Textbook Notes (378,525)
CA (167,148)
UTSC (19,212)
MGA (381)
MGAB01H3 (127)
G.Quan Fun (21)
Chapter 1

Chapter 1 notes

3 Pages
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Department
Financial Accounting
Course Code
MGAB01H3
Professor
G.Quan Fun

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Chapter 1 The Purpose and Use of Financial Statements Notes
Accounting Matters
x accounting : information system that identifies and records economic events of organization, and communicates them to wide
variety of interested users
x accounting—“language of business”; consistently ranked as one of top career opportunities
Users and Uses of Accounting
Internal Users
x plan, organize, and run company or work for company
x include finance directors, marketing managers, HR personnel, production supervisors, company officers
External Users
x investors use information to make decisions to buy, hold, or sell their ownership interest
x creditors use information to evaluate the risks of granting credit or lending money
x investors and creditors are main external users, but others use it including labour unions, customers, taxing authorities, regulatory
agencies, and economic planners
Ethical Behaviour
x ethics is of utmost importance to accountants and decision-makers who rely on financial info
x fortunately, most individuals in business are ethical, whose actions are legal and responsible
Forms of Business Organization
x proprietorship : a business owned by one person
x partnership : a business owned by more than one person
x corporation : business organized as separate legal entity having ownership divided into transferable shares held by shareholders
Proprietorships
x only relatively small capital is needed to start business
x proprietor receives any profits, suffers any losses, and is personally liable for any debts
x no legal distinction between business as economic unit and owner
Partnerships
x similar to proprietorships except that there is more than one owner
x each partner generally has unlimited liability for all debts, even if other partner has created it
Corporations
x buying shares in corporation is often more attractive than investing in proprietorship or partnership because it is easier to sell
x many businesses start out as proprietorship or partnership and eventually incorporate
x public corporations—commonly distribute their financial statements to shareholders, creditors other interested parties, and the
general public upon request
x private corporations—do not issue publicly traded shares and almost never distribute their financial statements publicly
Business Activities
Financing Activities
x two primary ways for corporations to raise outside money are (1) borrowing money and (2) selling shares in exchange for cash
x liabilities : debts and obligations of a business; claims of creditors on the assets of a business
x taking money from an operating line of credit results in bank indebtedness
x a company can take a short-term note payable to a bank for the money borrowed
x a company may also have long-term debt, which can include notes payable, mortgages payable, lease obligations, and other types
of debt securities borrowed for longer periods of time
x share capital : shares representing ownership interest in a corporation; if only one class exists, it is known as common shares
x common shares—term used to describe the amount paid by investors for shares of ownership in company; just one class of share
capital that company can issue
x shareholders have no claim to corporate resources until the claims of creditors are satisfied
x dividends : the distribution of retained earnings from a corporation to its shareholders, normally in the form of cash
Investing Activities
x assets : resources owned by a business
x every asset is capable of providing future services or benefits that can be short- or long-lived
x investing activities generally involve long-lived assets, such as computers, vehicles, buildings, and land, which are generally
referred to as property, plant, and equipment, an asset category
x cash is one of the most important assets owned by any business
x while cash can be used for, or result from, an investing activity, it is not itself an investing activity
x investments are another example of an asset and an investing activity, which can be either short- or long-term
Operating Activities
x operating activities—transactions which create revenues and expenses
x revenues : economic resources that result from operating activities of business, such as sale of product or provision of service
x sources of revenue that are common to many businesses are sales revenue, service revenue, and interest revenue
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Description
Chapter 1 The Purpose and Use of Financial Statements Notes Accounting Matters N accounting : information system that identifies and records economic events of organization, and communicates them to wide variety of interested users N accountinglanguage of business; consistently ranked as one of top career opportunities Users and Uses of Accounting Internal Users N plan, organize, and run company or work for company N include finance directors, marketing managers, HR personnel, production supervisors, company officers External Users N investors use information to make decisions to buy, hold, or sell their ownership interest N creditors use information to evaluate the risks of granting credit or lending money N investors and creditors are main external users, but others use it including labour unions, customers, taxing authorities, regulatory agencies, and economic planners Ethical Behaviour N ethics is of utmost importance to accountants and decision-makers who rely on financial info N fortunately, most individuals in business are ethical, whose actions are legal and responsible Forms of Business Organization N proprietorship : a business owned by one person N partnership : a business owned by more than one person N corporation : business organized as separate legal entity having ownership divided into transferable shares held by shareholders Proprietorships N only relatively small capital is needed to start business N proprietor receives any profits, suffers any losses, and is personally liable for any debts N no legal distinction between business as economic unit and owner Partnerships N similar to proprietorships except that there is more than one owner N each partner generally has unlimited liability for all debts, even if other partner has created it Corporations N buying shares in corporation is often more attractive than investing in proprietorship or partnership because it is easier to sell N many businesses start out as proprietorship or partnership and eventually incorporate N public corporationscommonly distribute their financial statements to shareholders, creditors other interested parties, and the general public upon request N private corporationsdo not issue publicly
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