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Chapter all

EDRD 1400 Chapter Notes - Chapter all: Subledger, Dividend Yield, Consignee

Environmental Design and Rural Development
Course Code
EDRD 1400

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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
–Work for the company
–Managers, employees, and others who plan, organize, and run the company
•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
•Companies have codes of conduct
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
•Similar to 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 general public

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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 particular standards for internal use
Three Types of Business Activities
•All companies are involved in all three activities
Financing Activities
•Obtaining (and repaying) funds to finance the operations of the business
–Borrowing money or repaying loans (debt)
–Selling or repurchasing shares (equity)
•Forms of debt
–Bank indebtedness, bank loans, noncurrent debt such as mortgages, bonds, leases
Investing Activities
•Purchase or sale of long-lived assets needed to operate the company
–Purchase or sale of investments not held for trading
–Purchase or sale of long-lived assets such as property, plant and equipment and intangible assets
Operating Activities
•Operating activities are the main day-to-day activities of the business
–Related accounts such as accounts receivable and accounts payable
Financial Statements
•Income statement
–Reports revenues and expenses for a specific period of time
•Statement of changes in equity
–Reports the changes in each component of shareholders’ equity during a period of time
•Statement of financial position
–Shows the assets, liabilities and shareholders’ equity at a specific point in time
•Statement of cash flows
–Shows, for a specific period of time, how company obtained cash and how that cash was used
•Order of preparation of statements
Income Statement
–Arise from sales of a products or services
–Result in an inflow of assets

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–Costs of assets consumed or services used to generate revenues
•Profit (loss)
= Revenues - Expenses
Statement of Changes in Equity
•Shows the changes in each component of shareholders’ equity for the period
•Share capital
–Amounts contributed by shareholders
–May include common and preferred classes
•Retained earnings / deficit
–Cumulative profit retained in the company
–Less dividends paid to shareholders
•Other shareholders’ accounts
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