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Chapter Final

ACC 100 Chapter Notes - Chapter Final: Canada Revenue Agency, Sole Proprietorship, Accounts Payable


Department
Accounting
Course Code
ACC 100
Professor
Else Grech
Chapter
Final

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Jessica Ho
Ryerson Fall 2012
Chapter 1 Accounting Communication – An Introduction
Organization: A collection of individuals pursuing the same goal or objective.
Forms of Organizations
Business Entities
- Organized to earn an income(profit)
1) Sole Proprietorship
-Sole proprietorship: A business with a single owner
-Economic entity concept: The assumption that a single, identifiable unit
must be accounted for in all situations
A business is often owned and operated by the same person, but
the affairs of the business and the person must be kept separate
Unlike the distinction made for accounting purposes the
Canada Revenue Agency does not recognized the separate
entity between the proprietorship and it’s owner; any income
earned by the business is taxed on the tax return of the
individual
2) Partnerships
-Partnerships: A business owned by two or more individuals and with the
characteristic of unlimited liability
- A partnership is not a taxable entity; individual partners pay taxes on their
proportionate shares of the income of the business
3) Corporations
-Corporation: A form of entity organized under the laws of a particular
province or the federal government; ownership evidenced by shares
- A corporation is started by: filing for incorporation approval by
provincial/federal government issuing of corporate charter issue
shares
Shares: A certificate that acts as ownership in a corporation
- Advantages of running a corporation as oppose to a partnership:
Possible to raise a large amount of money in a short period of time
Through selling securities
Shares – ownership
Bonds: A certificate that represents a corporation’s
promise to repay a certain amount of money and
interest in the future – loan
Ease of transfer of ownership
Limited liability of the shareholder – only liable for amount invested

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Jessica Ho
Ryerson Fall 2012
Non-Business Entities
-Non-business entity: Organization operated for some purpose other than
to earn a profit
Exist to serve the needs of various segments of society
- Lack of identifiable owner – utilizes fund accounting
The Nature of Business Activity
- A company obtains money from various types of financing activities, uses
the money raised to invest in productive assets, and then provides goods
and services to its customers
1) Financing Activities
- All businesses start with financing; money is needed to start a business
-Liability: An obligation of a business
I.e., Note payable = borrowed from bank, Bonds payable = sells
bonds, Taxes payable = government taxes owed, Accounts payable
Creditor: Someone to whom a company or person has a debt
-Capital stock: Indicates the owners’ contributions to a corporation
Main difference from liabilities is that those to buy shares in a
corporation takes ownership and becomes a shareholder as
oppose to lending money
Shareholder: Someone who buys shares in a company
- Includes issue and repurchase of common shares and long-term debt
(liabilities)
2) Investing Activities
- Buying assets
Asset: A future economic benefit to an organization
- Includes purchases of land, buildings, and equipment and purchases of
other companies
3) Operating Activities
- Generating revenues (and income) via sales
-Revenue: Inflows of assets resulting form the sale of products and
services
-Expense: Outflows of assets resulting from the sale of goods and services
- Includes the sale of products/services, salaries and wages, payment for
purchases of inventory, utility usages, taxes paid to the government
What Is Accounting?
-Accounting: The process of identifying, measuring, and
communicating economic information to permit informed
judgements and decisions by users of the information

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Jessica Ho
Ryerson Fall 2012
Users of Accounting Information and Their Needs
1. Internal Users
- Managers of a company
-Management accounting: The branch of accounting concerned with the
preparation of financial statements for outsider uses
2. External Users
- Those not involved directly in the operations of a business needs
information that differs from that needed by internal users
- Information is limited because outsiders rely on information presented by
management – financial statements
-Financial accounting: The branch of accounting concerned with the
preparation of financial statements for outsider use
- External users include: Shareholders and potential shareholders,
bondholders, bankers, and other creditors (ability to repay loans),
government agencies, suppliers, trade association, financial analysts
Financial Statements: How Accountants Communicate
-Net income on the income statement increases retained earnings on
the statement of retained earnings. The ending balance in retained
earnings is transferred to the balance sheet
1) The Accounting Equation and the Balance Sheet
- Assets = Liabilities + Owners’ Equity
Foundation of the entire accounting system
-Owners’ equity: The owners’ claims on the assets of an entity
-Shareholders’ equity: The owners’ equity in a corporation
Capital stock
Retained earnings
-Balance sheet: The financial statement that summarizes the assets,
liabilities, and owners’ equity at a specific point in time
Statement of financial position
2) The Income Statement
- Flow statement
-Income statement: A statement that summarizes revenues and expenses
- 3 largest items: revenues, operating expenses, and income tax expense
3) The Statement of Retained Earnings
-Retained earnings: The part of owners’ equity that represents the income
earned less dividends paid over the life of an entity
(Accumulated earnings – D = RE)
-Dividends: A distribution of the net income of a business to its owners
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