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Chapter Final

ACC100 Chapter 1-5 Exam Review

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ACC 100
Else Grech

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 its 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 corporations 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 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 informationJessica 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 earn
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