BAF3M1 Unit 1 Worksheet 1.) a) What is accounting? Accounting is the process of recording and analyzing financial information. b) What purpose does accounting serve? (i.e. What can it tell us about a business?) Accounting is used to provide information on a company's decision-making process. c) Who are the internal and external users of accounting information? Internal users are company executives and external users are the government. 2.) Describe (briefly) each of the following: GAAP Assumptions a) Going Concern: When you assume that a company will continue on and be able to pay and receive all outgoing assets. b) Monetary Unit: Only items that have a monetary value are listed, and they are listed in the value of Canadian or American dollars. c) Economic Entity: The assumption that the owner of the business doesn't have any personal ties with the finance of the business. d)Time Period Assumption: How often a business should report its finances (always a pattern of time) GAAP Principles a) Cost Principle Assets bought are listed at their bought value, and not their new worth. b) Consistency Principle: If a companies accounting format is changed, the company is to be told. c) Objectivity Principle: An accountant must be objective, and anyone who looks at a companies finances should be able to reach the same final value. 3.) For each form of business ownership, describe them based on ownership (e.g. Sole Proprietorship is owned by one person) and provide two advantages and disadvantages for each form of ownership a) Sole Proprietorship: Advantages Disadvantages One person owns the entire business. Advantages are that you make all the decisions and keep all the profit, but disadvantages are it is more work and harder to loan money. b) Partnership: Advantages Disadvantages A partnership is when 2 people have an even share in the ownership of a company. The pros are that it is split work, and you have double the capital funds, however, the cons are that you need both people to be onboard a decision and you split the profit a) Corporation: Advantages Disadvantages A corporation is a company owned by shareholders. The pros of a corporation are it is super easy to borrow funds and no one is personally liable for debts, but the cons are the owner can be bought out and it’s hard to start. 4.) Explain what each of the following accounts are and provide an example for each. a) Assets: Assets are things of value to a company, for example, their machinery to manufacture products. b) Liabilities: Liabilities are debs to a company, for example accounts payable. c) Owner’s Equity: Owners equity is the leftover money the owner invested in the company after liabilities are paid off. For example, accounts receivable. 5.) Answer the following questions a) If Assets are $40,000 and Liabilities are $35,000, what is the Owner's Equity? OE= A-L = $5,000 b) If Assets are $60,000 and Owner's Equity is $33,000, what is the Liabilities amount? L= A-OE =$27,000 c) If Liabilities are $60,000 and Owner's Equity is $24,000, what is the Assets amount? A=L+OE = $84,000 d) If Liabilities are $60,000 and Assets is $64,000, what is the Owner’s Equity amount? OE= A-L =$4,000 6.) Define each of the following terms: a) Ethics: The morals one should use when performing a set of actions. b) Ethical Dilemma: An ethical dilemma is when someone has to make a decision but they have 2 overlapping morals that wont let them pick either way.
