Class Notes (1,100,000)
CA (650,000)
McMaster (50,000)
COMMERCE (2,000)
Lecture 1

COMMERCE 1AA3 Lecture Notes - Lecture 1: Accounts Payable, Net Income, Income Statement


Department
Commerce
Course Code
COMMERCE 1AA3
Professor
Firat Sayin
Lecture
1

This preview shows pages 1-2. to view the full 8 pages of the document.
Chapter 1: The Financial Statements
Financial Statements
Financial Statements
Reporting results of activities to user groups
o Business documents used by companies
Flow of Accounting Information
People make decisions
Business transactions occur
Companies report results
Users of Accounting Information
Individuals
Investors and creditors
Taxing authorities
Regulatory bodies
Non-profit organizations
Types of Accounting
Financial Accounting
Provides info for external users
o E.g. Investors, creditors, government, the public
Managerial Accounting
Provides info for internal users (Managers)
o E.g. Budgets, forecasts, projections

Only pages 1-2 are available for preview. Some parts have been intentionally blurred.

Organizing a Business
Proprietorship
Proprietor A single owner
o Personally liable
Partnership
Partner Two or more parties
o Personally liable
Corporation
Owned by shareholders
o Not personally liable
Proprietorships
A distinct entity from the proprietor
o Records don’t include proprietor’s personal finances
o E.g. Small retail stores/ professional service providers
Partnerships
Not a taxpaying entity
o Income/losses flows through to partners
Mutual agency and unlimited liability
o Each partner can act on behalf of entity
o Actions are legally bound to all partners
o Risk can be reduced with limited liability
Corporation
Potential to raise a lot of capital
o Larger than proprietorships and partnerships
Double taxation
o Corporate income + Shareholder dividends
Shareholders elect Board of Directors
o Set policies and appoint officers
You're Reading a Preview

Unlock to view full version

Only pages 1-2 are available for preview. Some parts have been intentionally blurred.

Generally Accepted Accounting Principles (GAAP)
Generally Accepted Accounting Principles
Professional guidelines for accountants
o IASB IFRS Listed companies
o AcSB ASPE Private companies
o US GAAP US companies
Accounting Conceptual Framework
Objective
o Provide financial information for decision making
Fundamental Qualitative Characteristics
o Relevant (materiality) Useful and important
o Faithful representation Reliable (accurate and neutral)
Enhancing Qualitative Characteristics
o Comparability With other companies
o Verifiable Checked for accuracy
o Timeliness Available early enough
o Understandability Makes sense (transparent)
Constraints
o Cost should not be greater than benefits
Assumptions and Principles
Entity Assumption
o A business is a separate entity from owner
Continuity (going-concern) Assumption
o The entity will continue to exist indefinitely
Historical Cost Principle
o Assets are recorded at purchase price
o Or Fair Value Amount the asset can sell for
Stable Monetary Unit Assumption
o The dollar purchasing power is stable
You're Reading a Preview

Unlock to view full version