Accounting Notes Unit 1.1/1.2 9/12/2023 Accounting information is used to make decisions for - Owners, Personal Use, Management, Government, Investors, Creditors People who are interested in accounting include - Investors (to find the best return on their money) - Business Owners (to understand the financial implications spent on their business - Bankers (to invest for their clients and to loan out money) - Professionals, Charitable Organizations, Hospitals, School Boards, ETC What Is Accounting - Accounting is a systematic way of recording what has happened to a company financially over a business year. It involves calculating what a company owns, owes and what is the investment by owners. It calculates profit or loss by taking revenue and deducting expenses. - The purpose of accounting is to provide financial information to make informed decisions. Every accounting system must accomplish the following: - Record day-to-day activities of the business - Summarize and report financial information Functions of Accounting - Everyday goods and services are sold in businesses. This movement of goods and services and the money involved are referred to as “transactions” - There are 3 Functions of Accounting - Book Keeper - Must be measured - Recorded - Classified - Summarized - Accountant - Interpreted - Communicated Unit 1.3 9/12/2023: Types of Businesses - Service Buisness (Hairdressing salon, Dental clinic, consultant) - Sells a service to the public - Does not make or sell a product as its main activity - Merchandising Buisness (Clothing Store, Supermarket) - A buisness that buys goods and resells them at a higher price for a profit - Manufacturing Buisness (Paper Mill, Steel Plant) - A business that buys raw materials, turns them into products and sells them for profit - A Producing Buisness (Milk, Grain, Mining, Forestry, Hunting Fishing) - A producing business is closely related to a manufacturing business. A producing business includes farm producers - Non-Profit Organization (Church, Service Club, Cancer Society) - A business that meets social needs and not for a financial profit Unit 1.4 9/12/2023 There are four main forms of business ownership - Sole Proprietorship: One owner - Dr. Joe Dimitry, Dentist; Alf’s Home Bakery - General Partnership: More than one owner - McPearson & Scott, Chartered Accountants; Hakala and Sons Service Centre - Corporations/Limited Liability Corporations (LLC): Owned by shareholders - Apple Inc, Best Buy Co, Coca-Cola Enterprises Inc. Unit 1.5 9/12/2023 Becoming a Professional Accountant CPA Designation - The national organization established to support a unified Canadian accounting the profession is called the Chartered Professional Accountants of Canada (CPA) - The full body of accounting knowledge and opinion is found in the CPA Canada Handbook - The (CPA) designation emerged from the belief that Canada needs a single, unified accounting profession. All 40 of the accounting bodies in Canada have now either unified or are participating in discussions to unite under the CPA banner. Public Accountants - Serves the general public for a fee (i.e. doctor, lawyer). Their main work is called “auditing.” - Auditing is the examination and testing of books, records and procedures of a business in order to be able to express an opinion about the accuracy of its financial statements. Industrial Accountants - Accountants who work for large corporations (for example: Apple Computers) Institutional Accountants - Accountants who work for governments, banks, or large insurance companies GAAP Definitions BUSINESS ENTITY CONCEPT The accounting for a business or organization is kept separate from the personal affairs of its owner, other business or organization. CONTINUING CONCERN CONCEPT Assumes that a business will continue to operate unless it is known otherwise. PRINCIPLE OF CONSERVATISM The accounting for a business should be fair and reasonable. The results should not overstate nor understate the affairs of the business. OBJECTIVITY PRINCIPLE The accounting will be recorded on objective evidence. Different people looking at the evidence will arrive at the same value for the transaction. This evidence is called a source document (i.e. receipt, invoice, bill, etc). REVENUE RECOGNITION CONVENTION Revenue is recorded when it is earned, not necessarily when cash changes hands. MATCHING/EXPENSE PRINCIPLE Costs that generate revenue, must be recorded in the same accounting period as the revenue that they generated, not necessarily when they are paid for. TIME PERIOD CONCEPT Accounting takes place over specific time periods known as fiscal periods. The fiscal periods should be of equal length when used to measure the financial progress of the business. COST PRINCIPLE Items are recorded in the books at the historical cost paid by the purchaser and do not change from their original value. CONSISTENCY PRINCIPLE Accountants should apply the same methods and procedures from period to period. When changes are made, they must be explained clearly on the financial statements. This allows for comparability from period to period. MATERIALITY PRINCIPLE Accountants must use GAAPs except when doing so would be prohibitively expensive, difficult, and would make little significant difference in the final reported results of the business. FULL DISCLOSURE PRINCIPLE Any and all information that affects the full understanding of a company’s financial statements must be included with the financial statements
