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
3. Data: are raw, unprocessed facts about an entity’s economic activity that is entered into an
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
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
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
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
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
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
17. Proprietorship: is an unincorporated business with one owner, and it is not a separate legal
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