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Accounting 1 > Exam 1 > Flashcards

Exam 1 Flashcards

1
Q

What are the 3 components of the definition of accounting?

A
  1. Information system
  2. Includes 4 tasks (collect, record, organize, communicate)
  3. Help users to make better decisions.
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2
Q

What are the 2 main objectives of accounting?

A
  1. Help people to make better decisions.

2. Make sure the data is comparable (standardized).

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3
Q

What CPA Canada stands for?

A

Chartered Professional Accountants Canada

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4
Q

What is the difference between internal and external audience?

Give some examples of external and internal audience.

A

External : Users outside the corporations.

Examples : Investors, government, bankers.

Internal : Users within the company.

Examples : Directors, employees, HR, managers.

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5
Q

What are the respective purpose/objective of financial accounting (external) and managerial accounting (internal)?

A

Financial (external) : Keep track of the historical data/performance.

Managerial (internal) : Take decisions for the future, forecast infos

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6
Q

Which type of accounting, between financial and managerial, is internal and which one is external?

A

Financial accounting is external.

Managerial accounting is internal.

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7
Q

What is the timeliness of the financial accounting (external) and managerial accounting (internal)?

A

Financial is done at least once a year. But more commonly every quarter (3X per year).

Managerial is done very frequently, on a regular basis. But more commonly each month.

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8
Q

What is the standard in financial accounting (external) and managerial accounting (internal)?

A

Financial have a set of rules determined by CPA Canada.

Managerial don’t have rules, there is place to be creative and you can do what you want. You define your own rules according to your needs.

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9
Q

What are the 3 forms of legal structures/organizations?

A

Sole proprietorship, partnership and corporation.

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10
Q

What are the difference in the legal status of each legal structures?

A

Sole proprietorship :
No legal entity ; can lose everything, can be sued entirely. (No separate legal entity)
Ex : company doesn’t pay income taxes, all in the owner

Partnership :
No separate legal entity ; common share/responsibility

Corporation :
Separate legal entity ; the corporation is independant from the shareholders, separated from the owner (protected)
Ex : company pays its own income taxes

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11
Q

What are the difference of each legal structures on the owner’s liabilities?

A

Sole proprietorship :
Unlimited, means that the owner have full responsibility.

Partnership and Corporation :
Limited, the owner’s liabilities is limited to the amount of investment in the business.

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12
Q

True or false :

In each forms of organizations, they have a separate business entity.

A

True.

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13
Q

What is the tax status in each form of organization?

A

Sole proprietorship and partnership :
The owner is taxed on the business profit + his personal revenues (taxed at a rate higher than corporation 0-53%)

Corporation :
The business profit is taxed separate from the owner (taxed at a rate lower than individual 14-26%, but to benefit of that, owner must put all his cash into the corporation)

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14
Q

What is the continuity of the business in each form of organization? (In other words, which one has an unlimited life?

A

Sole proprietorship :
Limited life, when the owner died, the company’s dead too.

Partnership :
Limited life, but more reasonable period of time, can easily replace a partners.

Corporation :
Unlimited life, can live forever, easy to add/remove many shareholders.

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15
Q

How many owner is allowed in each form of organization?

A

Sole proprietorship :
1, called the owner

Partnership :
2 or more, called partners

Corporation :
1 or more, called shareholders

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16
Q

What GAAP stands for?

What does it includes? Explain

A

Generally Accepted Accounting Principles

It includes :
IFRS (International Financial Reporting Standards) that is used for Publicly Accountable Enterprises (PAEs) + Private Enterprises (PEs)

ASPE (Accounting Standards for Private Enterprises) that is used for Private Enterprises (PEs) ONLY.

17
Q

What are the 4 obligations for an Accountant to be ethical?

A

Must be/have:

  1. Competence : experiences, study,
  2. Confidential : ex. Don’t name your client’s name, results
  3. Integrity : Accountant behavior (no criminal case)
  4. Objectivity : independant (not for family, friends)
18
Q

What is the purpose of GAAP?

A

To ensure the USEFULNESS of financial informations

19
Q

What is considered USEFUL?

Hint :
2 primary characteristics
4 secondary characteristic

A 
A) 2 primary 
1. Relevance : 
Must have a predictive value (really help to predict the future)
2. Faithful representation : 
2a. Complete (don’t forget anything)
2b. Neutral (not over/under represent)
2c. Free from errors

B) 4 secondary

  1. Comparable : standardize infos
  2. Verifiable : supporting documents
  3. Timely : infos presented in time
  4. Understandable : clearly, concise way
20
Q

What is a balance sheet? (Objective)

What is included in the BS?

A

The objective is to know the networth.

It includes :

  • Assets
  • Liabilities
  • Equity
21
Q

What is an income statement? (Objective)

What is included in the IS?

A

The objective is to know the performance, the profit or the loss.

It includes :

  • Revenues
  • Expenses
22
Q

What is a Statement of change in equity? (Objective)

What is included in this statement?

A

The objective is to explain the changes in equity, to understand the variations in equity

It includes :
Equity

Profit/loss
Investment
Withdrawals

23
Q

What is the main difference between BS, IS and Statement in change in equity?

A

The balance sheet is the only one that is AT a time (ex. Le 31 dec)
- picture

The other statement represent a PERIOD of time (ex. Jusqu’au 31 dec)
- film

24
Q

What is the accounting equation?

A

A = B + C

A - Assets (what an organization has invested in ; cash, land, buildings)

B - Liabilities (dettes, borrowing)

C - Equity (what is own by the owner)

25
Q

Do a financial statement preparation.

Nature of accounts
Dr/Cr
On what financial statement it goes

A

Assets - Dr - BS
Existing assets - Cr

Liabilities - Cr - BS
Existing liabilities - Dr

Revenues - Cr - IS

Expenses - Dr - IS

Capital Account/Equity - Cr
Withdrawals - Dr
Dividends - Dr

26
Q

What is an accounting cycle?

What are the big steps? (5)

A

The cycle is the series of steps required to prepare a set of financial statements for users.

Cycle : because they’re repeated for each financial statement.

Steps :

  1. Analyze transactions
  2. Journalize them
  3. Post on the ledger
  4. Prépare unadjusted trial balance
  5. Adjust it and do the financial statement
27
Q

What is an account?

A

It’s a detailed record of increases and decreases in a specific asset, liability or equity item.

The informations in the account is presented in reports and financial statements for users.

Accounting 1 (1 decks)

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