Shoppers Drug Mart: Financial Reporting Essay

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Account	Type of account
Accounts payable and accrued liabilities	Liabilities
Accounts receivables	Assets
Cash	Assets
Dividends	Shareholders’ equity	Dividend
Income tax expense	Shareholders’ equity	Expense
Inventory	Assets
Land	Assets
Sales	Shareholders’ equity	Revenue

Account	Increase	decrease	Normal account balance
Accounts payable and accrued liabilities	Credit	Debit	Credit
Accounts receivables	Debit	Credit	Debit
Cash	Debit	Credit	Debit
Dividends	Debit	Credit	Debit
Income tax expense	Debit	Credit	Debit
Inventory	Debit	Credit	Debit
Land	Debit	Credit	Debit
Sales	Credit	Debit	Credit

When dividends are paid in cash, then the accounting entry will be to debit the dividends account and credit cash account. The balance in dividends account will increase while the balance of cash account will drop. Thus, both the assets and shareholder’s equity will reduce (Kimmel, Weygandt, Kieso, Trenholm, and Irvine 124).

Income tax is an expense. Therefore, payment of taxes will cause an increase in the account and a subsequent decline in cash. The income tax expense account will be debited while cash account will be credited. When analyzing the accounting equation, this transaction will lead to a decline in both assets and stockholders’ equity ((Kimmel et al. 124).

Inventory is an asset in the business. Purchase of inventory on account will increase the inventory balance and an increase the accounts payable account. Thus, the inventory account will be debited while accounts payable account will be credited. The transaction will cause an increase in both assets and liabilities.

Land is an asset. Purchase of land will cause an increase in that account and a corresponding increase in the loan account. The accounting entry will be to debit land account and credit bank loan payable account. The effect on the accounting equation will be an increase in both assets and liabilities.

Sale is a revenue account and it has a credit balance. When commodities are sold on credit, the both the sales revenue account and accounts receivables will increase. Therefore, accounting entry will be to credit sales account and debit accounts receivables. This will have an effect of increasing both the assets and stockholder’s equity.

Account	Financial statement
Accounts payable and accrued liabilities	Balance sheet
Accounts receivables	Balance sheet
Cash	Balance sheet
Dividends	Statement of changes in shareholders’ equity
Income tax expense	Statement of earnings
Inventory	Balance sheet
Land	Balance sheet
Sales	Statement of earnings

Comparative analysis: Shoppers Drug Mart and Jean Coutu

Shoppers Drug Mart

Basic accounting equation

Total assets = total liabilities + total shareholders’ equity
7,473,721 = 3,150,394 + 4,323,327

Amounts in thousands of Canadian dollars

Expanded equation

Shareholders’ equity	Common stock	+ retained earnings	– dividends	+ revenues	– expenses
4,323,327	1,517,249	2,417,390	219,793	10,781,848	6,609,229
					3,291,698
					57,595
					214,845
4,323,327	1,517,249	2,417,390	219,793	10,781,848	10,173,367

Jean Coutu

Basic accounting equation

Total assets = total liabilities + total shareholders’ equity
1,392.7 = 281.9 + 1,110.8

The amounts are in millions of Canadian dollars

Expanded equation

Shareholders’ equity	Common stock	+ retained earnings	– dividends	+ revenues	– expenses
1,110.80	577.40	27.6	52.6	2468	2169
				271.5	247.5
				82.8	31.7
				265.2	2
					78.9
1,110.80	577.40	27.60	52.60	3,087.50	2,529.10

A review of accounting equations of the two companies shows that a significant proportion of assets are financed by shareholders’ equity and not debt. Besides, Shoppers Drug Mart has a higher proportion of debt as compared to Jean Coutu.

Reference

Kimmel, Paul, Jerry Weygandt, Donald Kieso, Barbara Trenholm, and Wayne Irvine. Financial Accounting: Tools for Business Decision Making, Toronto, Canada: John Wiley & Sons, 2014. Print.

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