Chapter 1 Study Guide

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29 Jun 2011
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Chapter 1
·Accounting: infor mation system that identifies, records, communicates the economic events of an
organization to interested users
Economic events: activities related to the production and distribution of goods and services in an
organization
Internal users: those who plan, organize, and run a business
External users: those who work for other organizations but who have an interest in and need for
infor mation about the company’s financial position and perfor mance.
·Business owners (called investors or shareholders) look for two sources of possible gain: 1. sell
ownership interest in the future for more than they paid; 2. receive a por tion of the company’s
earnings in cash (dividends)
2 f ields of Accounting:
·Financial accounting: refers to the field of accounting that provides infor mation to people who are
external to an entity
·Managerial Account ing: refers to the field of accounting that provides information to the managers
of the entity and other decision makers who work for the entity (e.g budget: setting a target)
·IFRS: international financial reporting standard
why IFRS: consistency, comparability, f lexibility, accessibility, one set of books
IFRS in Canada: publicly account able enterpr ises will be required to adopt IFRS
·Private enterpr ise: a prof it oriented enterpr ise that:
has not issued debt or equity instruments tha t are or wil l be outstanding and traded in a public
market; and
does not hold assets in a fiduciary capacity for a broad group of outsiders as one of its pr imary
businesses
can choose to adopt IFRS or can choos e to adopt a set of accounting standards for pr ivate
enterprises
The Four Basic Financial Statements
·statement of financial position (balance sheet): reports the amount of assets(resources owned),
liabilities (amounts owed), and shareholders’ equity of an accounting entity at a point in time.
·income statement (statement of comprehensive income): reports the revenues less the expenses of
the accounting period.
profitability
·statement of changes in equity: repor ts the way that profit, distribution of profit (dividends), and
other changes to shareholders equity affected the financial position of the company dur ing the
accounting period.
·statement of cash flows: reports inf lows (receipts) and outflows (payments) of cash during the
accounting period in the categories of operating, investing, and financing.
·Notes: all financial statements should be accompanied by notes which provide the reader with
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