ACC 110 Lecture Notes - Canada Business Corporations Act, Organize, External Auditor

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Published on 6 Oct 2012
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What is Accounting?
It is a system for gathering data about an entity's economic activity, processing and
organizing that data to produce useful info… About the entity and communicating that
info to ppl who want to use it to make decisions.
Entity: is am economic unit of some kind such as a business, uni, gov't, or a person.
NOTE * DATA are RAW and UNPROCESSED facts about an entity's economic activity
that is entered to an accounting system****** INFORMATION is produced from
ORGANIZING and PRESENTING the data in ways that make it useful for decision
making by stakeholders.
THE ACCOUNTING SYSTEM
GATHER DATA -----------> PROCESS AND ORGANIZE DATA -------------> Communicate Info.
Through this process, an accountant or a manager must make any decisions regarding
what data to collect and how it should be organized.
Financial Accounting: provides info to ppl who are external to an entity------ like
lenders, taxation authorities, competitors, CRA, etc. These ppl usually rely on the entity to
provide them with the info.
Managerial Accounting: addresses the info needs and decisions of the managers of an
entity. Assist in operating decisions like price setting, evolution of products, etc.
Accounting is important because it has economic consequences where it affects ppl's
wealth.
We need accounting because it helps one gather info and make a decision based on good
and valuable info received. If the info is limited then the decision ends up more of a guess
rather than a decision. It is part of life to make a decision either for you or for an entity
and especially when money is involved. This helps one manage money in a best way
possible.
THE COST BENEFIT TRADE OFF (PAGE #5)
Accounting was created to provide a record of economic activity and info useful in
decision making, so it makes sense that accounting should be responsive to the
environment and the ppl using the info. There are four key components of the accounting
environment----- overall environment, entities, stakeholders, and constraints.
PAGE 7 figure 1.2
Environment
Since many countries have different rules and regulations ------> accounting, rules vary
Because there are different factors that establish a society ---> political, cultural,
economic, competitive, regulatory and legal parameters
Entities
Since stakeholders are always seeking for info. entities are at the center of the acc. env.
Because they are the ones that provide info to the stakeholders.
There are three categories of business entities-----> corporations, proprietorships, and
partnerships... minor (non-for profit organizations, gov't, and individuals)
Corporation is a separate legal entity created under corp. laws... they have the same
rights and responsibilities as individuals. ----> Shares are represented in a form of
ownership and the owners are stakeholders. Shares are issued to investors when a
company is formed and are available for purchase during a corp's life. Corps most
important feature is that it provides limited liability to its shareholders-----> hence if a
corp faces a loss, then the shareholders face the loss since the corp is unable to repay the
money back to its shareholders. In addition, the ownership of the corp is easily
transferred
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without affecting the corp. Public corps can be purchased by anyone interested in owning
part of the entity. The shares are usually traded on a stock exchange, which is a place
where the shares of publicly traded entities can be bought or sold. Private Corps are NOT
available for trade unless the entity or the shareholders agree to it. In case of a small
business, corp. where there is only one owner-----> no one can obtain shares unless the
owner is ready to sell it.
Proprietorship is a business with one owner and is unincorporated. They are easy and
cheap to set up. Unlike corps, the owner includes all its revenues in their personal income
tax hence a proprietorship is not a SEPERATE LEGAL ENTITY. If the company owes any
money, the sole owner's assets can be seized.
Partnerships are also an unincorporated business and have two or more owners. The
partners could be ppl or corps. They do not pay taxes; their earnings are included in the
partner's personal incomes. There should be an agreement stating partner's rights and
responsibilities.
Nonprofit orgs. ... They are providing social, educational, religious, and other services to
communities and individuals. They are incorporated and provide members with limited
liability but they do not pay taxes.
Gov't...they play a major role as they spend and decide how spend the money ---> they
also raise a lot of money. Financial reporting by gov't is an important source of
accountability.
Individuals...are acc. entities as they produce info. in quantitative form to meet the
demands of everyday life. EG. #9
CHARACTERTISTICS OF ENTITIES
There are many characteristics... no entities are identical... they may be similar to each
other but still has its differences. Same---> size or industry but Different---> unionized or
non-unionized
These characteristics are important to understand an entity--- what it does and how it
accounts for its economic activity.
Constraints
It is not up to accountants to make and provide all the info. However, they are certainly
influenced over it. There are certain rules and reg. that must be met like the GAAPs or the
accountants must be ethical.
Stakeholders are ppl that are interested or "have a stake in" an entity. They range from
taxation authorities, to owners, to lender, etc. Some entity = few or more. Different
stakeholders have different concerns towards an entity. Hence, the info will be most
useful to one stakeholder group than the other.
Consider the following examples:
The Income Tax Act defines how certain transactions and economic events must be
accounted for in calculating the amount of income tax an entity must pay.
Corporations must meet the requirements of the law they are incorporated under (such
as the Canada Business Corporations Act).
Some entities must agree to follow formal sets of accounting rules such as Generally
Accepted Accounting Principles for Private Enterprises (GAAP) or International Financial
Reporting Standards (IFRS).
Companies that trade on Canadian stock exchanges must meet the requirements of the
securities laws of their province and the rules of the stock exchange.
Entities often enter voluntarily into contracts with other parties to do their accounting
in a certain way.
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Document Summary

It is a system for gathering data about an entity"s economic activity, processing and organizing that data to produce useful info about the entity and communicating that info to ppl who want to use it to make decisions. Entity: is am economic unit of some kind such as a business, uni, gov"t, or a person. Note * data are raw and unprocessed facts about an entity"s economic activity that is entered to an accounting system****** information is produced from. Organizing and presenting the data in ways that make it useful for decision making by stakeholders. Gather data -----------> process and organize data -------------> communicate info. Through this process, an accountant or a manager must make any decisions regarding what data to collect and how it should be organized. Financial accounting: provides info to ppl who are external to an entity------ like lenders, taxation authorities, competitors, cra, etc. These ppl usually rely on the entity to provide them with the info.

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