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Chapter 1

COMMERCE 1AA3 Chapter Notes - Chapter 1: International Financial Reporting Standards, Standard Accounting Practice, Accounting

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Emad Mohammad

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Chapter 1- The Financial Statements
1. Accounting: An information system that measures and records business activities,
processes data into reports, and reports results to decision makers.
2. Financial accounting: The branch of accounting that provides information for managers
inside a business and for decision makers outside the business.
3. Management accounting: The branch of accounting that generates information for the
internal decision makers of a business, such as top executives.
4. Proprietorship: An unincorporated business with a single owner, called the proprietor.
5. Partnership: An unincorporated business with two or more parties as co-owners, with
each owner being a partner in the business.
6. Corporation: An incorporated business owned by one or more shareholders, which
according to the law is a legal “person” separate from its owners.
7. Shareholders: A party who owns shares of a corporation.
8. Shares: Legal units of ownership in a corporation.
9. Board of directors: Group elected by the shareholders to set policy for a corporation and
to appoint its officers.
10. Generally accepted accounting principles (GAAP): The guidelines of financial
accounting, which specify the standards for how accountants must record, measure, and
report financial information.
11. Publicly accountable enterprises (PAEs): Corporations that have issued or plan to issue
shares or debt in a public market.
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Chapter 1- The Financial Statements
12. International Financial Reporting Standards (IFRS): International accounting
standards that specify the generally accepted accounting principles which must be applied
by publicly accountable enterprises in Canada and over 100 other countries.
13. Private enterprise: An entity that has not issued and does not plan to issue shares or debt
on public markets.
14. Accounting Standards for Private Enterprises (ASPE): Canadian accounting standards
that specify the generally accepted accounting principles applicable to private
enterprises that are required to follow GAAP and choose not to apply IFRS.
15. Income statement: The financial statement that measures a company’s operating
performance for a specified period of time. In particular, it reports income, expenses, and
net income. Also called the statement of profit or loss.
16. Statement of profit or loss: Another name for the income statement
17. Expense: A cost incurred to purchase the goods and services a company needs to run its
business on a day-to-day basis. The opposite of revenue.
18. Income: Consists of a company’s revenues and gains.
19. Gain: A type of income other than revenue that results in an increase in economic benefits
to a company, and usually occurs outside the course of the company’s ordinary business
20. Revenue: Consists of amounts earned by a company in the course of its ordinary, day-to-
day business activities. The vast majority of a company’s revenue is earned through the
sale of its primary goods and services.
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