Textbook Notes (381,055)
CA (168,340)
UTSG (11,041)
Rotman Commerce (1,015)
RSM100Y1 (431)
Chapter 1

Accounting Chapter 1 notes

10 Pages
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Department
Rotman Commerce
Course Code
RSM100Y1
Professor
Michael Szlachta

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Chapter 1: The Financial Statements
Financial Statements
-core of financial accounting = basic financial statements:
-income state (the statement of operations)
-statement of retained earnings
-balance sheet (the statement of financial position)
-cash flow statement
-financial statements= business documents that companies use to represent their finances
to the public
Accounting
-the information system that measures business activities, processes data into reports and
communicates results to decision makers
-accounting= language of business
-accounting produces financial statements that report information about a business entity
-financial statements measure performance
Users of Accounting Information
-individuals: regular people
-investors and creditors
-government and regulatory agencies
-taxing authorities
-not-for-profit organizations
Kinds of Accounting: Financial Accounting and Management Accounting
-financial accounting: provides information for people outside the firm; investors, creditors,
government agencies, and the public
must meet standards of relevance, reliability, and disclosure
-management accounting: generates inside information for the managers
management information is tailored to the needs of managers and must also meethigh
standards of reliability
Ethics in Accounting and Business
-ethical considerations = important to accounting
-companies need money to operate
-companies provide information to eh public: to attract investors and obtain loans
-The Canadian and provincial governments have laws that require companies to report
relevant, reliable information to outsiders
-relevant= the information ahs predictive value or feedback value and is timely influence
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decisions
-reliable= information is verifiable and is free from bias
Example of company reporting biased information: Livent Inc. the theatrical production
company
Professional Accounting Bodies
The Canadian Institute of Chartered Accountants (CICA)
members= chartered accountants/CA= oldest accounting organization in Canada
-CAs belong to a provincial institute (ordre in Qeuebc)
-provincial institutes and ordre grant the right to use the professional designation CA and
have the responsibility for developing and enforcing the code of professional conduct that
guides the actions of the CAs in that province
The Certified General Accountants Association of Canada (CGAAC)
allowed the use the designation Certified General Accountant (CGA)
-belong to provincial associations (ordre in Quebec) CGAAC
-provincial associations and ordre grant the right to use the professional designation CGA
and are responsible for developing and administering the code of professional conduct that
guides the actions of the CGAs in that province
The Society of Management Accountants of Canada (SMAC)
-permitted to use the designation Certified Management Accountant/CMA
-belong to provincial societies (ordre in Quebec) SMAC
-provincial societies and ordre grant the right to use the professional designation CMA and
are responsible for developing and administering the code of professional conduct that
guides the actions of CMAs in that province
Organizing a Business
-different forms of organizations: proprietorships, partnerships, and corporations
Proprietorships
-single owner: proprietor
-tend to be small businesses or individual professional organizations: physicians, lawyers
and accountants
-legal perspective business = the proprietor proprietor is personally liable for all
business debts
-accounting proprietorship = distinct from its proprietor
business records do NOT include the proprietors personal finances
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Partnerships
-joins two or more persons as co-owners each owner= a PARTNER
-mainly small or medium-sized (some gigantic with several hundred partners)
-accounting partnership- separate organization, distinct from the personal affairs of each
partner
-law partnership as the partners: each partner = personally liable for all the
partnerships debts
-thus, partnerships can be quite risky
-recently, professional partnerships: public accounting firms and law firms limited
liability partnerships (LLP) limits claims against the partners to the partnership assets
Corporations
-an incorporated business owned by shareholders (owners of shares of stock shares of
ownership in a corporation)
-in Canada, more proprietorships and partnerships but CORPORATIONS dominate
business activity
more transactions, larger total assets, income, and # of employees
most well-known companies: Intrawest, Petro-Canada, Air Canada, and Sun-Rype
Prodcuts Ltd.
-Limited (Ltd.), Incorporated (Inc.), and Corporation (Corp.)
-corporation= business entity formed under federal or provincial law
ultimate control rests with the shareholders : one vote/common share owned
-shareholders elect the members of the board of directors who set policy for the corporation
and appoints officers
-board elects a chairperson most powerful person CEO chief executive officer top
management position
-TSX: TORONTO STOCK EXCHANGE
-income trust= an entity that holds an underlying asset or group of assets, such as a
company
-unitholders instead of shareholders
-income assets generate = distributed to the unitholders
vs.
-shareholder-owned companies usually retain and re-invest their earnings, and sometimes
pay out a small portion of earnings to their shareholder s dividends
-income trust distributions are not assured depends entirely on the financial
performance on the underlying entity or entities
-income trust structure= formed operating entity creates a trust
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Description
Chapter 1: The Financial Statements Financial Statements -core of financial accounting = basic financial statements: -income state (the statement of operations) -statement of retained earnings -balance sheet (the statement of financial position) -cash flow statement -financial statements= business documents that companies use to represent their finances to the public Accounting -the information system that measures business activities, processes data into reports and communicates results to decision makers -accounting= language of business -accounting produces financial statements that report information about a business entity -financial statements measure performance Users of Accounting Information -individuals: regular people -investors and creditors -government and regulatory agencies -taxing authorities -not-for-profit organizations Kinds of Accounting: Financial Accounting and Management Accounting -financial accounting: provides information for people outside the firm; investors, creditors, government agencies, and the public must meet standards of relevance, reliability, and disclosure -management accounting: generates inside information for the managers management information is tailored to the needs of managers and must also meethigh standards of reliability Ethics in Accounting and Business -ethical considerations = important to accounting -companies need money to operate -companies provide information to eh public: to attract investors and obtain loans -The Canadian and provincial governments have laws that require companies to report relevant, reliable information to outsiders -relevant= the information ahs predictive value or feedback value and is timely influence www.notesolution.com
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