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Chapter 1

CHAPTER #1 NOTES.pdf
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Department
Accounting
Course
ACC 110
Professor
Benjamin Dyson
Semester
Winter

Description
What is Accounting? It is a system for gathering data about an entity's economic activity, processing and organizing that data to produce useful info About the entity and communicating that info to ppl who want to use it to make decisions. Entity: is am economic unit of some kind such as a business, uni, gov't, or a person. NOTE * DATA are RAW and UNPROCESSED facts about an entity's economic activity that is entered to an accounting system****** INFORMATION is produced from ORGANIZING and PRESENTING the data in ways that make it useful for decision making by stakeholders. THE ACCOUNTING SYSTEM GATHER DATA -----------> PROCESS AND ORGANIZE DATA -------------> Communicate Info. Through this process, an accountant or a manager must make any decisions regarding what data to collect and how it should be organized. Financial Accounting: provides info to ppl who are external to an entity------ like lenders, taxation authorities, competitors, CRA, etc. These ppl usually rely on the entity to provide them with the info. Managerial Accounting: addresses the info needs and decisions of the managers of an entity. Assist in operating decisions like price setting, evolution of products, etc. Accounting is important because it has economic consequences where it affects ppl's wealth. We need accounting because it helps one gather info and make a decision based on good and valuable info received. If the info is limited then the decision ends up more of a guess rather than a decision.It is part of life to make a decision either for you or for an entity and especially when money is involved. This helps one manage money in a best way possible. THE COST BENEFIT TRADE OFF (PAGE #5) Accounting was created to provide a record of economic activity and info useful in decision making, so it makes sense that accounting should be responsive to the environment and the ppl using the info. There are four key components of the accounting environment----- overall environment, entities, stakeholders, and constraints. PAGE 7 figure 1.2 Environment Since many countries have different rules and regulations ------> accounting, rules vary Because there are different factors that establish a society ---> political, cultural, economic, competitive, regulatory and legal parameters Entities Since stakeholders are always seeking for info. entities are at the center of the acc. env. Because they are the ones that provide info to the stakeholders. There are three categories of business entities-----> corporations, proprietorships, and partnerships... minor (non-for profit organizations, gov't, and individuals) Corporation is a separate legal entity created under corp. laws... they have the same rights and responsibilities as individuals. ----> Shares are represented in a form of ownership and the owners are stakeholders. Shares are issued to investors when a company is formed and are available for purchase during a corp's life. Corps most important feature is that it provides limited liability to its shareholders-----> hence if a corp faces a loss, then the shareholders face the loss since the corp is unable to repay the money back to its shareholders. In addition, the ownership of the corp is easily transferredwithout affecting the corp. Public corps can be purchased by anyone interested in owning part of the entity. The shares are usually traded on a stock exchange, which is a place where the shares of publicly traded entities can be bought or sold. Private Corps are NOT available for trade unless the entity or the shareholders agree to it. In case of a small business, corp. where there is only one owner-----> no one can obtain shares unless the owner is ready to sell it. Proprietorship is a business with one owner and is unincorporated. They are easy and cheap to set up. Unlike corps, the owner includes all its revenues in their personal income tax hence a proprietorship is not a SEPERATE LEGAL ENTITY. If the company owes any money, the sole owner's assets can be seized. Partnerships are also an unincorporated business and have two or more owners. The partners could be ppl or corps. They do not pay taxes; their earnings are included in the partner's personal incomes. There should be an agreement stating partner's rights and responsibilities. Nonprofit orgs. ... They are providing social, educational, religious, and other services to communities and individuals. They are incorporated and provide members with limited liability but they do not pay taxes. Gov't...they play a major role as they spend and decide how spend the money ---> they also raise a lot of money. Financial reporting by gov't is an important source of accountability. Individuals...are acc. entities as they produce info. in quantitative form to meet the demands of everyday life. EG. #9 CHARACTERTISTICS OF ENTITIES There are many characteristics... no enti
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