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Lecture 1

COMMERCE 1AA3 Lecture 1: COMMERCE 1AA3- Chapter 1

Course Code
Emad Mohammad

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September 7, 2018
Accounting Lecture 2-
Chapter 1
Accounting is the language of Business. This is seen in the tesla article. You can’t understand
that article without understanding the basic language of accounting.
The Basic Objective of Accounting
The basic objective of ACCOUNTING is
to identify and measure the activities of a business entity in order to evaluate its performance
and to assess its financial health; then communicate the results to stakeholders (are the users
of accounting information. See examples below) through a set of accounting reports that
contain useful information (not all information is useful. Financial Information is useful
information for accountants) so as to help them make rational economic decisions.
Users of Accounting Information
External to Business: Financial Accounting
Financial accounting reports are uniform financial statements for all users
Government (eg., CRA and regulators > government regulates business for many
reasons: health, safety, environment. An example of using accounting regulations is
what is called “capital sufficiency” requirements for banks to protect deposits)
Non-profit organizations
Customers (Walmart is a customer to suppliers- they need to know if they are reliable
and financially stable- will they continue to be in business)
Employees and employee unions (labour unions to protect the people ex. Increase in
wages- can a company afford an increase in wage price)
Internal to Business: Managerial Accounting (year 2)
Managerial accounting reports are customized the needs of mangers within the organization
Management (different needs from creditors to debtors)

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September 7, 2018
Financial Statements
Financial Statements are the business documents that companies use to report the results of
their activities to various user groups. The system of accounting produces the following
Income Statement > Statement of Retained Earnings> Balance Sheet > Statement of Cash Flow
How much I make. How much I have.
Ex. What did you have for breakfast?
Oatmeal $2
Coffee $1.5
Bagel $1
Breakfast expense is $4.5 > an expense in the income statement
Assuming this food came from your pantry, how much did you pay this morning? 0
Your cash outflow is 0.
Assets- what I own
Liabilities- what I owe

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September 7, 2018
The Financial Statements
Financial Statement
How well did the company perform during
the year?
Income statement
Net income or (net loss)
Why did the company’s retained earnings
change during the year?
Statement of retained
Beginning retained earnings
+ Net Income (-Net Loss)
Ending retained earnings
What is the company’s financial position at
Balance sheet
Assets = Liabilities + Owners’ equity
How much cash did the company generate
and spend during the year?
Statement of cash flows
Operating cash flows
+/− Investing cash flows
+/− Financing cash flows
Increase(decrease) in cash
Debt is not bad. It depends how you use it. It is good if you are making investments and you are
receiving a greater return in the end. Don’t use credit card for personal expenses. Don’t use it
on cars > cars depreciate so you won’t have a greater return to pay back the loan.
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