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Chapter 1

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ACC 110

1. Accounting isn’t a science. Indeed many people consider accounting more an art than a science. 2. Accounting isn’t precise or exact. Many estimates have to be made and uncertainty surrounds most accounting numbers. 3. Accounting doesn’t provide the “right” answer. There can be more than one reasonable answer for many accounting situations. 4. Accounting is flexible. 5. Accounting requires judgement. 1. Accounting: is a system for gathering data about an entity’s economic activity, processing and organizing data to produce useful information about the entity, and communicating that information to people who want to use it to make decisions. 2. Entity: is an economic unit of some kind, such as a business, university, government, or even a person. 3. Data: are raw, unprocessed facts about an entity’s economic activity that is entered into an accounting system. 4. Information: results from organizing and presenting the data in ways that way it useful for decision making by stakeholders. 5. Financial Accounting: provides information to people who are external to an entity. External users include investors, lenders, taxation authorities (such as Canada Revenue Agency), competitors, and many others. Usually such users don’t have direct access to information about the entity and must rely on the entity to provide it. 6. Managerial Accounting: addresses the information needs and decisions of the managers of an entity. Managerial accounting information assists in operation decisions such as price setting, expansion, evaluating which products are successful and which aren’t, and determining the amount of a product that should be produced. 7. Accounting matters because it has: economic consequences. 8. Economic Consequences: it affects people’s wealth. It can have an impact on the decisions people make. 9. Cost-Benefit Trade Off: The concept of comparing the benefits of an action with its costs, and of taking the action only if the benefits are greater. 1. There are four key components of the accounting environment: overall environment, entities, stakeholders, and constraints. 2. The Overall Environment identifies some of the important factors that establish the structure of a society: Political, Cultural, Economic, Competitive, Regulatory, Legal Parameters. 3. The Different Types of Entities include: Individual, Proprietorship, Corporation, Partnership, Not- for-profit, Government, Industry, Other. 4. The Different Types of Constraints include: Contracts, Accounting Rules, Moral Considerations, Ethical Considerations, Law, Income Tax Act, Demands of Powerful Stakeholders, Securities Legislation, Other. 5. The Different Types of Stakeholders include: Shareholders, Partners, Proprietors, Employees, Unions, Regulators, Creditors, Tax Authority, Potential Shareholders, Managers, Donors, Customers, Governments, Politicians, Analysts, Communities, Public, Competitors, Bond Raters, Journalists, Other. 6. Entities are at the centre of the accounting environment because stakeholders are looking for information about them and it’s the entities that typically provide the accounting information stakeholders need. 7. Corporation: is a separate legal entity created under the corporation laws of either Canada, one of the provinces, or some other jurisdiction in the world. 8. Ownership in a corporation is represented by: shares 9. Owners of shares are called: shareholders. 10. Shares are issued to investors when a company is formed, and they can be issued at any time during a corporation’s life. 11. One of the most important features of a corporation is that it provides: limited liability to its shareholders. 12. Limited Liability: means that shareholders aren’t liable for the obligations of the corporation or the losses it suffers. 13. Shares of Public Corporations can be purchased by anyone interested in owning part of the entity. 14. Shares are usually traded on a stock exchange. 15. Stock Exchange: a place (physical or virtual) where the shares of publicly traded entities can be bought and sold. 16. The shares of private corporations aren’t available for purchase unless the entity or its shareholders agree. 17. Proprietorship: is an unincorporated business with one owner, and it is not a separate legal entity. 18. Proprietor: is an owner of a proprietorship. 19. Partnership: is an unincorporated business owned by two or more entities called partners. 20. Partners: are people or companies who own an unincorporated business together. 21. Not-for-profit Organizations: provide social, educational, professional, religious, health, charitable, and other services in Canadian communities and around the world. 22. Not-for-profit organizations can incorporate and provide members with limited liability. 23. Governments: play a maj
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