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Chapter 1

ACCT 1220 Chapter Notes - Chapter 1: Accounts Receivable, Share Capital, Financial Statement


Department
Accounting
Course Code
ACCT 1220
Professor
Philippe Lassou
Chapter
1

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Uses and Users of Accounting
•Accounting identifies and records the economic events of an organization and communicates to
interested users
There are two broad categories of users
•Internal users
•External users
Users of Financial Information
Internal users
•Manage the company, non-profit, government organization
•Company officers, managers and directors in finance, marketing, human resources, production
External users
•Do not work for the company
•Investors, lenders, and other creditors
•Customers, employees, labour unions
•Taxing authorities and regulators
Ethical Behaviour
For accounting information to have value, preparers must have high ethical standards
•Actions are legal and responsible
•Consider organization’s interests
•Accountants, other professionals, and most companies have rules or codes of conduct to guide
ethical behaviour
Forms of Business Organizations: Proprietorship
•Owned by one-person (proprietor)
•Simple to set up
•Owner has control over business
•Limited life
•Unlimited liability
•Income tax paid by owner
Forms of Business Organizations: Partnership
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Like proprietorship except owned by more than one person
•Formalized in a written agreement
•Limited life
•Each partner has unlimited liability
•Income tax paid by individual partners
Forms of Business Organizations: Corporations
•Separate legal entity owned by shareholders (owners of shares)
•Indefinite life
•Ease of raising capital
•Shareholders enjoy limited liability
•Corporation pays income tax
•May be public or private:
Public if shares are publicly traded
Private if shares are not available to the public
Generally Accepted Accounting Principles (GAAP)
•Rules and practices for the preparation of financial statements
•Different for publicly-traded and private corporations
Publicly-traded corporations use International Financial Reporting Standards (IFRS)
Private corporations may use IFRS or Accounting Standards for Private Enterprises (ASPE)
•Proprietorships and partnerships generally follow ASPE for external reporting
Not required to follow any standards for internal use
Three Types of Business Activities
•All companies are involved in all three activities:
•Financing
•Investing
•Operating
Financing Activities
Obtaining (and repaying) funds to finance the operations of the business
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