chapter 1 Flashcards
what are the two categories of users?
internal and external users
what are internal users?
individuals working for the company, use financial statements to assess the company performance and help in the decision making process
what are external users?
individuals working outside the company, can be lenders;/ banks, shareholders, interests groups
what are the three different types of forms of organization?
sole proprietosrhip, parternship and corporation
what is a sole proprietorship?
an unincorporated business owned by an individual, owns assets personally, dont need to file legal documentation, a lot of liability, small business, receive own income, simple to set up, full control, have to pay income taxes
what is a partnership:?
similar to sole p but between two or more people, control is shared between partners, unlimited liability, taxes paid by partners, not a separate legall entity
what is a corporation?
separate entity, shareholders aren’t liable for liabilities, ownership of a corporation can easily change over time so can love forever, ongoing costs
what are the two main types of corporations in canada?
public and private
what is a private corporation?
shares are not traded on the stock exchange, shares of company are owned by a few people, not everyone can just come and buy shares on stock exchange, lot of family owned businesses
why do many companies start as a private corporation then go public?:
good way to get funding and extra cash
what is a public corporation?
shares are traded in public markets, can lose control, anyone on the market can buy shares
in a public corporation, who represents the many shareholders
board of directors
what does a common lifecycle of a business follow?
SOLE PROPRIETOSHIP, then private corporation then public corporation
when is it a good time to incorporate?
If you have proven success
what are the disclosure requirements for public companies?
public companies must prepare and publish financial statements
what are the disclosure requirements for private companies
not legally required to prepare financial statements but banks could ask you to
what is an annual report (public company)
its where you find financial statements, management discussion and analysis, auditors report, key financial info, its published once a year
what’s a quarterly financial statement (public company)
financial statements for a quarter of the year, providing users With an update on company performance so that they dont need to wait an entire year
example of financial reporting cycle?
during the year, accountants will record trasnactions. once the year is done, accountants prepare the financial statements, then once February hits, the financial statements are provided to auditors who perform the audit.l end of march is where financial statements are finalized and published
what is the GAAP?
accounting rules that decide how financial statements should be prepare
what is IFRS?
Canadian public companies must use this to prepare their financial statements
what is ASPE?
used by some Canadian private companies
what are the three types of business activities?:
financing, investing and operating
what is financing”?
obtaining and repaying funds to finance business operations. examples: borrowing or repaying the bank, repurchasing shares, issuing shares
what is investing
purchase or sale of long term assets needed to make the company work. examples: purchasing ppe or intangible assets,
what is operating?
day to day activities of the business, everything you need for your business to function. examples: ongoing expenses, and income earning activities
what is the purpose of a balance sheet (statement of financial position)
to present, on a specific date, the assets owned by the company, the liabilities owed and the equity
what are assets? (balance sheet)
tangible or intangible resources that will help the company
what are liabilities? (balance sheet)
financial obligations or commitments
what is equity? (balance sheet)
what is leftover after I sell my assets and paid off my debts
what is the accounting equation?
assets= liabilities+ shareholders equity
what is the purpose of an income statement?
show for a specific period of time the income generated by the business
wat is revenue? (income statement)
revenues earned from selling goods and services
what are expenses (income statemen)
what the company spends
what is gross profit (income statement)
revenues- cost of goods sold
what is profit or net income (income statement)
revenues- total expenses (bottom line of income statement)
what are some common expenses?:
cost of goods sold, general and adminsurative expenses, deprecation, interest and other
what is the purpose of statement of changes in equity?
looks at the transactions that impact the owners equity accounts for a specific period of time
what are retained earnings (equity statement)
the portion of a company’s profits that is not distributed to its shareholders as dividends.
two accounts of equity?
common shares and retained earnings
to determine retained earnings at the end of the period?
begging retained earnings+ net income- dividends
ending shares?
common shares at the start+ issued of shares- repurchasing shares
