Chapter 1: Introduction to Accounting Flashcards
What is an accounting information system?
A system that makes sure business events are accurately recorded in the company’s financial statements
What are financial statements?
Statements are used to make decisions, evaluate business performance, and inform internal and external stakeholders
What is a stakeholder?
A party that has an interest in a company and can either affect or be affected by the business
What is a shareholder?
An individual or party that owns shares of a company
Who are internal stakeholders?
Employees, board of directors, private investors (e.g.shareholders)
Who are external stakeholders?
Suppliers, banks, communities, customers, government, public investors (e.g. shareholders)
What are privately held companies?
Companies where a small group of private investors provide capital (ex. cash) in return for private stock (ex. shares) to start-up and grow a company
What are publicly held companies?
Companies that can sell their stock to public investors, like you, in exchange for cash
Name 3 differences between private and public companies?
1) Accounting standards
- Private: can choose between ASPE or IFRS
- Public: must follow IFRS
2) Availability of information
- Private: information is not publicly available
- Public: info is publicly available
3) Board of Directors (BOD)
- Private: can choose to have a BOD
- Public: must have a BOD
Name 3 similarities between private and public companies?
1) Bank financing
2) Internal reporting
3) Follow GAAP
What is the purpose of accounting standards?
To specify how transactions and other events are to be:
-recognized
-measured
-presented
-disclosed
in financial statements
Who approves accounting standards for private and public companies in Canada?
AcSB - The Accounting Standards Board
Which accounting standards do private companies use?
Accounting standards for private enterprises (ASPE) OR
International Financial Reporting Standards (IFRS)
Which accounting standards do public companies use?
International Financial Reporting Standards (IFRS)
What are the 4 qualitative characteristics for private companies when preparing financial statements?
1) Understandability
2) Relevance
3) Reliability
4) Comparability
What are the 3 assumptions for external financial reporting?
1) Going concern assumption: company will continue to operate in future years
2) Separate entity assumption: transactions of the company should be kept seperate than those of the owner(s)
3) Historical cost assumption: transactions are primarily recorded at cost
