Chapter 1 - Business Decisions and Financial Accounting

Question 1

What are Financial Statements?

Answer 1

• accounting reports that summarize the financial results of business and financing activities.

Question 2

What is an income statement?

Answer 2

• reports the amount of revenues less expenses for a period of time. Also called the “statement of operations”
• used by owners or investors
• shows profitability

Question 3

What is the statement of retained earnings?

Answer 3

• reports the way that net income and the distribution of dividends affected the financial position of the company (during this period)

Question 4

What is the balance sheet?

Answer 4

• reports the amounts of assets, liabilities, and shareholders’ equity of a business at a point in time.
• shows financial position of a business
• what is your financial worth?

Question 5

What is the statement of cash flows?

Answer 5

• reports the operating, investing, and financing activities that caused increases and decreases in cash during the period.

Question 6

What is CAS?

Answer 6

• Canadian Auditing Standards
• they provide auditors with up to date tools and required procedures in order to carry out high quality financial statement audits in today’s complex business environment

Question 7

What is CSA?

Answer 7

• Canadian Securities Administrators
• resulted after Bill 198, and introduced a series of new rules that accommodated the unique nature of the canadian financial market.

Question 8

What is IFRS?

Answer 8

• International Financial Reporting Standards
• rules of accounting made for international use
• ensure that companies produce financial info that is useful in making decisions
• are used by pubicly traded and global companies

Question 9

What is ASPE?

Answer 9

• Accounting Standards for Private Enterprises
• rules of accounting that address issues that are more relevant to a private enterprise environment and therefore can be used by private enterprises only.

Question 10

What is GAAP?

Answer 10

• Generally Accepted Accounting Principles

- rules of accounting approved by the Canadian Institution of Charted Accountants for use in Canada.

Question 11

What is the AcSB?

Answer 11

• Accounting Standard Board
• an independent body supported by CPA Canada to develop and establish standards and guidance that govern financial accounting and reporting in Canada.

Question 12

What are the 3 forms of business?

Answer 12

• sole preprietor = one owner, unlimited liability (business and personal
• partnership = 2 or more owners, unlimited liability
• corporation = limited liability, the percentage you own are based on the number of shares you own

Question 13

What are the 3 types of business?

Answer 13

• service - restaurants
• merchandiser - buy a product, do nothing to it and sell it
• maufacturer - takes raw materials, uses labour and a process to create product

Question 14

What are operating activites?

Answer 14

• include day-to-day events involved in running a business like receiving cash from customers or paying cash to employees or for supplies

Question 15

What are investing activites?

Answer 15

• involve buying/selling long lived items such as land, buildings or equipment

Question 16

What are financing activites?

Answer 16

• involves raising money from lenders and owners, or paying it back

Question 17

What do IFRS and ASPE have in common?

Answer 17

• both want to ensure companies produce financial info that is useful in making decisions
• must possess relevance and faithful representation
• financial info is
  1) comparable
  2) verifiable
  3) timely
  4) understandable