Textbook Notes (368,317)
Canada (161,798)
Accounting (248)
ACCT 2220 (54)
Chapter 1

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Department
Accounting
Course
ACCT 2220
Professor
Karen A.Gough
Semester
Winter

Description
USERS AND USES OF ACCOUNTING  Accounting is the ifnormation system that identifies and records the economic events of an organization  Internal Users o Internal users of accounting information plan, organize, and run companies  External users o Several different types of external users of accounting informaiton o Investors, lenders, creditors are considered the primary or key external users of accounting information  Ethical Behaviour by Users o For financial information to have value to its users it must be prepared by individuals with high standards of ethical behaviour Forms of Business Organization  Proprietorships o Business owned by one person and called a sole proprietorship o Simple to set up, gives the owner control over the business o Only a small amount of capital is required to start the business and the owner receives any profits, losses or debts o Reporting entity concept requires that the economic activity that can be identified with a particular company be kept separate and distinct from the activities of the owners and of all other economic entitities  Partnerships o Joining forces with other individuals to form a partnership\ o Partnerships are business owned by more than one person o Formalized in a written agreement, unlimited liability means any partners can be forced to give up his or her personal assets to repay tjhe debt  Corporations o Business organzied a s a separate legal entity owned by shareholders o As an investor, you receive shares to indicate your ownership claim o Life is indefinite - continues on regardless of who owns its shares o Not affected by withdrawal, death, or incapacity of an owner o Corporate shareholders are not responsible for corporate debts unless they have personally guaranteed them o Public corporations distribute their financial statements to investors, lenders, other creditors, other interested parties, and the general public o Consolidated means that the financial results include not only eastplats but also all the companies eastplats owns or controls o Private corporations issues shares but they do not make them availabel to the general public nor are they traded on the public stock exchange Generally Accepted Accounting Principles for Corporations  Generally accepted accounting principles or GAAP are the accounting rules and practices that are recognized as a general guide for financial reporting purposes  GAAP are different for publicly traded and private corporations o Publicly traded corporations must use Internal Financial Reporting standard (IFRS)s which are a set of global accounting standards developed by the international accounting standards board o Private corporations have a choice between using IFRS or the Accounting Standards for Private Enterprises (ASPE)  Most private corporations use ASPE  Proprietorships and paertnerships don't need to choose between IFRS or APSE Business Activities  All businesses are involved in 3 types of activity: financing, investing, and operating  Financing o 2 primary ways of raising outside funds are through borrowing and issuing or selling shares in exchange for cash o Amounts owed to lenders and creditors are called liabilities o Specific names are given to different types of liabilities depending on their source o When a company uses it operating line of credit to cover cash shortfalls and overdraws its bank caccount - results in a liability called bank indebtedness o Short term payable loans to a bank also exist for the money borrowed to purchase equipment o May be long term debt which can include mortgages, bonds payable, finance lease obligations and other debt o Corporations may also obtain financing by selling shares of ownership to investors  Common shares is the term used to describe the amou
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