Class Notes (838,950)
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Rotman Commerce (1,103)
RSM219H1 (86)

chapter 11

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Rotman Commerce
Alexander Edwards

Introduction to Accounting - Ch. 1 1. What is Accounting? Accounting is the system of analyzing, sorting, and recording economic data relating to business transactions. It involves preparing statements of the results for individuals or businesses to use in making business decisions. Accounting is a system of dealing with financial information that is used for decision making. It looks at what is owned, what is owed and the difference which is called personal net-worth or owner’s equity if it’s a business entity. 2. Reasons for studying Accounting? • To get a job – with an accounting background it’s easier to get a job at the lower level. • Personal use – you can prepare your own personal budget, financial reports, income tax return. It will allow you to better understand financial matters and be able to make better business decisions. • Owning your own business – you will need to: - keep track of amount owed by customers - keep accounting records for government purposes - produce an income statement for income tax purposes - preparing payrolls and making payroll deductions - banking • As a profession – having a designate - CA – Chartered Accountant - CGA – Certified General Accountant - CMA – Certified Management Accountant - Public Accountant – they do general accounting for a fee - Management Consultants - Auditing – is the examination and testing of the books, records and procedures of a business so as to be able to express an informed opinion about its financial statements or affairs. - Tax Advisors - Industrial or Institutional Accounting – working with banks, government, large insurance companies etc. • Business Complexity – business require the knowledge and understanding of the various complex government laws : fair business practices and regulations, income tax etc. 3. What Accounting involves? There are five things involved in accounting:  Gathering financial data about the business or other organizations  Preparing and collecting permanent records of purchases made, payments received, payroll details, and so on. These are the basis for dealing with other companies.  Putting financial information into a more useful form by rearranging, summarizing, and classifying this information  Preparing information reports, and summaries for: a) measuring the probabilities of the company b) helping to manage and reach decisions c) external use to groups such as bankers, investors  Establishing controls to promote accuracy and honesty amongst employees. - Accounting looks at what is OWNED –OWED = PERSONAL NETWORTH What are the terms used in business for these? Assets = Liabilities – Owner’s Equity e.g. John Brown Personal Balance Sheet February 5, 2010 Owned Owed Cash $ 100 Loans $ 30 Clothin 50 Cell Phone bill 25 Cell Phone 60 Total Owed 55 Jewellery 25 I-Pod 50 Camera 30 Laptop 150 Personal Equity Money in Bank 410 Total Owed & Personal Net worth $465 Total Equity
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