Textbook Notes (368,318)
Canada (161,809)
RSM100Y1 (431)
Chapter 15

Chapter 15 - Understanding Accounting and Business Law.docx

6 Pages
Unlock Document

Rotman Commerce
Michael Khan

Chapter 15: UnderstandingAccounting and Financial Statements Jessie Zhang USERS OFACCOUNTING INFORMATION Accounting: the process of measuring, interpreting, and communicating financial information to support internal and external business decision-making. Accountants gather, record, report and interpret financial information in a way that describes the status and operation of an organization and aids in decision-making. Users: -Managers (major users) at a business government agency, or not-for-profit organization. Purpose: to plan and control daily and long-range operations -Business owners and boards of directors -Union officials -Investors Open-book management: allow employees to understand how their work affects the company’s bottom line. Companies share sensitive financial information with their employees. BusinessActivities InvolvingAccounting The natural progression of a business begins with financing. Accounting plays a key role in all 3 parts: 1. Financing activities – provide necessary funds to start a business and expand it after it begins operating 2. Investing activities – provide valuable assets that a needed to run a business 3. Operating activities – focus on selling goods and services, but they also view expenses as important elements of sound financial management ACCOUNTING PROFESSIONALS 3 classifications: 1. Public accountants: provides accounting services to individuals or business firms for a fee. 3 basic services a) Auditing, or examining, financial records b) Tax preparation, planning, and related services c) Management consulting o Accountants can provide unbiased advices about a firm’s financial condition. They are not a firm’s employee o Four largest public accounting firms: Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers. 2. Management Accountants: employed by a business other than a public accounting firms. Usually involved in the development and enforcement of organization’s policy. o Role: collects and records (also interprets) financial transactions and prepares financial statements used by the firm’s managers in decision- making. o Specializations  Cost accountant – decides on the costs of goods and services, and set their prices  Internal auditor – examines the firm’s financial practices to ensure it’s accurate and legal  Tax accountant – minimizes tax bill and handles tax returns 3. Government and not-for-profit accountants o Primarily concerned with how efficiently the organizations work to meet their objectives o Role is similar to management accountant THE FOUNDATION OFTHEACCOUNTING SYSTEM Accountants need to provide reliable, consistent, and unbiased information to decision-makers Generally accepted accounting principles (GAAP): principles that outline the conventions, rules, and procedures for deciding on the acceptable accounting practices at a particular time  All GAAP are based on these standards: o Consistency – data should be collected and presented in the same manner across all periods (same manner) o Relevancy – all information should be appropriate and useful (useful) o Representational faithfulness – financial information should reflect the substance of the economic activity during the reporting period (true) o Reliability – financial statements are dependable and can be verified by an independent party (dependable) o Timeliness – financial information should be made available within a time period that allows the information to be useful in decision-making (time constrained) o Understandability – clearly presented to the users o Verifiability – independent and knowledgeable individuals would agree o Comparability – can be compared with those of similar businesses  Accounting Standards Board (AcSB):the organization that interprets and modifies GAAP in Canada for private and not-for-profit businesses  International Financial Reporting Standards (IFRS): the standards and interpretations adopted by the IASB o Makes financial statements more easily compared from country to country o Provides valid information to foreign investors o Gives a clearer picture of the real value of a firm’s assets (report equipment at current market value) than ASPE (report at historical cost minus depreciation)  International Accounting Standards Board (IASB): the organization that promotes worldwide consistency in financial reporting practices  Financial Accounting Standards Board (FASB): the organization that interprets and modifies GAAP in the United States  Corruption of Foreign Public Officials Act: a federal law that prohibits Canadian citizens and companies form bring foreign officials to win or continue business THEACCOUNTING CYCLE Accounting cycle: the set of activities involved in converting information and individual transactions into financial statements 1. Recording transactions: in journals, in periodic order 2. Classifying transactions: posted to ledgers, it shows increases or decreases in specific accounts such as cash or wages 3. Summarizing transactions: into financial statements Accounting Equation Assets = Liabilities + Owners’equity Assets: anything with future benefit owned or controlled by a firm  Creditors and owners have cla
More Less

Related notes for RSM100Y1

Log In


Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.