CHAPTER 1 Flashcards
Identify the uses and users of accounting
Internal and external users, ethics in financial reporting, and data analytics
Who are internal and external users of accounting?
Internal users are those that manage the company from the inside; include company officers, managers, human resources, and others.
External users do not work for the company; include investors & lenders, customers and employees, and taxing/regulatory authorities
What are the ethics in financial reporting?
Preparers of financial reporting must have high ethical standards, they have to make sure actions are legal and responsible, and consider organization’s interest when making decisions.
Most companies have rules or codes of conduct to guide ethical behaviour.
What are data analytics in accounting?
Data analytics involves analyzing data, using software and statistics, to draw inferences.
What are the four most common types of data analytics?
Descriptive - “what happened?”
Diagnostic - “why did it happen?”
Predictive - “what is likely to happen?”
Prescriptive - “what should we do about it?”
What are the three primary forms of business organization?
Proprietorships, partnerships, and corporations.
Describe a proprietorship (6)
- It is owned by one person
- It is simple to set up
- The owner has full control of the business
- The business has a limited life
- The owner has unlimited liability
- The income tax is payed by the owner
Describe a partnership (5)
- Owned by more than one person, otherwise similar to a proprietorship
- Formalized in a written agreement
- Has a limited life
- Each partner has unlimited liability
- Income tax is paid by individual partners
What are the “Generally Accepted Accounting Principles (GAAP) for Business Organizations”?
They are the accounting rules and practices for the preparation of financial statements.
Public corporations use IFRS (International Financial Reporting Standards)
Private corporations may use IFRS or ASPE (Accounting Standards for Private Enterprises)
Proprietorships and partnerships don’t have to follow these specific rules, but often do still follow ASPE.
Describe a corporation (6)
- Separate legal entity owned by shareholders
- Indefinite life
- Ease of raising capital
- Shareholders have limited liability
- Income tax is payed by corporation
- May be public or private (depending on how the shares are traded)
Explain the three main types of business activity
Financing - obtaining and repaying funds to finance the operations of the business (i.e. selling shares, getting bank loans)
Investing - purchase or sale of long-lived assets needed to operate the company (i.e. property, or shares of another company)
Operating - main day-to-day activities of the business (i.e. revenue, expenses, accounts receivable)
Describe the purpose and content of each of the financial statements
Statement of income - reports revenues and expenses for a specific period of time; documented as month/year ended & date.
Statement of changes in equity - reports the changes in each component of shareholder’s equity during a period of time; documented as month/year ended & date.
Statement of financial position - shows assets, liabilities, and shareholders’ equity at a specific point in time; documented as just the date.
Statement of cash flows - shows how company obtained cash and how it was used, for a specific period of time; documented as month/year ended & date.
