouse or the minus sign to get an amount of HST Recoverable over

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to the debit side. Question students about other transactions that will require the same

action (Answers: drawings and payments on account).

Hint: If you are using Quickbooks, you will find that the software does not allow for

an HST Recoverable account – instead, recoverable tax is simply debited from the

HST Payable account. You may need to explain this distinction to students.

Ultimately, the same action is happening to a liability account, but instead of two

accounts, there is just one.

Textbook

pp. 252–254 6 Students are now ready to do Transactions 5 to 34.

p. 255 7 To ensure that students’ names appear on printouts, make sure they read the instruction in

the first paragraph of the Preparing to Print or Export section.

For printing, the trial balance is unnecessary. The journal entries (September 1 to

October 31), the income statement (September 1 to October 31), and the balance sheet for

October 31 will give you sufficient material for evaluation.

Hint: Since this is their first attempt with Sage Simply Accounting, you may not want to penalize them too severely for an excessive number of correcting entries. Many students will require quite a bit of practice until they are comfortable with the new software.

[H2] 7.3 Exercises

p. 255 1 To give students more practice using Sage Simply Accounting, you can assign this

workbook exercise. This exercise can be used an effective tool for evaluation.


pp. 256–257 1 These true-false review questions would make a good oral or written quiz.

p. 257 2 In this exercise, students consider the effec of each error on the final trial balance totals.

p. 258 3 After completing this exercise, students will realize that even if a trial balance is

mathematically correct, accounting errors may still exist in the ledger.

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4 Student may find it helpful to review typical causes of an exceptional balance (e.g.,

overpayments, returns, overdrafts, etc.). Ask if any of these situations could occur in the

Furniture and Equipment account.

5 Remind the students of the working backwards method of finding errors and ask whether

they would enjoy working backwards through an entire year’s entries.

Textbook

pp. 258–260 6 This major exercise helps students measure their skills in completing the

accounting cycle activities presented so far.

pp. 261–263 7 Since this exercise provides another good review of the bookkeeping skills

acquired to this point, it works well as an evaluation tool, provided that the students’

working papers are not permitted to leave the room.


p. 263 Many of these questions require students to express an opinion on the accounting topics

they have studied in this chapter. They can be taken up orally.

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