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Lecture 6

ACC 100 Lecture 6: MidtermStudyGuide

9 Pages
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Department
Accounting
Course Code
ACC 100
Professor
Beavis Alison

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Description
Chapter 1 - Sectors - Primary: extraction of raw materials - Secondary: manufacturing - Tertiary: services - Retailer: earns profit by reselling goods/providing services to customers - Wholesaler: buys large quantities of goods from manufacturers, warehouses them, and resells them to retailers - Do not typically sell to the public - Internal stakeholder: works for the business ie. employees - External stakeholder: outside of the business, their objectives relate to decisions they will make about money and how the business can affect them - Qualitative characteristics - Faithful: truthful, free of error, complete, neutral - Relevant: applicable, pertinent, helps to predict or confirm - Comparable: can compare from year to year or between other businesses - Verifiable: anyone who looks would determine the same thing - Timely: info provided quickly - Understandable: clear and concise - Assumptions - Separate entity: only the activities of the business are included in the financial info - Unit of measure: all transactions are reported using the currency of the location of the head office - Going concern: the business will continue operations into the future - Historic cost: all purchases are recorded at the amount that was paid for them - Time period: info is broken into artificial time periods so stakeholders can analyze and compare info to make decisions - Full disclosure: if something will affect decisions of external stakeholders, it must be reported Chapter 2 - Financial reporting elements - Assets: owned, benefit company in future, happened in the past - Ownership has transferred - Used to generate revenue - Transfer of ownership was a past event - Liability: owed to 3rd parties, repaid in future, happened in the past - Obligation/debt to someone outside of the business - Giving up of cash/goods/services to repay - Due to past event - Equity: wealth due to owners - Owner’s capital + retained profit/earnings - Profit - dividends = retained earnings - Revenue: income earned by providing a service or delivering a good - Already provided or already delivered - Expense: used, consumed, or incurred to help generate revenue Assets = Equity Note: - the sign in front of the element indicates its Own Reta impact on equity - Equity is equal to the wealth owed to the owner’s of a business by the business Divid - Assets = Liabilities + Equity Reve Expens Chapter 3 - Accounts - Assets - Cash: owned, has future benefit, from a past transaction, +/- - Accounts receivable: right to get cash in the future due to a past sale, sell on account → +, collect cash → - - Prepaid expense: future expense, paid for in the past to collect in the future, usually insurance/rent/advertising, get future right → +, use up the right → - - Office supplies: future expense, received in the past to use in the future, receive → +, use up → - - Equipment: future expense, received in the past to use in the future, receive → +, use up → - - Intangible assets: receive in the past for use in the future, legal rights, usually patents or licenses, receive → +, use up → - - Liabilities - Accounts payable: owed, paid in the future, due to a past transaction, but on account → +, pay off → - - Similar: salaries, wages, rent, income tax, interest... PAYABLE - Loans payable: owed, paid in future, due to past borrowing, borrow cash → +, pay off loans → - - Unearned revenue: owe a good or a service, provide in future due to receiving cash in the past, receive cash → +, provide goods or services → - - Equity - Owner’s capital: capital invested by owners, represents ownership, receive investment → + - Retained earnings: profit generated by the business less the dividends paid out to the owners, profit generated → +, dividends paid → - - Revenue - Service revenue: provided services, past transaction, provided → +, refunded → - - Sales revenue: delivered goods (inventory), past transaction, delivered → +, returned → - - Expenses - Advertising, salary, insurance, interest, income tax, rent… EXPENSES Note: - Transaction: event that is measureable and realized - Capitalized: when a cost is recorded as an asset because it has future benefit for the company - Long lived asset: asset that lasts a long time - Tangible asset: land/building, physical - Intangible asset: legal rights/license, non-physical Chapter 4 Assets = Liabilities + Equity Balance Sheet Owner’s Retaine Capital d Statement of Profit Dividend s Retained Earnings Revenue - Expenses Income Statement Note: 1. Income Statement 3. Balance Sheet 2. Statement of Retained Earnings 4. Statement of Cash Flows - Multi-step income statement - Is used as a measure of profitability - Was the business profitable in the c
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