Chapter 1 – Accounting Communication
•Accounting organizes and summarizes information about economics activities
•Financial accounting provides info to external users to help make certain business
•Management accounting provides info to internal users to help plan and control
Organization is a collection of individuals pursuing the same goal or objective. All
organizations, whatever their size, require finances and must make financial decisions.
Thus organizations need financial information in order to describe the resources they hold
and to support the various financial decisions they make.
•Business entities are organized to earn an income (commonly termed a profit).
Legally a profit-oriented company is one of three types:
1.Sole Proprietorships: This form of organization is characterized by a single owner.
Many small businesses are organized as sole proprietorships. Very often the
business is owned and operated by the same person. Despite the close relationship
between the owner and the business, the affairs of the two must be kept separate.
Economic entity concept is the assumption that a single, identifiable unit must
be accounted for in all situations.
2.Partnerships: A business owned by two or more individuals and many small
businesses begin as partnerships. When two or more partners start out, they need
an agreement as to how much each will contribute to the business and how they will
divide the income. In large businesses, the partnership agreement is formalized in a
written document. Like a sole proprietorships, a partnership is not a taxable entity.
3.Corporations: A form of entity organized under the laws of a particular province or
the federal government; ownership evidenced by shares. Share is a certificate that
acts as ownership in a corporation. Bond is a certificate that represents a
corporation’s promise to repay a certain amount of money and interest in the future.