Textbook Notes (368,089)
Canada (161,636)
Management (848)
MGT120H5 (67)
Kathy Falk (10)
Chapter 1

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Kathy Falk

CHAPTER 1 1. Accounting – The Language of Business - Accounting is the info system that measures biz activities, processes data into reports, and communicates results to decision makers. 2. Financial Statements: - Financial Statements are the business documents that companies use to report the results of their activities to various user groups. The system of accounting produces the following statements: • Income statement • Statement of RE • Balance sheet • Statement of cash flow 3. The Flow of Accounting Information 1. People make decisions 2. Biz transactions occur 3. Biz prepare reports to show results of their operations. Who Uses Accounting Information? - Individuals, biz, investors, creditors, govt regulatory agencies, taxing authorities, non-profit org Financial and Management Accounting - External users and internal users 1. Financial Accounting - Summarize business transactions of business entity for a specified period a. Users: internal + external decision makers b. Info must: be present in systematic reports + meet GAAP standards for relevance and reliability 2. Management Accounting - Financial and operating data about an organization’s activities, processes, operating units products services and customers a. Users: internal decision makers b. Information: - Can be generated using assumptions - Future oriented - Not governed by GAAP How to Organize a Business: proprietorships, partnerships, corp 1. Corporations - Stocks-> shareholders-> chief operating officers, presidents, managers - Canadian business corp act - BOD Question #1 All of the following is true except one: a. Bookkeeping is only a part of accounting b. A proprietorship is a business with several owners c. Professional accountants are held to a high standard of ethical conduct d. The organization that formulates accounting rules is the Canadian Institute of Chartered Accountants Learning Objective 2 Apply the accounting equation to business organizations The Accounting Equation Assets = Liabilities and Shareholders’ Equity Assets = Liabilities and Owners’ Equity What I own = Who supplied the resources: Creditors and Owners Assets = Liabilities and Shareholders’ Equity Assets – are economic resources of a business that are expected to produce future benefits Examples include Shareholders’ equity – owners’ interests in the assets of a corporation. Two main categories are: Contributed capital – Retained earnings – amounts earned by profitable operations and kept in the business. Components include revenue, expenses and dividends Net income: - REV: an increases in RE from delivering g/s to customers - EXP: the decreses in RE that result from operations Question #2 Retained earnings include: a. Amounts earned and kept by profitable operations b. Economic claims to the resources c. Amounts invested by the owners d. Economic resources of a business Learning Objective 3 Financial Statements- They represent the company in financial terms. Each one rela
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