Chapter 1 Flashcards by Tina Sangha

Describe accounting

accounting identifies and records the economic events of an organization and communicates this information to interested users

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What are the two broad categories of users

Internal (Managers, employees, etc.)
External (Investors, creditors, CRA, customers, etc)

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Describe financial accounting

Preparing financial accounting statements for external users
has rigid rules and is done from a historical perspective
aggregates information and uses quantitative information
public companies

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Describe managerial accounting

internal users
flexible format
looks at the future perspective
detailed information
quantitative and qualitative information

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What are the 3 legal forms of businesses

Sole proprietorship, partnership, and incorporated

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Describe a sole proprietorship

owned by one person

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Describe a partnership

owned by more than one person but not incorporated

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Describe an incorporated form of business

separate legal entity having ownership held by shareholders
may be public or private corporation
may be a for profit or a not for profit organization

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What are the 3 types of business activities

Operating, Investing, and financing

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Describe operating (type of business activity)

the main day to day activities of the business
usually current assets and current liabilities (Cash, A/R, A/P, etc.)

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Describe Investing (type of business activity)

Obtaining the resources or assets needed to operate the business for the long term
usually long term assets (investments or property, plant and equipment)

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Describe Financing (type of business activity)

Obtaining (and repaying) funds to finance the operations of the business
usually long term liabilities or shareholders/owners equity are related to financing (debt or equity)

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What 4 things go into financial statements

Balance sheet
Income statement
Statement of cash flow
Statement of retained earnings (or statement of changes in equity for public companies using IFRS)

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Describe a Balance sheet (which is also called Statement of financial position)

things Owned and Owed
Includes assets, liabilities, and shareholders equity
assets: resources owned by a business (like cash, equipment, money owed to you, etc.)
Liabilities: obligations of he business (things you owe)
Shareholders equity: share capital (shares that have been purchased) and retained earnings (income that you are owed)
is at a point in time**

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Describe the formula relating to the balance sheet (not on formula sheet*)

Assets = Liabilities + Shareholders’ Equity

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What time period does a balance sheet pertain to

Balance sheet is at a point in time
–> put “As at __date__”

Describe the income statement (also called statement of Earnings)

Includes revenues and expenses
Revenues: arise form the sale of a product or service
Exenses: costs of assets consumed or services used to generate revenues
Net income (loss) = Revenue - expenses
for a period of time
measures gains and losses

What time period does an income statement pertain to

for a period of time like month, quarter, year, etc.

What formula has to do with the income statement

Net income (loss) = Revenues - expenses

Describe the statement of retained earnings

this is for ASPE companies (those not publicly traded)
shows the changes in retained earnings for the period –> looks at net income from a period of time, and dividends paid to shareholders
retained earnings (the account) is the cumulative net income (less losses) that is retained in the business (not distributed to shareholders)
is for a period of time

What time period does the statement of retained earnings pertain to

is for a period of time

what type of companies prepare a statement of retained earnings

companies that are not publicly traded (an ASPE company)

How do you get the retained earnings, closing balance

retained earnings, opening balance + net earnings/loss = retained earnings, closing balance

Describe the statement of changes in equity

for IFRS companies (publicly traded companies)
shows the changes in each component of shareholders’ equity for the period
share capital: amounts contributed by shareholders, each class of shares is shown in a separate column (may have common and preferred classes of shares)
retained earnings/ deficit
for a period of time

What type of company is the statement of changes in equity for

- for IFRS companies (publicly traded companies)

What time period does the statement of changes in equity pertain to

- for a period of time

Describe the statement of cash flows

- details all cash inflows and outflows - looks at operating activities (transactions that create revenues and expenses), investing activties (acquiring the resources that are needed to run the business), financing activities (collecting the necessary funds to support the business) - is for a period of time - shows net increase or decrease in cash for the period

What period of time does the statement of cash flows pertain to

- this is detailed for a period of time

Describe the Generally accepted accounting principles (GAAP)

- rules and rpactices for the preparation of financial statements - are different for publicly traded and private corporations - publicly traded corporations use international financial reporting standards (IFRS) - private corporations may use IFRS or Accounting standards for private enterprises (ASPE) - proprietorships and partnerships do not have TO use UFRS or ASPE if their statements are prepared for internal users only. If prepared for CRA or another external user they will need to minimally use ASPE

Kenzie corporation opened a chequing bank account at her local bank and deposited $100, what statement would you find the bank account with $100

This would be on the balance sheet because this is something that the company owns --> this would be an asset

Kenzie corporation deposited $100 in her bank account which was for 100 shares of the corporation - what statement would you find the account: common shares with the $100

This would be in the balance sheet as this is something the company owes --> it would be part of the shareholders equity

Kenzie corporation - kenzie loans the company $50 000 - what statement would you find the account: loan payable with the $50 000

This would be on the balance sheet as this is something the company owes - this would be a liability

Kenzie corporation - Kenzie signed a lease and paid rent of $3500 for the current month - what statement would you find the account: rent expense with the $3500

This would be on the income statement as this is something being spent or used up - this would be an expense

Kenzie corporation - what statement would you find the account: leasehold improvements, and furniture and fixtures with the $40 000

This would be on the balance sheet as this is something the company owns - this would be an asset (a long term asset of the business) - it is good for a number of years therefore it is not an expense, and expense would only be good for a period of time

SLIDE 22 LECTURE 1