Chapter 1 Flashcards
What is a business?
A business is a legal organization that attempts to create value by exchanging products with customers for money
What is a proprietorship?
-(oscluo)
-Owned by one person
-Simple to set up
-Owner has control over business
-Limited life
-Unlimited liability
-income tax paid by owner
What is a corporation?
-(sicecpp)
-owned by shareholders (owners of shares)
-Indefinite life
-Ease of raising capital
-Shareholders enjoy limited liability
-Corporation pays income tax
May be public or private:
i) Public if shares are publicly traded
ii) Private if shares are not available to the general public
What is a partnership?
-(mfluip)
-Owned by more than one person
-Formalized in a written agreement
-Limited life
-Each partner has unlimited liability
-Income tax paid by individual partners
What does IFRS stand for?
International Financial Reporting Standards
What does ASPE stand for?
Accounting Standards for Private Enterprises
What standard do Publicly-traded corporations use?
International Financial Reporting Standards (IFRS)
Which standard do Private corporations use?
Private corporations may use IFRS or ASPE
Proprietorships and partnerships generally follow which standard?
Proprietorships and partnerships generally follow ASPE for external reporting - no legal requirement
What are some examples of internal users?
-Manage companies, not-for-profit, & government organizations
-Company officers, managers and directors in finance, marketing, human resources, production and other functional areas
What are some examples of external users?
Do not work for the company. This includes:
–Investors, lenders, and other creditors
–Customers, employees, labour unions
–Taxing authorities and regulators
What are the 3 types of business activities?
1.) Financing
2.) Investing
3.) Operating
What is financing?
Obtaining (and repaying) funds to finance the operations of the business
What is investing?
Purchase or sale of long-lived assets needed to operate the company
What is operating?
Operating activities are the main day-to-day activities of the business
What is the formula for profit/net income?
Net Income (loss) = Revenues − Expenses
What are the 4 financial statements?
1.) Statement of income
2.) Statement of changes in equity
3.) Statement of financial position
4.) Statement of cash flows
What is the purpose of the income statement?
Reports revenues and expenses for a specific period of time
What is the purpose of the statement of changes in equity?
-Reports the changes in each component of shareholders’ equity during a period of time
-Mainly = Share capital and Retained Earnings
What is the purpose of the Statement of Financial Position (Balance Sheet)?
Shows the assets, liabilities and shareholders’ equity at a specific point in time
What is the purpose of the Statement of cash flows?
Shows, for a specific period of time, how a company obtained cash and how that cash was used.
What is the order of financial statements?
1.) Income statement
2.) Statement of changes in equity
3.) Statement of financial position
4.) Statement of cash flows
What is the “Accounting Equation”?
Assets = liabilities + shareholders’ equity
What is share capital?
Amounts contributed by shareholders
