Chapter 1 Flashcards
define accounting
identifies and records the economic events of an organization and communicates to interested users
Who uses financial statements?
internal and external users
examples of internal users
management, board of directors, employees
examples of external users
investors, leaders, creditors, customers, taxing authorities, journalists, security analysts
what are the 3 forms of business organizations?
- proprietorship
- partnership
- corporation
describe a sole proprietorship
- business not legally separate from owner
- 1 owner
- unlimited liability
- all business profits and losses at owner’s expense
- no reporting requirements
- limited life
- easy and inexpensive to operate
describe a partnership
- more than one owner, shared control
- formalized in written agreement
- limited life
- each partner has unlimited liability
- income tax paid by individual partners
describe a corporation
- owned by shareholders
- indefinite life
- limited liability (can only lose investment, not personal assets)
- corporation pays income tax
- may be public or private
- ease of raising capital
- owners can sell their shares
what is the difference between a public and a private corporation?
- public if shares are publicly traded
- private if shares are not available to general public
what does IFRS stand for and who uses it?
- International Financial Reporting Standards
- Canada and Europe
- public corporations
what does ASPE stand for?
Accounting Standards for Private Enterprise
which types of businesses use ASPE?
private corporations, sole proprietorships, partnerships
what does GAAP stand for?
Generally Accepted Accounting Principles
-standard framework of guidelines for financial accounting used in any given jurisdiction
which two things make accounting info useful?
reliability and relevance
describe relevance
materiality, predictive, confirmatory value
