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Chapter 1

Chapter 1

Course Code
ACC 100
Else Grech

of 3
Chapter 1 – Accounting Communication – An introduction
Organization is a collection of individuals pursuing the same goal or objective
Forms of organizations
Business entities
Organized to earn an income (profit)
There are 3 types
o1) Sole proprietorships is a business with a single owner
oIt is an example of the economic entity concept
oEconomic entity concept is the assumption that a single, identifiable unit must be
accounted for in all situations (ex. A grocery store owner must separate his
personal costs from the costs linked with the grocery business)
oSole proprietorships is not a taxable entity that means income earned by the
business is taxed only on the tax return of the owner
o2) Partnerships is a business owned by 2 or more person and with the
characteristic of unlimited liability
oIt is also not a taxable entity that means individual partners pay taxes on their
income earned from the business
o3) Corporations is a form of entity organized under the laws of a particular
province or the federal government; ownership evidenced by shares
oShare is a certificate that acts as a evidence of ownership in a corporation
oAdvantage of corporation over partnerships it makes it possible to raise large
amounts of money in short period of time
oSometimes uses bond
oBond is a certificate that represents a corporations promise to repay a certain
amount of money and interest in the future
oIn corporation, shareholders lose only the amount they invested but in proprietors
and partners, they lose everything
Non-business entities
Organized for a purpose other than to earn an income, such as hospital, government, local
The nature of business activity
Financing activities
Liability is an obligation of a business, for example when company borrows money at a
bank, the liability is called “note payable”, when company sells bonds, it is called “bonds
Capital stock indicates the owners’ contributions to a corporation
Shareholder is someone who buys shares in a company
Creditor is someone who lent money to a company or person and they have a debt toward
that person
Investing activities
Asset is a future economic benefit to an organization, for example purchasing land,
Operating activities
Revenue is the inflow of assets resulting from the sale of products and services
Expense is outflows of assets resulting from the sale of goods and services
Users of accounting information and their needs
Internal users
Management accounting is the branch of accounting concerned with providing
management with information to facilitate planning and control
External users
Financial accounting is the branch of accounting concerned with the preparation of
financial statements for outsider use
The conceptual framework: foundation for financial statements
Cost principle requires accountants to record assets at the cost paid to get them
Going concern is the assumption that an entity is not in the process of liquidation and
that it will continue indefinitely
Monetary unit is the standard used to measure amounts in financial statements, the
Time period is the artificial segment on the calendar, used as the basis for preparing
financial statements
GAAP (Generally Accepted Accounting Principles) is the various methods, rules,
practices and other procedures that have evolved over time in response to the need to
regulate the preparation of financial statements
The accounting profession
The controller is the chief accounting officer for a company
The treasurer is the officer responsible in an organization for the safeguarding and
efficient use of companys liquid assets such as cash
Internal auditing is the department responsible in a company for the review and
evaluation of its accounting and administrative controls
Employment in public accounting
Auditing is the process of examining the financial statements and the original records of
a company in order to give an opinion as to whether the statements are fairly presented
Auditors report is the opinion given by a public accounting firm concerning the fairness
of the presentation of the financial statements