Chapter 1: Accounting

Chapter 1: Accounting

1. What is it?

   • ID, record, communicate
     • relevant info about an orgs economic activity.
     • involves creating reports to monitor and control an orgs activity
   • differs from book/recordkeeping
     • recording of data in an accurate, neutral and complete manner.

2. Forms of an Org

   • business - entity composed of 1 or more seller responsible for selling products/services for a profit
   • sole proprietorship
     • one owner, not separate legal entity, unlimited liability
       • -not separate legal entity means court can make you sell personal belonging to pay off debt. -unltmd liability - when the debt is great than resources, owner is responsible for it.
   • partnership
     • 2 or more owners (partners)
       • partnership agreement
   • corporation
     • separate legal entity under prov/fed laws
       • corporation is responsible for its own debt
         • limited liability
           • -owners liability is lmtd to amount invested in business
     • can enter contract, buy/sell/own property, sue and be sued
     • owners are shareholders
       • common share - issue or sell 1 class of shares -publicly accountable enterprise (PAE) - selling shares to public (organized stock market) -Private enterprise (PE) - does not sell shares to the public.

3. Users of Accounting Info

   • External Users
     • party outside of org who requires acct info. (shareholders, customers,  directors, lenders, supplies, regulators, lawyers
     • Financial Reports
       • serves exterenal users
       • Financial Statements
         • analysis operation and assess performance
         • General Purspoe Financial Statements
         • Generally Accepted Accounting Principles
           • -make up ccounting principles
           • Internation Financial Reporting Standards (IFRS).
             • -accounting laws to be applied by accountants to public companies in Canada
   • Internal Users
     • Mnagerial Acconting
       • -Answers: 1)What are expenses per unit of product? 2) What is most profitable good/services 3) What level of revenue is necessary to show profit income 4) What expenses increase with an increase in revenues
     • internal operation functions
       • monitored by internal controls
         • procedures to control assets, ensure good accounting reports, promote efficiency and ensure company policies are followed.

4. Opportunities

   • FInancial
     • serve external users - create financial reports which are audits by prof accountants
       • audit is a review of org accounting system and records - adds credibility to financial statements.
   • Managerial
     • serves internal users - special reports from general accounting, cost accounting, budgeting, internl auditing and manangemnt consulting
   • Taxation
   • Accounting Related

5. Ethics

   • -beliefs that differentiate right from wrong
   • builds trust, promote loyalty and long-term relationships
   • accountants must act ethically for information to be trusted
     • maintain high prof competence, treat sensitive info confidential, exercise integrity, objective in financial disclosure

6. GAAP

   • IFRS
     • purpose - achieve global agreement on accounting standards
   • Accounting Standards for Private Enterprises( ASPE)
     • -to acocomodate different reporting needs of private businesses
   • ensures usefulness of information
     • must have qualitative characteristics of relevance and presentation
     • comparable, verifiable, timely and understandable

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