Personal Notes For Unit 1

There are five main activities in accounting
1. Gathering financial information about the activities of a business or other

organization
2. Preparing and collecting permanent records
1. Purchases, payments, payroll, expenses, etc.
3. Rearranging, summarizing, and classifying financial information into a more
usable form
4. Preparing information reports and summaries to…
1. Help management make decisions
2. Serve the needs of groups outside the business, such as bankers and investors
3. Measure the profitability of a business.
5. Establishing controls to promote accuracy and honesty among employees
1. i.e. money made from lane swimming as a lifeguard
Types of Businesses
Service Business: sells a service to the public; does not make or sell products as
its main activity (Barber Shop, Tutoring service & Dentist’s office) - provides
services instead of items
Merchandising Business: Buys and resells goods at a higher price for a profit.
(Retail shops, grocers, online retailers)
Manufacturing Business: buys raw materials, converts them into a new product, and
sells them to make a profit. (mining, oil industry, forestry industry)
Non-Profit Organization: may carry activities to meet social needs. (YMCA, Terry
Fox and Sick Kids)
Forms of Business Ownership
Sole Proprietorship: Business owned and operated by one person.
Partnership (more than one owner): multiple owners who are responsible for the
business.
Limited Company or Corporations (has shareholders): Special form of business that
is owned by shareholders; most large corporations (Coca-Cola, IBM)
Name of Business Ownership
Advantages
Disadvantages
Sole Proprietorship
low start-up cost
great freedom from regulation
all profits to owner
owner has complete control
unlimited liability
difficult to raise capital
limited to owner’s knowledge
lack of continuity
profits taxed at personal rate
Partnership
ease of formation
broader management skills
limited regulations
more capital resources
unlimited liability
possible disagreements
divided authority
difficult to find partners
partners liable for each other
Corporation
Profits of the corporation are distributed to the shareholders by way of
"dividends".
The more shares one owns, the more dividends they will receive.
Ex. - Dividends $1/share, shareholder owns 1000 shares, shareholder receives $1000
limited liability of shareholders (However, directors and officers can be
liable in certain circumstances.)
possible lower taxation rate
can sue / be sued in the corporate name
more prestige
continuity of business
higher start-up costs and greater formalities
requires annual maintenance from accountant and lawyer
losses cannot offset personal income
Corporation Structure (goes down)
Shareholders:
(provide capital=owners equity, elect directors, receive dividends)
Directors:
(Hire executive, guide mission, distribute profits between business & shareholders)
Executive:
(ie. President, Treasurer, Secretary. Run the day-to-day operations of the
business.)
Accounting as a Profession
Accounting as a profession – several years of study necessary. Can become a member
of one of the professional organizations:
* Chartered Professional Accountant (CPA)
* Certified General Accountant (CGA), Chartered Accountant (CA), Certified
Management Accountant (CMA)
* Changes over the last 10-15 years
* CA, CGA & CMA organizations to merge into one large organization and accredit
its members with the CPA designation
* As of 2011 the CICA has started to move from Canadian GAAPs to IFRS
(International Financial Reporting Standards)
Becoming a CPA
* Takes about 7 years post-secondary
* 4 years of university
* 3 years of courses and work experience
* CPA Exam -> Professional designation
The Accounting Cycle
Fiscal Periods: Accounting activities are performed in equal periods (known as
fiscal periods)
Each fiscal period is usually one year in length (can occur annually, semi-
annually, quarterly, or monthly though)
The accounting cycle is completed each fiscal period.
Outer Ring: Occurs every month (in some companies once a day)
Inner Ring: Completed at the end of each fiscal period (usually one year), using
data from outer ring.
The Accounting Cycle:

1. Originating Transaction Data
2. Journalizing
3. Posting
4. Trial Balance
5. Worksheet
6. Financial statements
7. Closing Entries
8. Post-closing Trial Balance
Repeats in a Cycle!
Accounting Ethics and Principles

Has anyone heard of Enron? Lehman Brothers?
These names are notorious because they are infamous examples of accounting
scandals.
You can read more about the ethical issues in accounting in part 1.5 on
Brightspace.
Examples: Accounting Standards Board of Canada, Generally Accepted Accounting
Principles, International Financial Reporting Standards, Accounting Standards For
Small Businesses
IMPORTANT PRINCIPLES - MORE ON 1.5
Accounting Principles
Description
Business entity principle
Each business is considered a separate unit or entity and the financial data
for the business must be kept separate from the owner’s personal financial data.
Objectivity principle
Accounting records should be based on the solid evidence provided by source
documents to support the values used in recording transactions.
Principle of conservatism
Where there are acceptable alternatives, the accountant must select the one
that will result in lower net income and net assets.
Cost principle
Assets must be shown on the balance sheet, using the cost of their
acquisition or construction.
Principle of materiality
Information that could affect the decisions of users of financial statements
should be included when financial statements are prepared.
Continuing concern concept
A business is assumed to continue to operate unless it is known that this is
not the case. When preparing financial statements and accounting records, the
accountant assumes that the company will continue to exist in the foreseeable
future.
Time period concept
The time period concept requires the definition and use of the same period of
time for the accounting period.
Matching principle
The matching principle states that each expense related to revenue earned
must be recorded in the same accounting period as the revenue it helped to earn.
Consistency principle
The consistency principle requires the use of the same methods and procedures
from period to period. If changes are made, they must be fully disclosed
(explained) on the financial statements.
Full disclosure principle
The full disclosure principle states that any and all information related to
the understanding of the financial statements must be included with the financial
statements.

Personal Notes For Unit 1

Uploaded by

Copyright:

Available Formats

Personal Notes For Unit 1

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Personal Notes For Unit 1

Uploaded by

Copyright:

Available Formats

There are five main activities in accounting

1. Gathering financial information about the activities of a business or other

The Accounting Cycle:

Accounting Ethics and Principles

You might also like