Chapter 1 Flashcards
Financial Accounting Fundamental Terminology
What is accounting?
the systematic collection of financial information that is used for decision-making purposes
fiscal periods
accounting activities that are performed in equal periods of time; they occur in cycles and are usually 12 months long
service business
sells an expertise; doesnt make or sell a product (e.g., hotel, barber, accountant, taxi driver, personal trainer)
merchandising business
buys and sells goods for profit (e.g., clothing store, jewery stores, car dealership)
manufacturing (production) business
buys raw materials and converts them into a product and sells for profit (e.g., tire company, mills)
non-profit organizations
carry out acitivites to meet social needs (e.g., Make-A-Wish, UNICEF, TerryFox Foundation, Jump-Rope-For-Heart)
sole proprietorship (sole owner)
business owned by one person
partnership
business owned by two or more people
corporation
a seperate legal entity owned by shareholders; separate rights, no personal responsibility
public company
stocks traded on the stock market (e.g., Toronto Stock Exchange (TSX), New York Stock Exchange (NYSE))
CEO
Chief Executive Officer
CFO
Chief Financial Officer
CMO
Chief Marketing Officer
COO
Chief Operating Officier
advantages of being a sole owner
- easy to manage
- less costly, choose where to spend the business
- flexible
- full profits
- be your own boss
- based on your passion
disadvantages of being a sole owner
- unlimited liability; all losses/expenses belongs to owner
- more labour
- stress b/c all decisions are yours
- majority of time is focused on the business
- harder to expand due to less funding + employees
- lack of management + leadership results in business dysfunction
∴ family, friends and health can suffer
advantages of being in partnership
- working w/ others means more experience, broader view, more skill, each partner has strength
- 50/50 workload/responsibility/cost to start business
- decision-making is shared
- fill in when sick
disadvantages of being in partnership
- disagreement - causes rift + disolution of the business, impacts prior personal relationship, stalls decision-making, slow progress + growth + problem solving
- split the profit
- betrayal - one partner acts selfishly in the business action
- one partner could be responsible for all the debt
- stealing
- fraud
- inconsistent decision-making. acting alone
advantages of being in corporation
- easier to grow the business b/c you have more opportunities for growth + resources
- organized structure of duties, position + responsibility
- stable salary
- ability to purchase shares in the company
- limited liability -> the business operates as a separate legal entity ∴ lenders cannot take personal assets, money from employees etc.
- more innovation
- easier access to investments from outside sources -> private -> IPO (inital public offering) means their shares will be traded on the stock market
disadvantages of being in corporation
- takes a long time for decisions to be made given layers and management to agree
- focus on shareholder making the best product
- difficult for all voices to be heard
- many opinions leads to disagreements + conflicts
- it becomes harder to inplement decisions + ideas; takes longer to see change
accounting clerk/bookkeeper
bookkeeping
* ensure transcations are properly recorded and necessary source documents are present
* record accounting entries in the books of account and make sure the ledger is balanced
* make payroll calculatoins and prepare payroll cheques and other payroll records
* carry out other banking transcations
professional accountant
a person who has met the requirements of at least one of the three accounting organizations in Canada
public accountant
serves the general public for a fee in the same way as a doctor or a lawyer
auditing
examinating and tesing of the books, records and procedures of a business in order to be able to express an opinion about its financial statements
categories of accounting work
- routine daily activites
- periodic accounting activites
- miscellaneous acitivities
routine daily activities
occurs the same way everyday; includes processing bills, preparing cheques, daily banking, recording transcations, preparing business papers
occur at regular intervals; payroll cheques weekly/bi-weekly/monthly, financial reports checked monthly and yearly, sales taxes are collected by the business for governments, income tax return is prepared yearly
miscellaneous activities
e.g prepare advertisements and conduct interviews for new staff, discuss issues with loans, take part in meetings/activities they’re sponsered by their assosciations
