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Business Law > Accounting > Flashcards

Accounting Flashcards

chapter 1

1
Q

What is accounting?

A

An information system that identifies, measures, records, and communicates relevant information that faithfully represents an organization’s economic activities.

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2
Q

what are common examples points that contact with accounting?

A
  1. applying for credit card
  2. opening bank accounts
  3. filling out student loan forms
  4. making decisions regarding weather to purchase a new car or used car?
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3
Q

What can these personal common experiences can be called ?

A

recordkeeping or bookkeeping

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4
Q

what is record-keeping?

A

The recording of financial transactions manually or electronically; also called book-keeping

The recording of financial transactions manually or electronically

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5
Q

what does accounting involve?

A

designing information systems to provide useful reports that provide revleant information in mointorinting and controlling organization’s activities

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6
Q

recordkeeping

A

Accounting is an information and measurement system that identifies, measure, records, and communicates relevant and faithfully representative information to people that help them in. making better decisions. It helps people in business to identify and react to investment opportunities, and better access opportunities, products, investment, and social and community building.

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7
Q

what are no profit business organizations?

A

Public airport, libraries, museums, religious, religious institutions, municipal governments, law informants organizations, postal services, colleges, universities, highway, shelters, parks, hospital, and schools.

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8
Q

what are the 4 common forms of business organizations?

A
  1. sole proprietorships (SP)
  2. partnerships (P)
  3. limited liability partnerships( LLP)
  4. corporations (C)
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9
Q

What is a business?

A

One or more individual selling products or services for profit.

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10
Q

What is sole proprietorship (SP)?

A

A business owned by one person that is not organized as a corporation; also called a single proprietorship.

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11
Q

sole properientorships ( sp) comes with diffcult of depbt

A

When the debts of a sole proprietorship or partnership are greater than its resources, the owner(s) is (are) financially responsible.

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12
Q

what disadvantages for sole proprietorship (SP)?

A

the disadvantages

business is not infinite
owners choice or owners death that ends the business
unlimited liability is owner’s responsible for debts of business

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13
Q

what are external users of accounting?

A

shareholders
customers
lenders
governments
external auditors
consumer groups

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14
Q

what are internal users of accounting?

A

officers
managers
sales staff
internal auditors
controllers
budget officers

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15
Q

what is External user?

A

Persons using accounting information who are not directly involved in the running of the organization. These users often hold a financial interest in the company but are not involved in day to day operations. Examples include shareholders, customers, regulators, and suppliers

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16
Q

what is Internal user?

A
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17
Q

Partnership business

A

NUMBER OF OWNERS: is two or more owners who are called partners
no additional tax income
OWNERS’ LIABLITY: unlimited libality- joint partners reliable
LEGAL entity: not separate legal enitiy
life span: owner’s death or choice

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18
Q

Corporation

A

owners: one or more are called shareholders and can get many investors by selling stock or shares of corporation ownership
business taxtaion: additional corporation income tax
owner’s liablity: limited liablity - shareholders or stockholders are not responsible for corporation debt ot acts
business life span: infinite

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19
Q

Limited liability partnership

A

two or more owners called members
no additional income tax
limited liability because owners whoo are called members are not liable for LLP debt
lifespan : infinite

20
Q

external reporting

A

reporting is done with generally- purpose financial statements to inform external users

GAAP: Generally accepted accounting principles

meaning: are underlaying concepts that make up acceptable accounting practices.

and why is important?
its important for increasing the usefulness of financial statements to users

GAAP for public companies follows the Canadian international financial reporting standard which stands for IFRS

21
Q

What is GAAP AND IFRS
meaning of term

A

Generally accepted accounting principles

Canada has recently adopted International Financial Reporting Standards (IFRS) for publicly accountable enterprises (PAE)

International financial reporting standards -accounting laws that must be applied by accountants to public companies in Canada when recording and reporting accounting information

THE IFRS was established to try achieve a global agreement on the common use set of accounting standards.

This is intended to make accounting information more comparable from country to country.

22
Q

what is ASPE

A

another set of standards
(Accounting standards for private enterprises)

Private owned enterprises have different reporting needs than public enterprises

ASPE have significant parallels to IFRS but there are some difference

23
Q

GENERALLY EXPLAIN PE AND PAE AND THE LAWS STANDARDS UNDERNEATH
GAAP= generally accepted accounting principles
PAE = public accounting enterprises
pE= private enterprise
IFRS= international financial reporting standards
ASPE= Accounting standards for private enterprise

A

GAAP PAE PE
IFRS ASPE OR IFRS

24
Q

Purpose of GAAP

A

The primary purpose of GAAP is ensure the usefulness of financial information

In order for it to be useful .. must have qualitative characteristics of relevance and faithful representation.

its enchaned when the information is comparable, verifiable, timely, and understandable.

( Relevance refers to how helpful the information is for financial decision-making processes.)

25
Q

professional certification

A

professional certification in Canada

Charted professional accountant (CPA) ALSO PROVIDES ALTERNATIVE CREDITINAL

advanced certificate in accounting and finance ( ACAF)

26
Q

Ethics and social responsibility

A

Ethics: are beliefs that at differenti right from wrong

Ethics and ethical behaviour are important to the accounting profession and to those who use accounting information.

  • Ethical practices build trust, which promotes loyalty and long-term relationships with customers, suppliers, employees, and investors.
27
Q

Ethics in accounting

A

One of the primary goals of accounting is to provide useful information for decision making.

  • In order for the information to be useful, it must be trusted.
  • Accountants must act in an ethical manner in order for the information they produce to be trusted.
28
Q

Ethical Obligations of Accountant

A
  • Maintain a high level of professional competence.
    *Treat sensitive information as confidential.
  • Exercise personal integrity.
  • Be objective in matters of financial disclosure.
  • CPA Code of Professional Conduct requires members to comply with CPA Code of Ethics
29
Q

GAAP FRAMEWORK hint 6

A

-Business Entity principle
-cost constraint
-going concern Assumption
-Currency
-Revenue Recognition principle
-Measurement

30
Q

WHAT IS BUSINESS ENTITY PRINCIPLE?

A

EVERY Business is to be accounted for separately from its owner(s) or economic entity of the owner.

economic entity : accounting principle that separates the transactions carried out by the business from its owner

31
Q

WHAT IS COST CONSTRAINT

A

A COSTS TRANSCATION in reporting financial statement information should not outweigh the benefits received from the value of the reported information to the external users.

32
Q

What’s going Concern Assumption ?

A

financial statement users can safely assume that statements reflect a business that is going to its operations at least 12 months into future unless clearly notified .

The going concern assumption is that a business will remain active for the foreseeable future

A foreseeable event or situation is one that can be known about or guessed before it happens.

33
Q

currency

A

requires transaction to be expressed using units of money in the currency of the country as which it primary operates as common denominator.

it assumes that the monetary unit is stable.

  • Adjustments are not made for changes in currency value or inflation
34
Q

whats the revenue recognition principle?

A

requires revenue to be recorded at the time that it has earned regardless of cash or another asset has been exchanged

The amount of revenue to be recorded is measured by the cash plus the cash equivalent ( market value) of any other asset received.

35
Q

Measuremen

A
  1. Historical cost: all transactions to be recored based on the actual cash amount received or paid.
  2. Current value measurement basis ( 3 methods)

I. current cost
II. Fair value
III. value used in (assets)/ Fulfillment value (liabilities)

36
Q

financial statements
4 majors

A

income statement
balance sheet
statement of changes in equity
statement of cash flow

37
Q

statements of financial in order

A

balance sheet beginnigin period —-> income statement—–> statement of changes in equity—-> balance sheet at the end of the period

———————STATEMENT OF CASH FLOW—————

38
Q

income statement reports?

A

income statement reports

1.revenue of organization
2. expenses( costs transactions ( incurred) in earning revenues)
3. profit or loss

income statement covers a period of time

39
Q

term revenue means

A

values of assets exchanged for products and services provided to customers

40
Q

statement of changes in equity

A

equity is equal to total assets minus the total liablities

it represents how much of assets belong to owner

equity INCREASES with owner’s investments and profits

Equity DECREASES with owner’s withdrawals/ losses

41
Q

Balance sheet

A

reports the …..
-assests
-liabilities
-equity
of organizations at point in time

42
Q

statement of cash flow

A

reports the sources and uses of cash in a period of time

organzated by companies major activities
1. operating
2. investing
3. financing

43
Q

summary

A

ASSETS : Economic resources controlled by a business that has the potential to produce economic benefit.

LIABILITIES: Debts or obligations of a business

EQUITY/ NET ASSETS: The owner’s claim on the assets of the business

ASSETS = LIABLITIES + EQUITY
describes describes non-owner describes owner
what company financing financing
invested in (Borrowing) ( what is
owned by the owner)

44
Q

Transaction analysis

A

We need to determine:

  1. Which accounts are being affected.
  2. If the accounts are increasing or decreasing

Purchased $1,100 of supplies on credit.
(Accounts payable is money owed by a business to its suppliers shown as a liability on a company’s balance sheet)
Analysis: Supplies increase by $1,100.
Accounts Payable increases by $1,100.

Purchased $6,000 of equipment on credit.
A promissory note was signed.
(A WRITTEN AGREEMENT MEAN NOTE PAYBLE)
Analysis: Equipment increases by $6,000.
Notes payable increases by $6,000.

Payment of $1,000 rent expense in cash.
Analysis: Cash decreases $1,000
Equity (Owner’s capital) decreases $1,000

Services and teaching revenues of $1,900 rendered for credit. ($1,600 Food Service Revenue and $300 Teaching Revenue)
Analysis: Accounts receivable increases $1,900
Equity (Owner’s capital) increases $1,900

(Accounts receivable (AR) is the balance of money due to a firm for goods or services delivered or used but not yet paid for by customers. Accounts receivable is listed on the balance sheet as a current asset. Any amount of money owed by customers for purchases made on credit is AR.)

Receipt of $1,900 cash on account.Analysis:
Cash increases $1,900
Accounts receivable decreases $1,900

Payment of $900 accounts payable.
Analysis: Cash decreases $900
Accounts payable decreases $900

Withdrawal of $600 cash by owner.
Analysis: Cash decreases $600
Equity (Owner’s capital) decreases $600

The Income Statement is prepared first by using revenue and expense information from the Equity colue

45
Q

What is IASB and what was the goal for IASB?

AcSB= accounting standard borad

A

stands for International accounting standards board

The goal/ purpose to achieve a global agreement on the use of common set of accounting standards namely, IFRS

46
Q

break down the frame work

A
47
Q

what are the 4 important characterteics reporting financial information ?

A

Comparability = companies using similar framework for accounting, users can use this to compare the two different companies or compare the company performance in diff fiscal years, echnaning ability to make effective decision

Verifiability: A quality of information that different knowledgeable users could agree was faithfully represented.

Timeliness: information is available to decision- makers in time to influence their decision .

Understandability: information is presented clearly and concisely , by presenting in easy to understand format.

Business Law (3 decks)

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