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York University (12,350)
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ECON 2710 (4)


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York University
ECON 2710
Robert J E M Despatie

ECON 2710 INTRODUCTION TO FINANCIAL ACCOUNTING CHAPTER ONE: ACCOUNTING IN BUSINESS ACCOUNTING: an information system that identifies, measures, records and communicates faithfully and accurately an organization’s economic activities. RECORDKEEPING: (BOOKKEEPING) a part of accounting that involves recoding economic transactions THREE FORMS OF BUSINESS ORGANIZATION SOLE PROPRIETORSHIP: is an individual owning and operating a business alone; is fully responsible for all profits, losses, and debt as there is no legal distinction between the owner and their business. PARTNERSHIP: like a sole proprietorship is fully responsible for all profits, losses, and debt; except business is owned and operated by two or more individuals. CORPORATIONS: unlike a sole proprietorship or partnership is a separate legal entity from its owner, responsible for its own profits, debt, losses; is able to act with rights, duties and responsibilities of a person. UNLIMITED LIABILITY: applies to sole proprietorship and partnerships; when debts are greater the business’ resources, the owners are financially responsible. LIMITED LIABILITY: applies to corporations; the owner’s liability is limited to the amount invested into the business. USERS OF ACCOUNTING INFORMATION Accounting provides information to help internal and external users make decisions EXTERNAL USERS: who are not directly involved in running the organization; do not have permitted access to day to day records of the company; refers to shareholders, lenders, customers, lawyers… INTERNAL USERS: who are directly involved in managing and operating an organization; refers to managers, officers, and sales staff. FINANCIAL ACCOUNTING: aimed at serving external users; provides external reports called financial statements that report on financial performance and condition of the organization. MANAGERIAL ACCOUNTING: aimed at serving the decision making needs of internal users GENERALLY ACCEPTED ACCOUNTING PRINCICPLES (GAAP) GAAP: underlying concepts that make up acceptable accounting practises for the preparation of financial statements. PRINCIPLES OF GAAP BUSINESS ENTITY PRINCIPLE: accounting records must be separate from its owner(s) or any other economic entity of the owner(s); accounting information cannot mix records from two companies, or from owner’s personal activities. COST PRINCIPLE: financial statement information to be based on actual cash amounts/cash equivalents received or paid in business transactions. GOING CONCERN PRINCIPLE: financial statements must reflect the assumption that the business will continue operating instead of being sold or closing down; additional information must be provided in other sources if that occurs. MONETARY UNIT PRINCIPLES: consistent with the cost principle; transactions must express using stable monetary units; no adjustments can be made for changes in currency value or inflation. REVENUE RECOGNITION PRINCIPLE: revenue is to
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