Accounting: The Key to Success
CHAPTER 1
1-1
What is Accounting?
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Accounting is a process that involves
collecting information, recording it, and then
reporting it to various decision makers.
It’s objective is to help people make better
decisions.
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LO 1
Forms of Organization
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Sole Proprietorship
Partnership
Corporation
1-3
LO 2
Sole Proprietorships
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One owner
Separate entity for accounting purposes
Not a separate legal entity from the
owner
Unlimited liability
Limited life
Owner taxed on profits
1-4
LO 2
Partnerships
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Two or more owners
Separate entity for accounting purposes
Not a separate legal entity from the
owners
Unlimited liability
Limited life
Owners taxed on profits
1-5
LO 2
Corporations
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One or more owners
Separate entity for accounting purposes
Separate legal entity from the owner(s)
Limited liability
Unlimited life
Corporation taxed on profits
1-6
LO 2
Non-Business Organizations
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Not-for-profit and government
organizations
No identifiable owner
Examples: schools, charities, libraries,
hospitals, police, shelters
1-7
LO 2
Users of Accounting Information
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Accounting is a service activity that
provides information to help internal and
external users make decisions.
1-8
LO 3
Examples of External Users and
Some of Their Decisions
User Group
Decisions to be made
Lenders
To lend money or not.
Shareholders
To invest or not.
External auditors To determine the reasonableness
of theclient’s statements.
Unions
To determine if wages are fair.
CRA
To determine if payroll deductions
are calculated properly.
1-9
LO 3
External Reporting
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Reports for external users are usually in the form
of financial statements.
The information in the statements needs to be
relevant, reliable, and comparable.
Generally accepted accounting principles
(GAAP)are important in making the statements
useful to users.
Canadian GAAP are undergoing significant
changes because of the adoption of International
Financial Reporting Standards(IFRS).
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Internal users
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Internal users are involved in managing
and operating an organization.
Accounting provides information to these
users to help them improve the efficiency
and effectiveness of the organization.
1-11
LO 3
Typical Questions Asked by
Internal Users
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What are the manufacturing expenses per
unit of product?
What is the most profitable mix of services?
How much do we have to sell to break even?
How much profit did we earn last month?
Are we keeping our expenses under control?
1-12
LO 3
Ethics and Ethical Behaviour
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Ethics are beliefs that differentiate right
from wrong.
Ethics and ethical behaviour are important
to the accounting profession and to those
who use accounting information.
Ethical practices build trust, which
promotes loyalty and long-term
relationships with customers, suppliers,
employees, and investors.
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LO 4
Ethics in Accounting
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One of the primary goals of accounting is
to provide useful information for decision
making.
In order for the information to be useful, it
must be trusted.
Accountants must act in an ethical manner
in order for the information they produce to
be trusted.
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LO 4
Ethical Obligations of
Accountants
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Maintain a high level of professional
competence.
Treat sensitive information as confidential.
Exercise due care and professional
judgement.
Must not be associated with deceptive
information.
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LO 4
Accounting Opportunities
Broad fields of accounting include:
• Financial accounting
• Managerial accounting
• Taxation
• Accounting-related fields
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LO 5
Accounting Opportunities
Accountants may work as:
• Private accountants
• Public accountants
• Government accountants
1-17
LO 5
Professional Certification
Professional certifications in Canada:
• Certified General Accountant (CGA)
• Certified Management Accountant (CMA)
• Chartered Accountant (CA)
• Unification process of the orders http://cpacanada.ca/; http://cpaquebec.com/home.
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LO 5